[Senate Hearing 107-693]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 107-693
 
                    FISCAL YEAR 2003 FIELD HEARINGS
=======================================================================


                                HEARINGS

                               before the

                        COMMITTEE ON THE BUDGET
                          UNITED STATES SENATE

                      ONE HUNDRED SEVENTH CONGRESS

                             SECOND SESSION

                               __________

                     January 8, 2002--THE FARM BILL

  January 20, 2002--IMPACT OF THE PRESIDENT'S 2003 BUDGET REQUEST ON 
                 HIGHWAY AND WATER INFRASTRUCTURE NEEDS

       January 22, 2002--THE PRESIDENT'S FISCAL YEAR 2003 BUDGET

  August 20, 2002--ASSESSING THE NEED FOR NATURAL DISASTER ASSISTANCE




          Printed for the use of the Committee on the Budget







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                        COMMITTEE ON THE BUDGET

                  KENT CONRAD, North Dakota, Chairman

ERNEST F. HOLLINGS, South Carolina   PETE V. DOMENICI, New Mexico
PAUL S. SARBANES, Maryland           CHARLES E. GRASSLEY, Iowa
PATTY MURRAY, Washington             DON NICKLES, Oklahoma
RON WYDEN, Oregon                    PHIL GRAMM, Texas
RUSSELL D. FEINGOLD, Wisconsin       CHRISTOPHER S. BOND, Missouri
TIM JOHNSON, South Dakota            JUDD GREGG, New Hampshire
ROBERT C. BYRD, West Virginia        OLYMPIA J. SNOWE, Maine
BILL NELSON, Florida                 BILL FRIST, Tennessee
DEBBIE STABENOW, Michigan            GORDON SMITH, Oregon
HILLARY RODHAM CLINTON, New York     WAYNE ALLARD, Colorado
JON S. CORIZINE, New Jersey          CHUCK HAGEL, Nebraska

                Mary Ann Naylor, Majority Staff Director
                  G. William Hoagland, Staff Director

                                  (ii)















                            C O N T E N T S

                               __________

                                HEARINGS

                                                                   Page
January 8, 2002--The Farm Bill...................................     1
January 20, 2002--Impact of the President's 2003 Budget Request 
  on Highway and Water Infrastructure Needs......................   155
January 22, 2002--The President's Fiscal Year 2003 Budget........   257
August 20, 2002--Assessing the Need for Natural Disaster 
  Assistance.....................................................   321

                    STATEMENTS BY COMMITTEE MEMBERS

Chairman Conrad........................................1, 155, 257, 321

                               WITNESSES

Aasmundstad, Eric, President North Dakota Farm Bureau............   384
Bakke, JoNell, President Grand Forks Education Association.......   279
Ball, Robert, Colonel Corps of Engineers.........................   181
Christiansen, Sue................................................    56
Claymore, Duane, Standing Rock Sioux Tribe.......................   401
Diederich, Paul, President of Industrial Builders Inc. and Vice 
  Chairman of the Highway Divison of the Associated General 
  Conractors of America..........................................   164
Dwyer, Mike, Executive Vice President North Dakota Water Users 
  Association....................................................   204
Eichhorst, Ward..................................................    63
Erlandson, Tim...................................................    71
Froelich, Rodney, State Representative, District 35, State of 
  North Dakota...................................................   383
Hoeven, John, Governor of North Dakota..........................21, 335
Isaak, Larry A., Chancellor of the North Dakota University System 
  and President of the State Higher Education Executive Officers.   262
Jamison, Warren, Manager Garrison Diversion Conservancy District.   185
Johnson, Mark, Executive Director of the North Dakota Association 
  of Counties....................................................   169
Johnson, Roger, Commissioner of Agriculture, State of North 
  Dakota........................................................26, 345
Keller, Fred.....................................................    74
Kincaid, Tanna M., IT Supervisor for the North Dakota State Board 
  of Vocational Education and Director of the North Dakota 
  Teaching with Technology Initiative............................   272
Kreitinger, Dean, Business Manager of Grand Forks Public School 
  District Number 1 and Grand Forks Air Force Base School 
  District Number 140............................................   308
Monson, Roger D., President, Citizens State Bank, Finley, ND.....    39
Moser, Wade, Executive Director North Dakota Stockman's 
  Association....................................................   397
Nielson, Bev, Assistant to the Executive Director of the North 
  Dakota School Boards Association...............................   287
O'Keeffe, Michael, President and Chief Executive Officer of Farm 
  Credit Services................................................    45
Olson, Jay, Adult Farm Management Instructor, Lake Region State 
  College........................................................   393
Pomeroy, Earl, Congressman for the State of North Dakota........11, 328
Sanstead, Wayne G., North Dakota Superintendent of Public 
  Instruction....................................................   257
Schlosser, Richard, Vice President North Dakota Farmers Union....   389
Sprynczynatyk, Dave, Director of the North Dakota Department of 
  Transportation.................................................   158
Stewart, Dan.....................................................    77

               ADDITIONAL MATERIALS AND CHARTS SUBMITTED

Statements:......................................................
Belford, Joe, Ramsey County Commissioner and Chair of the Lake 
  Emergency Management Committee.................................   223
Broten, Jim, Chairman, North Dakota Barley Council...............    95
Davis, Daniel, Field Engineer....................................   227
Fisher, Wayne, Farmer and Dakota Resource Council member.........   146
Gage, Mark, Farmer-North Dakota Grain Growers Association........   139
Halfmann, Craig, President, Red River Valley Sugarbeet Growers 
  Association....................................................   103
Hall, Tex G., Chairman, Mandan, Kidatsa and Arikara Nation.......   229
Hondl, Jimmy, Farmer, Rancher and Dakota Resource Council member.   150
Hushka, Niles, PE, Vice President Kadrmas Lee and Jackson........   228
Johnson, Greg, President, North Dakota Dry Pea and Lentil 
  Association....................................................   104
Klein, Lloyd, President of the National Sunflower Association....   101
Leinen, Jeff, Vice President North Dakota Soybean Growers 
  Association....................................................   134
Long, John.......................................................   136
Maier, Jen, President, North Dakota Reading Association..........   313
Martinson, Jon, Executive Director, North Dakota School Boards 
  Association....................................................   316
Murphy, Charles, Chairman Standing Rock Sioux Tribe..............   225
Nelson, Donny, Rancher...........................................    89
North Dakota Farm Bureau.........................................   128
Pfliger, Burton, President North Dakota Lamb and Wool Producers..   112
Pollestad, Steve, Farmer, Rancher and Dakota Resource Council 
  member.........................................................   143
Rauser, Linda, Farmer, Rancher and Dakota Resource Council chair.    91
Senechal, Myron P., Director Northern Plains Soil and Water 
  Conservation Society...........................................    99
Sprynczynatyk, Connie, Executive Director North Dakota Leaque of 
  Cities.........................................................   221
Sprynczynatyk, David, PE, Director...............................   231
USA Dry Pea and Lentil Council...................................   106
Testimony, charts, and graphics submitted by a various parties 
  througout the State of North Dakota............................   412












                             THE FARM BILL

                              ----------                              


                        TUESDAY, JANUARY 8, 2002

                                       U.S. Senate,
                                   Committee on the Budget,
                                                       Bismarck, ND

    The committee met, pursuant to notice, at 9 a.m., in the 
Civic Center, Room 101, Bismarck, North Dakota, Hon. Kent 
Conrad (chairman of the committee) presiding.
    Present: Senator Conrad.

              OPENING STATEMENT OF SENATOR CONRAD

    Chairman Conrad. Welcome. Good to have you here this 
morning. This is an official hearing of the Senate Budget 
Committee on the question of a new farm bill.
    This is critically important that we address this question 
because the farm bill is still pending before the United States 
Senate and upon our return we must conclude action. We must 
conclude action by April 15th or lose the funding that was in 
the last budget resolution. That is $73.5 billion of funding 
over and above the so-called baseline which would be the 
funding available under the previous farm bill. I think you can 
see without that additional funding there would be no way of 
writing any kind of decent farm legislation.
    In fact, what we would be stuck with is the status quo 
minus the disaster assistance payments we have received each of 
the last 4 years. Those payments have totaled more than $25 
billion of disaster assistance payments. They were necessary 
because of the failure of the current farm legislation.
    In fact, I believe the current farm law itself is a 
disaster. I don't know why else we would have had to write 
disaster assistance bills, economic disaster assistance bills 
for agriculture each of the last 4 years. I think all of us 
know what the consequences would have been if we had not had 
that disaster assistance in place for North Dakota and other 
farm States. Can you imagine what would have happened without 
those economic disaster assistance payments each of the last 4 
years? There truly would have been a race to the auctioneer.
    The reason this hearing is important is we must establish a 
record before the Senate Budget Committee that has 
responsibility for identifying the budget needs of the Country 
as they address the budget for the year 2003.
    Let me just move, if I can, to the charts to try to make 
this case clear in a visual way as well. The first and, I 
think, most dramatic reason that we need a new farm bill is 
that we have got prices that farmers received at a 50- to 60-
year low. In real terms, adjusted for inflation, the prices 
farmers are receiving are the lowest they have been in 50 or 60 
years. This chart shows the relationship between the prices 
that farmers pay--that is the green line--and the prices that 
farmers receive--that is the red line--and what you can see is 
the last time that they were even close was before the last 
farm bill was written. You will recall at that time we were 
assured of permanently high farm prices. Now, that promise was 
good for about 90 days, and then as you can see, farm prices 
started collapsing even while the prices that farmers paid for 
all of the inputs continued to increase. The result is a chasm 
between the prices that farmers receive and the prices that 
they pay for all of the goods that they must buy. That is, I 
believe, the first and most important reason for us to write a 
new farm bill to deal with this disparity.
    Second, I want to indicate the October price index that 
indicates the prices that farmers receive showed the biggest 
monthly decline since they started keeping records 91 years 
ago. Farm prices declined in the month of October by nearly 10 
percent. It is a second key reason we need to act on new farm 
legislation and act now.
    An additional reason is what our major competitors are 
doing. Our major competitors are the Europeans. They are giving 
much higher levels of support to their producers than we are 
giving to ours. Let me just show the difference.
    This is the European Union. The level of support they 
provide their farmers each year, it averages over $300 an acre. 
This is what we provide our farmers, $38. So we are being 
outdone here almost 10 to 1. It is no wonder our farmers are in 
a very difficult circumstance. But it doesn't end there because 
if we look at world agricultural export subsidy we see a 
similar and even more dramatic pattern. This chart shows that 
the European Union is flooding the world with agricultural 
export subsidy. You can see that the blue part of this pie is 
what Europe is doing to support their producers. They account 
for 84 percent of all the world's agricultural export subsidy. 
This is the United States' share, this little red piece here, 
2.7 percent. So we are being outgunned there nearly 30 to 1. In 
fact, something more than 30 to 1, it is no wonder our 
producers are facing difficult economic times.
    Now, the consequence of all of this is demonstrated in this 
chart, it shows North Dakota net farm income excluding 
Government payments. Now, this should sober anybody who takes 
the time to look. If we go back to 1991 through 1996 you can 
see we were getting substantial income without Government 
support. That is, before Government support was included, there 
was substantial net farm income in North Dakota. But with the 
passage of the last farm bill, the collapse in prices, you can 
see farm income without Government payments evaporate. In the 
most recent year for which we have full records--the year of 
2000-2001 is not yet completely compiled--there would have been 
no net farm income, none in the State of North Dakota without 
Government payments. That is the harsh reality that we must 
confront.
    Maybe we can go to these next charts and talk about where 
we are now with the new farm bill.
    First of all, as all of you know, the House has taken 
action; they have written a new farm bill. It is a good effort, 
it is a good beginning but it could be improved on. It could be 
improved on because, first of all, when they wrote the farm 
bill in the House of Representatives, they took very good care 
of the South because it was written by a chairman and a ranking 
member of the House Agriculture Committee who happened to be 
from Texas, and they took very good care of Southern 
agriculture. They didn't take very good care of the Northern 
Plains. In fact, we came in, by various calculations, third to 
last in the United States, second to last, somewhere in there, 
in terms of the additional money going to agriculture under the 
budget commitment that was made. That is not acceptable. We 
shouldn't be second to last or third to last or dead last. 
There ought to be a fair sharing of the new resources.
    When we look at the farm bill comparison, in the House they 
don't have higher loan rates, higher marketing loan rates for 
wheat, feed grains, et cetera. The House doesn't have it, the 
Senate does. The all-barley loan rate, the House doesn't have 
it, the Senate does. The loan rate for oilseeds is 
substantially lower in the House bill than in the Senate bill. 
Marketing loan for pulse crops is critically important to those 
who want to diversify, and what we see is that there is no 
provision in the House bill, none. In the Senate bill, there is 
coverage for the pulse crops. And then the repeal of the sugar 
loan forfeiture penalty, no provision in the House bill, it is 
covered in the Senate bill.
    We also see a difference between the two bills in terms of 
their effect on commodity program funding. We see in the Senate 
bill nearly $2 billion more for the commodity programs than we 
see in the House bill. That is critically important, obviously, 
when we go to conference to try to rectify the weaknesses in 
the House bill with respect to the Northern Great Plains. If we 
are going to get a better deal for our part of the country, you 
have simply got to have additional resources so that we have 
leverage in the negotiations.
    We have heard a lot and the Eastern media is making much of 
the disparity in the farm bill with respect to where the money 
goes, and they emphasize the very large payments that are made 
to some producers. There is no question there is a problem with 
this. Many of us believe and have long supported reasonable 
payment limitations, but I must say the Eastern media in many 
ways has misrepresented the full picture. They have not put it 
in context because what you find, if you study this issue, is 
that the vast majority of farms in the United States are hobby 
farms. They are very small farms that really aren't farming 
operations at all; they are weekend operations. They are people 
who live in town who are not dependent for their livelihood on 
the farm. And so of the 2.2 million farms that are cited, 
really only 350,000 of them have more than $100,000 of gross 
receipts.
    Now, let me make this very clear. I am not talking about 
gross income. I am talking about gross receipts of at least 
$100,000. There are only 350,000 farms in this country with 
gross receipts of over $100,000. That is really where we have 
to look when we write farm policy because that accounts for 80 
percent of all the food products that are produced in this 
country.
    So I have done this chart to try to emphasize and show the 
difference between--this mic is not much better than the other 
one. We are going to go to No. 3. OK. How about this one? This 
one work? Hey, third time is the charm.
    I think this is a very important piece of information. The 
red bar shows what is happening in terms of the number of 
farms. The yellow bar shows the amount of production coming 
from those farms. The green bar shows the amount of Government 
support. And what you see is very clear, the retirement or 
hobby farms, there are a very large number of them. They 
produce very little. They actually get more Government support 
than their production would dictate. In the small commercial 
farms, you can see that there is a rough balance between the 
number, the amount of production they have and the amount of 
Government support they receive. In fact, again, in that 
category they receive more Government support than their 
production would dictate. And then the large commercial farms, 
those are the ones that really are producing the vast majority 
of what is produced agriculturally in America. You can see they 
account for 80 percent of all the agricultural production, much 
smaller in numbers, and they actually get less Government 
support than the production they provide would indicate.
    I hope this puts the question in some context here so that 
we understand what is really happening with respect to 
Government payments as relates to production. Those who produce 
the most get the most in Government payments. That is the way 
the farm program works. Those who produce almost nothing don't 
get much in the way of Government support and they don't 
produce much. I mean, that is the reality. So I hope that point 
is clear.
    Let me indicate that I hope today we are able to lay out in 
the record in a way that is clear and convincing the need for a 
new farm program and that we are able to make the case that 
will stand up in the weeks and months ahead why it is 
critically important for this country, not just the rural parts 
of this country but to the entire country, why a new farm bill 
is critically important and in this Nation's interest.
    [The prepared statement of Chairman Conrad follows:]



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    Chairman Conrad. With that I want to turn to my colleague, 
Congressman Pomeroy, who will join me for the hearing today, 
and ask for his remarks.
    Mr. Pomeroy. Mr. Chairman, I want to thank you. We knew 
sometime, about a year ago, I think, you convened a similar 
meeting we knew the year ahead that is now being looked back 
on, 2001, it was going to be a critical year for restructuring 
of the farm program and that you were going to be a critical 
actor in it. You certainly fulfilled high expectations of the 
leadership role you would play in developing a new farm bill.
    As chairman of the Budget Committee, you were able to 
secure critically needed resources to build a better farm 
program; $73 billion over 10 years achieved against 
extraordinary competing budget pressures could have only been 
accomplished by your leadership as Budget Chair. Very, very 
good work there.
    Then in the fourth quarter of the year, as the Senate 
Agriculture Committee, also of which you are a member, wrestled 
with trying to get a bill out, your leadership again became 
evident in the crafting of the bill passed on a bipartisan vote 
out of the Senate Agriculture Committee as a better response 
to, I believe, farm policy than the House-passed bill. Both are 
an improvement from where we are. Both have as a cornerstone 
price protection for farmers.
    As was mentioned, for reasons having to do with geography 
of the leadership of the House Agriculture Committee, the House 
tilts a little to Southern commodities as opposed to Northern 
commodities. I think the Senate package is more balanced.
    We were terribly disappointed that a minority in the Senate 
could exercise basically their prerogative under a filibuster; 
the ability to summon 60 votes prevented the bill from getting 
enacted today. How vastly preferable it would have been to have 
had the competing versions of the House and Senate bills being 
talked about in conference committee with two passed bills as 
we try to reach the final project than still having the Senate 
action in front of us.
    I have to identify--before I get there, let me say that the 
data from 2001 once again reveals why we need a new farm 
program and why it has to have price protection at the heart of 
it. The payments, the AMTA payments under the schedule of the 
old farm bill will be a mere--will be 41 percent. We are 41 
percent in 2001, below what they were in 1996. They will be 44 
percent below in 2002--that notwithstanding the fact that 
prices have fallen a third. So prices collapse and you get less 
support from the farm program. That just fundamentally doesn't 
make sense. The farm program needs to be there to respond when 
prices collapse, not to provide the support when the market 
prices are stronger.
    The role of the Secretary of Agriculture, I think, has been 
most unfortunate in terms of trying to delay passage. As the 
House considered the bill, it was the position of--the 
administration took a hands-off position until literally the 
bill was coming to the House floor, at which time they said we 
didn't need to take action and then they also said if you do 
take action, don't pass the bill before you. The House, in a 
strong bipartisan way, rejected that; 291 to 120 was the vote 
on that bill. Unfortunately, the erosion of the consensus 
behind price protection for agriculture had begun, and we saw 
it ultimately thwart passage in the Senate in December.
    In addition to trying to stop the bill in the House, the 
Secretary of Agriculture--and intervention in the Senate debate 
I thought was also very unfortunate and had a significant role 
in sidetracking enactment of the bill in the Senate. The 
support of the version of Senator Lugar, the support of the 
version of Senator Roberts, neither of which have price 
protection at the heart of the bill, gave, I think, support to 
those trying to scuttle a new approach to the farm program 
based on price protection, and in the end they stopped 
enactment of it in December.
    In the balance of my remarks, I would like to express my 
further disappointment in the Secretary of Agriculture for an 
announcement that came out of the U.S. Department of 
Agriculture late Friday afternoon relative to the announcement 
of marketing loan rates for the upcoming crop year. Although 
loan rates have been set in each of the last 5 years at the 
highest level allowed under the statute, and although farmers 
need to know what those loan rates will be for the upcoming 
crop year so they can make planting decisions and lenders can 
make lending decisions, the Secretary of Agriculture announced 
that she would not make an announcement on marketing loan 
rates; she would instead await action by Congress on the new 
farm bill. This is the very individual that has played such a 
prominent role in scuttling enactment of the farm bill last 
year, and now she says she won't set loan rates, which are 
wholly within her discretion as Secretary, until Congress 
passes a new farm bill.
    This statement comes after rumors were squirming around 
regarding the prospect of the U.S. Department of Agriculture 
actually reducing the loan rates on oilseeds. I believe that in 
light of the uncertainty relative to this Secretary's 
leadership of the U.S. Department of Agriculture, her failure 
to affirm that loan rates will be held at their present levels 
makes it a very real prospect that they won't be held at the 
present levels.
    Now, how in the world do you make planting decisions or 
lending decisions with that kind of uncertainty hanging over 
you? It is a time of decisions here in North Dakota and across 
farm country, trying to figure out what to plant, trying to 
figure out what your financing is going to be, lenders trying 
to figure out whether or not the operations are going to have 
cash-flow. When you look forward at the uncertainties of 
weather that will inevitably face our farmers, the variations 
in price that will inevitably face our farmers, what in the 
world is the Secretary of Agriculture doing adding yet 
additional uncertainty by not making it very clear what the 
loan support is going to be?
    I will introduce into the record, Mr. Chairman, with your 
leave, data prepared by North Dakota State University, 
specifically Richard Taylor, Assistant Director of the Center 
for Ag Policy and Trade Studies, that estimates that the loan 
rate for wheat and barley could fall 11 percent. Now, because 
market rates are likely to be above this, that may not have an 
impact on the farmers' bottom line, but the oilseed equation is 
very different. Those loan rates could fall as much as 6 
percent, and they would fall even more but for a floor placed 
into the statute that does not allow them to fall further. 
Because the loan rate is above the market rate in oilseeds, 
this is every dollar off the farmers' bottom line. NDSU 
estimates that at existing price levels it would cost North 
Dakota farmers $20 million in soybeans, $10 million in 
sunflowers, $10 million in canola. That is a $40 million hit if 
prices stay at present levels. Well, this is the kind of 
uncertainty that is going to make it very, very difficult to 
plan the year ahead.
    I have yesterday sent a letter to the Secretary of 
Agriculture urging her to set these loan rates, to reverse this 
unfortunate position and set these loan rates. I hope the 
various groups testifying today will join me in this call. 
Farmers deserve to know what their loan rates are going to be.
    I introduce this for the record, Mr. Chairman. I thank you 
for holding this hearing.
    [The prepared statement of Mr. Pomeroy follows:]
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    Chairman Conrad. Thank you very much, Congressman Pomeroy, 
and thank you for the very useful information you provided the 
committee.
    I, too, was surprised by the failure to act by the 
Secretary of Agriculture, but I must say I wasn't surprised 
given her track record. It has been an extreme disappointment. 
Never was I more disappointed then during the farm bill 
consideration in the Senate when she called colleagues telling 
them not to pass a farm bill last year, to wait until this year 
and the money would be there.
    I think if you just apply some common sense, you can see 
that all of the expenses of the Federal Government are going up 
with the war effort, the revenue is going down with current 
economic conditions, and that every part of the Federal budget 
is going to be squeezed; and we had a window of opportunity to 
write a stronger farm bill with the resources that were won 
after hard fighting last year; and this Secretary played no 
part in that fight, played no part in the effort in the House 
in passing a farm bill, and then tried to scuttle getting a 
bill in the Senate.
    The Secretary of Agriculture has a responsibility to be an 
advocate for farmers. That is her role, that is her mission, 
and I believe she has utterly failed in that responsibility.
    With that, we are going to turn to our witnesses. Let me 
just say that this hearing is somewhat different than the 
previous hearings and at previous hearings we have started with 
witnesses, all of the major farm groups, we have had that 
hearing before the Senate Budget Committee, they did an 
outstanding job, and I want to thank each and every one of them 
for the role they have played this year.
    At this hearing we thought it would be useful to do it a 
little bit differently and to have farmers from every part of 
the State with every kind of farm organization, background, and 
affiliation, people who are affiliated with the Farm Bureau, 
people with the Farmers Union, people with the Grain Growers, 
people with the various oilseed representatives as witnesses to 
make the case as to why we need a new farm bill. But we are 
going to lead with the leader of our State, the Governor of 
North Dakota, who has played a very positive role, I might say, 
working together on a bipartisan basis to make our case in 
Washington; and I want to thank the Governor for his contacts 
with the administration and with his contacts with Republican 
Members of the House and the Senate to urge them to take action 
on a stronger farm bill.
    Governor, welcome. It is good to have you here and we await 
your testimony.
    While the Governor is coming, we appreciate very much how 
you have worked on this issue. Let me just say, as the Governor 
is getting settled, that we believe our first obligation at 
this hearing is to try to make the case as to why a new farm 
bill is necessary, and that is really what we are attempting to 
prove in the record that is being constructed.
    With that, again welcome, Governor. Thank you for being 
here and please provide us with your testimony.

       STATEMENT OF JOHN HOEVEN, GOVERNOR OF NORTH DAKOTA

    Governor Hoeven. Senator Conrad, thank you for holding the 
hearing and thank you for the opportunity to testify. Greetings 
to Congressman Pomeroy as well.
    Before I start, if I could, I am just going to take maybe 
one small liberty. I came in this morning and there was a 
gentleman in the crowd that looked familiar to me, and I didn't 
recognize him right away. But he was kind enough to come over 
and say hello, and just showing that we have great ties 
throughout the world here in North Dakota, I don't know how 
many of you are football fans, but for any of you that at one 
time may have rooted for the Cincinnati Bengals, even watching 
them in the Super Bowl against the San Francisco 1949ers, who 
remembers their coach's name? Sam Weiss. Sam Weiss, would you 
stand up and take a bow. It is good to have you here today. 
Welcome to North Dakota. You are doing some announcing now for 
one of the networks.
    Mr. Weiss. CBS.
    Governor Hoeven. It is good to have you here.
    Senator Conrad, you always draw a crowd of celebrities. 
Great work.
    It is good to be here, and I appreciate the opportunity to 
testify. I had the opportunity about 6 months ago, or a little 
longer, to testify at your field hearing in Fargo, and I think 
these are very important. We come out to North Dakota to pick 
up this kind of testimony, and I wouldn't show up without a 
chart. Now, I realize you out-charted me, you have five or six 
there, but I did bring a chart to kind of talk about a few 
concepts.
    There is no question that we need a farm program with a 
long-term countercyclical safety net. That is important not 
just for North Dakota but for the entire country. I mean the 
entire country. We talk about the Midwest and we talk about the 
Farm Belt, and it is vitally important for all our farmers 
throughout America. When we are talking about fiscal stimulus 
that will get this Nation back on track, that is the No. 1 task 
right now. I mean, clearly the war on terrorism is vitally 
important, we are heavily engaged in it, homeland security as 
well. We are doing an outstanding job with that, but at the 
same time we need to make sure that we keep this economy going. 
And what could be better fiscal stimulus than passing a long-
term farm bill with a countercyclical safety net? And that is 
why it is so critically important not just for our farmers, not 
just for North Dakota, but for the entire country.
    I think we have the opportunity to pass the right kind of 
farm bill. Last year we did a lot of work in the House, and I 
compliment the members of the House for passing a farm bill. 
And I was a strong supporter of the concept underlying that 
farm bill, the commodity title--again, a long-term 
countercyclical safety net composed of three different 
payments: a decoupled payment, a countercyclical payment, and 
the marketing loan program.
    I understand Senator Conrad's comments about it in terms of 
the relative pricing favoring some the Southern crops, and that 
is something we talked about and something that the Senate has 
gone to work on.
    I spent a lot of time last year encouraging the House to 
move forward but also encouraging the administration to support 
this kind of farm bill, and I think that we have made a lot of 
progress with the administration. They have indicated that they 
will sign, that they will support and sign a comprehensive 
bipartisan bill and that they support the full $170 billion 
funding level. I think that is very important. The key now, of 
course, is to move the right kind of bill through the Senate 
and to get into conference with the House and get the farm bill 
in place.
    I compliment Senator Conrad for working with Senator Harkin 
to move that farm bill out of the Ag Committee, and I can 
remember talking to both Senator Conrad and Senator Dorgan, as 
well as other Senators, Democrat and Republican, saying, Hey, 
we have got to do some work. The bill that Senator Harkin has 
and the bill that Senator Lugar has, neither one is acceptable 
for farm country. It was about that time that Senator Conrad 
and others went to Senator Harkin and said, Hey, we need to do 
some major work on this bill, and they did and they improved it 
significantly and they moved it through the Ag Committee.
    Now we face a situation where we have two bills on the 
Senate floor, essentially, or a bill and an amendment. We have 
got the Harkin bill, and we have got the Cochran-Roberts 
amendment, and somehow we got to bring those two together and 
get it passed so that we can get into conference with the House 
and get a final bill passed. And that is where I think we 
really need to work in terms of encouraging bipartisan 
compromise. We need to get Democratic Senators to move forward, 
we need to get Republican Senators to move forward on the basis 
of bringing these bills together, taking the best elements of 
both in a strong and positive way, going over to conference 
with the House and getting this bill in front of the President, 
getting it signed, and getting it passed.
    Now, I brought along just my one chart, Senator, if I may. 
You can all hear me all right? I don't know if this is quite 
large enough for you to see, but the key to the farm bill 
forces the commodity title, and underlying that is this long-
term countercyclical safety net that we need for our farmers. 
It is going to provide the right kind of foundation so that 
farmers can plan for the future and invest for the future over 
a long period of time. That not only helps our young farmers 
get into the business by buying equipment, making investments 
they need, but also it helps our farmers in terms of 
diversification and making investments into value-added 
agriculture so they can vertically integrate, get more money 
from processing and marketing the crops they grow. So like any 
business person, we need a long-term plan so that they can plan 
and invest for the future.
    So what are the elements of that countercyclical safety 
net? Well, first, we have got the marketing loan program which, 
as you know, is in existence today. We have got a 
countercyclical support payment which was brought into the 
equation under the House bill, and we have got the decoupled 
payments, some more of the AMTA payments that you are all 
familiar with. Those are the three components.
    Now, the good news is in some respect they are in all 
versions of the legislation that the Congress is looking at 
right now. In the House bill, the marketing loan program 
continues essentially as it is now. Also, there is a decoupled 
payment. But the farm bill or the House version truly provides 
a long-term countercyclical safety net in that it has a target 
price and a countercyclical payment. OK.
    But when we go over to the two Senate versions--and, 
remember, anything that gets passed eventually is going to have 
to be reconciled with the House version before it goes to the 
President.
    So what are we looking at in the Senate? Under the Harkin 
bill, you have got a higher marketing loan program, and that is 
very attractive for our farmers and that is something that 
Senator Conrad has worked very hard to get. And not only is it 
the right thing to do, but I know he is looking in terms of 
going into negotiations with the House being in a strong 
position, and that makes sense, too. That goes back to that 
discussion about how you price for Northern versus Southern 
commodities. OK.
    But as a result, then, it also has a countercyclical 
payment, but because it has a higher marketing loan program, it 
tends to be a lower countercyclical payment, although the 
target price between the House and Senate version, when I am 
talking about the Harkin version, are roughly similar, and then 
it has got a lower decoupled payment than you have got in the 
House bill. But all three elements are there. OK. All three 
elements are there, so you have got a similarity in that safety 
net mechanism.
    Then Cochran-Roberts. Same marketing loan program is in 
place now, same as in the House version. It has got a very high 
decoupled payment, and that decoupled payment doesn't decline 
over time like it does in the Harkin program, but it doesn't 
have that countercyclical in the way we need it. It doesn't 
have a countercyclical payment; it has got a savings account.
    So what needs to happen is that we need to see some 
movement wherein maybe some of this decoupled payment--OK, and 
maybe some of the marketing loans, we need to move those toward 
each other making sure that we have an adequate countercyclical 
payment, the safety net component. That, again, is in the House 
version and with this kind of compromise pass a bill. Any bill 
that comes out of the Senate is going to tend to move that way 
when you go over into conference with the House, anyway.
    The point I am trying to make is that the room for 
compromise on a bipartisan basis is there. I strongly support 
Senator Conrad's work to negotiate the best bill possible for 
our State, I think that is the right thing to do. But I am 
encouraged that we are talking about three fundamental 
components in this safety net, that the room for compromise is 
there. We need to all push on both sides of the aisle to get 
the compromise needed and to get this bill passed.
    One final point: NDSU Professor Won Koo, who does a lot of 
work in this area, has taken a look at the Cochran-Roberts 
version, and it is very positive for North Dakota farmers. 
Using the same factory price assumptions underlying the scoring 
on these bills, it is stronger for North Dakota, doesn't have 
some of the problems in terms of waiting that the House bill 
does. So, again, I think that offers room for compromise, and I 
think the key for all of us is to make sure that we are pushing 
to get the job done.
    Senator Conrad, thanks for the opportunity to testify. I 
really appreciate it.
    [The prepared statement of Governor Hoeven follows:]

    TESTIMONY OF THE HONORABLE JOHN HOEVEN, GOVERNOR OF NORTH DAKOTA

    Senator Conrad, thank you for the opportunity to testify today at 
this hearing on the very important matter of getting legislation passed 
for our farmers and ranchers.
    As I stated at the field hearing that you hosted in Fargo in 
August:

-It is obvious that we need a good farm bill, and we need one now. When 
    I appeared before your committee in August , I said that we need 
    one soon. I am here again in January to testify that we need a farm 
    bill before the snow melts to enable our farmers to prepare for 
    another growing season.

-I have spoken with President Bush and his senior agriculture staff, 
    and I believe we have helped move the administration in the right 
    direction. The president is on record supporting a farm bill that 
    is bipartisan and comprehensive. the administration has gone on 
    record saying it will fund the full $170 billion for the farm bill.

-I have worked with you and Senator Dorgan to get a solid farm bill 
    passed, and I compliment you on your hard work to get the bill out 
    of the Senate Agriculture Committee.

-Now it is time for the Senate to compromise and reach consensus on a 
    farm bill. Throughout the fall and early winter the Senate debated 
    two different versions of a farm bill--one, the Harkin bill, with 
    higher loan rates and a decoupled target price system; and the 
    other, the Cochran-Roberts bill, with the current marketing loan 
    program and higher direct payments. The farm bill concepts are not 
    that different in their framework, and compromise can be reached.

    While the Senate continues into a new year debating the relative 
merits of the competing commodity support progams, the goal is the 
same: Federal farm legislation should offer consistent, dependable 
support for America's farmers. The Senate will continue to debate the 
details of how to best allocate the $170.5 billion committed to by the 
Administration. I believe that an acceptable compromise is attainable, 
and the way to accomplish that is to take the best elements of both the 
Harkin bill and the Cochran-Roberts bill.
    Professor Won W. Koo, Director of North Dakota State University's 
Center for Agricultural Policy and Trade Studies, and research associat 
Richard Taylor shed some light on how a compromise might be achieved. 
Their analysis of the Cochran-Roberts bill, now known as the 
Agriculture Conservation Rural Enhancement (ACRE) Act of 2001, reveals 
that the projected net income of small, medium and large farmers over 
five years will actually be higher under ACRE than under either the 
Harkin bill of the House bill. The element lacking in the Cochran-
Roberts version is counter-cyclical payment, and that the feature could 
be creasted in a compromise version by moving the Marketing load 
payment in Harkin and the Fixed decoupled payment in Cochran-Roberts to 
meet in the middle, creating a counter cyclical payment.
    In December, I sent a letter to Senate Majority Leader Daschle, 
Senate Minority Leader Lott, Agriculture Committee Chairman Harkin, 
Ranking Agriculture Committee Member Lugar, and Committee members 
Conrad, Cochran and Roberts. I also contacted Democratic Policy 
Committee Chairman Senator Dorgan. In that letter, I urged the senators 
to acknowledge each other's position and strive to reach a compromise.
    I am here today, to urge you to find common ground. If both parties 
can make necessary and prudent concession between the competing 
versions of the farm legislaton in the Senate, we can have a new farm 
bill in time for planting. Both the Senate bill and the House bill 
passed last October allocate the same amount for a farm safety net. 
Both parties will have to compromise in the conference committee, 
anyway. It's time to come together in a bipartisan manner and get the 
job done for our farmers.

    Chairman Conrad. Thank you very much, Governor. Thank you 
for your active involvement in this fight. It has been very 
helpful, and we appreciate it very much.
    We are next going to call on Roger Johnson, our 
Commissioner of Agriculture, for his testimony. Again, welcome, 
Roger. Roger has played a key national role as well. He has 
brought the commissioners of agriculture around the country 
together around a plan that has been a very strong plan. I 
would love to see us be able to write that plan into law 
because there would probably be no stronger plan for North 
Dakota than the one Roger Johnson has led the State agriculture 
commissioners around the country to endorse. So, Roger, that 
was exceptionally well done, and I know there were long days 
and nights of negotiation to get that result. It had a big 
impact in the Senate Agriculture Committee, because when the 
agricultural commissioners of the country are united and send a 
clear message, that has an impact on our colleagues and it 
really did make a difference.
    I want to say one thing for the record with respect to the 
Governor's testimony. The Cochran-Roberts bill was considered 
in the Senate, and it only received 41 votes. So it is now 
history. It is off the map. It lost. So now the question is, 
the bill that came out of the Senate Agriculture Committee, 
whether that bill passes the Senate. We have got 55 votes. We 
have got a strong majority in the Senate for that bill. But as 
all of you know, Senators can filibuster. A minority can try to 
stop the will of the majority. That is what is happening in the 
U.S. Senate. On three separate occasions we had a vote to bring 
debate to a close and to set a time certain for a final vote, 
and each and every time we had a majority of the Senate who was 
in favor of doing that, a minority said no. A minority said no. 
A minority said no. That is the problem. We have got to light a 
fire under those folks and get them to move because the option 
that is before us is the bill that came out of the Senate 
Agriculture Committee.
    All of the other Republican substitutes have been defeated. 
The Lugar bill was defeated on an overwhelming vote, and he is 
the ranking Republican on the Senate Agriculture Committee. I 
don't think he got more than about 20 votes. Then we had the 
Cochran-Roberts bill. It, too, was defeated overwhelmingly. And 
then we had the Hutchison substitute, which was a version of 
the House bill, a pale version of the House bill. But obviously 
we believe we are better off in the conference committee if the 
Senate has stronger provisions on loan rates so that we can 
negotiate a better result for the Northern Great Plains than 
the Southerners who dominate the Agriculture Committee than the 
House wrote into that bill. That is the key test for us, what 
leverage are we going to have for negotiation.
    The Governor referenced that very accurately. We need to 
have leverage in those negotiations to get a better result for 
the Northern Great Plains. The only way we do that is to have 
provisions that are different in the Senate bill than in the 
House bill, to have higher loan rate provisions, to have other 
provisions that are more attractive to us so that we have room 
to negotiate and get a better result.
    Again, nobody has been more helpful than our own Secretary 
of Agriculture, Roger Johnson. Welcome. It is good to have you 
here.

STATEMENT OF ROGER JOHNSON, COMMISSIONER OF AGRICULTURE, STATE 
                        OF NORTH DAKOTA

    Mr. Johnson. Thank you, Senator. I am going to try and 
shorten my remarks from what has been printed and ask that they 
all be a part of the official record, just in the interest of 
time.
    I think it is important for us to recognize a couple of 
historical facts that are, I think, really important right now, 
and the first one is everyone understands how important 
agriculture is to North Dakota's economy. I mean, it far and 
away drives our State's economy. It is the No. 1 industry, the 
No. 1 sector of our economy. And so what happens in Congress 
with respect to the farm bill is of huge interest. And so for 
that reason I am very thankful that you have taken the time and 
the effort and the energy that you have to not only pull this 
hearing together but other hearings and to do the work that you 
have done in moving that bill through the Senate Ag Committee.
    There is another premise that I think we need to understand 
that is different today than it was the last time the farm bill 
was being debated. If you will remember, the last time the farm 
bill was being debated, the premise was that Government is all 
done with agriculture, we are going to get out of the business. 
And the premise of that whole debate and of that whole farm 
bill that we are currently operating under was called 
transition payments, AMTA payments. They go by different names, 
but essentially the idea was we are going to move Government 
out of this and we are going to survive in this free trade 
environment, prices will be forever higher, and it is sort of a 
fairy tale kind of thing.
    Well, the premise is much different today. Everybody 
recognizes that that is not going to happen, that that never 
will be the case, and that we have to have some sort of the 
same policy that protects our family farmers in this country 
and that guarantees a safe, affordable supply of food as a 
matter of national security. So we ought to be thankful that 
the premise has changed.
    As a result of the premise that was in place back then--and 
as you mentioned in your opening remarks, Senator Conrad, the 
high prices lasted about a quarter of a year and they started 
heading south. And what happened next was a whole series of ad 
hoc disaster payments, which all of us supported because they 
absolutely were essential to stem the flow of blood that you 
demonstrated in your chart on net farm income earlier. But it 
was the wrong way, really, for farmers to operate and for 
Government to run a policy because it was not predictable, it 
had no relationship to what farmers were doing on their land, 
and it was just--it was not a well-thought-out policy. So it is 
good that we are entering this debate a bit earlier.
    The third point I want to make is the issue about money, 
and let me just give you a couple of very simple numbers. OK. 
If we are able to maintain the budget authority that is in the 
resolution currently in front of Congress, that is about $17 
billion a year to write a farm bill. OK. The last 4 years on 
average we spent $20 to $30 billion a year. So make no mistake 
about this, this is not a big pile of money you are trying to 
write a new farm bill in. It is less than what we have been 
getting in the last 4 or 5 years. OK.
    The third number I want to give you in this equation is 
what happens if the resolution goes away. And every day that 
goes by, in my judgment, it is more likely that it is going to 
go away. In spite of whatever commitments might be made for the 
money being there, that number goes from $17 billion a year 
down to $10 billion a year, and you try and figure out how to 
write a decent farm bill with that, and you just have lots and 
lots of trouble. This is a very difficult, a dire situation 
that we have gotten ourselves into with this filibuster that 
has occurred in the Senate.
    Now, let me make a couple of brief comments about the House 
bill and then about the Senate bill, and I am not going to talk 
much about the Cochran-Roberts bill because, frankly, I think 
that missed the mark pretty much entirely with respect to what 
we ought to have in a farm bill. The Cochran-Roberts bill was 
really nothing more, in my judgment, then a continuation of 
Freedom to Farm without any sort of countercyclical feature to 
it. And if there is one thing that everybody has come together 
on, everyone from Farm Bureau to Farmers Union to commodity 
groups across the board in this Nation, it is that we need a 
countercyclical feature to a farm bill, and the Cochran-Roberts 
bill didn't provide it so take it off the table. I am glad it 
failed. I am glad it was offered. I wish it would have been 
offered earlier because it likely would have set the stage to 
break the filibuster before recessing for the holidays.
    So let's talk about the House bill. To its credit, the 
House deserves lots of accolades in the face of administration 
opposition for voting overwhelmingly in a bipartisan fashion to 
move the bill out of the House that contained a countercyclical 
feature. In my judgment, not the best countercyclical feature, 
but a countercyclical feature. Nonetheless, it is something 
that at least was what we need in a new farm policy.
    The shortcoming of the House farm bill is it did nothing to 
rebalance loan rates. Everybody knows what has happened as we 
have seen wheat and barley acres plummet in this State, in 
spite of a recent editorial some of you may have read in the 
Tribune. We have seen acres of those cereal crops plummet. Why? 
Because prices and loan rates were so horribly low for them 
relative to the oilseeds, and we have seen oilseed acres 
skyrocket in this State as a result, as has happened around the 
country.
    So we need to have some feature to bring balance back to 
these commodities, and the most logical way of doing that, in 
my judgment, is to rebalance loan rates, to do something that 
is based on the farmers' actually producing instead of what 
they don't do.
    The other problem that I think I see with the House bill is 
that it leaves payments decoupled from production. The 
countercyclical feature in the House bill has nothing to do 
with what you do on your farm this year or next year or the 
year after. It has everything to do with what you used to do on 
your farm 10 and 20 years ago and prices that may move today. 
That is how it makes it countercyclical: prices go down for 
wheat today, and if you used to plant a lot of wheat, you get a 
wheat payment even though you are planting all soybeans today. 
And in my judgment, that is just--it is goofy, it doesn't make 
any sense. So we need to have some feature that brings some 
connection back to what producers are doing and the payments 
that are being received if they can't be delivered through the 
marketplace.
    And, last, I think a problem with the House bill is it 
really does not do an effective job of targeting benefits to 
family farm producers.
    The Senate bill, let me talk briefly about that. I think it 
is substantially better than the House bill. I commend Senator 
Conrad for the work that you have done to try and bring the 
loan rates up. If you could have brought them all the way, the 
way all the ag commissioners around the country unanimously 
asked that they be brought to, I would be delighted, but you 
moved a fair distance. You brought the cereal grains up so that 
they are closer to the cost of production relative to soybeans. 
Historically our wheat loan rate, for example, right now is 
about half the cost of production. Soybeans are running at 
about 80 percent. So it is no secret where farmers are going to 
plant. I mean, we are not dummies. So that is where the 
plantings are going to go. So you made the right moves to move 
them as far as you could. It would be delightful if you could 
move them even further higher in conference. To your credit, 
you included pulse crops. I think you made that point. Very 
important for us to give more opportunities for our producers 
to diversify and to have a feature that would allow them to do 
that, and hopefully the Senate bill, as it gets passed, perhaps 
as it gets to conference, we will have some sort of a feature 
that deals with a meaningful payment limitation.
    I have got a lot of other stuff here but my time is--I am 
cognizant of folks who may want to talk here, Senator. I want 
to just make a final comment about loan rates and 
countercyclical payments because in my mind they are the same 
thing. What a loan rate does, really, is it provides a level of 
price protection that is established, and if you move marketing 
loan rates up, producers are either going to get it by putting 
it under loan or they are going to take an LDP, and that is the 
countercyclical payment. It is the best mechanism that we have 
got right now in any of the versions to give a countercyclical 
feature to farmers based on what they actually do, and I think 
it is important that you couple what the payments are to what 
farmers do so that there is some sense of rational farm policy 
behind this thing instead of having things just entirely 
decoupled.
    I want to make a last comment about trade because----
    Chairman Conrad. Before you do that, could I just interrupt 
and ask you--this may sound like an odd request but I would 
like you to just explain for the record how a marketing loan 
works.
    Mr. Johnson. Sure.
    Chairman Conrad. Because, I tell you, one of the things 
that I have found is that most people really don't know. What I 
have found is even leaders of farm States don't know. I have 
seen people make comments that the last thing a farmer needs is 
another loan because the name ``loan'' misleads people as to 
how a marketing loan actually functions. And I think it 
confuses the public because they hear, gee, you are going to 
make more loans to farmers who are losing money, what sense 
does that make? And so I think part of the problem here is a 
problem of language because it misleads people. And maybe, for 
the record, I think it would be useful for our colleagues and 
their staffs, who are the ones who will read this testimony, if 
you would just explain for the record how a marketing loan 
works.
    Mr. Johnson. Thank you for the question. Let me give you a 
very oversimplified answer, but it is so important to this 
whole debate.
    If the market price for wheat happens to be $.250, that is 
probably not a whole lot different than that today, depending 
on where you are at. And if the marketing loan rate were set at 
$3 a bushel, I can sell my wheat at $2.50, and I can collect a 
payment, if you will, an LDP, a loan deficiency payment for 
fifty cents. So the net effect is that the wheat that I 
produced that I sold for $2.50--I got $2.50 from the market, 50 
cents from the Government payment, the net that I get--the 
gross that I get, I should say, is $3 a bushel. That is how it 
works, very simply.
    It is interesting that you raise this question because it 
is a common misunderstanding. In the 2 years that I spent 
chairing the committee that developed our recommendations of 
all the ag commissioners across the country, we have had lots 
of discussions where folks in our own group didn't understand 
how market loans really worked. And there is a lot of confusion 
because a lot of folks used to farm and used to be under the 
old loan system, which were nonrecourse loans and they were 
different. I am not going to explain how they work because I 
don't want to confuse the record.
    What we have today and the only thing on the table today is 
marketing loans and they work just the way I have said, pretty 
much. OK. I mean, there are some nuances here, but that is the 
idea generally.
    What we agreed as ag commissioners----
    Chairman Conrad. If I could just interrupt one more time, 
because I think this is also critically important for the 
record. Isn't it true that this makes us fully competitive in 
the world because we can sell our grain for whatever the market 
price is and still get the difference between the marketing 
loan rate and what we actually get in the marketplace? Doesn't 
it strengthen our competitive position as well?
    Mr. Johnson. Absolutely. That was the theory behind the 
marketing loan concept, that is, to put into Freedom to Farm--
in fact, the mistake that was made with Freedom to Farm is the 
loan rates were set so horribly low that there was no sort of 
countercyclical mechanism that kicked in except in the case of 
oilseeds.
    Chairman Conrad. Maybe we could just establish this for the 
record as well, because I think these are critically important 
points. The marketing loan rate in the current farm law for 
wheat is $2.58 a bushel, but at the initiation of the Secretary 
of Agriculture, she is able to actually adjust that loan rate 
downward, downward. She can do that not only for wheat, but she 
can do it for the other crops as well that have marketing 
loans. Is that not the case?
    Mr. Johnson. That is absolutely true.
    Chairman Conrad. And the House bill that passed left the 
marketing loan rate at $2.58. Isn't that the case?
    Mr. Johnson. That is right.
    Chairman Conrad. And the Cochran-Roberts bill left the loan 
rate at $2.58. Isn't that the case?
    Mr. Johnson. And both of them also left the discretion for 
the Secretary to lower them even further.
    Chairman Conrad. And isn't it the case that the Senate bill 
has a marketing loan rate of $3.00?
    Mr. Johnson. That is right.
    Chairman Conrad. And has an all-barley loan rate of $2.00 
and the House counterpart is $1.65. These are critically 
important differences between the House bill and the Senate 
bill. And people say to me, Senator, you are going to be a top 
three. I am going to be one of the five representatives of the 
Senate--I have already been notified that that is the case, one 
of the five representatives of the Senate to work out the 
differences between the Senate bill and the House bill. I have 
been given that responsibility.
    How do I get a better result for our State than what is in 
the House bill? How do I do that? The only way that I can do 
that is if I have got provisions in the Senate that are 
different, that are stronger than the provisions in the House.
    If you think about it, I think you will realize what I am 
saying is true. The only conceivable way I can get a better 
result for our State when I go into those negotiations with the 
House is if we have provisions that are stronger, that are more 
about beneficial to our State than the provisions that are in 
the House bill. I have got to go with some ammunition to that 
conference. And I think this is the point that you have made to 
me repeatedly. You have told me, Senator, you have got to set 
yourself up for that conference in a way that you can negotiate 
a better result.
    Mr. Johnson. Let me put an exclamation point on that issue. 
Roughly--and I said this earlier--the oilseed loan rate has 
been established at about 80 percent of cost production. The ag 
commissioners across the country unanimously advocated that 
there would be a countercyclical payment mechanism tied to 
production, like marketing loan rates, that would establish the 
countercyclical payments at about 81 percent of cost of 
production. OK. The formulas across the board.
    If we follow that formula for wheat, for example, we would 
come to $3.45. So even going to three, which you managed to get 
in the Senate--and I know it was a huge struggle to get in the 
Senate Ag Committee. It doesn't take us as far as we ought to 
go. So you are absolutely right to be insisting on keeping in 
the Senate bill for final passage, increasing these marketing 
loan rates. That is just an essential element, in my judgment, 
to farm policy.
    If I could conclude with one final point, I opened my 
remarks by talking about the premise of Freedom to Farm being 
trade was going to be our salvation. I know that soon after you 
get back, the Senate is likely to be faced with the issue of 
fast-track legislation, which the House has passed. I would 
encourage you, before that is even considered, that there are 
some things that need to be done first:
    First, we need a responsible domestic farm policy passed. 
The farm bill absolutely ought to be passed before you even 
talk about fast-track authority.
    Second, we have done a lot of work in this State. You have 
been very helpful. The Governor's office has recently entered 
into this issue as well on the Pesticide Harmonization Act. 
Congressman Pomeroy alluded to about a $40 million loss that 
would come just as a result of the Secretary reducing the loan 
rates by her discretionary authority in North Dakota. We 
annually lose about $30 million a year to disparate pricing 
packages for pesticides as compared to our farmers versus the 
Canadian producers. That act needs to be passed, in my 
judgment, to help level that playing field.
    And, finally, I think some of the inequities from earlier 
trade agreements, CUSTA, NAFTA, need to be resolved before we 
take up fast track.
    Recently the administration was successful in launching a 
new round of WTO talks. What troubles me is that the way they 
were successful in doing that is they put on the table--and we 
better understand this as producers. They put on the table our 
export credit programs which we use to sell our commodities to 
countries that can't afford to buy them for cash. They put on 
the table our ability to use counterveiling and anti-dumping 
actions, to take action against countries that are using unfair 
trade practices against us, and, most troubling, they put on 
the table the ability for us to even do countercyclical kinds 
of support programs which are the guts of the kind of farm 
policy, in my judgment, that we need in this country. We had 
best be real careful before we simply give carte blanche to the 
administration to execute removal of these tools from us, or we 
are going to have a huge problem, much larger than what we have 
today in front of us as an ag country.
    So with that, Senator Conrad, and Mr. Chairman, thank you 
for the opportunity to testify. I am delighted with the work 
that you have done here and thank you very much.
    [The prepared statement of Mr. Johnson follows:]
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    Chairman Conrad. Thank you very much. We appreciate all 
that you have done and especially your work with the 
commissioners of agriculture across the country.
    We are now going to call our second panel who represent 
agricultural lenders, because we think there is no group that 
can speak with better credibility with respect to the need for 
new farm legislation than those who make loans to farm 
producers. And I would call to the witness stand Roger Monson, 
a member of the Agriculture Committee of the American Bankers 
Association and a resident of Finley, North Dakota. Roger, 
welcome. It is good to have you here. And Michael O'Keeffe of 
the Farm Credit Administration from Mandan, North Dakota.
    As they are coming to the witness stand, I just want to 
make the point that, as we considered new farm legislation, I 
had dozens of bankers and lenders across North Dakota call me 
and say, Senator, many of our farm lenders are not going to 
cash-flow under the last year of the old farm bill because that 
is the weakest year of the farm bill. There is no disaster 
assistance payment put in place, so all we can look to to 
recover on loans is the provisions of the last year of the old 
farm bill. Those are too weak to allow many of our farm 
borrowers to cash-flow. And so we want to make that point for 
the record and make it clearly here today, and so we especially 
welcome Roger and Michael.
    Roger, why don't you proceed.

 STATEMENT OF ROGER D. MONSON, PRESIDENT, CITIZENS STATE BANK, 
                      FINLEY, NORTH DAKOTA

    Mr. Monson. Thank you, Senator Conrad, for this opportunity 
to testify at your hearing, and I appreciate the fact that you 
have asked rural financial institutions to also have a voice in 
this.
    Given the dramatic slump in commodity prices since 1997, 
the need to carefully craft a new farm bill that affords 
protection to production agriculture from economic disaster is 
now more urgently needed than ever before. Rural counties in 
Midwestern States, all the way from North Dakota to Texas, are 
suffering from double-digit population declines resulting from 
out-migration to urban centers, resulting in the decline in the 
farm profitability. The trend of fewer and larger farms in the 
1980's has continued on through the 1990's.
    As you know, production agriculture is capital intensive 
with farmers annually risking a large percent of their balance 
sheet equity each year. Agricultural lenders must make their 
lending decisions based on projected cash-flows and 
profitability. How does a lender or a borrower project 
emergency or supplemental Government payments before the crop 
year even begins? Farmers can't be caught in a guessing game as 
to whether they will be operating under the final year of the 
existing farm bill or working under a new farm program. 
Producers need that information now, not 4 or 5 months from 
now.
    There also needs to be some sort of a safety net or price 
floor. Due to a combination of excessive moisture and poor 
commodity prices, borrowers at my bank typically received 20 to 
30 percent of their gross income in Government payments in 
2000, much of which came from emergency legislation that was 
enacted by Congress. That percentage is not expected to change 
materially in 2001. Now, if my customers removed 25 percent of 
their gross income from their income statements, virtually none 
of them could cash-flow their debt for next year or any year 
after. Production agriculture must be financed through cash-
flow. It cannot be financed by asset-based or collateral-based 
lending. We all learned that very painful lesson in the 1980's.
    Very early last year, 2001, the American Bankers 
Association's Division of Agriculture and Rural Banking held a 
series of town hall meetings with ag bankers all over the 
country to formulate some ideas and thoughts about the prospect 
of a new farm bill. There was uniform consensus from these 
bankers, whether they were in cotton, corn and soybean, or 
wheat areas that farm producers needed some sort of price 
protection, such as a countercyclical mechanism, especially 
when commodity prices plummet.
    And, Senator, if I can interject here, as I mentioned, I 
serve on the ABA's Ag Committee, and one of the things we do at 
each of our meetings is we go around the table and give a 
regional report. It is called ``bears in the buckwheat,'' which 
is a strange statement, but the story was, there was a farmer 
who came in to see his lender and the lender asked him how the 
crop year went. And he said, well, he said, it was great, he 
said, it was really great, it was great weather, good price, 
but the bears got into the buckwheat, which meant there wasn't 
any buckwheat.
    And as we go around that table, I am always surprised, 
sometimes we think that here in upper Midwest that our problems 
are unique and that no one else has the cash-flow issues. It is 
uniform across this country whether it is cotton or rice or 
whatever. Everyone has a problem and it is related to the 
dramatic rise and fall of commodity prices.
    And that brings me to the point of commodity loan rates. 
There has already been discussion on this this morning about 
the potential, anyway, for commodity loan rates, especially 
wheat, to fall. And I guess I would just say that if the loan 
rates were to fall, where we are well below the cost of 
production already, that farmers are going to be forced to do 
an obvious thing--that is, they are not going to raise wheat. 
They don't want to promise themselves a loss. And if that were 
to happen on a national basis, that would be a self-fulfilling 
prophecy that we would be dependent upon foreign wheat.
    If you think about that, it would be similar to relying on 
foreign oil, and I don't think anybody wants that kind of 
reliance when we can grow it here.
    I would also like to touch, just for a moment, on 
conservation that has not been discussed today, but there are 
some conservation issues surrounding the bills. I guess I would 
say the conservation of our soil and our water are very 
important, and programs that encourage and assist farmers in 
improving their land should be encouraged. I would caution, 
however, that I think Congress needs to avoid creating 
situations where the U.S. Government actually becomes a 
competitor for farmland and thereby exacerbating the out-
migration and creating additional economic distress to our 
rural communities.
    In closing, Senator, I would urge that this Congress 
develop a farm bill immediately that would incorporate a rural 
development and a revitalization policy as well. I mentioned 
earlier the ongoing problem of out-migration in rural America. 
America's farmers need to get beyond the commodity production 
level in agriculture if they are going to survive. Federal 
resources must be channeled into developing successful value-
added agricultural products such as ethanol, bio-diesel, and 
soy ink, as an example, and then providing the opportunity for 
the farmer/producer to own that enterprise.
    Federal dollars also need to be made available to rebuild 
the electrical energy transmission grid in this country that 
will allow us to utilize the natural wind energy right here in 
North Dakota and up and down the Midwest that could help 
alleviate the energy issues in this country. Congress needs to 
invest in programs that will aid in the development of rural 
infrastructure and create jobs in rural areas. If we can create 
additional and reliable sources of income for our farm families 
and provide good-paying jobs for our youth, who presently have 
to leave this area in order to pursue the American dream, rural 
America could be on its way to becoming far less dependent on 
Federal farm subsidies and going a long way in developing 
sustainable agriculture.
    [The prepared statement of Mr. Monson follows:]
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    Chairman Conrad. Thank you very much for that thoughtful 
testimony.
    I might just say on one of the last points you made, I will 
be making an important statement with respect to wind energy 
and incentives for the development of wind energy in the 
marketplace on Thursday in Grand Forks, and we are going to 
have an interesting display there from the West Fargo company 
that produces these large-scale wind generators. And there are 
very exciting developments in that area that have enormous 
implications, substantial opportunity for North Dakota, and we 
will be talking more about that Thursday.
    Again, thank you so much for your testimony.
    Now we are going to turn to Michael O'Keeffe, who 
represents the Farm Credit Administration, because as I have 
indicated, I have heard from lenders all over North Dakota 
telling me thousands of farm families in North Dakota will not 
cash-flow under the terms of the last year of the old farm 
bill. That is one reason Commissioner Johnson and others, all 
of us, have been pushing to get a new farm bill in place.
    Michael, thank you so much for taking the time to come.

 STATEMENT OF MICHAEL O'KEEFFE, PRESIDENT AND CHIEF EXECUTIVE 
           OFFICER, FARM CREDIT SERVICES, MANDAN, ACA

    Mr. O'Keeffe. Thank you, Senator Conrad, Congressman 
Pomeroy. On behalf of myself and the 3,800 customers of Farm 
Credit Services of Mandan, I would like to thank you for 
bringing this Senate Budget hearing to North Dakota and rural 
America. We appreciate that you recognize the important role 
that lenders play in rural America and welcome this opportunity 
to provide comments.
    As CEO of Farm Credit Services of Mandan, I can best give 
my perspective relating to the agricultural producers of 
southwest and south central North Dakota in the area that we 
service. However, on the broader North Dakota scope, the four 
Farm Credit Services associations headquartered in North Dakota 
had outstanding at year end 2001 $1.9 billion in loans and 
leases to farmers, ranchers, and agribusinesses. Those farmers, 
ranchers, and agribusinesses are dependent on a sound national 
farm policy that can provide agriculture the opportunity to 
secure the needed access to operating and capital credit. They 
are dependent on the farm bill that will provide producers 
needed risk management tools, and those farmers and ranchers 
deserve the public's interest to provide timely farm policy and 
program information, allowing producers, as business managers, 
the ability to make timely and sound business production and 
marketing decisions.
    These North Dakota producers are part of the food basket of 
America, and I think you will see by the underlying theme of my 
testimony that what is good for the farmers' bottom line is 
good for everyone, both rural and urban.
    Obviously, the lending community has an interest in issues 
facing farmers and ranchers. Over the past months you have 
heard from countless individuals, farm organizations, and 
conservation groups with suggestions and recommendations, and I 
by no means am an expert on those issues or recommendations. 
But what has become clear is that you cannot separate the 
important issues of affordable and accessible credit, cash-flow 
in agriculture, and the ability of producers to manage risks 
from the broader issues of commodity programs, conservation, 
trade or rural development. And also what is clear is we should 
not be asking farmers, as business managers, to make yearly 
planting and production decisions and longer-term/multiple-year 
business decisions without some certainties of the support they 
have from the American public regarding national farm 
legislation.
    While we would all like to see profit in agriculture coming 
from higher commodity prices and not cash-flowed by Government 
payments, the reality is that we do have depressed commodity 
markets, and farm legislation is required to sustain 
agriculture.
    Producers in other parts of the Nation have already had to 
make farm business decisions without knowing details around the 
farm bill. Farmers in southwest North Dakota are also beginning 
to make those decisions. Every spring brings uncertainty to 
North Dakota's agriculture, but it also brings hope and 
opportunity. And although timely passage of the next farm bill 
would be one less thing for producers to worry about, we do 
have a farm bill which can serve as the basis for these 
critical business decisions, but it may not be the basis for 
sound future decisions. Farmers are renewing or seeking 
operating lines of credit without knowing with certainty what 
crops they may finally seed. They want to clean seed, but don't 
know if that is the seed that they are going to be finally 
planting. They may want to or need to make long-term 
investments in equipment or resources but don't know if there 
is a sustainable profit or cash-flow for their farm operation. 
The prospect exists that they may have to select crop insurance 
options or make advanced marketing decisions before they know 
what the crop support levels or loan rate will be. This 
prospect would exist, as we talked about earlier, if a decision 
on the next farm bill isn't made or if the Secretary of 
Agriculture doesn't use the existing authorities to announce 
2002 loan rates before the March 15th crop insurance deadline 
for the North Dakota crop producers. If farmers don't have the 
information or don't know the rules for those decisions by a 
prompt passage of the next farm bill, it becomes increasingly 
difficult for farmers to request lines of credit that they 
need, and it becomes increasingly difficult for lenders to 
analyze those credit needs.
    In the mid-1980's, farmers and lenders were caught in a 
situation of falling collateral values and inadequate cash-flow 
to sustain debt servicing. That credit crisis, which was the 
result of producers borrowing on collateral and lenders lending 
on collateral, was devastating; and for those of us who lived 
through that process, that experienced those times, we do not 
want to experience those again.
    Over the last 15 years, lenders, Farm Credit, and bankers 
alike have moved to making lending decisions based on earnings 
and cash-flow. And admittedly, much of the net earnings and 
cash-flow of the last few years has come from Government farm 
programs and insurance payments. Crop producers in southwest 
North Dakota have been building equity through these earnings 
and cash-flows, and they have been able to upgrade capital and 
make loan repayments. But in 2001, even with good crop 
production yields in our area, producers in southwest North 
Dakota showed less earnings due to the continued low commodity 
prices and less Government payments.
    For 2002, we are making loan decisions based on the overall 
increased balance sheet strength of the recent past years. 
Making decisions on cash-flow and earnings capacity aren't as 
clear. The crop producers will seed a 2002 crop and the credit 
will be available for the 2002 year. But what has the potential 
for disaster is the continued lack of profits and cash-flow in 
agriculture. That potential that after the 2002 crop year, if 
we don't have above average yield or without a sound farm 
policy offsetting depressed commodity prices, we will see some 
producers exiting agriculture because they do not want to 
relive the collateral lending experiences of the past. They 
will not want to use up their balance sheet equity to remain in 
farming. And lenders, not wanting to experience those times 
again, will likely trend toward restricting credit to 
agriculture because of the inability of producers to repay debt 
from cash-flow. If we can't sustain the current agriculture 
producers, how can we expect young, beginning farmers to enter 
agriculture? These potential young, beginning farmers need 
access to affordable credit, which is another primary issue 
facing agriculture and rural America, but more importantly, 
they need agriculture and commodity prices to be supported at 
levels that can keep them in business.
    Another important factor in this whole farm bill debate is 
the need for, and use of, risk management tools. Congress took 
a step toward completing the unfinished agenda begun in 1996 
with the passage of the Agriculture Risk Protection Act. This 
provided much needed reform to the Federal crop insurance and 
provided an enhanced tool for producers in managing their 
operation. Of value are the risk management and marketing 
options contained in farm bills, providing opportunities that 
assist farmers in enhancing their marketing skills and managing 
their risks.
    Farm Credit has been a partner with farmers for four 
generations and has been there for good times and bad. While it 
is true that the terms of loans might be somewhat impacted, we 
continue to work with producers to mitigate uncertainty by 
encouraging the use of crop insurance, marketing plans, and 
future contracts; and although the lack of a new farm bill does 
not preclude us from continuing to work with our customers, 
removing the uncertainty as soon as possible is in the best 
interest of North Dakota's farmers and ranchers--and the Nation 
as a whole.
    Mr. Chairman, although many farmers and ranchers remain 
optimistic there will be additional dollars ``above the 
baseline'' for agriculture, as you had indicated, there will be 
and are many demands in the Nation's budget. The key for the 
future of agriculture, which feeds both rural and urban 
America, will be the level of additional funding through a farm 
bill and how it is distributed.
    Finally, I would like to note that farmers and ranchers, by 
tradition, are good stewards of the land. It provides their 
livelihood, and any conservation measures contained in the next 
farm bill must empower farmers and ranchers to make decisions 
on how to best utilize these resources. Decisions cannot be 
driven down on them, but must be the product of careful 
consideration as to a policy's impact on both the environment 
and the farmer's ability to manage his or her business.
    Again, it is critical that credit and support levels be 
addressed as Congress considers the next farm bill, and as a 
primary source of credit, the Farm Credit System is an integral 
part of our rural communities, and many times lenders are left 
out of the debate and the issues that are raised. And I thank 
you and commend you for including us in today's hearing.
    Thank you.
    [The prepared statement of Mr. O'Keeffe follows:]
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    Chairman Conrad. Thank you very much, Michael.
    You made a point that I think has gotten missed repeatedly 
in this farm bill discussion, and that is the connection 
between the loan rate levels and crop insurance elections. 
Could you just repeat that point? Because I want to make it 
clear in the record and draw some of my colleagues' attentions 
to that point.
    Mr. O'Keeffe. Well, the comment that I said is that 
producers are going to have to make crop insurance selection 
choices or make advanced marketing decisions without knowing 
what the loan rates are, and because of that uncertainty--and 
if that uncertainty isn't cleared before--for North Dakota 
producers--the March 15th crop insurance deadline, their choice 
of what crops they will seed may change because of whether or 
not they will buy added coverage or not seed a particular crop 
because of going with crop insurance selections on another 
crop. And my point is that the March 15th deadline faces them.
    Chairman Conrad. It is a very important point. It is a 
technical point, but it has real-world implications. That is, 
if a farmer doesn't know, because he does not know what program 
he is going to be under, has a difficult time making a decision 
by the March 15th deadline with respect to the elections under 
the crop insurance law. That is the point. And it really goes 
to the heart of the uncertainty that we have been concerned 
about. It is one of the issues. Obviously there are others as 
well, but I think it makes the point very well.
    Roger, you have been a leader on the national scene in 
terms of rural lending in the banking industry. What would be 
your message, if you had across from you 20 Senators listening 
to your testimony, with respect to how important is it that we 
have funding over the baseline for agriculture? That is, the 
money that was approved in the budget last year, that $17 
billion, if we would lose that and we would go back to the 
level under the previous farm law, which would be, instead of 
$17 billion a year, roughly $10 billion a year, even somewhat 
less than that, what would be the consequence?
    Mr. Monson. Well, Senator, the consequence to that would be 
a wholesale exodus by many, many farmer/producers. As I 
indicated before, without those previous support payments, my 
farmers wouldn't have cash-flowed, they could not have serviced 
their debt, and, of course, it would be a domino effect. As 
soon as you started having farmers withdrawing and having 
sales, then the values of capital assets decline even further 
and rural agriculture would be--we would be in a terrible, 
terrible slump, just awful.
    Going back to your question about the baseline, anything 
less than what we have had is disaster.
    Chairman Conrad. I hope that point is being heard loud and 
clear. It is very important that that point be understood in 
Washington. We are not talking about, you know, bells and 
whistles here; we are not talking about, you know, somebody's 
wish list. We are talking about economic survival for a big 
part of our economy and anybody that doesn't understand what 
Mr. Monson has said here, I think it is important to 
understand. It echoes a comment made by the head of the North 
Dakota Grain Growers in our previous conference or previous 
hearing. I asked him what would be the consequence if we lost 
that additional funding provided for in last year's budget. His 
reaction was, it would be a race to the auctioneer and I think 
you stated it in a different way, although just as compelling, 
that you would have a wholesale exodus from production 
agriculture.
    I hope people understand these aren't scare tactics. We are 
not overstating the case. This is reality. This is the truth 
and the reality is even under this additional money, 
agriculture will be getting less than we have received each of 
the last 4 years. And the reason for that is each of the last 4 
years we have passed an economic disaster plan for agriculture 
that has added $7, $8 up to $10 million over that so-called 
baseline. So actually the new money that is in this farm bill 
is not new money compared to what we have been getting. It is 
actually less money than we have been getting the last 4 years 
but substantially more money than would be provided for under 
existing farm law. That is a critical point to understand and I 
want to thank you.
    Congressman Pomeroy?
    Mr. Pomeroy. Just one brief question. Each of you mentioned 
the uncertainties presently surrounding the financing of 
agriculture and the difficulties it gives lenders to try to 
evaluate whether or not an operation is going to cash-flow. I 
would like to direct my question specifically to be announced 
by the Secretary of Agriculture on Friday that she would refuse 
to set loan rates at the highest rate allowed under the 
statute, as has been done in each of the last 5 years, the 
years of the present farm program. Does that make your job more 
difficult as you look at the proposal for financing of the 
upcoming crop year; and if so, how?
    Mr. O'Keeffe. Well, I think certainly it makes challenges 
to our loan officers' process to work with customers because of 
the uncertainty of where those rates are. The fact that they 
aren't announced, that they aren't set at the highest level, 
and they aren't able to use those higher levels to work into 
the projected budgets and that for the coming year; and as I 
said, Congressman, for 2002, producers in North Dakota are 
going to put a crop in, it is just it has got so much 
uncertainty to where do they go to the future and even so many 
of the decisions that they have to yet make for 2002. So it 
certainly challenges our job.
    Mr. Monson. If I could just add, I totally agree with Mike 
on that. As a lender, you know, commodity loan rates tend to be 
somewhat of a floor, as it were, as was alluded to in earlier 
testimony. And if we take away even that piece of it, you have 
no assurance, absolutely none, and so your cash-flow 
projections become somewhat blue sky or meaningless, and 
everyone is at risk. Farmers are in the business of risk 
management, lenders are in the business of risk management, and 
you just took away a basic tool.
    Mr. Pomeroy. I think it is going to be very important to 
push back on this very hard. As I mentioned, I sent a letter 
yesterday to the Secretary. I hope that she hears from all 
stakeholders, farmers, lenders, farm organizations, commodity 
groups, everybody. She owes it to rural America to put a 
marketing loan schedule out there, and it isn't even very hard. 
Just look at what they did each of the last 5 years under the 
Freedom to Farm program. This is no time to start reducing the 
support that has been provided to add additional uncertainty to 
an already incredibly uncertain environment under the state of 
the farm bill debate. So I think what she did was really deeply 
disappointing, extraordinary, and a hard push-back, and I would 
certainly hope the finance community would be a big part of 
that. Maybe we can reverse this position.
    Mr. Chairman, I have to go. I have another scheduling 
commitment. I want to thank you for your ongoing leadership in 
this area and for holding this hearing. I particularly commend 
this panel, which, I think, has been excellent.
    Chairman Conrad. Thank you. Thank you so much for being 
here as well, Congressman, and thanks for the excellent work 
you did over on the House side getting that bill advanced. I 
mean, it was very important. You know, the administration said 
don't do it, and thank goodness the House paid no attention and 
did do it.
    I want to thank both of you as well. I very much appreciate 
you taking the time to be here. These are important messages, 
and you have got special expertise that I think will be useful 
to my colleagues and again my personal thanks.
    Mr. O'Keeffe. Thank you.
    Chairman Conrad. Next we are going to do something a little 
different than we have done at previous hearings. As you know, 
6 months ago when the Budget Committee held a farm bill hearing 
in Fargo, North Dakota, we had the leaders of all the North 
Dakota farm organizations or the major farm organizations 
testify. Today we have asked individual producers to come and 
give their story because we thought perhaps that would add a 
new dimension in terms of persuading some of our more 
recalcitrant colleagues as to the need, that maybe if they just 
heard directly from not leaders of farm organizations but 
people who are out there, farm families from every kind of 
philosophical background, that this would be helpful. So I want 
to call to the witness stand Sue Christiansen of Bowbells, 
North Dakota; Fred Keller of Bisbee, North Dakota; Ward 
Eichhorst of Coleharbor, North Dakota; Dan Stewart of Carson, 
North Dakota; and Tim Erlandson of Oakes, North Dakota, for 
their testimony, and again I want to say special thanks to all 
of them. They don't have, you know, some staff to support them 
in their preparation of testimony. They have come here to give 
their stories, and I really appreciate it very much.
    And maybe as you each testify, if you could just give a 
little background about your family, what kind of a farm 
operation you have, and if you want to discuss your farm group 
affiliations that is fine, or not, if that is your wish. I do 
want the audience to know we have not weighted this by some 
kind of philosophical test. These are people who have 
affiliations with most of the major farm organizations in North 
Dakota, whether it is Farm Bureau or Farmers Union or the Grain 
Growers or people who are interested in oilseeds. We have tried 
to get a broad, representative group here of North Dakota 
agriculture.
    So, Sue, since you are our only woman, I think it is most 
fitting that you go first.

     STATEMENT OF SUE CHRISTIANSEN, BOWBELLS, NORTH DAKOTA

    Ms. Christiansen. Thank you, Senator Conrad, for having me 
here today and giving me the opportunity to address you. My 
husband, Randy, and I have a family farm operation. We farm on 
our own around 3,100 acres of small grains and oilseeds. We 
also help with his father's operation of another 900 acres. We 
are a self-contained farm; we do everything on our own. My 
husband does all of the welding, all of the seed cleaning. I do 
all of the grain hauling, and I work in the fields every spring 
with the cultivation and anhydrous. So we truly are a family 
farm operation on our own working to succeed. Thank you, again, 
for having me here.
    Chairman Conrad. I read that background and I don't know if 
we have met before, I don't recall it, but I thought, boy, that 
is representative of North Dakota. It really is a family farm 
operation.
    Ms. Christiansen. Thank you. I would also like to thank 
Congressman Pomeroy for being here today, Governor Hoeven, and 
Commissioner Johnson. I appreciate also their efforts that they 
do to help support family farmers in our efforts. We are very 
lucky in North Dakota to have the representation that we do.
    In my perspective I see members of the House, the Senate, 
and the Secretary of Agriculture who are disputing our needs by 
saying the farm bill is not an issue that needs to be addressed 
at this time. They are telling us that we can wait, that 
national security has been brought to the forefront and that 
that is where we need to be looking. I agree, we have national 
security issues and, yes, we do need to have that be at the 
forefront but wait and see what to do about farm policy, that 
is not what we need. Our country's No. 1 concern must always be 
the security--defense of our country but, second, second only 
to the defense, must be our safe food supply.
    The key element to this equation is the support of Congress 
to enact farm policy that secures this country's safe food 
supply. This is where legislation has to be built with a farm 
bill that allows the family farmer to function with prices for 
our commodities that support income beyond expense of the 
production.
    We are losing the American public's approval because they 
do not know the farming industry. They see our story and they 
see a farmer's story receiving outrageous Government payments 
and they believe we are all looking for a handout. Payment 
limitations must be set. This picture to the American public 
must be changed.
    In the business of farming, the commodities we raise are at 
market--are influenced by the market and by Government policy 
on foreign trade, and the Government sets our market price. 
Therefore, just like people working in industry go to their 
unions for salary increases and employees go to their bosses 
negotiating their wages, we as farmers must negotiate with the 
Government to set our earnings. It is not asking for welfare; 
it is not asking for a handout. It is receiving income earned 
for our labors. Agriculture subsidies should be viewed as 
agricultural earned income.
    Even before September 11th consumers were becoming aware of 
food supply concerns and issues of mad cow disease in Britain 
and Europe. Now with the threat of agri-terrorism, the American 
taxpayers must be more willing to spend tax dollars to keep 
American family farmers on the land to produce the world's 
safest food supply.
    My sister lives in Tulsa, Oklahoma. She has called me 
several times, and being a good North Dakota girl, graduating 
from UND, we talk about what is happening back at home. And 
even though she is in another agricultural State of Oklahoma, 
it is a very diversified and urban community that she is in. 
And as she speaks with people there, they don't understand the 
need of knowing where their food supply is coming from. She 
talks with them and continually tells them about supporting 
family farms and they feel that the farmer is his own business 
and, therefore, he should take care of himself. Until a recent 
phone call from a friend in the city, the woman was unconcerned 
about where her food choices and supplies came from and then 
this happened to her:
    The woman has a small labrador retriever puppy, and she had 
been keeping it in a box in the bedroom next to her to sleep at 
night. Well, in a few weeks, as the puppy got older, the box 
became too small for the puppy to stay in. She went to her 
local grocery store and picked up a larger box, brought it 
home, put the puppy to bed that night. But in the morning when 
she awoke and looked down at her puppy, his head was swollen 
twice the size of normal; the bottom of the puppy was also 
swollen and sore. She was petrified. She didn't know what to 
do. She called her veterinarian but since it was a Sunday, he 
told her to go ahead and give it an antihistamine, come and see 
me in the morning. Go back to the bedroom, get your puppy and 
get it an antihistamine. As she picked the puppy up out of the 
box, she looked at the box, and what did it say? ``Product of 
Mexico.''
    Immediately she referred back to my sister having a 
conversation with her about where does your food supply come 
from. Why do you feel that everything you eat in this country 
is safe and where should you be eating food from what country? 
So she called my sister and told her the problem, and the next 
morning when they went to the veterinarian with the puppy, he 
checked the dog over, and after an antihistamine and removing 
the box from her house, the puppy was back to normal. But the 
veterinarian did find that the puppy did lick on the box some 
type of a chemical substance that caused the swelling.
    A light came on for this woman, a light that all of America 
needs to become known. We need to educate the public on the 
importance of our food supply and the importance of family 
farmers supplying our food supply. Our country prides itself on 
being the leader in technology, the leader in advanced science. 
All of those accomplishments come with a price tag, and being 
the leader of the highest-quality, safest food source in the 
world comes with a price tag, too. A farm bill that supports a 
family farm income at a fair profit level to secure every 
American family's safe food supply.
    My husband and I participated in the Rally for Rural 
America. It was a cold, wet trip, and it turned out to be yet 
the boost that we needed to feel strong again by being family 
farmers. The rain didn't matter. The experience was beyond the 
rain. We really did do good there with all the representation 
from across the country. And as we walked outside of the big 
tent that kept us inside, warm, from the rain, I looked around 
and began to wonder, here we are, here in the capital of the 
United States and yet we are under a tent. Everyone inside of 
that tent knew why we were there but those outside of the tent 
walking by, going to meetings, visiting the capital had no idea 
what the enthusiasm was inside, had no idea who was represented 
underneath of that tent, and that is what is happening with 
family farms. We are inside of our own tent, and we are not 
showing to the American public how important we are to every 
single one of their lives.
    Randy and I walked out from the tent and went over to get a 
cup of coffee from a vendor, and there was a woman standing 
there with two young boys about 12 and 9 years old and I said 
hello to her and asked where she was from. And she said, 
``Well, originally I am from South Dakota, but I live in 
Virginia now.'' And I asked if she was there for the rally; and 
she said, ``Actually, my parents wanted to come, but the bus 
trip would be too much for them, so I decided it was really 
important for my sons to see where I came from and what my 
family stands for.''
    That touched my husband and I to see that somebody in urban 
America knew what we are fighting for, and yet we need to get 
it out so it is more broadcast between all of urban America.
    As we began visiting more about North Dakota and back in 
the Midwest, a group of inner-city kids that were touring the 
capital stopped by to grab themselves something to eat, and I 
asked them where they were from and, yes, they had come down 
from, I believe, Maine. And I said, ``Do you know where North 
Dakota is?'' ``No,'' they said; they really didn't have any 
idea. And I said--well, I explained on the map, you know, where 
you would find us at and I said, ``We are North Dakota farmers. 
You see that big tent over there?'' And they looked, well, 
yeah, they saw the tent. I said, ``That tent is full of 
American farmers. We produce the food that you eat.''
    You know, it really wasn't a big deal to them. I said to 
them, ``We grow wheat and durum. We grow the wheat that is 
turned into flour which is turned into the bread that you 
eat.'' Still I had no reaction. I thought, How do you get to 
these kids?
    So I said, ``Do you guys like macaroni and cheese?'' And 
their faces lit up. ``Macaroni and cheese, yeah, yeah, we like 
macaroni and cheese.'' And I said, ``Well, we make macaroni and 
cheese.'' ``Wow, cool.'' You know, suddenly we were important 
to them, they knew, but how many kids in urban America, how 
many parents and grandparents think you just go to the grocery 
store and buy that food supply and of course it is safe because 
it is here in America?
    The reality is we need to educate before we get to all of 
the perspective of what to do with the farm and how to make it 
work on paper. We have to educate so that the American public 
stands behind us and that as we said, for Senators and 
Congressmen that aren't from agricultural States, to understand 
what we stand for.
    It is time to turn the light on. It is time to be promoted 
as true providers of the world's safest food. We deserve the 
respect and we deserve to be treated fairly at the marketplace. 
We deserve a farm bill that works to keep us operating for 
every American's well-being. Congress cannot be allowed to 
ignore our importance. The administration and the Secretary of 
Agriculture cannot afford to leave us on hold without an 
effective farm program; and if we let them, if we let them do 
this to us, we will all regret the day that our country's food 
supply is no longer provided by American family farmers.
    Thank you very much.
    [The prepared statement of Ms. Christiansen follows:]
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    Chairman Conrad. Thank you. That was truly powerful 
testimony. I wish every member of the Senate could have heard 
what you said. It so obviously came from the heart and it was 
powerful. Thank you very much. We are going to have you to 
Washington to testify. I really do wish every member of the 
Senate could hear that because I think it would make a 
difference. I wish the broader American public could hear that 
message because it does make a difference.
    You know, when we had the rally in Washington, I found that 
one of the most moving experiences I have had in the 15 years I 
have been in the Senate, because you had farmers from all over 
the country sending a common message and, you know, there were 
results.
    The very next day Senator Kerrey of Nebraska and I were 
named to the conference committee on the disaster assistance 
bill and the crop insurance bill, and we got a historic 
improvement in crop insurance and we got a very significant 
disaster assistance program out of that conference committee. 
And I know we would never have been named as conferees without 
that Rally for Rural America. So thank you for that as well.
    Now, I thought I would just go in alphabetical order, if 
that is OK. I don't know if there was some other arrangement, 
but I think that is the fairest way to proceed. That makes you, 
Mr. Eichhorst, the next witness, and Ward is from Coleharbor of 
North Dakota, and please give us a little of your family 
background, if you would, too.

     STATEMENT OF WARD EICHHORST, COLEHARBOR, NORTH DAKOTA

    Mr. Eichhorst. Thank you, Senator Conrad, for the 
opportunity to be here today at the Senate Budget Committee 
Hearing.
    I was originally raised in North Dakota, graduated from 
Washburn, went to school at NDSU where I earned a bachelor and 
masters degree in agricultural mechanization. I then moved to 
Minnesota, and I began my career with USDA where I worked as a 
loan officer with Farmers Home Administration through 1994 and 
then as a mortgage underwriter for USDA Rural Development until 
1999 when I moved my family home. I am currently farming with 
my father-in-law, Don Paulson, at Coleharbor, and we have been 
farming for 3 years now. So I don't have a lot of experience 
under my belt but the learning curve is progressing rapidly. I 
have two children, two 3-year-old twins. So outside of farming 
I have them to keep me quite busy as well, and we are glad that 
we are back home here in North Dakota.
    Chairman Conrad. Well, we are glad to have you home.
    Mr. Eichhorst. Thank you. To explain what commodities are 
produced or where they are produced in our State, we all have a 
common denominator. It is to make and keep agriculture alive 
and well in North Dakota and the United States. I still believe 
that agriculture is the engine that pulls the economic train in 
North Dakota. We must all work together here to make sure the 
engine stays on the track.
    I am here to say that I had fun farming in 2001. It was by 
far the best of the 3 years since my family moved back to North 
Dakota. Everything did not go perfectly but we had a good year. 
It could have been better if grain markets would be stronger. 
Therefore, I would like to comment on five areas pertaining to 
the next farm bill that may enable farmers to have subsequent 
better use.
    No. 1, family farm. During my tenure with USDA, I had the 
opportunity to work with many family farms that varied in size. 
Farm legislation is essential for the survival of the family 
farm more than ever. However, if the objectives of the new farm 
bill are to be realized, I believe that a family farm needs to 
be identified and, more importantly, defined. The U.S. public 
or the consumer does not understand how or why Scottie Pippen, 
a professional basketball player with Portland Trailblazers, 
who earns about $18 million a year, receives USDA payments for 
land that he owns in Arkansas. Therefore, Senator Conrad, I 
pose this question for your thoughts: What would be your 
definition of a family farm?
    Two, exports. Recently Trade Promotion Authority passed in 
the House by a slim 215- to -214 margin. TPA has not been 
brought to the Senate floor as of yet. I would like to share 
with you the following numbers: Estimated 2001-2002 world wheat 
production about 21 billion bushels, its usage about 22 billion 
bushels. This will be the fourth year in a row that consumption 
will be greater than production, 2001-2002 world wheat stocks 
should be about 5 billion bushels. I have listed four 
countries: Europe, United States, Canada, and Australia. 
Exports as a percentage of their production: the EU, about 15 
percent; United States, about 52 percent; Canada and Australia, 
75 and 78 percent of their production is being exported. 
Percentage of world stocks: the EU, 9.3 percent; Canada, 4.8 
percent; Australia, 2 percent; the United States has 13 percent 
of the world stocks in its possession or pipeline.
    I am sure that others have considered the advantages and/or 
disadvantages of Trade Promotion Authority to North Dakota and 
the United States. I do not have time to discuss those here 
today. Some are not pleased with the results of NAFTA, and a 
strong U.S. dollar now is not encouraging trade either.
    In lieu of these and other factors, I am convinced that TPA 
should be approved for President Bush and that the U.S. must be 
at the trade table. Without TPA, the U.S. will continue to have 
the title ``World's Warehouse of Wheat'' for another year.
    Number 3, price. Based on my export comments, one can 
assume that I am not in favor of raising the loan rates even 
with production costs continuing their upward trend. I feel 
that this ultimately will lead to overproduction of 
commodities--soybeans, as an example--and reduce their 
respective prices. This will result in the increase of the U.S. 
ending stocks and put more economic pressure on the United 
States Treasury. I feel that exports are the key to any future 
commodity price increase. The inequity between commodity loan 
prices is another concern, especially with wheat and oilseeds. 
This is a topic that Senator Byron Dorgan has addressed. Wheat 
is now in a precarious situation due to its low price. Many 
wheat acres have transferred to soybeans and corn in this 
State. I myself planted soybeans and corn in 2001 at the 
expense of wheat. How many more wheat acres, even with higher 
loan rates, are we going to be losing to an oilseed commodity 
due to the disparity? However, if wheat has weather problems 
and the so-called expected 40-plus per bushel acre yields that 
we have become accustomed to over the last 5 years are not 
there, we have a problem of not having enough product to even 
export. A strong dollar may continue to suppress sales of the 
wheat on hand in this country today.
    On my farm we found ways in 2001 to cut wheat production 
costs per bushel by 46 percent in comparison to 2000. The re-up 
costs of 2002 are locked in at a rate 33 percent less than what 
we paid in 2001 which will help this year's overall production 
cost. There is still a pressure that one has to become more 
efficient and produce a product cheaper because of the price 
you receive when that product is marketed. However, the bottom 
line must remain in the black in order for that family farm to 
be profitable.
    Number 4, crop insurance. When I look at my crop expense 
ledger and see the figure associated with crop insurance, I 
become more than discouraged. It is the one expense that I feel 
that provides little or no value or no return versus the dollar 
spent. Certainly no one goes out and purchases life, home, or 
auto insurance at 50 to 85 percent levels. Yet this is what we 
are dealing with today regarding crop insurance.
    During my first 2 years of farming, 1999 and 2000, our farm 
was subjected to more hail than my father-in-law encountered in 
his first 35 years. That is the nature of this business. We did 
not have hail insurance those 2 years, and that was a 
management decision. However, if cost of production insurance 
was available in those years, then a majority of the hail-
related losses could have been recovered.
    Other factors that contribute to loss would also be 
included in this policy. Let me explain. If a farmer spends 
$250,000 per year on inputs with the cost of production 
insurance, he can manage his risk by selecting a percentage of 
those inputs that he wants to protect. Let's say he selects 20 
percent. Now he has $50,000 of input coverage across his whole 
farm. It is not commodity specific, and it makes no difference 
if you plant one crop or six crops. You can eliminate the 
issues involving price, yield base, and perhaps farm numbers in 
the event you farm in more than one area or county of the 
State. Assuming a cost of $17 for every $100 of coverage, one 
insurance cost for this $50,000 of input coverage would total 
about $8,500. In other words, I today cannot go out and buy CRC 
wheat coverage for my wheat and durum or multiple peril for my 
soybeans and sunflowers and canola and buy hail insurance on 
top of that and do it for $8,500. It can't be done.
    I would also like to see this insurance expanded to allow 
coverage upgrades for mid-season inputs. This could be Folicur 
on durum, Ronilan on canola, or a side dressing of corn or 
soybeans due to favorable growing conditions. These costs need 
to be covered in the event of weather-related problems down the 
road. If low prices are going to continue to dictate how gross 
income is determined, then as producers we need to find and 
develop the tools to manage the expense side of production. I 
see cost of production insurance as one of those tools. I want 
to say thank you to Senator Byron Dorgan for his work regarding 
the quality of loss program for our year 2000 crops. That 
program picked up where Federal crop insurance left off.
    Wheat research, fusarium head blight, commonly known as 
scab, has left its mark on this State the past 3 years. Many 
fields across the State have been decimated by the disease. It 
takes about 7 to 10 years to develop a wheat variety from start 
to finish. Ten years ago there was no need to address scab in 
wheat after the dry years of the late 1980's. After battling 
with this disease for 2 years, our farm has just now learned 
how to cope with it in 2001 with the help of crop rotation, 
delayed seeding, and cost of fungicide. I would hope that we 
could soon take advantage of some of the technology advances 
enjoyed today by soybeans, canola, and even corn.
    Senator Conrad, this concludes my comments. I want to thank 
you again for the opportunity to participate at this hearing.
    [The prepared statement of Mr. Eichhorst follows:]
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    Chairman Conrad. Thank you, Ward. It was excellent 
testimony and certainly useful to the committee, and we 
appreciate your taking the time to prepare it and the 
thoughtfulness of the presentation as well. Thank you very 
much.
    Next we are going to hear from Tim Erlandson from Oakes, 
North Dakota. Welcome, Tim. Good to have you here.
    Mr. Erlandson. Thank you, Senator.
    Chairman Conrad. As with the other witnesses, I would just 
ask you to just tell us a little bit about your personal family 
situation in agriculture, about your own farming operation and, 
please proceed.

        STATEMENT OF TIM ERLANDSON, OAKES, NORTH DAKOTA

    Mr. Erlandson. If I had known you were going alphabetical 
order, I would have changed my name to something in Z, but 
thank you very much for having me here.
    I am from Oakes, North Dakota. We are a row crop and small 
grain farmer. We are very fortunate in that part of the State 
to have an option to plant many different crops, whereas other 
areas here, they are pretty much stuck to the same rotation. A 
graduate from NDSU, the only college in North Dakota, is it?
    Chairman Conrad. My wife would claim that is the case.
    Mr. Erlandson. My wife, Barb, is a dietician. I have a son 
who is a freshman at NDSU this year also and two daughters in 
high school yet. Don't worry, I am not going to filibuster.
    Scott told me to be concise and precise and everything, but 
I can't even walk across my farmyard and not do ten different 
things, so please bear with me, too. Also hearing some of the 
things that have been already said today, I would like just to 
comment to Mike and Mr. Larson that I would really hate to go 
and sit in front of my loan officer--it is getting kind of sad 
to say, but our Government, we have become very dependent on 
payment as far as the financial statement. If it wasn't on 
there, it would look very sick. That is something I hate to say 
but there is a different sound to it. We all know that there is 
a difficult task ahead for you in the Senate for you to pass 
and finish a farm bill so we can have it for this year's crop. 
I wish you luck on that.
    I guess speaking as a farmer and a producer today, I 
somehow feel our industry is probably being taken for granted. 
We, as producers, we are very good at what we do. We can see 
that in the abundance of supplies and everything. Like I said, 
we are good at what we do but we are not really being paid for 
it.
    What is the answer to this problem is a very sound farm 
bill. The economy that we, as producers, work in is dictated 
that we be efficient and we are--as you have shown on your 
chart there, our costs, I mean, it is--you didn't have to show 
me that chart. I knew what was going on. Expenses are higher 
than income. The environment that we farm in dictates that we 
are conservationists, and I believe in North Dakota we are very 
good conservationists, and it is just something that is 
probably taken for granted that we do produce the safest food 
supply anywhere and our shelves are always full. You see some 
of the pictures of when Russia was having their food supply 
problems and those shelves were empty. I hope we never come to 
that here, but it would take that to show that we are good 
producers and need to be paid for that.
    Chairman Conrad. Could I just stop you on that point? 
Because it reminds me of a visit to Russia. I was in the Soviet 
Union, and we went into this town, and there was a line of 
people around the block. And I inquired of the people that were 
with us, you know, why are those people lining up; and they 
said, well, there is a rumor that there are some oranges coming 
in and the people have lined up around the block on the basis 
of a rumor that there might be some oranges for sale. I mean, 
it was absolutely pathetic to see their situation.
    Mr. Erlandson. And that is something we have never had to 
experience and, like I say, I hope we don't. I mean, we 
experienced 9/11 which really jeopardized our security, but we 
do have a good, safe food supply. And because we do have a 
cheap food supply and safe food, we need help to offset the 
cost of that. The old saying that farmers are price takers and 
we are--it seems like we cannot pass our cost of production off 
to our product. I guess I always--my dad and my grandpa farmed, 
and we always thought, man, that loan price means that these 
end users cannot buy that product for less than that, but that 
sure went out the window the last few years.
    I believe the farm program will now have to let producers 
update their yields. We have been stuck since 1985 with the 
yields that we use for program payments. Is there any other 
industry in this whole United States that base their numbers on 
17 years ago? I mean, it is a very easy thing to be done 
because with the LDP program and with the crop insurance, we 
have had to prove our yields and they are right there so that 
is very simple to do, and I am glad to see that that is being 
considered. I know in our area we have had abundant moisture, 
but we have also raised our best crops with that moisture. So, 
yes, our yields have risen dramatically, if not even in some 
cases doubled due to technology and genetics. We are not 
dealing with 17 years ago, so that does have to be looked at. 
Also there are crops being raised in our area that have not 
been common. I mean, let's look at soybeans, for example, that 
are spreading out over the whole State that, I mean, we do not 
have a yield for that, I mean, and now we are proving that. So 
that is something else that needs to be considered.
    About loan rates. Raising the loan rates, target prices, at 
least to cover the cost of production, that is not going to be 
very easy because cost of productions vary from area to area 
and it is also said that doing that is going to cause a surplus 
of some crops. Well, look what we are dealing with now, we have 
had low loan rates but I would like to comment, too, on payment 
limitations. I guess that is a tough area because there are 
large farms now--I mean, it is just the way things have gone in 
our industry. Yes, I believe that family farms should have some 
definition to payment limitation. I have had people come and 
talk to me about the so-called list that is probably--I thought 
they were talking about the most-wanted list, but I wish they 
would have put our expenses beside that money. That would have 
been good; and also we are not the only ones receiving 
Government payments. There is the Medicare industry and all 
that. Should they print a list of that, too? And the airline 
industry and the trucking industry.
    Chairman Conrad. And the railroad industry and the highway 
industry. It is a long list.
    Mr. Erlandson. It really caused some discussion. In fact, 
reading in one of the papers a farmer went into the business--
this was in South Dakota--and the businessmen jumped him about 
it, and he basically said, well, if you don't like my spending 
those moneys here, I will go across the street, which is true.
    My Government payments go for expenses for loan debt 
repayment, for hopefully updating some equipment, and without 
those payments, none of that--like I said, I would hate to be 
sitting by my loan officer and try to explain how I am going to 
do that. So a sound farm policy is what we need.
    As far as there was some talk about a savings account, I 
don't know how many farmers--we would love to have a savings 
account, but those dollars that we get do have to go for our 
operations.
    So thank you very much for this time.

    Chairman Conrad. Thank you, Tim. I appreciate that 
testimony.
    Let me just say with respect to the savings account idea, 
it may have some merit, but I would say this to you, to say you 
had $10,000 as it comes from USDA to match what a farmer puts 
away. So many of our farmers right now can't put aside $10,000 
and it is almost reverse target, it goes to those who are the 
most well off; and my biggest objection aside from that one is, 
can you imagine USDA starting to administer a program like that 
without any records upon which to base a determination?
    You know, that program was introduced on the basis that it 
would be administered by the IRS. Well, of course, they would 
have the information. Now they have transformed it because the 
Senate could not have jurisdiction over a program that would be 
run by the IRS. That legislation has to start under the 
committee in the House of Representatives. So they changed the 
administration of the program to USDA. USDA has over 100,000 
employees, isn't that correct, Tim? How many employees? 
120,000. I would venture to say they would have to add 40,000 
to 50,000 employees to administer such a program because now 
they would have to determine the financial condition and the 
contributions to these farm accounts, they don't have any of 
the information. Just as an administrative matter, that would 
create a bureaucracy of really stunning proportion. You think 
about all of a sudden people start to send in claims, I have 
got X number of dollars in a savings account, but they don't 
have any of the information with respect to that.
    You know, you talk about an invitation to scandal, that 
would be it, and that is the last thing we need. I would very 
much like to have something along these lines, especially if it 
was conceived in a way that it didn't benefit just those who 
are the most successful, wealthiest farmers today because, 
frankly, they are not the ones who need the help.
    Mr. Erlandson. If I may interject one more thing, of 
course, I have a son at NDSU that is just chomping at the bit 
to get farming, of course, and all these programs they are--it 
requires us a lot of time to think them through so we don't 
miss any of them. He might have to take a class to come back 
because, I mean, there is a lot of things we, as producers, we 
probably put as much time--we are out there putting in a crop 
and everything and taking it off there are a lot of things that 
we also have to be thinking about as far as the farm program 
goes, too.
    Chairman Conrad. It has become incredibly complex--I mean 
really, to manage a farm operation today takes a level of 
sophistication and knowledge that I think would have been 
really amazing to people even 20 years ago. I mean, you think 
about what is required by way of record keeping, by way of 
analysis of the market, and understanding of all the tools that 
are available to a modern farmer, you have to be a very 
sophisticated business person today.
    Next we are going to hear from Fred Keller of Bisbee, North 
Dakota. Fred, welcome. It is good to have you here. If you 
could, as I have indicated with the other witnesses, give us a 
little of your personal background and what your family is 
involved in, I think that would be of interest to the committee 
and the audience as well.

         STATEMENT OF FRED KELLER, BISBEE, NORTH DAKOTA

    Mr. Keller. Thank you, Senator. I would like to thank you 
for the opportunity of inviting me to these hearings. I farm in 
Bisbee. It is in Towner County. I have been a farmer for 36 
years. My son farms with me, and my wife teaches science at 
Bisbee High School. My son would like to carry on farming after 
I retire, but in order for my son to be able to continue 
farming, I realize it is obvious that the farm economy is going 
to need some financial insurance. This financial insurance 
seems to be a fair and worthwhile Federal farm program.
    Coming from a small rural community, I have had the 
opportunity to watch the effects of poor crops and prices of 
the community. We have lost--our historic homes that were once 
occupied now stand empty, thus destroying part of the tax base 
that support our schools, fire departments, et cetera. Our 
churches are kept functioning by traveling ministers.
    When I hear a discussion on the farm bill, I realize that 
it may be a farm bill, but it is really a rural community bill 
which is necessary for the farming community to survive. I feel 
a good farm bill should address a number of issues which are 
one of the most important that provide a increase in loan rate 
that brings it closer to the cost of production.
    Two, it should provide a fair market price for our products 
so that dependence on the Government is less. A bill should 
include a safety net that will support the falling economy in 
times of disaster and low commodity price. The bill should 
address the expansion of potential agriculture-based industries 
such as ethanol, wind power, and fuel additives to cut the 
petroleum needs and strengthen the farm economy in the areas of 
oil-producing crops. It should provide a fair conservation base 
for the lands that are threatened by erosion, but I do not feel 
that CRP should be expanded, as the expansion will remove more 
people from the farming communities which rural North Dakota 
can't afford.
    To be fair, the bill should place a maximum on the number 
of acres eligible to participate in the program, but that is 
going to be awful hard to figure out those things.
    Going back to the immediate future, which is getting the 
crop in the ground for the 2000 growing season, without an 
improved farm program, a lending institution may find it 
difficult to justify a sizable loan with little or no feeling 
of security on the value of the harvested crop. I realize a 
good farm bill is a non-realistic dream. However, the Senate 
bill proposes a good start and would allow farmers to get the 
seed in the ground next spring. We can't wait too long because 
the spring is quickly approaching.
    Thank you.
    Chairman Conrad. Thank you very much. Fred, you mentioned 
something that nobody else has, and I think it is very 
important for the record to make the connection here. You said 
a farm bill, as you see it and as you have come to understand 
it, is really a rural community bill. Would you just explain 
what you meant by that?
    Mr. Keller. Well, our small communities are made up mostly 
of farmers or involved in agriculture some way and if we are 
not there, the small communities aren't going to be there. And 
as a small community, everyone in my community goes to the 
bigger town to the doctors and the banks. Well, if we are gone, 
then slowly they are going to go and pretty soon I think North 
Dakota will be gone.
    Chairman Conrad. I just hope that the importance of that 
statement is not lost because what is at stake here is 
enormous. The implications of a failure to have a strong farm 
bill are huge.
    I would like to go back to one point that I tried to make 
earlier because I think it is too often lost on people. Can you 
put up that chart, Tim? That shows what Europe is doing for 
their producers versus what we are doing for ours. I really 
want to emphasize this because I have spent a lot of time with 
the Europeans, the chief trade negotiator for the Europeans. If 
there was no other point made here today, if people left this 
room with no other thought in their head about this farm bill, 
I personally hope this is the point that they would remember: 
That red bar shows what Europe is doing for their producers, 
$313 an acre of support every year. That blue bar is what we 
are doing, $38. And I can understand somebody in an urban area 
wondering why are we giving $38 an acre here if they don't know 
what our major competitors are doing. But that is a fact. These 
are not Kent Conrad's numbers. These aren't even USDA's 
numbers. These are the Organization for Economical Cooperation 
and Development, the so-called OECD. They are the international 
scorekeeper. They are the ones that have responsibility to come 
up with comparable numbers for all parts of the world with 
respect to agricultural support. This is a fact. We have told 
our farmers, you go out there and compete not just against the 
French farmer and the German farmer, but you go out there and 
take on the German Government and the French Government as 
well. That is not a fair fight.
    Now, we can take on the French farmer, the German farmer. 
We can do that, but we are being asked to take on the French 
Government and the German Government as well. That is not a 
fair fight, and that is why I believe it is so critically 
important to level the playing field.
    There has been some discussion of loan rates. Ward, you 
made the point you are reluctant to see loan rates go up 
because it leads to more production. I understand that point. 
The point I make back is, if we don't send a message to our 
European friends that we are not going to abandon our 
production, then they won't discipline their efforts here in a 
world agricultural export subsidy. After being sent in to 
negotiate with the Europeans in Seattle, I was asked by our 
trade representative to go debate the Europeans at Seattle on 
the question of agricultural support. I tell you it was an eye-
opener. I wish every North Dakotan could have been there and 
heard the argument coming from the Europeans as to how this was 
fair. I wish you could have heard it. It is not fair and we 
can't survive with this kind of difference. You can't survive. 
And we have got to level the playing field, and the only way, I 
believe, we are ever going to negotiate a fair playing field in 
world agriculture is if we stand up for our farmers and give 
them a fair, fighting chance. I don't know of any other way, 
and the only way I know how to do it is to put money on the 
table.
    This is a fight. I can tell you what the chief negotiator 
of the Europeans told me. Senator, he said, we believe we are 
in a trade war in agriculture with the United States. We 
believe at some point there will be a cease-fire in this trade 
war. We believe it will be a cease-fire that will hold 
everybody where they are. A so-called cease-fire in place and 
what is in place, it is market share. And that is why, Senator, 
we for 20 years have been on a strategy of building market 
share because we want to dominate world agricultural trade. You 
look at what they have done. You don't have to wonder about the 
rhetoric. Go look at the record.
    They have gone from being the biggest importing region in 
the world 20 years ago, and they are on the brink of becoming 
the biggest exporting region today, and they did it the old-
fashioned way, they bought these markets--$90 billion a year. 
That is what they are spending, $90 billion a year. How can 
they afford it when we are spending $25 billion, how can they 
afford that difference? Well, we provide the defense umbrella 
for them. We save them over $100 billion a year there, and they 
take the money and they put it right here. I mean it is just as 
clear as a bell. It is as clear as a bell for anybody that 
wants to look and what are the implications of this.
    You look at what happened in the last trade round, what did 
they negotiate? Equal percentage reductions in the level of 
support. Equal percentage reductions from unequal basis. Europe 
is here, we are down here. You get equal percentage reductions, 
what happens? They are up here, we are down here, equal 
percentage reductions. You know what the former chief trade 
representative for the Europeans told me? He said, Senator, we 
believe we can always get equal percentage reductions in the 
levels of support. It sounds fair, we will be able to argue we 
are giving up more than you are giving up and you know what, 
Senator, we believe at some point as we keep ratcheting down, 
getting equal percentage reductions at some point you will fall 
off the cliff. You will fall off the cliff. As you ratchet down 
your loan rate, it will become so far below the cost of 
production that we will drive people out of production 
agriculture in America, that we will make parts of America 
unable to be productive and we will then dominate world 
agricultural trade.
    Now, how could you be more clear than that? Does anybody 
not understand that strategy and that threat? And is that in 
America's interest to have Europe be the world's agricultural 
dominant agriculture producer? Is that in our interest? Is it 
in our interest to have any of our food supply coming from 
other countries? I tell you, they have made a decision it is 
not in their interest to do so, and they have experienced 
hunger twice and they have determined never, ever to be hungry 
again and never, ever to be reliant on somebody else for their 
food supply again. I believe at some point America will make 
that conclusion and that determination. I just hope it is not 
too late.
    With that I want to go to Mr. Stewart. Dan, welcome. Dan is 
from Carson, North Dakota. Let the record show he is wearing 
his hat. I tell you it is good to have you here. Please 
proceed.

         STATEMENT OF DAN STEWART, CARSON, NORTH DAKOTA

    Mr. Stewart. Thank you, Senator. You know, I thought about 
taking this off and I thought, well, you wanted people from the 
farm and the ranch and, by God, you have got them.
    Chairman Conrad. All right. That is good.
    Mr. Stewart. And I am comfortable in it, too. I would be 
less comfortable with my bald head showing. I will get to my 
family as I get started here.
    As I think about the reasons that I was asked to be one of 
the panelists--and I am honored not only to be with you today, 
Senator, but with my fellow farmers and ranchers today--I 
wondered if I was qualified. And after I spoke to Scott 
Soverign, I thought about that as I was out feeding that 
morning after I had already said yes, and I got to thinking 
about that and thinking about my goals and my experiences and 
the things that I have done in my community and the State 
experiences that I have had, and I guess maybe the approach 
that we need to influence the uneducated members of 
Washington--not yourself, Senator--is maybe this grass-roots 
approach.
    My life has revolved around the livestock business since I 
was born 40 years ago. I am a fourth-generation rancher. We 
live 20 miles south of Carson on the Cannonball River. My wife, 
Jackie, and I have been married for 21 years. We have four 
children. The oldest boy is in college studying to be a history 
teacher. The second boy is a junior in high school. My only 
girl is a fifth grader. And my youngest son is 5 and is in 
kindergarten. And this last year was interesting because I had 
a boy who went to start college and a boy start kindergarten on 
the same day. So that is truly a family farm.
    Chairman Conrad. That is what we call a caboose.
    Mr. Stewart. My wife and I graduated together from Carson 
High School in 1979, and I graduated from BSC with a Bachelor's 
of Science degree in 1981. At that time my wife and I took 
residence on our family farm.
    I am currently the Chairman of the Grant County Commission. 
I am in my fourth year, and in my sixth year as a school board 
member for the Carson School. I am a member of the Grant 
Hettinger County JDA for the Job Development Association which 
focuses on bringing new businesses to our counties and helps 
sustain our current businesses. I am a member of the North 
Dakota School Board Association Governmental Affairs Committee 
which manages current policies and monitors new concerns to 
North Dakota education. I was previously a 6-year board member 
of the Dakota Plains Federal Credit Union of Lemmon, Hettinger, 
Faith, and Bison, and I am a member of the grass-roots 
organization R-CALF. My family and I are active in Saint 
Teresa's Catholic Church in Carson.
    Being a fourth-generation farmer, I think it is very, very 
important. I look back at the history of our family and our 
ranch celebrating 100 years in 2001, and it has been a 
struggle. At this point we are about 5,400 acres. That has been 
built up throughout those four generations. We raise about 400 
cows and have a background program. I watched my father--and I 
heard the people from the lending institutions talk about the 
1980's--and I watched my father struggle in the 1970's and 
1980's when the farm crisis was probably more visible and more 
publicized at that time. That was a very painful time. Very 
hard times. We survived them and my wife and I were able to 
purchase the ranch in the early 1990's. So I guess in my eyes I 
am qualified to speak today, but everyone has to draw their own 
conclusion.
    I live and breathe my community, the farmers, the ranchers, 
the business people, everyone. Is an aggressive farm bill 
important to my community? Undoubtedly yes. Almost every 
conversation with my fellow ranchers eventually ends up talking 
about income, expenses, the price of fat cattle, the cost of 
corn, cattle on feed reports, packer concentration, Government 
programs, et cetera, et cetera. The unpredictability of our 
business is sometimes too much to stand as many of our friends 
and neighbors have sold out to the wealthy, nonresident hunter.
    The livestock industry needs some simple protection out of 
this farm bill as we do not have the equivalent of an LDP. 
Price supports do not apply to beef.
    One of the things that our industry is asking now is 
country of origin labeling, just exactly as it is written in 
the current farm bill today, without changes, clearly stamped 
USDA, including ground beef. After the realization of 9/11 that 
we can be easily targeted, shouldn't our people be assured that 
they are being fed clean, safe food? I don't believe that today 
many people would eat an imported steak from Afghanistan. The 
risks are just as real coming from places like Brazil, 
Australia, Mexico, Canada, and elsewhere because the trade 
doors are wide open with little or no tariffs and little or no 
health inspection. This country could be devastated by 
contaminated imported food. We have strived for decades to 
produce a better product for the consumer, and today we can't 
even tell them if they are getting it.
    Just recently in New York and New Jersey, 461 tons of 
canned corn beef was recalled by USDA's Food Safety and 
Inspection Service. The product contained ingredients that are 
prohibited in the United States such as lungs and oral mucosa. 
Sounds pretty appetizing. The recalled cans were stamped 
``Brazil Inspecionado'' on the bottom of the can. Brazil's 
cattle herd has been infected with foot and mouth disease for 
the past several years and is prohibited from exporting fresh, 
chilled, and frozen beef to the U.S. so they have canned it.
    Another segment of the farm bill that my fellow ranchers 
and I would like to see stay just the way it is is the ban on 
packer ownership, which does not allow packers to own cattle 14 
days prior to slaughter. Packers have used captive supplies to 
prevent demand signals to reach the live cattle market for 
years. This prevents the market from responding favorably to 
increased demand. There is safe language in the amendment to 
protect farmer-owned cooperatives and small private packers; 
and I am aware that Senator Craig from Idaho has plans to try 
to weaken or even eliminate this amendment by turning it into a 
study on packer feeding. We don't need a study on something 
that can be verified with 10 minutes of phone calls.
    And, again, our trade deficit continues with our neighbors 
to the North. Canada's imports are up 6 percent from last year 
and our exports are down 6.5 percent--I am talking livestock. 
That leaves this year's tally at a deficit of 1.45 billion 
pounds, that compared to 300 million pounds in 1987 just before 
the Free Trade Agreement was signed, and this has obviously 
been very, very good for them.
    And our friends in Australia have filled their beef quota 
for the second year in a row. The U.S. allowed 378,214 metric 
tons of beef to be imported annually. Further imports are 
subject to a 26.4 percent tariff. Australia earlier this year 
introduced a U.S.-Australia Free Trade Agreement to the Senate, 
which would create a NAFTA-type trade agreement. They are 
interested in increasing import quotas and also being allowed 
to bring in live cattle. Last year Mexico signed a bilateral 
agreement with Australia to import 100,000 Aussie cattle that 
most likely are bound for the U.S. Senator, we cannot allow 
these type of expanded imports.
    Senator Conrad, the livestock industry is not looking for 
big bucks from the farm bill. We are asking for protection from 
out-of-control competition from home and abroad. We are asking 
for the ability to give to our people and the people abroad a 
safe, certified food supply provided by dedicated farmers and 
ranchers across the United States. Please continue to fight to 
give us the tools we need to accomplish this, and further 
generations of healthy, well-fed people will thank you for your 
efforts.
    Before I finish, I want to agree with the sentiments given 
today about the Ag Secretary. I have had severe disappointments 
in the actions that have taken place with her, and I think that 
something needs to be done as that is such a major portion of 
creating farm policy and farm bills. Also, I would like to 
thank our Ag Commissioner for being here today and all the hard 
work that he has done. He has done wonderful work for us.
    Last night on the way home from town, I picked up my 
daughter and my little guy and we are heading home and I was 
explaining to them what I was going to be doing today, why I 
wasn't going to be home and I had to leave before they got up; 
and when I got done explaining what I was going to do, talking 
about the farm bill, my 9-year-old daughter said, and I quote, 
``Dad, isn't that why we raise cattle so we can pay our farm 
bill?'' And I said, ``Yes, that is exactly what I am going to 
talk to Senator Conrad about, paying the farm bill.''
    Thank you.
    [The prepared statement of Mr. Stewart follows:]

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    Chairman Conrad. Thank you very much for really excellent 
testimony. I tell you, you are fully qualified. This has been a 
wonderful panel. I wish so much my colleagues could have heard 
this.
    You know, in the previous hearing we had farm group 
leadership of North Dakota, and it was terrific, it was an 
outstanding panel. When we were starting to formulate this 
hearing, we were asked by some to repeat that. And I said, you 
know, I don't think that is what we should do. I think we 
should try to hear from the grass roots because I think these 
individual stories might make a different kind of impact on our 
colleagues; that it was critically important to hear from our 
farm group leaders in the previous hearing, but in this hearing 
I think if we could have some individual stories that we could 
take back, sometimes it is more meaningful and in the big 
picture story, that our current group leaders are able to 
provide so well, that to have individual stories of families 
and what their life is like and what this means to them 
sometimes makes more of an impression. It is more 
understandable to people then, you know, the charts that I use, 
for example, and try to make the big point that maybe it brings 
to life for them how a decision made in Washington actually 
impacts the lives of farm families out here; and to understand 
we are not talking about the Scottie Pippens--goodness knows 
Scottie Pippen can take care of himself, he doesn't need any 
help. He is a great basketball player. I certainly admire his 
basketball. I played high school basketball, and I like to say 
Michael Jordan learned a lot of his moves from me. I don't 
think that is true, unfortunately.
    But you said a number of things, Dan, that I really want to 
rivet the point on. I believe in free trade; as a principle, I 
think it makes sense. But the devil is in the details. Let me 
just talk for a minute about the Canadian Free Trade Agreement. 
They called it a free trade agreement, but with respect to 
durum, it has got nothing to do with free trade. Nothing to do 
with free trade. Canada went from zero percent of our durum 
market to 20 percent of our durum market after the passage of 
the Canadian Free Trade Agreement--not because they are more 
efficient, not because they are more competitive, but because 
of a loophole in that trade agreement when, on the face of the 
agreement, it says no side shall sell below its cost in the 
other's market, but in a secret side deal the then-Secretary of 
Agriculture entered into an agreement with the Canadians that 
said when you establish your costs, you don't have to count the 
interim and final payments of the Canadian Government to 
Canadian farmers. You don't have to count it. So now what 
appears to be a free trade agreement is not one. We can't 
export to them; they can export freely to us. That is not free 
trade. That is a perversion of free trade.
    NAFTA, what happened there? I opposed both of those 
agreements, although I supported the gap, I supported the 
larger movement because I think it is the right principle, but 
the devil is in the details. What happened to NAFTA? In NAFTA 
we negotiated a 10 percent reduction in their tariffs to 
improve our access to their market. Almost immediately 
thereafter they devalued their currency by 50 percent. So you 
know what? We were 40 percent worse off than when we began. We 
then went from a trade surplus with Mexico to a significant 
trade deficit with Mexico. Was that because we were less 
competitive? No. It is because they devalued their currency.
    Let me just say if the free trade agreement with Argentina 
that was being sought was in place before this devaluation they 
are undergoing, a 30 percent devaluation, the exact same thing 
would have happened to us in Argentina. We would have 
negotiated maybe a 10 percent reduction in tariffs, they 
devalue by 30 percent. Are we in a better position or worse 
position? I say to you the devil is in the details.
    Dan, I just wanted to report to you, on January 1st the 
European Union just implemented stringent country-of-origin 
trace back requirements for all meat. January 1st. They have 
done it. The question is: Will we do it? I would say we would 
be fools not to do it. Can you imagine what would happen if 
there was a threat to our food supply? Can you imagine what 
would happen if a terrorist organization introduced adulterated 
meat into the U.S. food supply? Just think in hamburger alone, 
if they introduced something that is commonly occurring 
already, we all know, in hamburger that kills people, that can 
kill people, we have got no ability to trace that back. You 
know what Europe has done, they are going to put in place a 
system that will allow them to trace back any package of meat. 
Not just to the country, they are going to trace it back to the 
farm where it was produced. That is what they are going to do. 
I think that is what we ought to do.
    Now, we can't do this overnight, they can't do it 
overnight, but they have started with stringent country-of-
origin labeling and trace-back for all meat. And I can tell 
you, I have met with their people, they fully intend with the 
new technology to be able to take it back to the individual 
farm where that has been produced because of hoof-and-mouth, 
what they now call foot-and-mouth--I don't know when that ever 
changed. When we were growing up, it was hoof-and-mouth--and 
mad cow and because of this terrorist threat.
    Now, I just say to you, that is the direction we ought to 
be going. We have got a good start on it in this bill, in the 
Senate bill, and it ought to be kept just as you have stated.
    Mr. Stewart. They are smart enough to learn from their 
mistakes.
    Chairman Conrad. Well, they certainly have.
    Mr. Stewart. They have starved to death so they are paying 
their farmers and ranchers well. They know the importance of 
food. They have had the terrible health risks. They have buried 
and piled and burned hundreds of thousands of animals. They 
know the risks, so they are doing something to solve the 
problem. We have an opportunity to solve the problem before it 
has happened to us. We have the easy way to do it. We have got 
to look over the fence and see the wreck; now we can avoid 
doing it ourselves. It is very simple and maybe it is too 
simple.
    Chairman Conrad. It couldn't be any better stated than 
that. It couldn't be any better stated than that.
    I know that we have run out of time. I apologize to others 
who are here. I am going to do this: I have got another 
obligation I have to go to, but there are a list of 
organizations who have indicated an interest in providing 
testimony. I will hold the hearing record open for 10 days, I 
can do that under the rules of the committee, hold the record 
open for 10 days. Anybody that wants to submit other written 
testimony--we already have a long list of organizations who 
intend to do so. I honor all of those requests.
    [The prepared statements follow:]

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    Chairman Conrad. Any additional requests to enter testimony 
into the record, we will hold it open for 10 days, and I want 
to thank all of you for being here. I wanted to especially 
thank the witnesses for taking the time to prepare this 
testimony and the thought that went into it. I appreciate it 
very much and to thank all of you for being here. This is a 
fight worth fighting because this is the future not only of 
North Dakota but in many ways the food supply of our country.
    Thank you very much.
    [Whereupon, at 11:50 a.m., the committee was adjourned.]

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  IMPACT OF THE PRESIDENT'S 2003 BUDGET REQUEST ON HIGHWAY AND WATER 
                          INFRASTRUCTURE NEEDS

                              ----------                              


                      WEDNESDAY, FEBRUARY 20, 2002

                              United States Senate,
                                   Committee on the Budget,
                                                       Bismarck, ND
    The committee met, pursuant to notice, at 10:02 a.m., in 
the Prairie Room, Bismarck State College, Bismarck, North 
Dakota, Hon. Kent Conrad, (chairman of the committee) 
presiding.
    Present: Senator Conrad.

              OPENING STATEMENT OF CHAIRMAN CONRAD

    Chairman Conrad. The hearing as part of the Senate Budget 
Committee will come to order. Welcome. It is good to have you 
here. We are going to have a chance to talk about a number of 
issues that are critical to North Dakota in terms of funding 
Federal highway programs, and as a result State highway 
programs. We are going to be talking about the funding for 
water projects in the State of North Dakota including dike 
protection, including Devil's Lake, including the Dakota Water 
Resources Act. So we have got a lot of important issues to talk 
about today.
    Before I begin, let me indicate that this is an official 
hearing of the Senate Budget Committee and that the transcript 
of this will become a part of the official record of the Senate 
Budget Committee. Obviously, the timing of this meeting is 
especially important because we are about to consider writing 
the budget for fiscal year 2003. Our obligation as a committee 
is to complete work by April 1st and we are on a time schedule 
to accomplish that.
    This is going to be an especially difficult year because of 
our conditions that we now confront. You will recall last year 
we were told we would expect $5.6 trillion of budget surpluses 
over the next decade. With the President's budget we are now 
told that that is $600 billion. So we have gone in one year 
from having $5.6 trillion of surpluses over the next decade to, 
if the President's budget is implemented, that has been reduced 
to $600 billion; $5 trillion of disappearance of surplus in 
just one year.
    Obviously that is a dramatic change. And we should point 
out, that is important to understand, every penny of what is 
left is Social Security money. There is no--when they talk 
about surplus money in Washington they are using wrong language 
because there are no surpluses left. All the money is gone. The 
only money that is left is Social Security Trust Fund money, 
and that money is needed, obviously, to meet the promises of 
Social Security for the future. So there really are no 
surpluses left.
    What we see instead is the next--not only in this next year 
but in the entire next decade, non-trust fund deficits. That is 
if you treat the trust funds as trust funds there are nothing 
but deficits for the entire next decade. That is critical to 
understand. This is a time, we know, the baby boomers start to 
retire in just six years.
    Where did the money go? The Congressional Budget Office 
came and testified before the Senate Budget Committee that over 
the 10 years 42 percent of the disappearance went to tax cuts; 
23 percent was a result of the recession; 18 percent, labeled 
here other legislation is new spending largely resulting from 
the attack on this country of September 11th; 17 percent are 
technical changes. Those are largely underestimates of Medicare 
and Medicaid spending over the next decade. In other words, 
they underestimated what the cost would be of Medicare and 
Medicaid.
    Some people have said to me, Senator, you have been so 
concerned about using Social Security money for other reasons; 
haven't we done that forever? The answer is, no, we have not 
done that forever. We have done it too frequently. Going back 
to 1996 we were using all of the Social Security Trust Fund 
money for other purposes. The same thing happened in 1997, but 
then we were able to make a dramatic reduction and save most of 
the Social Security surplus for Social Security. In 1998 we 
were able to save all of the Social Security surplus for Social 
Security in both 1999 and 2000.
    Then we started slipping back the other way in 2001. 
Although we were still preserving most of the Social Security 
Trust Fund money for Social Security. But you can see under the 
President's budget now we are right back at it and going to be 
using all of the Social Security Trust Fund to pay for tax cuts 
and the other expenses of Government. I believe that is a 
profound mistake. We are going to see the baby boomers start to 
retire soon.
    There are a lot of implications of this. Last year we were 
told there would be non-trust fund surpluses of $2.7 trillion. 
Now that has changed from surpluses to deficits of $2.2 
trillion. If you run non-trust fund deficits there is only one 
place for the money to come from and that is from the trust 
funds themselves. So what we see under the President's plan is 
that he will be taking $2.2 trillion of trust fund money, 
Social Security Trust Fund money, Medicare Trust Fund money to 
pay for tax cuts and the other expenses of Government.
    All of this has significant implications. You will recall 
last year we were told we would be able to pay down $2 trillion 
of debt over the next decade. That has now been dramatically 
reduced to just over $500 billion of debt that will be retired, 
and frankly, this is very optimistic because it does not 
include a whole series of initiatives that I think are quite 
likely to occur.
    The result of that, of course, is that we have higher 
interest costs. Last year we were told that the interest cost 
over the next decade would be $600 billion, a little over that. 
Now we see that interest costs to the Federal Government will 
be over $1.6 trillion; a $1 trillion increase in interest 
costs. And of course, if you are paying money for interest you 
are not using the money to strengthen our national defense or 
improve homeland security, or build roads or build important 
water projects, or educate kids or anything else. Interest is 
interest and has to be paid. But it obviously money that could 
have been used for some other purpose.
    Now we want to talk just briefly about the highway funding 
circumstance that we face. The first chart shows the reduction 
at the Federal level. At the Federal level in the year 2002 we 
had $32 billion in Federal highway program funding. In the 
President's new budget that is reduced to $23 billion, a $9 
billion reduction; a reduction of close to 30 percent. That is 
a very dramatic reduction obviously.
    Let us go to the next chart to show the effect on North 
Dakota. The effect on North Dakota is the following: in 2002 we 
had $179 million for road and bridge budgeted across the State 
of North Dakota. Under this budget as it has been submitted 
that would be reduced to $135 million. Obviously a dramatic 
reduction in highway program funding for the State of North 
Dakota.
    The same pattern is true with respect to Corps of Engineers 
construction funding for North Dakota. The President's budget 
provides $42 million for those projects in North Dakota. The 
construction funding needs according to the Corps of Engineers 
is $146 million. So you can see that we are well short of 
meeting the funded needs that have been identified by the Corps 
of Engineers in North Dakota.
    The same pattern is true with respect to Bureau of 
Reclamation construction funding. The budget that has been 
presented to Congress by the President provides $25 million for 
those projects in North Dakota. The needs are $44 million.
    This pattern repeats itself across the country. That is why 
we thought it was important to have this hearing this morning 
to hear from people who know what the impact is of these 
budgets, what it means to North Dakota. That is why I have 
asked a very distinguished panel of witnesses to first talk to 
us about the highway funding issues.
    Dave Sprynczynatyk is here, director of the North Dakota 
Department of Transportation; somebody I have had a great deal 
of experience with over the years. He played a key role in 
getting the Dakota Water Resources Act passed in Congress. 
North Dakota will forever be in his debt because of the 
extraordinary work he did in helping us get the Dakota Water 
Resources Act passed last year after an effort of many, many 
years.
    Paul Diederich is here, president of Industrial Builders 
and vice chairman of the Highway Division of the Association of 
General Contractors of America. Paul, welcome. It is good to 
have you here.
    And Mark Johnson, the executive director of the North 
Dakota Association of Counties. We appreciate very much your 
being here.
    Let me indicate that under the rules of the Committee your 
full statements will be made part of the record, and we would 
ask you to summarize those statements and be available for 
questions.
    Just in terms of audience reaction, under the rules of the 
Senate we ask that you not make any outward display of support 
or opposition for what witnesses say. That is part of the 
stated rules of the Senate. I know people in North Dakota are 
very good at respecting rules. So with that we will begin.
    I want to again welcome the witnesses and welcome everyone 
else that is here. I know when you have to prepare testimony 
for a meeting like this there is a certain amount of time that 
is spent on the effort, and I just wanted you to know that the 
committee very much appreciates you taking the time to prepare 
the testimony to be here, and to be here to provide that 
testimony as well.
    Mr. Sprynczynatyk, please proceed.

 STATEMENT OF DAVE SPRYNCZYNATYK, DIRECTOR OF THE NORTH DAKOTA 
                  DEPARTMENT OF TRANSPORTATION

    Mr. Sprynczynatyk. Thank you. Thank you, Senator. Good 
morning, and thank you very much for holding this hearing here 
today addressing two very important issues in North Dakota, 
both water and transportation. And thank you for everything 
that you have done in the past in the areas of both water and 
transportation. We really appreciate your efforts and the State 
is certainly better off today than it was years ago in those 
two particular areas.
    I appreciate the opportunity to address the Committee this 
morning to talk about what we consider to be very significant 
potential impacts to the State of North Dakota and to the 
Nation as a whole in the transportation budget for 2003. As you 
have pointed out, there will be nearly a 30 percent reduction 
in funding available to the States if the current budget as 
proposed is passed into law.
    For North Dakota that is nearly a $45 million reduction, 
and it will have significant impacts all across the State. It 
will be extremely painful not only for the State itself, but 
also for the counties, the cities, and the Indian reservations 
as well. It will cost jobs. It will interfere with economic 
development in the area of agriculture, energy, and other 
industries, and also tourism, which is now the second largest 
industry in the State of North Dakota. What we will also see 
are increased vehicle repair costs, and also increased fuel 
consumption which will have an effect on every one of our 
citizens.
    Let me talk about what is happening in North Dakota in the 
area of our transportation infrastructure and where we are at 
today. Unfortunately, North Dakota is still continuing to lose 
ground even under the current levels of funding in the area of 
transportation infrastructure and our ability to maintain it. 
Over the last two years we have worked with the counties and 
cities in trying to develop an accurate needs assessment of 
what needs to be done to maintain our system. For the State 
system alone, which is valued at about $8.5 billion we are 
nearly $90 million a year behind what it takes to adequately 
maintain our system. So even before we talk about what could 
happen in 2003 we are experiencing difficulty in properly 
maintaining our system.
    Chairman Conrad. Could I just stop you on that point, Dave? 
I want to make sure we capture this for the record. What I hear 
you saying is at the $179 million, which is last year's level, 
we would be $90 million short of meeting the need?
    Mr. Sprynczynatyk. Yes, Senator, that is correct. That is 
true for the State system. You will also hear from Mark Johnson 
about the needs at the local level, at the county and city 
level. In the studies that we have done, the total need between 
those three levels of jurisdiction is slightly more than $200 
million a year. That is just to maintain the system, to 
properly maintain it.
    As is obvious, this type of reduction in Federal funding 
for next year would certainly hurt every level of Government. I 
have not mentioned the townships, but the townships too would 
be impacted as well. Currently in the State we provide about 25 
percent of the Federal funding that is made available to North 
Dakota to the other jurisdiction. Obviously this 45 percent 
reduction will have a significant impact.
    Also as we understand, even though the State does not pass 
money on to the reservations, if this $9 billion cut is in fact 
put into place, the formula that is used to distribute funds to 
the Indian reservations would also result in less funding. We 
are concerned because we work very closely with the Indian 
reservations and the tribes to ensure that all of our citizens 
can properly move goods and move people throughout the State.
    When the current highway bill TEA-21 was passed into law we 
had high hopes of greater certainty of funding each and every 
year. As we look to the future and as technical adjustments 
were made nobody foresaw the type of swing that we could 
experience next year if nothing is done. That is unfortunate 
because it makes the strategic planning that we all need to do 
as we develop our transportation infrastructure much more 
difficult.
    We are at a point right now where, quite frankly, we are 
almost looking towards crises management if something cannot be 
done to increase the level of funding in 2003. We do know in 
talking to our partners in the engineering consulting industry 
and also the construction industry that they may have to take 
measures this year to reduce their workforce just knowing what 
might happen next year. That is a great concern to us in the 
State of North Dakota.
    Our system is vital not only to the State but to the Nation 
as a whole. There is no question that North Dakota is number 
one in a number of agricultural products and if we do not have 
an adequate transportation system in place in the State the 
rest of the Nation is not going to be able to have as easy 
access and as inexpensive access as they do now to those 
products, because if the transportation system is not adequate 
the costs will go up to deliver those products to market.
    The other thing that we have experienced in the last 20 
years is a reduction in the amount of miles of railway in the 
State. This has had a greater impact on our highway system. 
Since 1980 we have lost about 1,400 miles of railway and that 
just puts more of a load on the highway system. That results in 
more rapid deterioration of that system and, obviously, 
increase cost.
    Chairman Conrad. Can you stop you there and ask you, in 
terms of the need that you have identified what are the major 
projects? What would be examples of major projects that you 
have scheduled for this coming year that would be put at risk? 
Can you give us some examples?
    I know in looking at the last four years we have gotten 
over $650 million in Federal highway funding and you have been 
able to do reconstruction of I-94 in Dickinson, reconstruction 
of I-29 through Fargo, reconstruction of I-94 in Valley City, 
reconstruction of U.S. 83 between Wilton and Washburn, and as I 
understand just last week the reconstruction of State Street in 
Bismarck. What are other major projects, Dave, that you have 
lined up that would be put in potential jeopardy?
    Mr. Sprynczynatyk. Senator, the projects that you mentioned 
are all projects that we have either recently accomplished or 
will be accomplishing in this coming construction season. 
Looking to 2003--and you have to look beyond as well. Even 
though we are only talking about the budget for 2003, this will 
have an impact well beyond 2003.
    Some of the projects--we have not yet identified 
specifically which ones might be impacted if this budget 
reduction does go into effect because, obviously there is an 
uncertainty there too as to what Congress will do. But 
regardless, we have very significant projects continuing on 
some of the roads you mentioned.
    There are follow-on projects on other portions of Highway 
83, Highway 85, Highway 2. We also hope to be able to begin the 
construction of the Four Bears Bridge next year. That could 
potentially be impacted because some of our regular funding 
will go towards that project too. There is still ongoing work 
that needs to be done on the two interstates, both I-29 and I-
94. These are all projects that will--in our plan for 2003 and 
beyond.
    This is just sort of the tip of the iceberg because every 
year we work on virtually dozens of our different highways in 
the State, trying to properly maintain them so that people can 
move themselves as well as their goods to market.
    A smooth, safe road system is critical for economic growth. 
I have talked about some of the things that need to be done in 
terms of moving product to market, but we also produce items in 
North Dakota too that need to get to market. It is important 
that everything from the Imation factory in Wahpeton to the 
Bobcat factory to the Polara Goods factory in McClusky needs to 
be able to get their products to market. It is important that 
we recognize just how critical it is that we do provide a safe, 
smooth, efficient system for our people.
    The other thing is that North Dakota has a critical part of 
the Nation's highway network within our borders. Unfortunately, 
we have a disproportionate number of highway users within the 
State that pay the taxes to maintain that system. That has been 
recognized by Congress over the years. What Congress has done, 
and properly so is that for States like North Dakota we get 
more money back to maintain that Federal network than what we 
pay in in gas tax.
    Chairman Conrad. What is the return?
    Mr. Sprynczynatyk. Senator, the return to North Dakota is 
about $1.80 for every dollar we send to Washington.
    Chairman Conrad. The number I had in my head was $1.82 for 
every dollar we send in. So it is a tremendous return on 
invested dollars by North Dakota taxpayers. Federal taxpayers 
are sending more dollars back to us than we send in because we 
are sparsely populated, we are big State, and have got a lot of 
miles to cover. So the point that you are making is exactly 
correct.
    Mr. Sprynczynatyk. What we have, Senator, is we have a lot 
of miles of highway that is a part of the critical national 
Federal network. It is not just maintaining the State's roads 
but it is also those roads that obviously the interstate as 
well as other roads in the State that are on the national 
highway network. So that is the reason why we get more back 
than what we send in. It is proper, there is no question about 
it.
    The question then becomes what is it that should be done. 
Right now there is a bill circulating in Congress that would 
provide for not less than $27.7 billion of funding in 2003. 
That is the level that was expected under TEA-21 when the 
projections were made several years ago. We certainly agree 
that there should be not less than $27.7 billion provided. 
Quite frankly, the expectation was nearly $32 billion. We hope 
that Congress will give consideration to something closer to 
the $32 billion figure.
    One of the questions that comes up is where can this money 
come from? There is nearly, I think it is about $19 billion of 
funds available in the Federal highway trust fund. We think 
that in this instance it would be proper to use a portion of 
those funds to offset this dip in the highway funding program.
    We hope that as the Congress considers the next highway 
authorization bill it look towards providing a greater 
stability to the funding because it is critical for us to be 
able to know and properly plan on what we are going to do in 
the next several years to meet our needs in the State. When we 
experience a potential dip as is being discussed today it has a 
significant impact and obviously throws everything out of 
whack.
    So we think that certainly no less than $27.7 billion 
should be made available. We hope that Congress will consider 
going beyond that and bringing us closer to what the 
expectation was.
    As I said earlier, if something is not done this will have 
a devastating impact across the State and across the Nation. I 
know in talking to our neighbors and to other States across the 
country everybody is very concerned about what potentially 
could happen. We hope that Congress can do something. We know, 
Senator, that you have worked with us and helped us in the past 
in transportation. We know that you will continue to do so, and 
we are certainly ready to work with you to do whatever it 
takes.
    Thank you.
    [The prepared statement of Mr. Sprynczynatyk follows:]

              PREPARED STATEMENT OF MR. DAVID SPRYNCYNATYK

    Good morning. I am David Sprynczynatyk, director of the North 
Dakota Department of Transportation. I am delighted to have this 
opportunity to appear before you today. Thank you for holding this 
hearing, and for all you have done for transportation in North Dakota.
    Today I am testifying in regard to the implications for North 
Dakota if Congress does not make a course correction to avert major 
reductions in funding for the Federal highway program. I also pledge 
our cooperation in working to avoid those reductions and ensuring that 
North Dakota receives a proper level of Federal highway funding.
                            Problem summary
    Last month we all learned that, due to technical calculations made 
as part of the 1998 highway law (TEA-21), the basic Federal highway 
program will be reduced from nearly $32 billion in fiscal year 2002 to 
roughly $23 billion in FY 2003--unless Congress takes a different 
approach.
    North Dakota would lose about $45 million--25 to 30 percent of our 
Federal highway--funding if this massive reduction took place. As you 
know, this is a large sum of money to us and would hurt the entire 
State.
    A reduction of this magnitude in Federal highway assistance would 
have extremely painful consequences for our State, county, city, and 
reservation roadway systems. It would cost jobs. It would interfere 
with economic development and tourism. It would lead to increased 
vehicle repair bills and fuel consumption. There is no question that it 
would hurt the State in many ways.
    It doesn t have to happen. We ask your help in providing highway 
funding above the $23 billion level for the Nation.
               How the reduction would hurt North Dakota
    Let me turn now to some more detailed comments about the importance 
of the Federal highway program to North Dakota and how this reduction 
would hurt the State.
    First, it is most important to keep in mind that North Dakota is 
already losing ground when it comes to maintaining its roadway systems.
    Over the last 2 years, the North Dakota Department of 
Transportation has, in cooperation with its county and city partners, 
conducted studies to determine the funding needed to maintain the 
State, county, and large city (pop. 5,000+) roadway systems in their 
current condition and at their current level of service. This standard 
means that we would not make improvements or service enhancements such 
as additional vertical clearance on underpasses, additional lanes, or 
reduced spring load restrictions: enhancements that are needed in many 
areas because of larger agricultural equipment, heavier and larger 
trucks, and increased traffic. We would merely keep the systems in 
their current condition.
    You will hear more from the counties and cities about their needs, 
but the State highway system alone, which is valued at $8.5 billion, is 
falling $93 million behind each year. A reduction in Federal aid of $45 
million would mean an even more rapid decline in our systems.
    ' d like to emphasize that this kind of Federal reduction would 
affect every level of Government in North Dakota. The State, counties, 
cities, townships, and reservations all have important highway and 
street needs. The North Dakota Department of Transportation provides 
about 25 percent of its Federal aid to these other jurisdictions. As we 
understand the way the reductions calculated under the current law 
would work, Federal funding for the Indian Reservation Road program 
would also be cut. It is clear to us that no one in the State would be 
spared if the proposed reduction became a reality. All units of 
Government would lose funding and fall further behind.
    This drop in funding would turn the thoughtful process of strategic 
transportation planning into something more like crisis management. To 
use funding most effectively, jurisdictions must be able to plan in a 
careful way. When the current highway bill, TEA-21, was passed into 
law, many expected that its system for calculating funding levels (by 
tying them to estimates of highway tax revenues) would provide greater 
certainty. That hope has not been met. We are now faced with immediate 
and major uncertainty, which makes planning truly difficult.
    Planning, however, is a technical problem: the most critical 
problem is the effect on our people. North Dakotans will be affected 
even before fiscal year 2003 if Congress does not act. The expectation 
of devastating reductions in the highway program can impact behavior 
well ahead of the actual reductions. For example, across the Nation, 
contractors and engineering firms are reevaluating their capital 
spending plans and considering cutbacks. Some construction job cuts 
could also be taking place as businesses plan for the possibility of 
this shocking program decline.
    Even if most of the pain could be delayed until FY 2003, North 
Dakota would be affected in many ways by such a reduction in the 
highway program. North Dakota is at the center of the continent. Our 
highway system moves North Dakota's raw and value-added agricultural 
products to the rest of the world. Through the years, North Dakota has 
lost more than 1,400 miles of railroad line, with most of this loss 
occurring since 1980. Farmers have had to shift more of their shipping 
to trucks at the same time that they have needed to move to larger 
farming practices for economies of scale, This has resulted in larger 
and heavier trucks moving agricultural products. The State and county 
roadway systems have difficulty keeping pace with these needs for 
increased freight capacity.
    A smooth, safe road system is a crucial factor in economic growth. 
A deteriorating road system eounteraets our economic development 
efforts and diminishes the quality of life for our citizens. And to the 
extent that our rail and air service in North Dakota are under stress, 
our citizens and businesses rely even more heavily on the highway 
system to meet business and personal needs. Poor roads and streets will 
mean higher roadway user costs. And higher user costs inevitably limit 
the ability of our citizens to make other investments for business or 
personal purposes.
    North Dakota's highway system is critical to the Nation's economy. 
Agriculture is one area where our Nation has a positive trade balance, 
and North Dakota leads the Nation in the production of a number of 
commodities, including hard red spring wheat, durum wheat, barley, 
sunflowers, canola, flaxseed, pinto beans, dry edible beans, and honey. 
Our Nation also needs access to other North Dakota economic sectors, 
including manufacturing and energy production. It is essential to the 
U.S. economy that North Dakota's highway system effectively and 
efficiently move products to market.
    I believe that North Dakota would be harmed more than many other 
States by this funding reduction. Our State is large in size, but 
unfortunately we have a disproportionate share of highway users, the 
people who pay Federal fuel taxes used to maintain the Nation's highway 
system. The Federal highway program has long recognized that rural, 
sparsely populated States like North Dakota are less able to pay for 
their share of the Nation's overall road network. As a result, the 
amount of funding distributed to North Dakota is--very properly--
greater than the amount of Federal highway taxes paid into the Highway 
Trust Fund from North Dakota. If the highway program is reduced, North 
Dakota will become even more disadvantaged in its ability to meet 
transportation needs, and we will suffer a disproportionate economic 
loss.
    North Dakota's interest in this program is both short-term and 
long-term. The highway program is valuable to North Dakota now and into 
the future. For all the economic reasons I have given, we need a strong 
highway program in North Dakota and in the Nation both in 2003, which 
is the year of immediate concern, and in future years as well.
                           What should we do?
    The known effects of a nearly $9 billion cut in the Federal highway 
program compellingly urge us to make every effort to avoid or mitigate 
the program reductions that have been calculated under current--law but 
how?
    One proposal rapidly gaining support in Congress would set the FY 
2003 highway program level at ``not less than $27.746 billion.'' The 
introduction of that legislation is a welcome and important first step 
in addressing this problem. The increasing support for it makes me 
hopeful that good legislation will be passed.
    More specifically, the $27.7 billion level was set by Congress 
years ago as a kind of non-binding baseline level for the highway 
program for FY 2003. My view is that, although increasing the level 
from $23.2 billion to $27.7 billion is an important step, the words 
``not less than'' in the pending legislation are at least as important 
as the number. The benefits of the highway program are not limited to 
the benefits of increasing the FY 2003 program to $27.7 billion. 
Program levels above $27.7 billion would provide even more benefits and 
further mitigate the adverse impact of any program reduction. And there 
are many who believe that the Highway Trust Fund can support a program 
level higher than $27.7 billion, particularly in FY 2003. As Congress 
looks at the pending legislation, I hope that the $27.7 billion level 
is viewed solely as a floor, and that active consideration is given to 
providing the greater benefits of a higher program level. Certainly 
there is broad support for going above that level. For example, this 
week the National Governors Association is meeting and seriously 
considering the adoption of a policy supporting a FY 2003 highway 
program level of $31.8 billion.
    When you return to Washington to work on the budget resolution, we 
ask that you make every effort to craft it so that Congress can avoid 
the devastating reductions called for in these calculations. We 
respectfully request that the budget facilitate enactment of a strong, 
consistent highway program level that will help North Dakota not only 
in FY 2003 but in the future as well.
    Mr. Chairman, thank you again for your interest in this important 
matter. We are grateful for what you have been able to do for 
transportation in North Dakota over the years.
    That concludes my statement, and I'd be pleased to respond to any 
questions you may have.

    Chairman Conrad. Are these members in other States, are 
they contacting their congressional delegations and alerting 
them to the circumstance that we face and trying to build 
support for our resolution of this problem?
    Mr. Sprynczynatyk. Senator, yes, they are. Not only are my 
counterparts in other States working with their congressional 
delegation but I would also add that the Governors in the 
States are trying to address this, and obviously work with the 
Congress too.
    The National Governors Association is meeting this week and 
one of the resolutions that they are seriously giving 
consideration to is one that would adopt a policy of supporting 
a $31.8 billion funding level in the year 2003. What the 
outcome of that meeting is remains to be seen, but in the 
discussions that are taking place as we speak the National 
Governors Association is looking at somehow restoring the level 
of funding to what was expected.
    Chairman Conrad. All right. Thank you very much.
    Paul, welcome. Please proceed with your testimony.

 STATEMENT OF PAUL DIEDERICH, PRESIDENT OF INDUSTRIAL BUILDERS 
    INC., AND VICE CHAIRMAN OF THE HIGHWAY DIVISION OF THE 
           ASSOCIATED GENERAL CONTRACTORS OF AMERICA

    Mr. Diederich. Thank you very much. When I was asked to be 
here I did not know exactly what this was all about. I want to 
thank you very much for inviting me to share how the 
President's proposed budget cut is going to affect not only the 
Nation's infrastructure but the State of North Dakota, the 
people of North Dakota, and the people that work for my company 
Industrial Builders.
    I am Paul Diederich. Like you indicated, I am president of 
Industrial Builders, Incorporated. We are a second generation, 
family-owned business, and about 40 to 55 percent of our work 
is generated from work in the highway transportation field.
    After you put up those graphs that showed the cut in 
funding from the Bureau of Reclamation and the Corps of 
Engineers, it is kind of scary because we do work for them as 
well. We also do some work on dams for the Corps of Engineers 
and Bureau of Reclamation, water intake work. We build 
buildings. We do tunnels. We perform work in the horizontal 
groundwater interceptor trench. So we have a blend of work in 
the private and the public--
    Chairman Conrad. What was that last one?
    Mr. Diederich. Horizontal groundwater interceptor trenches. 
Those we do all--
    Chairman Conrad. I did not know there were such things.
    Mr. Diederich. Do you know what a French drain is? It is a 
glorified name for a French drain.
    Chairman Conrad. I certainly like the sound of the 
interceptor.
    Mr. Diederich. I am also the vice chairman of, as you 
indicated, the Associated General Contractors of America, 
Highway Division, and I just got done with our proposal to 
establish a reauthorization for TEA-21. I would like to submit 
a copy of that with my testimony, if that would be acceptable 
to you.
    Chairman Conrad. It certainly would. We will make that part 
of the record.
    Mr. Diederich. Thank you very much.
    As I indicated, the President's 2003 budget proposal 
arrived at its recommended level, as you probably well know--
and I should probably drop all the decimals after these 
billions because they are such huge numbers, and after seeing 
your trillions up there we will just talk in billions. But the 
$27 billion level that was proposed in TEA-21 is really a 
floor. I believe that with the RABA adjustment that cut it to 
the $23 billion we are talking about we do not want to be on 
the floor. There is authorization to go above that.
    A quotation that was in the February 11th issue of 
Engineering News Record quoted the director of the Office of 
Management and Budget as saying, we have no discretion in this 
area. We simply follow the formulas. He further stated that I 
do not have a lot of sympathy for people who sort of love this 
formula when it overpays and do not like it when it corrects 
itself. I guess I am one of those people that he is not feeling 
sorry for because while he claims that he does not have that 
discretion to increase the funding above the statutory minimum, 
certainly you in Congress, and I believe he probably does too, 
have the ability to increase the proposed level.
    The roads and bridges of the State of North Dakota have 
undoubtedly improved because of the money that has been 
invested in them over the last four years of a six-year highway 
bill. Through figures that I have seen from the road 
information program that improvement, while it still is not 
meeting all of the needs, has been noticed by the traveling 
public. So it has allowed us to shift some of our resources as 
a multi-discipline company out of food processing, which has 
cut back considerably in the Red River Valley, into 
transportation construction.
    One of the nice things about having a six-year act is that 
it improved my ability as a businessman to plan for how we are 
going to allocate our resources and where we are going to go in 
the future. I can base some equipment purchasing and employee 
decisions on what that bill is going to look like in the 
future.
    Dave's department periodically updates how its money is 
going to be spent by putting out what they call the statewide 
transportation improvement program, or STIP. The projects 
listed in the STIP for 2003 add up to $189 million and $195 
million in 2004. Obviously they will need to adjust that based 
on whatever becomes of the reauthorization, but we will then 
adjust our business plan based on what they project to spend in 
their STIP.
    This recommended cut in funding would devastate the 
department of transportation in North Dakota as well as 
departments across the whole country. According to figures by 
the road information program it would result in somewhere in 
the neighborhood of 361,000 jobs lost in 2003 and beyond. That 
is a staggering figure.
    In North Dakota, the $45 million cut, if we go to the level 
proposed in the President's budget, would result in about 1,866 
jobs being lost. According to the road information program 
study, this cut in funding could result in the loss of $253 
million of economic activity in the State. That is based on 
their study that shows that for every dollar that is invested 
in transport funding we lose somewhere in the neighborhood of 
$5.70 in associated economic benefits.
    It is difficult to do business, or plan business when a lot 
of projects disappear from Dave's STIP. Obviously we work in 
other States too and they drop off of all of them. We have to 
invest in equipment today based on our projection. I just 
recently entered into an 84-month contract to buy about a $1 
million crane, and I based that on what I thought I saw coming 
down the road, and now that has changed considerably. Well, the 
lease company does not really care about that. They still 
affect to have 84 payments of whatever that is per month.
    So not only will it affect companies such as mine, I think 
it is going to have a devastating effect on the small business, 
the small emerging businesses, and small disadvantaged 
businesses.
    Now do not get me wrong. I do not want to jeopardize our 
Nation's ability to defend itself against the terrorists who 
have perpetrated these acts. I think we have got to chase them 
down and find them. If increasing the amount of funding to 
build roads is going to jeopardize that, I guess, so be it. We 
will have to forgo that. But I do not think we have to make a 
choice. I think we can have both. I really do.
    According to figures provided to me, and they match closely 
to what Dave said, we have about $18.5 billion trust fund 
balance in the highway account of the highway trust fund. We 
believe that we can spend a portion of that trust fund money to 
level but this infrastructure spending. I agree with what Dave 
said as a good starting point. I strongly support Senate bill 
1917 and its companion legislation H.R. 3694 which calls for 
increasing the obligations to $4.4 billion over what the 
President recommended, which would get us back to that $27 
billion level. But AGC believes that it makes economic sense to 
increase spending to the level authorized for this year which 
is the $32 billion level.
    From a common sense standpoint it seems to me that if we 
are supposed to be spending the money that is generated as a 
user fee for the benefit of transportation infrastructure 
improvements then the trust fund cash balance should only grow 
to a level that is necessary to sustain a positive cash flow. 
The mere fact that the fund has grown to $20 billion over the 
four-year life of the program tells me that these RABA 
adjustments are not allowing us to spend the money at the same 
level that it being collected.
    We are firm believers in the user fee concept when that is 
combined with dedicated trust funds which are earmarked for use 
within the system that generates the money. We think that is 
sound policy. We support the firewalls that were established in 
TEA-21.
    When you start to discuss reauthorization, aside from 
making sure it is a national bill to make sure that States like 
North Dakota can pay for their connectivity benefit, that you 
might want to consider a revision to the RABA formula that 
eliminates the estimated look forward portion of the 
calculation and just relies on the actual taxes collected and 
modify, say a one or two-year advance based on the actual 
collections once you know what they are.
    Senator Conrad, I really appreciate the opportunity you 
have provided to me to testify today, to let you know how the 
President's budget request will affect the transportation 
industry and businesses in the State of North Dakota. On behalf 
of the Associated General Contractors and the people of 
Industrial Builders I look forward to helping you in any way we 
can. We are here to help you to restore the funding to at least 
the level that was proposed in TEA-21 and hopefully to the 
level that exists today. Thank you.
    [The prepared statement of Mr. Diederich follows:]

                     TESTIMONY OF PAUL W. DIEDERICH

    Thank you for inviting me to submit testimony on the critical issue 
of how the President's proposed reduction in Federal-aid highway 
funding for Fiscal Year 2003 will hurt the Nation's economy, the 
construction industry, the people of the State of North Dakota, and my 
company.
    My name is Paul Diederich. I am President of Industrial Builders, 
Inc., a second-generation family-owned construction company that 
specialize in diversity. Approximately 40 to 55 percent of our annual 
contract dollar volume is generated in the highway transportation 
field. This percentage goes up and down depending on which markets are 
investing in construction. We also build dams, water intakes, and 
building, as well as performing marine construction, flood-control 
work, deep foundations and horizontal ground water interceptor systems. 
Last month we sent out 334 W2's and last week my sister signed 97 
paychecks.
    I am alos the Vice Chair of the Associated General Contractors of 
Amercia's (AGC) Highway Division, and Chair of the Highway 
Reauthorization Task Force. Last week, the Task Force published 
``Securing America's Future,'' our recommendations for reauthorization 
of the Transportation Equity Act for the 21st Century (TEA-21). I would 
like to submit a copy with this testimony.
    The President's Fiscal Year 2003 budget proposal arrived at its 
recommended level by applying the revenue aligned budget authority 
(RABA) adjustment to the $27.57 billion in obligation authority for 
Fiscal Year 2003 established in TEA-21. This budget proposal 
establishes funding at the $23.2 billion floor. At a time when the 
economy is sluggish the floor is not a good place to be. I believe that 
there will be a staggering economic effect caused by a decline from the 
$31.9 billion spending level of 2002 to the $23.2 billion level 
proposed in the President's 2003 budget.
    A quotation contained in the February 11, 2002 issue of Engineering 
News-Record quotes Mr. Mitchel Daniels, Director of Office of 
Management and Budget as saying ``We have no discretion in this area. 
We simply follow the formula.'' He futher stated: ``I don't have a lot 
of sympathy for people who sort of love this formula when it overpays 
and don't like this formula when it corrects itself.'' I guess that I 
am one of those people he doesn't feel sorry for. While he claims to 
lack discretion to increase spending above the statutory minimum, the 
Congress certainly can increase funding for highways.
    The roads and bridges of North Dakota have been improved as a 
result of the additional money invested in them throught TEA-21 and the 
RABA adjustments. But we still have a lot of work to do in order to get 
them to the level that our citizens demand. The employment levels at 
Industrial Builders, Inc. have remained steady because we have been 
able to shift our forces into transportation--related constuction when 
we found that the food processing industry in the Red River Valley was 
cutting way back on their construction spending.
    The beauty of TEA-21 is the fact that it increased my ability to 
plan for the future. Knowing how much money will be spendt on 
transportation infrastructure over a longer time horizon allows us to 
invest in equipment and hire people based on long-term programs.
    The NDDOT perodically updates its' Statewide Transportatino 
Improvement Program (STIP). The constructin projects listed in the STIP 
for 2003 add up to $189 million, $195 million in 2004. With TEA-21 
reauthorization coming up next year, the NDDOT will obviously need to 
adjust its projections for 2004 and beyond based upon the new 
legislation. The contracting community will then adjust its' business 
plan to accommodate the new STIP.
    The recommended cut in funding would be devastating to State 
Departments of Transportation across the Nation. If funding is cut to 
the 2003 level proposed in the President's budget, the result would be 
the loss of somewhere around 361,000 jobs nationwide.
    In North Dakota, our State Department of Transportation (NDDOT) 
would experience a reduction of approximately $45 million for Fiscal 
Year 2003. Construction of new, vital highway projects will be the 
first to be cut. The Road Information Program's (TRIP) analysis states 
that North Dakota would lose 1866 jobs just from the Federal cut. 
Additional jobs will be lost if North Dakota cuts its State highway 
funding as well. TRIP's report states that the cut in funding could 
result in the loss of $253 million in economic benefits in North 
Dakota. These lost economic benefits are based on the USDOT's estimate 
that each $1 invested in transportation funding results in $5.70 in 
economic benefits that improve safety, reduce traffic congestion, and 
reduce vehicle-operating costs paid by motorists.
    It is very difficult to do accurate business planning when a lot of 
projects suddenly disappear from the STIP. Our industry is extremly 
competitive. Constructors invest in very costly new equipment when it 
will increase their productivity and lower their unit costs. I recently 
committed Industrial Builders, Inc. to an 84-month lease on a million 
dollar crane. If the work that was projected to be there does not get 
built, payments on that equipment continue nonetheless. Constructors 
are then face with the need to sell the equipment, or continue to make 
payments with no offsetting income. If the President's budget number 
are the basis of Fiscal Year 21003 spending, the used equipment market 
will become saturared, causing equipment values to plunge, and 
jeopardizing the financial stability of some contructors. This problem 
will probably be felt more severly in Disadvantaged Business 
Enterprises and other new and emerging small businesses.
    I don't want to jeopardize our Nation's ability to vigorously 
pursue the forces of evil that have showm their disdain for our people 
and property through their terrorist acts. If highway funding must 
decline in order to pay for the protection of our homeland--so be it. 
The safety of our people must take first precedence over investment in 
our infrastructure. But I believe that we can afford both.
    According to figures provided to me by the AGC, the Highway Account 
of the Highway Trust Fund has a cash balance of more than $18.5 
billion. AGC believes that we can spend a portion of this Trust Fund 
money in order to level out the investment in infrastructure spending.
    As a good starting point, I strongly support S. 1917, the Highway 
Restoration Act and the companion legislation, H.R. 3694. These bills 
call for increasing obligations for the Federal-aid highway program by 
$4.4 billion over the President's budget request. if included in this 
year's Transportation Appropriations (Fiscal Year 2003), it would fund 
the highway program at $27.57 billion in obligation authority, which is 
the minimum funding level included in TEA-21. While supportive of this 
legislative, I believe it makes economic sense to increase funding to 
the level authorized in this year's Fiscal Year 2002 appropriations 
bill, an obligation limitation of at least $31.8 billion.
    From a common-sense standpoint, it seems to me that if we are 
supposed to be spending the money generated as a user fee for the 
benefit of transportation infrastructure improvements, then the Trust 
Fund cash balance should only grown to the level necessary to sustain 
positive cash flow. The mere fact that Trust Fund has grown to nearly 
$20 billion tells me that RABA adjustments are not allowing us to spend 
all of the income that the user fees are generating.
    The user fee concept, combined with dedicated Trust Funds earmarked 
for use within the system that generates the money, is sound policy. 
AGC supports the ``firewalls'' established in TEA-21. When the Senate 
begins to discuss Reauthorization, we urge you to maintain them. One 
possible revision to the RABA adjustment, and just adjust the future 
spending by the amount of the actual increase or decrease in income 
from the baseline established for the previous fiscal year.
    Mr. Chairman, I sincerely appreciate the opportunity you have 
provided me to comment on how the President's 2003 Budget Request will 
affect the highway transportation industry. On behalf of the AGC and 
the people of Industrial Builders, Inc., we hope that you can find a 
way to restore the funding to the level achieved in Fiscal Year 2002. 
If there is anything we can do to help you accomplish this, please let 
me know.
    Thank you.

    Chairman Conrad. All right, thank you very much. Thank you 
for that testimony.
    Let me ask you this, the Budget Committee faces really very 
difficult questions because the highway trust fund, like the 
other trust funds of the Federal Government are in name only. 
There is no money there. There is an accounting entry that the 
highway trust fund is owed this money, and the only place there 
is any money now is in the Social Security Trust Fund. The 
Medicare Trust Fund is completely gone. The only money that is 
left is the Social Security Trust Fund.
    So we are presented with a Hobsonian choice of taking the 
money out of Social Security or increasing taxes. Now how would 
you like to have that choice? What would your answer be if that 
is what you are presented with in the Budget Committee? That is 
what we are presented with. You have got three choices, either 
do not restore the money, take it out of Social Security, or 
raise taxes.
    Mr. Diederich. The tax word is a word that I am not 
necessarily going to agree to on user fees that are 
specifically collected by the users of the transportation 
infrastructure. When you talk about a tax increase, if there 
are funds that are currently being diverted for other very, 
very beneficial uses that could be collected for deposit into 
the highway trust fund or for a specific use, earmarked for a 
specific use, then maybe we should eliminate those diversions 
which could result in somewhere in the neighborhood of $1 
billion a year with the current levels of those diversions. 
That is one source of potential additional funding. That does 
not get us to the $4.4 billion.
    If we were to peg the level of user fee collection at 
today's level, it is 18.3 cents per gallon on a gallon of 
gasoline today, and say that in 1998--when this bill was passed 
it was 18.3 cents. If we would have indexed that for inflation 
that would have resulted in about another $900 million a year 
in additional revenues to the trust fund.
    So I think there are other methods that we can look at. I 
understand that for 2003 those are probably not options that 
are in the book. So when you say raid the trust fund, thank 
goodness Arthur Andersen is not our accountant. We did not set 
up a trust fund that is in name only. We have a cash balance. 
So I guess we will have to find out how we can get that money 
in name back into the trust fund for the time being.
    Did I dance around that well enough? [Laughter.]
    Chairman Conrad. You did pretty well. The problem we are 
going to have is when the roll is called up yonder in the 
Budget Committee there are going to be three choices and there 
is no talking around it that is going to matter. You are either 
not going to restore the cut or any part of it, or the money is 
coming out of Social Security, or you are going to raise taxes. 
I wish there was some other option but I have searched high and 
low; those are the options. None of them is attractive.
    We need the money. You all have made a very strong case for 
needing the money. The truth is we need the money in the Social 
Security Trust Fund because the baby boomers are going to start 
to retire in six years. And the tax increase, go tell folks you 
are for a tax increase and see how popular you are. So I just 
want to be very clear, very direct, and very honest, that is 
the choices that we are faced up, and those are not appealing 
choices.
    Mark, welcome. Good to have you.
    Thank you, Paul, very much for your testimony. I should not 
have put you on the spot because it is not your responsibility 
to come up with the answer. But I did want to highlight the 
point of what we are faced with here.
    Mark Johnson is the executive director of the North Dakota 
Association of Counties. I can tell you that when there is an 
issue on counties we hear from Mark. He is a good advocate for 
the people that he represents.
    Welcome. Please proceed.

  STATEMENT OF MARK JOHNSON, EXECUTIVE DIRECTOR OF THE NORTH 
                 DAKOTA ASSOCIATION OF COUNTIES

    Mr. Johnson. Thank you, Senator, and good morning. Good 
morning to everyone here at the hearing. It is nice to see a 
full room on both these very, very important issues.
    I would like to just take a minute and also our introduce 
our president Les Corgill and Wade Williams because, Senator, 
they both serve on the board of directors of the National 
Association of Counties. You gentlemen might want to stand for 
a minute.
    Chairman Conrad. Welcome. Good to have you here. Thank you.
    Mr. Johnson. Although you have afforded us the opportunity 
as representing the counties, our comments should mirror the 
concerns that the cities have also, although I will be speaking 
more directly to counties. But the National Association of 
Counties will be taking a strong position on this issue and I 
would just urge you to open your door to our representatives in 
Washington at the National Association and let your staff 
listen to their concerns and their issues that not only speak 
to the Nation but I know that they represent us here in North 
Dakota at the same time, so we appreciate that.
    With that, we are here to address, again what you noted as 
about a 27 percent possible reduction in overall funding and 
Federal support to our road system. The local situation is 
critically important because that is where the products and 
that is where the economic development starts. It needs to come 
out of the local areas in order for our economy to grow.
    The role county government plays in construction and 
maintenance and in the transportation system is very immense. 
Senator, because I respect your charts, I brought some charts. 
So we have a couple of charts that I will be noting. First of 
all, the first chart shows the road mileage and the various 
categories of roads that we are responsible for at the local 
level. It notes the State's responsibility, the county's 
responsibility and the city's responsibility.
    Specifically as far as counties, we have over 5,000 miles 
of paved roads that we need to maintain, which is a higher 
cost. Then 5,000 miles of major gravel collector systems, which 
also require continuous maintenance. Then 17,000 miles of other 
gravel surfaces that are critically important for our 
agricultural community in North Dakota. Additionally, in the 
western half of the State where we did not form townships, the 
counties are also responsible for all of the maintenance of 
township roads, where in the eastern part of the State 
townships play a critical role in this road network and are 
very dependent on Federal sources of funds. So chart one 
illustrates that for you.
    On chart two we are displaying similar information just for 
bridges. The second chart on the lower part of that board talks 
to bridges. Bridges on the local level are critically 
important. You know, as we are going to hear later today, water 
is absolutely essential and the management of that in North 
Dakota. With water we need bridges. So we have a situation in 
North Dakota where many of our bridges are termed very 
deficient.
    If we look at a study that we cooperatively worked with the 
Federal Government and the State highway department to analyze 
roads and bridges, currently the replacement schedule for 
bridges in North Dakota is estimated to be at 122 years a 
bridge is replaced on the average. The recommended cycle for 
bridges nationally and as our highway department suggests 
should be about 50 years. So we are two and-a-half times beyond 
what is really safe and prudent in terms of replacement of 
bridges in North Dakota.
    So as with the State, counties also face escalating costs, 
decreasing population densities, and revenues that do not grow 
as fast as the cost. Each year counties increase the miles of 
minimum maintenance roads. In other words, we are on a fast 
track to just create minimum maintenance roads instead of 
having adequate roads that meet the weight limits that are 
necessary in this State.
    Many times we are forced to use what is called Texas 
crossings. I think I know what a French drain is. There is also 
a Texas crossing. That is instead of a bridge you just lower 
the road and let the water flow over and try to construct the 
road so that the water will not damage it severely and you can 
still have some passage. They use those in Arizona, but we 
would rather not use those in North Dakota.
    So the third chart gives an estimate on the 25 percent 
reduction in Federal funding as proposed in the executive 
budget will seriously impact the entire structure of our 
funding system. I am speaking primarily from the counties, but 
as I said the cities will be impacted also. The importance of 
this issue was demonstrated recently in our full participation 
in a federally funded or federally assisted study in 
cooperation with the State highway department which was called 
the Urban Street and County Funding Needs Assessment. I would 
urge you to have your staff take a quick look at the executive 
summary of that.
    In that it estimated that we are spending $83 million a 
year on transportation infrastructure. Of that $16.7 million is 
Federal funds that goes just to counties. That is about 21 
percent of our overall assistance and needs are being met by 
the Federal Government.
    So chart four takes that study and talks to a reasonable 
level of funding in order for us to just maintain the system. 
With the overall investment of $83 million per year we are not 
maintaining that system. The proposed budget takes North Dakota 
counties in the wrong direction, and cities, and everyone else.
    The final chart that I have is taken directly out of that 
study and it is somewhat of a right-handed bell chart that 
shows--there is a line in the middle where it shows where we 
should be in order to properly maintain roads. You can see that 
sloping line suggests that once you hit this point right there, 
that is where the deterioration occurs, and that is where you 
get the biggest bang for the buck. Unfortunately, we are at the 
other end of that curve. We are down below there. So the damage 
is occurring as we speak, and it is costing us three and four 
times more to go back and repair and replace and maintain those 
roads.
    So the potential of even lower Federal funds makes our 
situation very, very serious. While the State ultimately takes 
the decision on appropriate shares of Federal funds that go 
back to cities and counties, they have been very cooperative 
and we have a very strong relationship in North Dakota and I 
think we can be proud of that. I am not sure that all States 
can attest to that. The relationship between city, county, and 
State is very critical.
    So in order for us to maintain what you know is critically 
important, and that would be agriculture, energy, tourism, and 
that all translates to economic development, we need to at 
least hang on to the current funding that was proposed in TEA-
21. What you will be able to do for 2003 and beyond will be 
greatly appreciated.
    Senator I truly want to thank you for asking us to 
participate. So on behalf of all of my members, and certainly 
on behalf of the cities that we live and work in, we appreciate 
you making this possible and look for any help that you can 
give us. Thank you.
    [The prepared statement of Mr. Johnson follows:]

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    Chairman Conrad. Thank you very much. Thank you, Mark, for 
really excellent testimony. I really liked this last chart. I 
am not sure I have figured this one out yet. That has got a lot 
of moving parts.
    Mr. Johnson. It was developed by a consultant I believe, 
Senator.
    Chairman Conrad. I hope they did not get Federal highway 
money to develop that. [Laughter.]
    Chairman Conrad. I want to thank you, Mark. My calculation 
would be if we had a 27 percent cut and 21 percent of your 
money is coming from Federal money, 21 of 27, you would be in 
the 5.5 percent; 5.5 percent of $83 million would be $4.5 
million range, $5 million range.
    Mr. Johnson. It is about $5 million.
    Chairman Conrad. About $5 million. So that is a significant 
hit, is it not?
    Mr. Johnson. Absolutely. Those are match dollars. Those 
Federal dollars are the kinds of dollars that help us do the 
really essentially. Usually each county probably only sees one 
or two significant projects as a result of Federal funds. So I 
think if you translate in terms of projects you would probably 
see one good project fall off every year in a county throughout 
the State.
    Chairman Conrad. What this chart shows--if you are in the 
audience you cannot see it, but it is very, very interesting. 
The point that it is making, maybe you can put your light on 
that line where each dollar of renovation cost here right near 
the mid-point, each dollar of renovation cost here will cost $4 
to $5 if delayed to here. That is about a six-year delay, as I 
read this chart. So once you are at about 20 years, if you 
delay the repairs for another six years your cost of $1 turns 
into a cost of $4 to $5.
    In other words, the point that this is making is how 
critical when you make a repair is to what your ultimate cost 
is. If you delay at a critical time your cost mushrooms. That 
is a common sense concept but I have never seen it reduced to a 
chart, and I did not know this connection. That is very 
dramatic; $1 in cost, if you delay at that point, if you delay 
by six years, turns into a cost of $4 to $5. So the timeliness 
of these repairs--and I see Joe Golfer who does county issues 
all the time and is a county commissioner--makes a huge 
difference. That is really the point that you are making.
    Mr. Johnson. I would urge you to share that with your 
colleagues on the Senate committee.
    Chairman Conrad. Yes, I am going to. I have never seen that 
precise a calculation in that connection.
    Any of you who want to answer this question I asked Paul 
earlier, here are the choices we have got: restore the funding, 
do it by taking it out of Social Security, or raise taxes. Any 
of you want to give advice to the committee on how we might 
want to handle that little problem? Anybody here want to say 
that we should take it out of Social Security, which is where 
we are headed at the moment? Any of you want to explain to your 
grandmothers how you have threatened their check? [Laughter.]
    Chairman Conrad. No takers on that one? Okay.
    Any last comments any of you would want to make, any that 
you think is especially important for the committee to keep in 
mind as we try to make these decisions?
    Mr. Sprynczynatyk. Senator, I would just add on thing. That 
is that earlier this year, late last year there was discussion 
about a potential economic stimulus package for the country, 
and transportation at one point was one of the considerations. 
Obviously, if something is not done this is going to have a 
tremendous impact and it is a huge reverse stimulus. I think we 
need to--
    Chairman Conrad. It is kind of a reverse stimulus. We would 
be taking energy and life out of the economy by not going 
forward with these projects.
    Mr. Sprynczynatyk. Absolutely. And that is troubling to us 
because on the one hand we have needs, clearly we have needs 
that need to be addressed from a transportation infrastructure 
standpoint. But really what we are talking about are jobs and 
loss of dollars to businesses because of greater expense in 
trying to move their goods and products to market. So it is a 
huge de-stimulus, if that is a proper word.
    Chairman Conrad. Think about it, if you took $9 billion out 
of road-building nationwide you talk about some 300,000 jobs 
affected nationwide. There is another piece of this and that is 
economic efficiency. We do not see it so much here but if you 
go to the east coast there is gridlock. You go out on those 
roads at 4:00 in the afternoon, they are stopped dead. There is 
a tremendous loss of economic efficiency in not being able to 
move goods and people efficiently.
    So it is kind of a double whammy. Not only do you not have 
the direct jobs but you are not improving the efficiency of the 
economic workings of the country. Transportation dollars 
actually have a return to the economy outside of the direct 
benefits. I think, Paul, you had some numbers there on the 
economic benefit generated by a dollar that goes into the 
transportation system. I cannot remember, it was about $5.
    Mr. Diederich. About $5.70 according to that report.
    Chairman Conrad. So $5.70 that comes back to the economy. I 
do not know if there is a calculation there for the increase in 
the efficiency of the operation of the economy by having these 
investments.
    Mr. Diederich. A Texas Transportation Institute study 
estimated that the cost of congestion more than tripled between 
1982 and 1997, from $21 billion to $72 billion. So that is an 
additional impact and that is in this--
    Chairman Conrad. That does not get taken into account very 
often.
    Again, thank you. I think those are important things for 
the consideration of the committee and I very much appreciate 
your testimony and your providing your insights to us.
    We will now go to our next panel to talk about water 
resources and the budget issues. We have a very distinguished 
panel: Colonel Robert Ball from the Corps of Engineers who is 
at the district office in St. Paul, heads that office; Warren 
Jamison from the Garrison Diversion Conservancy District; and 
Mike Dwyer from the North Dakota Water Users Association.
    Just by way of introduction I would like to really single 
out these three because there have been people that made a big 
difference for the State and these three are among those. 
Colonel Ball of the district office of the Corps of Engineers 
has been absolutely superb working the flooding issues in 
eastern North Dakota and protection in the Devil's Lake region. 
Colonel Ball, the district office is very highly regarded in 
North Dakota. Our working relationship is superb there.
    Other parts of the Corps of Engineers we have had some 
problems with in previous years. But even there there has been 
a dramatic change with new leadership of the Corps of 
Engineers, General Flowers who will be coming before the Budget 
Committee in Washington next week to testify. Just a dramatic 
change in the Corps of Engineers. Certainly the district office 
has always been superb and we are glad to have you here.
    Warren Jamison has been a guiding force in getting the 
Dakota Water Resources Act passed in Congress last year. This 
was an effort that had gone on for many years, an effort by the 
State of North Dakota to secure its water future. Nobody played 
a more significant role than Warren Jamison and we deeply 
appreciate all that he did to help make that dream a reality.
    And of course, Mike Dwyer was a man who played a critical 
role in negotiating among interests here in the State so that 
we could have a success in the Dakota Water Resources Act. At a 
very critical moment he used his diplomatic skills to bring 
people together who had been fighting each other for years. I 
just wanted to acknowledge publicly the extraordinary efforts 
of Mike Dwyer and Warren Jamison and Colonel Ball. Welcome to 
you all. It is good to have you here and I very much appreciate 
your testifying. We will start with Colonel Ball.
    The budget for the Corps of Engineers is obviously critical 
to North Dakota in many different ways. I will just tick off a 
few: Grand Forks, we are building a dike there to protect the 
city. There was $15 million provided in the initial budget from 
the President, the draft.
    I called up the director of the Office of Management and 
Budget and I said, the Corps is telling us they can use $85 
million and we have requested $15 million. He said, Kent, I 
will look into this and I will try to make an adjustment. This 
is a week before the budget came out. He did and he made an 
adjustment. He doubled the amount of money that was in the 
original budget to $30 million, but that still leaves us way 
short of what we requested and very much short of what the 
Corps of Engineers tells us could be used.
    The second area is Grafton. They need funding for flood 
protection as well. Of course, Devil's Lake and the whole 
Devil's Lake region needs hundreds of millions of dollars to 
effectively combat what is going on there. So we have got lots 
of issues. Then there are other areas in the State as well.
    With that I wanted to ask Colonel Ball to proceed with his 
testimony, and then we will go to each of the others in turn, 
and then have time for questions as well. Colonel Ball, 
welcome.

          STATEMENT OF COLONEL ROBERT BALL, CORPS OF ENGINEERS

    Colonel Ball. Thank you, Mr. Chairman. Before I started, 
sir, I wanted to introduce to you and to the members here--
colonels come and go in the Corps of Engineers. Colonel Ken 
Kaspreisen would have been here last year had we done this. He 
is now working for FEMA. He is a great proponent for the work 
in the State of North Dakota. And I will be gone in three 
years.
    But we have great civilians that stay around. My deputy for 
program and project management, Judy Des Harnais, selected in 
March of last year as the number one civilian in the St. Paul 
district of the Corps of Engineers. She is a second generation 
engineer. Her dad was a Corps of Engineers officer. I think he 
worked on the Garrison diversion project many, many years ago. 
So Judy will be with you all. Should you have one of these 
three years from now it will be Judy that is around too.
    You will notice that Judy is also not a man. There are not 
a lot of deputies for programs and project management in the 
Corps of Engineers that are females. In fact I know of none. 
That does not mean that there are not any. Judy is a great 
engineer, a great proponent for the State of North Dakota and 
the citizens there.
    Chairman Conrad. Could I just say a word about Judy as 
well? We have worked with her now for a number of years and she 
is just absolutely first rate, and has just conducted herself 
in the most professional way, even under the most trying of 
circumstances. We have had situations where there are 
tremendous emotions, real anger in communities in dealing with 
crises. The level of professionalism and the way she has been 
able to keep her cool, even in these challenging times, has 
been impressive to me. So welcome, Judy.
    I have got to say, Ken Kaspreisen, when the new head of 
FEMA came in I called him up and said, look, you would do 
yourself a huge favor if you hired Ken Kaspreisen. I said, you 
know, we are of different parties, but I am just telling you, I 
am giving you good advice here. If you want to get yourself a 
first class crisis manager, get yourself Ken Kaspreisen. And 
the new head of FEMA hired him and sent him off to his most 
challenging part of the country, and then with the terrorist 
threat brought him back to Washington.
    So Ken Kaspreisen really has been an absolute lion for 
North Dakota. I tell you, when there is a hall of fame some day 
about people who put it on the line for this State, Ken 
Kaspreisen is going to go in that hall.
    Colonel Ball.
    Colonel Ball. Thank you, sir. Sir, I have a very general 
statement that I will make and then I will welcome your 
questions. The statement is basically going to be on programs. 
You have questions on projects, I am sure.
    President Bush's fiscal year 2003 budget includes $4.29 
billion in new Federal funding for the civil works program of 
the U.S. Army Corps of Engineers. The new Federal funding is 
distributed as follows among the appropriation accounts: $108 
million for general investigations, including over $1 million 
for the Red River of the North Basin feasibility studies; $1.44 
billion for construction in general, including $42.2 million in 
the State of North Dakota of which $30 million is for the 
continued construction of the Grand Forks/East Grand Forks 
flood control projects; $1.97 billion for operations and 
maintenance, including $14.6 million in North Dakota.
    And $151 million for the regulatory program. That is a 12 
percent increase in funding nationwide that will allow the 
Corps to reduce the average review time for individual permit 
applications by about 25 percent by the year 2004 while still 
strengthening the protection of the regulated waters and 
wetlands. Additionally, there is $22 million in the budget for 
flood control and coastal emergencies. These funds will allow 
for emergency response and advance measures similar to those 
undertaken in Wahpeton in Grand Forks last spring and over the 
last few years around Devil's Lake.
    With those program highlights, sir, I would be happy to 
take your questions in specific projects.
    [The prepared statement of Colonel Ball follows:]

               PREPARED STATEMENT OF COLONEL ROBERT BALL

    The President's budget reflects his priorities of fighting and 
winning the war on terrorism and keeping the economy strong. The Army 
Corps of Engineers plays a major role on both these fronts. Through its 
military construction and research program, the Corps supports the war-
fighter. The jobs and revenues generated by the projects in the civil 
works program directly support the Nation's economy: ports maintained 
by the Corps generate 13 million jobs, lakes and reservoirs managed by 
the Corps generate about 600 thousand jobs. Flood control projects 
under the Corps program prevent more than $20 billion a year in damages 
and hydropower projects generate one fourth of the Nation's hydropower.
    President Bush's Fiscal Year (FY) 2003 budget includes $4.290 
billion in new Federal funding for the Civil Works program of the U.S. 
Army Corps of Engineers.
    The new Federal funding is distributed as follows among 
appropriation accounts:

    $108 million for General Investigations, including over $1 million 
for the Red River of the North Basin feasibility studies.
    $1,440 million for Construction, General, including $42.2 million 
in the State of North Dakota of which $30 million is for continued 
construction of the Grand Forks/East Grand Forks flood control project.
    $1,979 million for Operation and Maintenance, General, including 
$14.6 million in North Dakota.
    $151 million for the Regulatory Program, a 12 percent increase in 
funding Nation wide that will allow the Corps to reduce the average 
review time for individual permit applications by about 25 percent by 
2004, while strengthening protection of regulated waters and wetlands.
    $22 million for Flood Control and Coastal Emergencies, these funds 
will allow for emergency response and advance measures similar to those 
undertaken in Wahpeton and Grand Forks last spring and over the last 
few years around Devils Lake.
    The budget proposes that the new funding be used to continue to 
development and restoration of the Nation's water and related 
resources, operation and maintenance of existing navigation, flood 
damage reduction, and multiple-purpose projects, protection of the 
Nation's waters and wetlands, and restoration of contaminated sites. In 
allocating funds available for Civil Works, the budget gives priority 
to projects and programs that provide significant national benefits in 
the Corps' principal mission areas of commercial navigation, flood 
damage reduction, and environmental restoration.
    The Fiscal Year 2003 Civil Works budget information, including a 
state-by-state breakdown, is available on the Corps' World Wide Web 
site:www.usace.army.mil

    Chairman Conrad. Can you tell us, how much did the Corps of 
Engineers ask for in terms of budget for this year?
    Colonel Ball. No, sir, I don't have that, sir. All I can 
tell you is--I can just talk about my own district, sir. It is 
not that I am hiding information, sir. I do not know.
    Chairman Conrad. That is fine, we will get it when we have 
the hearing in Washington.
    Let me ask you, in your district what is your budget this 
year compared to last year and then this proposed budget?
    Colonel Ball. Sir, I believe it is around $142 million. It 
is a little bit of an increase over last year.
    Chairman Conrad. What is the need that you see in your 
district?
    Colonel Ball. Sir, in terms of North Dakota I have got 
three or four critical projects here. In fact if you look 
district-wide my biggest projects are in North Dakota, 
particularly along the Red River.
    Chairman Conrad. Let us talk about this budget because 
Grand Forks, as I indicated, we have been told you could use as 
much as $75 to $85 million in that project this year. Is that 
correct?
    Colonel Ball. $75 million, yes, sir.
    Chairman Conrad. You could use, $75 million.
    Colonel Ball. We have the capability that if we had $75 
million we could put that into place in contracts within the 
fiscal year of 2003, yes, sir.
    Chairman Conrad. So you could use $75 million. There is $30 
million in the budget for that purpose. Devil's Lake, there is 
no money in the budget for now for Devil's Lake. No money. In 
the previous several money there has been money in budgets the 
President sent us for an outlet from Devil's Lake. How much 
money could you use in that area?
    Colonel Ball. We have a capability of next year of $38.9 
million, assuming our draft EIS and preliminary planning report 
get approved and we get an approved project. But $38.9 million 
is what our capability would be in 2003, sir.
    Chairman Conrad. That is my recollection as well. In fact I 
think we asked for, my recollection is we asked for $39 
million. What other major projects do you have in North Dakota 
and what would be the need?
    Colonel Ball. Sir, as you are well aware, and I know that 
the entire North Dakota delegation is aware, Breckenridge, 
Minnesota directly impacts Wahpeton. In fact I have been very 
impressed that every time I talk with a member of the North 
Dakota delegation they keep asking me about Breckenridge. I 
thought Breckenridge was in North Dakota when I first got here 
because particularly Congressman Pomeroy is so concerned about 
Breckenridge.
    There is an interrelationship between Wahpeton and 
Breckenridge and we do not have any money in this year's budget 
for Breckenridge.
    Chairman Conrad. The point is, the reason you have got to 
protect Breckenridge is you cannot protect Wahpeton if you do 
not protect Breckenridge. You cannot put flood control on one 
side of the river.
    Colonel Ball. In fact it would cause more flooding. If we 
did Wahpeton, which we have funds for, if we did the flood 
control for Wahpeton we would induce flooding in Breckenridge, 
and obviously no one wants to do that.
    Chairman Conrad. I think we are all acutely aware of this 
because we came perilously close, perilously close last year--
anybody that was down there knows what I am talking about. That 
was a nail-biting situation down there and none of us want to 
have the people go through that again. That is the reason why 
this is critically important.
    How much money is needed for Breckenridge?
    Colonel Ball. Sir, next year we have the capability of 
executing $6.5 million worth.
    Chairman Conrad. $6.5 million and there is no money.
    Colonel Ball. No, sir, there is no money. And that is 
because, sir, we do not have the final approved document, 
project document yet. But we intend to have that I believe by 
August of this year.
    Chairman Conrad. All right.
    Colonel Ball. Then, sir, you had mentioned my fourth 
concern and that is in Grafton where there is no money in the 
budget there.
    Chairman Conrad. What is the capability in Grafton?
    Colonel Ball. We have $2 million capability this year, sir, 
to start us off. If we do not get that it just, obviously, will 
delay the project one year. When we are talking flood control 
projects you are talking about the possibility of people going 
through a flood.
    Chairman Conrad. I tell you, the frustration in that 
community is extremely high. They were very surprised by this 
budget submission because we have been proceeding down the 
line. They have been hit time after time and the people are 
just getting worn down. I grew up there and they are just 
getting worn down. I have got people talking to me about 
selling out. They just cannot take it any more. They just do 
not want to have their family jeopardized.
    I had a gentleman up there who told me he has not had a 
normal crop in five years. That probably the best he has had is 
maybe 50 percent of normal because his land is underwater. And 
he said he just cannot live like this. His family is under 
tremendous stress at their place. They are just having a 
terrible time. Can you imagine if for five years in a row you 
do not have a normal crop, with prices the way they are? They 
were debt-free when the process started, and they have now had 
to remortgage everything. And they are not alone. A lot of 
families are affected in the same way in that area.
    All right.
    Colonel Ball. Those were the big four issues that I had, 
sir. I really appreciated the discussion of the highways 
beforehand because it gives a perspective. There we are talking 
about something that is fixed and you can know that you have a 
maintenance cost with that. Flood control is just a different 
world. But folks in North Dakota, certainly in the past couple 
years, have come to know floods.
    I grew up in southeastern Kentucky and I would tell you 
that the security that you buy when you do have a successful 
flood control project will change the way you look at life. 
When I was growing up we measured time by floods. What were you 
doing in the 1957 flood? My relatives in southeastern Kentucky 
no longer do that. My little cousins, they do not know about 
floods. They know about high rivers, but they do not know 
floods. So this is important stuff.
    Chairman Conrad. That is very important. All of us who 
lived through the 1997 events and the subsequent events know 
how critically important they are. Not just in our State but 
other States as well.
    Thank you very much.
    Colonel Ball. Thank you, sir.
    Chairman Conrad. Warren, welcome. Good to have you here.
    Mr. Jamison. Thank you. Good to be anywhere.
    Chairman Conrad. Why don't you proceed with your testimony?
    Again, I want to thank Warren Jamison. You talk about 
hanging in there. All those years I would come back and report 
to the conservancy district, and Senator Dorgan and Congressman 
Pomeroy and we would tell them, we think we are making 
progress. You know, after you have heard that about six, seven 
times it wears a little thin. But to have passed last year was, 
I think, one of the great moments of my time in Washington, and 
Warren Jamison played a central role in the passage of the 
Dakota Water Resources Act. Thank you.

   STATEMENT OF WARREN JAMISON, MANAGER, GARRISON DIVERSION 
                      CONSERVANCY DISTRICT

    Mr. Jamison. Thank you, Senator. You have been handing out 
flowers and bouquets to Mr. Sprynczynatyk and myself, and Mr. 
Dwyer, but I cannot let you get away with that without 
recognizing that the political leadership of the State, all 
across the State, was behind this and that was absolutely 
essential to our success. But nobody stood in the center of the 
maelstrom any more than you did, sir, and we want to 
acknowledge that. Nobody worked harder on the floor than you 
did. I know that. You and I spent a lot of time together 
scratching our head, wondering how in the world we could pull 
this off, and you deserve a great deal of the credit yourself.
    I also want to acknowledge in the audience is my chairman 
Richard Fugelberg. There are a number of members of the board 
of directors for the Garrison project. It symbolizes their 
recognition of the importance of your work as chairman of this 
Budget Committee and the importance of water to the State of 
North Dakota.
    I heard you ask one of the previous witnesses a very tough 
question. You called it a Hobson's choice. I call them Sophie's 
choices. They are impossible choices and I recognize that. I 
have grandchildren, as many of you do, and I look in their 
eyes, their innocent eyes and I cannot consider the possibility 
of not fighting the war on terrorism with everything and every 
appropriate means that we have to win, quickly. We have to 
remove that kind of fear, or at least substantially reduce it 
for future generations.
    On the other hand, I look at them and the thought of 
depression or a return to a dirty 1930s or anything like that 
is equally as horrible a consideration. So these are two wars 
that I know that are difficult to fight on two fronts at the 
same time but, Senator, I do not think we have a choice. Not 
when you look in the eyes of grandchildren, the future 
generation, we must fight them both and we must win.
    Important to the economy is infrastructure. Two of the 
subjects that you are talking about today, transportation, 
energy, telecommunications, but most importantly, water. If 
businesses are to prosper they must have water. We have been in 
North Dakota struggling to build a water infrastructure for 
years. In my experience with this business in, almost too long 
now, is that they take a long time and you have got to keep at 
it. If you ever let up you take four steps back so quick you 
cannot even believe it. So that is what I wanted to address 
today.
    Overall, the bureau budget, which is where you can have 
your impact, for 2003 is $726 million. There is some bragging 
about the fact that that was better than last year's request. 
But it is also $36 million less than the Congress provided to 
the Bureau of Reclamation last year, our key agency in water 
infrastructure in the west. As you know, we are active members 
of a coalition called the Invest in the West Coalition. Nine of 
the most active groups in the western United States are active 
parts of it; the Upper Missouri Water Users, which Mr. Dwyer 
will speak to, is one such group as is the conservancy 
district.
    We have set on a program to bring the bureau budget back to 
where it used to be and to a level which has a decent chance of 
meeting the current needs. Last year your committee responded 
with $150 million of additional money for the Bureau of 
Reclamation. We are suggesting that we keep that effort up and 
that another $150 million be added to this year's budget for 
the Bureau of Reclamation so that we can continue to build 
infrastructure in the western United States. Not just in North 
Dakota but other places in the United States as well have 
critical needs.
    This coalition has been struggling to continue this effort 
until we reach $1 billion for the Bureau of Reclamation in a 
five-year program. What I am going to talk about, and relates 
to Garrison, patterns that strategy very much so, to look at a 
gradual build-up to meet the current needs of the Garrison 
project and North Dakota's water needs.
    The history of funding for Garrison over the last several 
years is indicated on the chart there, runs about $26 million. 
As you can see, it is made up of a couple of different items. I 
do not want to get into too much detail but overall budget 
funding running about $26 million, and the current budget 
request pretty much follows that pattern. It is $25.2 million 
to be exact.
    If we continue on that road we are taking four steps 
backwards. It simply does not match the current needs of the 
State of North Dakota, does not recognize the current 
authorizations that we just talked about, in the State of North 
Dakota in particular. So we must change that.
    There are people in this audience who know that I am going 
to recommend that that budget be increased to $45 million and 
they want me to tell you it should be $80 million. And they 
could justify it. There are people here from Standing Rock, 
there are people here from Fort Berthold Reservation and they 
have been waiting a long time. Nobody has more severe water 
needs in the State of North Dakota than those that are Indian 
reservations. They have been waiting to go for a long time, as 
you know. They would have me give a much bigger number in this, 
and others in the audience as well.
    But I am recommending a $45 million budget next year and 
then a continuous effort to ramp it up to eventually an $80 
million. Let me explain why. The bureau budget is made up of 
three major categories. If you asked the Bureau of Reclamation 
to explain their budget they will spend 30 minutes doing it. I 
am just going to break it into three categories.
    What I would call a base operating budget. In that are 
wildlife programs, funding of the National Resources Trust, 
operation and maintenance of existing facilities, some of them 
in construction status, some of them in operation status. In 
round numbers that operating budget runs about $20 million.
    In that item is operation and maintenance cost, as I said 
for a variety of facilities, one of them is for the MR&I 
systems that are built on the Indian reservations. It is a 
relatively modest number now, but as those systems are built 
then that number will continue to increase. That is something 
that we do need to deal with at some point. Not today but at 
some point. That is a continuing problem that will get worse as 
time goes on and you need to deal with it at some point. But 
today let us just assume that is roughly about $20 million.
    The other two major areas of the project are MR&I funding 
is the grant program, as you well know, that is authorized at a 
65 percent level. The third area is the Red River Valley. The 
driver for these two areas from a construction management 
standpoint and from a financial management standpoint are the 
big projects that are in there. Now the MR&I program is made up 
of a variety of very important projects but they generally run 
in the $10 million, $15 million, $20 million level. And they 
are independent. So you have got a lot of room to juggle them 
one against the other and around the other to match what you 
can do financially and from a technical standpoint.
    But big projects have a life of their own and you have to 
recognize that. One such project we are happy is underway, is 
the NAWS project, the first phase of which is to bring water 
from Lake Sakakawea to Minot. That is a $66 million program of 
which $45 million, in round numbers, is needed from the Bureau 
of Reclamation budget. We are delighted that that project is 
started and we are happy with your efforts to help that become 
a reality. They hope to have a dedication or groundbreaking 
ceremony very soon.
    A project of that size, from an engineering construction 
management standpoint, once started must be pursued vigorously 
to its end. To do otherwise creates two problems. First of all, 
you heard from a previous witness inflation gets you sooner or 
later and you just end up paying a horrible price in increased 
cost. But perhaps just as deadly, if you do not keep the 
project on a good time schedule the part that you install on 
the last days might not match the parts that you install in the 
first days. You create an engineering problems that sometimes 
can be very difficult.
    It is like building a car and taking 10 years to do it; the 
bumper will not match the front end, and you get all done and 
you cannot start the car. That could happen with a water 
project. Some of these are fairly complex.
    So the NAWS project first phase to Minot is scheduled as a 
five-year project. I think that is a reasonable expectation and 
we need to pursue that with vigor. As I say, that is $45 
million, so you can see it has a life of its own in terms of 
being able to fund that.
    There are other projects ready to go. There are other 
projects that we have taken the risk and through the State 
water commission are prepared to advance using other monies 
that eventually we will need to repay. So we are doing 
everything we can to move these things in a timely fashion.
    I want to get to the Red River Valley issue shortly but I 
also want to mention on this business, we are very pleased with 
the success of the MR&I program. This is a unique Federal--not 
totally unique but for the Bureau of Reclamation somewhat 
unique in that this is a project where they have turned the 
planning and engineering over to the local people. That is 
tough for Federal agencies to do that. I know, I used to be in 
one, but it was the right thing to do. I do not think there is 
a person in this room who would not agree that was the right 
thing to do. It has been a lot of work and a lot of tension for 
us, but it has certainly been a good thing to do. So all of 
those projects are important even though some of them are not 
as big as others.
    What it does bring to you though is the incredible patience 
that people have to have in development of any water project. 
There is hardly a project that has not been done in less than 
10 years, and some a lot longer. NAWS, for example, has been in 
the planning stage at least for 15 years. So people have been 
waiting and waiting, and the longer you make them wait you add 
another factor and that is discouragement that it will ever 
happen. The people who are planning for an economic future give 
up thinking, I do not have any base to build on. So it is 
important that we do everything we can to accelerate these 
projects in a timely fashion.
    The next chart I want to point out is the future. If we 
expect the projects to be built in a timely fashion, it is my 
opinion that the MR&I program needs to build fast in the early 
years. Now if over 20 years we expect to use up all of the 
authorizations for MR&I we could have a lower level of funding. 
But under the circumstances we need to first pursue the NAWS 
project with vigor, and then we need to position ourselves so 
that we can handle the Red River Valley project when it comes 
on.
    Now I am expecting that we should be able to the required 
environmental studies on the Red River Valley in three years, 
give ourselves another two years to negotiate repayment 
contracts, and if necessary get an authorization or 
confirmation from Congress that we have got the right thing. So 
five years from now we could be on the doorstep of construction 
of another very large project. It could easily be a $200 
million project. Again, that is one that we need to pursue with 
vigor once started.
    Chairman Conrad. How long do you think it would take--we 
are talking now about providing water to the Red River Valley 
because we know they are heading for water shortage. We have 
seen it in the past. We know because of the population growth 
there and the industrial development there that we have got 
water shortage in our future. This is part of the dream of 
Dakota Water Resources Act was, yes, we have got the State MR&I 
funds, we have got the Indian MR&I funds, but we also have 
money that is reserved to deal with the water challenge for 
western North Dakota. We have $200 million reserved for that 
purpose. That is what Warren is talking about here.
    You are saying we have got the studies underway to 
determine what are the alternatives. We have already 
established the water is needed. That has been established.
    Mr. Jamison. Absolutely.
    Chairman Conrad. Now the question is, how do you deliver 
that water? What are the various possibilities of how you 
deliver water? You are saying those studies that are underway 
you would anticipate getting in three years? This is what we 
have talked about in the past.
    Mr. Jamison. That is correct.
    Chairman Conrad. Then two years would be the time necessary 
to negotiate a contract with the various water users if we had 
that source available. That is your point?
    Mr. Jamison. That is correct.
    Chairman Conrad. Then what would be the length of time, 
what is your best estimate, to complete the project if we had 
the funding that we needed?
    Mr. Jamison. Once started the Red River Valley project, I 
think it is reasonable to assume that we should plan to 
construct it within seven years. To take longer than that we 
run the risk of running into technical problems in the early 
designs not matching the latest designs and we will stretch 
out--
    Chairman Conrad. Could it be done faster than that in terms 
of prudent management of a project?
    Mr. Jamison. I am an engineer. I always say yes to anything 
like that. Yes, it could be. Is it wise to pursue it beyond 
your capacity? That is a question that we would have to think 
about a little bit because there is a point where you can go so 
fast that you are kind of ahead of yourself. Seven years I 
think is very reasonable. I think it can be done. It certainly 
could be shortened. How much, I would be afraid to answer that. 
That would depend on what the project is and we do not know--
    Chairman Conrad. I have never actually had a conversation 
on that question, how long would that construction take. I must 
say I am a little surprised by the length of time.
    Mr. Jamison. Most people are.
    Chairman Conrad. I had in my mind three years so I am 
really somewhat taken aback by seven years. I am sure if we got 
Paul involved here we could do that closer to three years, 
could we not, Paul?
    Mr. Diederich. If you can design it, I can build it.
    Chairman Conrad. Go ahead, Warren.
    Mr. Jamison. Senator, just a little bit more on that point. 
As I said, a lot of people would like me to say it is a lot 
shorter and a lot bigger dollars. But there is a lot of 
engineering talent in the North Dakota, but it is not sitting 
idle either. So suddenly you turn big projects like this on 
them, and they are challenging.
    The same thing is true of construction contractors. If you 
happen to catch them all when they do not have anything else to 
do then you are in heaven. But that is not often the case. They 
are creative and they figure out how to keep busy. So it is not 
simply us being able to manage it. It is a lot of people that 
have to be available with the resources necessary. So that is 
my point on that.
    Anyway, if we suddenly sat around and said, we will just 
expend the MR&I program at some level basis until we get to the 
time when we are going to start construction of Red River 
Valley then we would be asking you a very unpleasant thing. 
That would be to suddenly increase the budget by $30 million in 
order to pursue the Red River Valley.
    So the project outline that we have laid out that is on the 
chart there is a gradual ramping up so that we can transition 
into a Red River Valley construction program in fiscal year 
2008. So that is why we are starting at $45 million. That is a 
substantial increase over the current budget request, and then 
builds up next year to $60 million and on up towards $80 
million eventually. I could project it beyond that but I would 
be kidding you in my abilities to do that.
    So, Mr. Chairman, Senator Conrad, we are in significant 
need to begin this process of building the appropriations level 
and the budget of the bureau to match the current need and the 
current authorizations. There are real people waiting for water 
and they have been waiting for a long, long time to get it. It 
is our plan to capture real people on interviews and bring them 
back to your offices in a few weeks so that it is not just 
somebody like me talking about it but you can see who they are 
and hear them explain. You have got a picture of some of them 
in the back right behind you.
    Chairman Conrad. You have seen this bottle before. This was 
worth about $200 million because we were able to show people in 
Washington this is the kind of water our people are condemned 
to use in western North Dakota. This is the quality of water. 
This is from the Anderson's place in Scranton, North Dakota. 
That is the water that came out of their tap. This is a picture 
of a child bathing in that kind of water. Anybody who has dealt 
with that quality of water knows how awful it is.
    What a transformation when we got southwest water pipeline. 
What a transformation. All of a sudden we got water like this. 
That is the difference it makes in the lives of people. We are 
talking about the same kind of thing with the NAWS project. It 
is going to just dramatically alter the quality of water that 
people get in northwestern North Dakota. That is why Dakota 
Water Resources Act was so important because it provides the 
funding stream for those types of projects.
    Anything that you want to add?
    Mr. Jamison. Just in conclusion I would say, people back 
east, inside the Beltway as we say, are aware that it is cold 
in North Dakota, and now they have become aware that there is 
water like that. They have not put the two together and 
realized that people are actually hauling water in that cold 
water that is like that, just to have some kind of a water 
supply. We want to bring that message back and help you as we 
together try to increase this bureau budget to an appropriate 
level.
    Thank you, sir.
    [The prepared statement of Mr. Jamison follows:]

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    Chairman Conrad. Thank you. Thank you very much.
    Next we will go to Mike Dwyer. Let me again say to Mike who 
much I appreciate what you have done. As I indicated earlier, 
at a critical moment in the Dakota Water Resources Act, it was 
very--frankly, everything was at risk because holding the 
coalition back here together was extremely difficult. Nobody 
did a better job of helping do that than Mike Dwyer, the 
executive vice president of North Dakota Water Users. Welcome.

STATEMENT OF MIKE DWYER, EXECUTIVE VICE PRESIDENT, NORTH DAKOTA 
                    WATER USERS ASSOCIATION

    Mr. Dwyer. Thank you, Senator Conrad. I think you are 
generous in your compliments but I too, like Warren, want to 
thank you for being such a champion for water in North Dakota. 
Warren said he was glad to be anywhere. Usually what he says 
is, wherever you go, there you are. I feel that way too.
    I have testimony that addresses the various water 
infrastructure needs that we have, rural water, people hauling 
water and using the kind of water quality that is unfit for 
human consumption, addresses the Devil's Lake situation, the 
Grand Forks flood, Grafton, Wahpeton, the Missouri River. I 
would like to not go through all of that testimony because it 
has been talked about here and would be a little bit 
repetitive. But the testimony can be entered for the record and 
it does state the need that we have in those various areas.
    But what I would like to do is just draw your attention to 
the front page of my testimony. Before I begin I would like to 
acknowledge the presidents of three statewide water 
organizations that are here, and Dave, maybe yours is here too. 
I am not sure. But Loren Zimmer is president of the North 
Dakota Waters Users Association, Glen McCrory is president of 
the North Dakota Water Resource Districts Association, and Herb 
Grenz is the chairman of the North Dakota Irrigation Caucus.
    Chairman Conrad. Thank you all. Thanks for being here. We 
appreciate very much what you do and we appreciate all the 
effort that you extend to have a water future for North Dakota 
that is much better than the past.
    Please proceed.
    Mr. Dwyer. I write the editorial page for the North Dakota 
Water magazine most months and one thing that I have mentioned 
many times is I have six children and the oldest is just a 
senior in college now and I would like them to have an 
opportunity to stay in North Dakota if those opportunities 
present themselves. We certainly want them to have the freedom 
to live wherever they choose, but if North Dakota is it we 
would feel bad if they could not make North Dakota their home 
simply because the opportunities were not here.
    Water infrastructure is key to that. Water infrastructure, 
whether it be the flood control, whether it be the water 
supply, whether it be the Missouri River management, whatever 
it might is just critical. And you have been such a champion 
for that.
    But if you look at the front page of the testimony that I 
have what I would like to emphasize is that when you present 
the needs that have been outlined here today you can state with 
certainty and resolve that you have North Dakota behind you in 
seeking to meet those needs.
    The North Dakota Water Coalition, which the North Dakota 
Water Users is a member of, consists of about 30 statewide and 
regional organizations that were formed for one purpose, and 
that is to complete North Dakota's water infrastructure for 
economic growth and quality of life. If you look at the 
organizations that are listed on that front page you will see 
that we have the Associated General Contractors, we have all of 
the major cities, we have the Economic Development and Greater 
North Dakota Association, the county commissioners, the 
Association of Rural Electric Cooperatives, the Education 
Association, the farm groups, the water organizations and the 
Three Affiliated Tribes.
    This morning we met and we endorsed the funding plan that 
Warren has presented to you on the Bureau of Reclamation. We 
endorsed a funding plan for the yellow sheet that you have on 
your table there. It is broken into three categories. One is 
the flood control needs. You asked the colonel about the Grand 
Forks request of $75 million or the capability of $75 million, 
and Grafton, Fargo, and Wahpeton. We have not only fiscal year 
2003 set forth there but also other years, outyears, and some 
of the totals.
    We have the Devil's Lake outlet there. I do want to mention 
that with Devil's Lake it is not just the outlet and the levee. 
They have a water supply issue where their water supply is 
under the lake. It is underwater, so if there were to be a 
break in that system they would simply be out of water. So that 
is a critical need that is not addressed in any budget 
currently.
    Then the Missouri River. Much of the attention is addressed 
toward the master manual, but if the proposal that North Dakota 
and other States are supporting is adopted there is going to be 
additional bank stabilization and bank protection issues that 
arise. That is often the forgotten child of the Missouri River, 
so to speak. But we would like to see the Omaha division of the 
corps provide greater attention to the bank issues that you 
have certainly been involved in trying to address.
    Chairman Conrad. Can I just stop you there and say I want 
to get this point into the record before we lose it. I would 
hope this spring that we would invite together the head of the 
Omaha district to go with us on a trip along the Missouri and 
review the issues that we have been pointing to in the past. As 
you know, we had passage of legislation to begin to deal with 
the sedimentation problem on the Missouri. That requires 
funding. You have got here $2.5 million a year.
    Mr. Dwyer. For a 10-year period.
    Chairman Conrad. For a 10-year period. That is a $25 
million commitment and that is roughly in line with what we 
have identified in the past as what we should be doing. I would 
hope that you would join with me in an invitation to the Omaha 
district to come here this spring or perhaps early this summer 
and go up to some of the spots that we have identified and try 
to get a commitment from them. Would you be willing to do that?
    Mr. Dwyer. Absolutely.
    Chairman Conrad. One other thing that I noticed here was 
this Fargo southside project. Now there is $14 million in 2004. 
What is that? And 2005 as well.
    Mr. Dwyer. Senator Conrad, I have some comments in my 
testimony on that and the representatives of the city of Fargo 
are here and could address that in more detail if you would 
like.
    Chairman Conrad. I think we should get that into the record 
on the southside project. Pat? Why don't you identify yourself 
for the record.
    Mr. Zavoral. I am Pat Zavoral. I am city administrator for 
the city of Fargo. As you know, in 1997 we were at risk from 
overland flooding from the Wild Rice River, which comes in 
south of Fargo, as well as the Red River. We have had an 
engineering study that has been underway since then with Moore 
Engineering. What has transpired is that initially we thought 
it was about a $20 million project. There were some funds that 
were available through the State and FEMA. What we discovered 
is that if we want to do the job right and protect the people 
on the wrong side of the dike that the project is going to be 
in the $35 million to $40 million range.
    Chairman Conrad. That is what kind of stopped me when I saw 
these numbers because they are bigger numbers than were in my 
head for that project, and I knew something must have happened.
    Mr. Zavoral. So what we would like to do, it has become 
such a magnitude that we would like to have the corps take a 
look at it and include it in their funding.
    Chairman Conrad. Yes, that is a big number. This is to deal 
with closing the back door.
    Mr. Zavoral. That is correct.
    Chairman Conrad. Because you have got flooding threat from 
the river. You have also got flooding threat coming back from 
the other direction.
    Anything else that you want to add, Mike?
    Mr. Dwyer. No. In conclusion, certainly all of North Dakota 
will benefit from funding that assures adequate water supplies. 
You mentioned the southwest pipeline and what it has done for 
that area. We have the same need in the NAWS area and 
southeast, northeast, some of the rural water areas. The 
failure to fund the critical water needs in our State would 
jeopardize not only our economic growth but our quality of 
life.
    So we appreciate your support and on behalf of the water 
coalition and all the groups that have endorsed the bureau and 
for funding recommendations we will support you in every way 
that we can.
    [The prepared statement of Mr. Dwyer follows:]

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    Chairman Conrad. I appreciate that very much. Just for 
those who are here, the numbers that are on this yellow piece 
of paper are in three broad categories: Federal flood control 
funding needs. The total for the next five years is $216 
million just in those areas. I can tell you this is not--
sometimes you come to these hearings and sometimes you are 
sitting in the audience and wonder, are these guys just making 
up numbers, or is this people asking for huge amounts of money 
hoping to get half as much? That is not the situation. I can 
tell you the biggest chunk of that, $150 million, is for Grand 
Forks.
    Judy, have you inflated these numbers?
    Ms. Des Harnais. No. That is the numbers as they have been.
    Chairman Conrad. So you are not just putting in some wish 
list here, Colonel Ball?
    Colonel Ball. No, sir. Sir, from experience, and you have 
more experience in this than I do, we normally come back to you 
and say we need more money rather than--we asked for this, you 
gave us only this much.
    Chairman Conrad. So that is not low-balling here. I want to 
make this very clear for the record. Your answer on the record 
is you need $150 million to complete the work at Grand Forks.
    Ms. Des Harnais. The remaining right now of Federal funds 
is $94 million. $150 million was the total but we already had 
some money this year, so the whole need is $94 million right 
now.
    Chairman Conrad. Grafton, what is the total five-year need 
there? $24 million here.
    Let us go back to Grand Forks. If we get $75 million this 
year we would be pretty close to being done.
    Ms. Des Harnais. Let me back up. The $30 million is in 
addition to the $94 million.
    Colonel Ball. Yes, it is in addition. We say $94 million on 
top of the $30 million we have already got. So if we get 
another $45 million to bring us to $75 million in 2003, then we 
would need I think $45 million the next year and we expect 
another $20 million to $25 million on top of that. So probably 
another $70 million in 2004.
    Chairman Conrad. So let us make very clear here. I do not 
want any confusion in the record here. How much additional 
Federal money do you need to complete Grand Forks?
    Colonel Ball. $45 million in 2003, which we have the 
capability--
    Chairman Conrad. $45 million on top of the $30 million.
    Colonel Ball. On top of the $30 million, yes, sir.
    Chairman Conrad. Let us use totals because--
    Colonel Ball. Okay, sir, $75 million.
    Chairman Conrad. $75 million for 2003.
    Colonel Ball. Using the approved construction estimate in 
2004 we would need another $45 million. However, because 
projects or bids have been coming in high the estimate is it is 
another $25 million on top of that. So 2004 we are looking at 
$70 million.
    Chairman Conrad. So now we are up to $145 million. Then 
beyond that?
    Colonel Ball. That finishes the project as I understand it.
    Chairman Conrad. So $145 million.
    Let us talk about Grafton. What is your five-year cost 
there? On this sheet it has got $24 million. What is your five-
year estimate there? When I go back there I want numbers that 
are absolutely gold-plated. I do not want anybody coming in the 
back door and saying, Conrad is up to his old tricks here, 
high-balling it and then negotiates down. I want numbers here 
that--
    Colonel Ball. Total estimated Federal cost, sir, is $22.45 
million.
    Chairman Conrad. $22.45 million.
    Colonel Ball. The balance that we need, realizing there is 
nothing in 2003, is $21.314 million. That is what we need 
totally from Federal to complete the project.
    Chairman Conrad. Fargo; I do not think that--
    Colonel Ball. Sir, I do not have anything on Fargo, but--
    Chairman Conrad. --it is fair to ask you at this point 
because we just got new information here. Thank you, Pat. Thank 
you for being here, and thank you for giving that to us because 
we have got to put that into these overall assessments.
    Wahpeton, I have got a number of $5.4 million.
    Colonel Ball. I am going to have to defer to Judy on that. 
That is in a Section 205, sir. I think that sounds familiar but 
I am going to have to let Judy--
    Ms. Des Harnais. I do not know that we have a full sheet of 
the needs. I know that next year's need is $2.7 million.
    Chairman Conrad. $2.7 million?
    Ms. Des Harnais. Yes.
    Colonel Ball. Which brings us to $5.4 million.
    Ms. Des Harnais. No, that is the total for 2003. I do not 
know what 2004 is.
    Chairman Conrad. We have got here $3 million for 2004.
    Ms. Des Harnais. That sounds about right but I do not have 
the number.
    Chairman Conrad. Maybe you can get back to me with those 
things.
    All right, the others, the Devil's Lake outlet, those 
numbers we agree on. Devil's Lake water supply. Have you got 
those numbers?
    Colonel Ball. No, sir, I do not have anything on that.
    Ms. Des Harnais. We have not got a budget right now. That 
is a proposed--
    Chairman Conrad. Joe is here.
    Mr. Belford. The city engineer is here.
    Chairman Conrad. Good. Why don't you introduce yourself for 
the record?
    Mr. Grafsgaard. Good morning, Senator. Mike Grafsgaard, 
city engineer. A $30 million estimate is an estimate that was 
put together based on water supply for the city and water 
treatment.
    The city currently has really three big issues with its 
water supply, the first issue being the water transmission 
line. It is over 40-years-old and underneath up to 25 feet of 
Devil's Lake water. Now within that transmission line, six 
miles of which is underneath the lake, we have numerous gate 
valves and blow-off discharges. If any of them were to fail the 
city would lose its water supply. That is the big issue. That 
is the emergency nature of the project.
    Now we are looking at obtaining money through FEMA, really 
anywhere that the funding could come from. It was placed in 
with the corps budget.
    The next issue we have is 2006, the arsenic rule. The last 
test the city ran was--
    Chairman Conrad. Let us not deal with that at this moment, 
if you do not mind, because that is--I do not want to deal with 
that because that is a more general issue that applies to all 
cities. I want to deal with the specific needs of Devil's Lake 
and get those on the record. You are talking how much, dealing 
with this circumstance where we have got the lines underwater? 
Were those lines underwater initially or have they been flooded 
subsequent?
    Mr. Grafsgaard. No. A very small portion was underneath the 
lake prior to 1993.
    Chairman Conrad. How much--that is my recollection, there 
was part of it--
    Mr. Grafsgaard. A very small portion. Less than half a 
mile. One valve that I know of was underneath at that time. 
That valve was sealed off so it was taken care of. Subsequent 
to 1993 with the 25-foot rise in Devil's Lake we have inundated 
the six miles.
    Chairman Conrad. What is the cost to deal with that problem 
alone?
    Mr. Grafsgaard. Just the transmission line issue? We were 
looking at about 25 miles of transmission pipeline, about $10 
million.
    Chairman Conrad. What would happen if that line failed 
catastrophically?
    Mr. Grafsgaard. The only backup supply the city currently 
has is a rural water system that is adjacent to the city. We 
could get about one-third of our average daily demand from the 
rural system. Currently the city is going through about 1 
million gallons per day. We could get about 350,000 per day 
from the rural system.
    Chairman Conrad. So what would we have done? If you got a 
phone call 10 minutes from now that said the line went, what 
would you do, besides call the rural folks?
    Mr. Grafsgaard. I would call you, Senator. [Laughter.]
    Mr. Grafsgaard. Realistically, we would have a severe water 
restriction, looking at going from 1 million gallons--
    Chairman Conrad. It is one thing to get two-thirds of your 
water supply, but one-third there is no way you can deal with 
that I assume.
    Mr. Grafsgaard. One thing I want to emphasize, Senator, is 
I used to work for a rural water system in the area, the one 
that we could get the water from. In my one year there we had 
to repair up to a dozen valves because of the corrosiveness of 
the soil. It eats the valves, eats the bolts, and they fail. If 
that were to happen in the city's instance that is all it would 
take.
    The pipeline itself may last for a long time. It is all the 
valves that can really cause a problem for the city.
    Chairman Conrad. Joe, did you want to add something?
    Mr. Belford. I was just going to add on the water issue, 
our hospital put in 30,000-gallon tanks. One is filled with 
water and the other is for sewage, in case of a major 
emergency. That was at quite a cost to them.
    Chairman Conrad. Mike, anything more that you wanted to 
say?
    Mr. Dwyer. Thank you very much again for holding this 
hearing.
    Chairman Conrad. I think it is an important hearing because 
in these next few weeks, very few, the Congress is going to 
have to write a budget and we have got to make some very 
important decisions here about what the level of funding is for 
these areas of infrastructure. I think most people in the 
country would say top priorities for funding would be 
education, health care, and these fundamental infrastructure 
things. That I think would be most people's priorities.
    You have got to be able to move around the country. You 
have got to have safe, clean water supplies. You have got to 
deal with the education of our children. You have got to deal 
with the health care needs of people, in terms of domestic 
priorities.
    Obviously our first obligation is to defend this nation. We 
have got to protect the country after this sneak attack on 
September 11th. That means we have got to add to defense 
expenditures. That means we have got to add to homeland 
security in a very significant way. I think most Americans 
would clearly support that. These are other matters of 
security, economic security certainly, and they deserve our 
attention.
    Joe, did you want to add anything else?
    Mr. Belford. Senator, just a brief--
    Chairman Conrad. Why don't you identify yourself for the 
record, too?
    Mr. Belford. Joe Belford, Ramsey County commissioner and 
chairman of the Lake Emergency Management Committee. Just for 
the record again, we would like to thank you and your 
colleagues for all the help that you have given the Devil's 
Lake area. We are far from done.
    I would like to discuss the need for relief from the 
flooding that has plagued the Devil's Lake region and 
northeastern North Dakota since 1993. Actually, Devil's Lake 
has steadily risen since the late 1970s but the most pronounced 
increase and the most damaging has occurred since 1993.
    While there has been some debate as to the cause of this 
growing disaster, scientists have concluded that the level of 
Devil's Lake is primarily dependent on climatic swings. Because 
long range forecasting is not an exact science, no one can 
accurately determine the duration of the present wet conditions 
and how high Devil's Lake will eventually rise. We do know that 
the lake has overflowed to the Sheyenne River several times in 
the last 4,000 years. Climatologists believe that the current 
wet cycle may continue an additional 10 or more years. The risk 
that Devil's Lake will overflow again is very real.
    Devil's Lake is currently at the elevation of 1,447.1 feet 
above mean sea level, 24 feet higher than it was in 1993 and 
less than 12 feet below its natural spill elevation to the 
Sheyenne River. At its spill elevation, Devil's Lake will cover 
almost 300,000 acres; about 250,000 acres or 390 square miles 
larger than it was when the most serious flooding began in 
1993. If Devil's Lake is allowed to spill through the Tolna 
Coulee, its natural outlet, the resulting erosion could release 
up to 2 million acre-feet of water, about four times the volume 
of the 1997 flood at Lisbon. This would spread devastation to 
many communities along the Sheyenne and the Red Rivers 
including Valley City, Lisbon, West Fargo, Fargo-Moorhead, 
Grand Forks, and East Grand Forks.
    As mentioned above, Devil's Lake has risen 24 feet since 
1993. It is now flooding about 75,000 acres of deeded land and 
has required a public investment of nearly $400 million to 
build dikes, assist hundreds of homeowners to relocate, and to 
maintain Devil's Lake regional transportation system and other 
infrastructure. Another $1 billion in damages could occur 
around Devil's Lake if it is allowed to reach its spill 
elevation of 1459 above sea level.
    Chairman Conrad. Let me just stop you there because I want 
this very clear in the record for our colleagues. We have 
already spent in Federal dollars almost $350 million.
    Mr. Belford. That is correct.
    Chairman Conrad. We are well on our way to $400 million 
when other things that are underway are done; is that correct.
    Mr. Belford. That is correct. The transportation alone last 
year was in excess of $40 million.
    Chairman Conrad. That is correct. Now I just wanted this on 
the record so my colleagues in Washington understand what we 
are talking about here. We have already spent that amount of 
Federal money, $350 million. With commitments we have got 
underway we will be at $400 million. The additional cost could 
be as much as $1 billion.
    Mr. Belford. That is correct.
    Chairman Conrad. So would that not lead one to the 
conclusion that it would be wise to proceed with an outlet that 
could avoid some of those costs?
    Mr. Belford. We certainly think so in Devil's Lake.
    Chairman Conrad. Now what would the cost of an outlet be?
    Mr. Belford. Approximately, the estimate from the corps is 
about $97 million to do the 22.5-mile outlet out of the Pelican 
Lake area. General Flowers has set a timetable for that hoping 
to move dirt by 2003. The corps is working very diligently for 
him.
    Chairman Conrad. I think that is very important to have on 
the record so that people understand what is at stake here, and 
that the Federal taxpayers--some people call these boondoggle 
projects or pork projects. There is nothing boondoggle or pork 
about this. This is a question of saving Federal taxpayers 
money in the long run because this thing, if it escapes, if we 
have flooding out of the east end, the testimony that Mr. 
Belford has delivered here, the amount of water that would be 
unleashed downstream would be four times what we saw in the 
1997 flood; is that correct?
    Mr. Belford. Yes, it could be 2 million acre-feet. Yes, 
that would be correct a Lisbon, based on Lisbon's--
    Chairman Conrad. I am going to be at Lisbon later today. I 
will have a chance to share--
    Mr. Belford. I was there yesterday and met with the county 
commissioners and the city of Lisbon and the water board.
    Chairman Conrad. Anything else you would want to add?
    Mr. Belford. I will just say in concluding, relief from 
additional flooding at Devil's Lake is urgently needed. A 
controlled outlet of water from Devil's Lake will greatly 
reduce the future flood damages adjacent to the lake and limit 
the risk of catastrophic damages, perhaps of several billion 
dollars, along the Sheyenne and the Red Rivers should Devil's 
Lake spill uncontrolled.
    We certainly want to thank you and your colleagues, in fact 
everybody in this room we want to publicly thank for helping us 
get through this.
    Chairman Conrad. Thank you, Joe. Thanks for your 
leadership. When my staff holds up her hand and goes like this, 
it means that I am getting the hook. Thank you. Thank you all. 
Special thanks to the witnesses; really a superb job. Thank 
you, Colonel, once again for being here. Warren, thank you. 
Mike, appreciate it very much. Our earlier witnesses as well.
    I think we have had a good morning of laying the case here 
for what is needed for North Dakota. And in addition, the 
effect on the Nation of really deep cuts in infrastructure 
spending, whether it is for highways or for water projects. 
These are things that are critical to communities. Certainly 
they are critical here in North Dakota.
    Thank you all and we will adjourn the hearing.
    [Whereupon, at 11:59 a.m., the committee was adjourned.]

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                THE PRESIDENT'S FISCAL YEAR 2003 BUDGET

                              ----------                              


                       FRIDAY, FEBRUARY 22, 2002


                                       U.S. Senate,
                                   Committee on the Budget,
                                                    Grand Forks, ND
    The committee met, pursuant to notice, at 10:30 a.m. in the 
Grand Forks Education Center, Conference Room 1, 2400-47th 
Avenue South, Grand Forks, North Dakota, Hon. Kent Conrad 
(chairman of the committee) presiding:
    Present: Senator Conrad.

                OPENING STATEMENT SENATOR CONRAD

    Chairman Conrad. This hearing will come to order.

    Chairman Conrad.Now we will have our first witness, Dr. 
Wayne Sanstead, North Dakota Superintendent of Public Schools. 
Welcome. It's very good to have you here.

STATEMENT OF WAYNE G. SANSTEAD, NORTH DAKOTA, SUPERINTENDENT OF 
                       PUBLIC INSTRUCTION

    Mr. Sanstead. We appreciate your leadership. Clearly, the 
chair of the budget committee makes a great difference. We had 
an event at Bismarck, at the capital, in which we saluted 
Senator Conrad for the Initiative in Rural Education Program. 
Sad to say, when that became the first major cut that I noticed 
in the group of cuts which accompanied the President's brdget, 
I was greatly dismayed. The two leaders in the Nation in the 
Rural Education Initiative, Achievement Initiative, were 
Senator Conrad and Senator Collins, and both were recognized by 
the National Rural Education Association for their leadership.
    And you need to know the first call I got this morning was 
from Mary Conk, the Legislative Director for the American 
Association of School Administrators. She pointed out to me, 
again, that they were going to, in their national efforts, make 
every effort to try to restore the grant money, but there were 
a number of other programs, as well, and I am just looking at 
some of those cuts, the close-up fellowships. We have one of 
the finest close-up programs in the nation. For students on 
close-up fellowships, 1.5 million were deleted. The National 
Board--knowing how many educators count on this program--the 
National Board for Professional Teaching Standards, 10 million 
was cut.
    National Writing Project here at Grand Forks; Initiative in 
Writing, we have at Minot State; both programs cut in National 
Reading Initiative, so while there was some good news in the 
2003 budget for education, certainly these caused great concern 
on our part, and I will move to the official testimony.
    I do have the 1,200-page document. This is Secretary Page's 
Partnership to ``Leave No Child Behind''. All the chief State 
schools officers were in Virginia and we spent a day with the 
President and Secretary. This was the document that was used as 
a resource notebook for our work at that time. I brought that 
back. At that time we had no idea there was not going to be a 
followup. I hasten to add, from the chiefs perspective, we 
thought indeed the budget was going to move forward in 
totality, and when that didn't happen, I know--and I am chair 
of the legislative committee for the chief State school 
officers and we will be in D.C. in March, and we will be at 
both White House and the Congress urging that, once again, it 
become a priority, ``No Child Left Behind.'' That was, indeed, 
the rhetoric that accompanied the initial effort.
    So I am happy, Senator, to be present. I am the Chief State 
School Officer, and I always say ``longest serving.''
    Thanks for the opportunity, again, to be with you this 
morning and to appear before the committee in this very 
important education future decision making.
    Chairman Conrad. Thank you, Dr. Sanstead. Thank you very 
much for that testimony. As we look at this budget I think we 
have to be concerned because education, by all accounts, is the 
No. 1 priority of the American people, outside of strengthening 
national defense.
    If you ask the American people what is the single most 
important thing to them outside of defending this Nation, they 
will say, overwhelmingly, the education of our children. And a 
budget ought to reflect that. A budget ought to reflect those 
priorities. That is really what a budget is all about. It is a 
blueprint of the priorities.
    [The prepared statement of Dr. Sanstead follows:]

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    Chairman Conrad. We are also privileged to have with us the 
Chancellor of the North Dakota University system, Dr. Larry 
Isaak, who recently was chosen as the president of the State 
Higher Education Executive Officers, a national organization of 
30 statewide boards of higher education.
    Larry, I think I can speak for all North Dakotans and say 
that you have done us proud to be selected the head of that 
national organization. You know, it's interesting how often our 
North Dakotans become the heads of their national 
organizations, and you follow in that proud tradition. It's 
awfully good to have you here.
    I can just say I have worked with Dr. Isaak for many years, 
and higher education could not have a more persuasive spokesman 
and advocate than Dr. Isaak. Welcome, and please proceed with 
your testimony.

  STATEMENT OF LARRY A. ISAAK, CHANCELLOR OF THE NORTH DAKOTA 
 UNIVERSITY SYSTEM AND PRESIDENT OF THE STATE HIGHER EDUCATION 
                       EXECUTIVE OFFICERS

    Dr. Isaak. Thank you, Senator. Before my prepared remarks, 
let me say it is a real pleasure to be here today. Your 
position as Chair of the Budget Committee is certainly one that 
North Dakota can also be very proud of, and I think it brings a 
lot of great, not only honor to North Dakota, but it also 
brings North Dakota to the forefront on the national scene, and 
we need that. If we re going to grow in North Dakota and grow 
the State's economy, we need people in key legislative 
positions in Washington from the State of North Dakota, and we 
need people who are going to exercise their leadership, and I 
am just very pleased that you are in a position to do that.
    You know, North Dakota higher education has received a lot 
of attention in the last couple years. We have had a statewide 
rouridtable of 61 people from across the State: Legislators, 
private sector people. Dr. Sanstead was on the round-table, and 
it really has chartered a new path for higher education in 
North Dakota to link more closely with economic development. 
And as you look around the country, the key to turning States 
around is an investment in higher education, not only in the 
traditional things we do, but in things such as research and 
public service and work force training. North Dakota is leading 
the charge on that.
    We just received a national award the other day, and more 
will be coming out on those efforts. We're being recognized 
across the country as a State of best practices, so I think 
that the future is bright for North Dakota in many respects.
    I am pleased to be here today to offer comments regarding 
President Bush's budget, not only as Chancellor of the North 
Dakota University System, but also as President of the State 
Higher Education Executive Officers.
    Chairman Conrad, first and foremost, I'd like to thank you 
for your commitment to students. The lead role you played to 
ensure that new Federal student loans made after 2006 will bear 
a fixed interest rate to student borrowers, with the goal of 
providing a stable source of funding, will stabilize and lower 
a student's loan indebtedness. Also, thank you for your many 
efforts to improve research and program capabilities at all of 
our campuses.
    My fellow SHEEO's and I recognize that you and members of 
the Budget Committee are faced with many challenging budget 
decisions, and I have visited with several of them in 
anticipation of this hearing. We believe, and I should say 
``strongly believe,'' adequately funding various needs-based 
financial aid programs has always been a way to provide 
financially needy students access to higher education, and that 
this should continue to be a high priority for the Federal 
Government. They have asked me to express concern that the 
President's budget may slow achievement of this goal to provide 
this broad access to postsecondary education irregardless of an 
individual's income level.
    The reasons for the SHEEO's concerns about financial aid 
are as follows:
    One, the President's fiscal year budget proposes no 
increase in the maximum Federal Pell Grant award of $4,000 for 
academic year 2001-03, and has requested supplemental funding 
to cover a projected shortfall for fiscal year 2002 and beyond 
in the Pell Grant program. Let me just, as an aside here, I 
understand that the proposal to cover that supplemental funding 
for the shortfall would come out of many projects that Congress 
has approved across the country.
    Those projects are valuable projects which assist citizens 
and students. For example, one of them that would fall by the 
wayside is a program in which Minot State has, been funded to 
work with rural law enforcement communities across the State 
and provide leadership and service to those communities. That 
is pretty critical in this day and age, so I don't see the 
connect at all to that. So I would hope that that isn't where 
the supplemental funding comes from.
    The President's budget also proposes level funding for 
three campus-based programs: the Federal SEOG program, Perkins 
Loans, and Work-Study programs. It eliminates funding for the 
Federal LEAP Program, which is a program that uses funds to 
match funds that States provide.
    Also, let me say that our concerns are founded because 
students financial aid will be even more critical because of 
the current recessions's impact on States budgets.
    My role as President of the State Higher Education 
Executive Officers also challenges me to look at postsecondary 
education from a national perspective. My counterparts, the 
SHEEO's, are currently struggling with State appropriation 
shortfalls in the billions in many cases, and are considering 
major tuition increases to offset these shortfalls. This, 
compounded with States occupational shortfalls, for example, in 
teachers and information technology workers, poses even greater 
challenges.
    To enhance a partnership between the States and the Federal 
Government to address these concerns, we ask the Congress to 
consider: Increasing the Federal Pell Grant maximum award.
    Expanding the Hope Scholarship and Lifelong Learning tax 
credit to include non-tuition costs.
    Forward-fund the various need-based programs rather than 
supplement-funding them.
    Expanding the loan forgiveness for math, science and 
special education teachers; critical, critical shortages, from 
$5,000 to $17,500 as is proposed.
    Enhance TRIO and Gear-Up funding to ensure needy children 
do not fall through the cracks throughout their educational 
cycle. These are critical programs to that population.
    Increase the Title IV loan limits for incoming freshman. As 
you know, an incoming freshman is only eligible to borrow up to 
$2,625 in Federal Stafford loans, and in many cases ends up 
assuming much higher cost alternative loans. This will even be 
more important if the Federal Pell Grant remains the same, and 
might I add, as tuition increases are taking place across the 
country.
    Continue to explore ways to make financial aid funding 
available for part-time students, and students who take courses 
from several campuses simultaneously.
    And support the increased funding in the President's budget 
for research as reflected, for example, in the proposed 
National Institute of Health budget. Cutting edge research will 
keep this country in a lead role in the world for decades to 
come. It is a sound investment.
    Let me add one more bullet point that isn't in my prepared 
remarks, Mr. Chairman, and that is an issue closer to home, and 
it's not even within the North Dakota University System 
campuses, it's the United Tribal Technical College. I believe 
that funding for that college is important. They are very 
important partners to providing education to all citizens of 
the State, and we're trying to partner more and more with those 
tribal colleges, and their future is very important to ours, as 
well.
    We understand, and we support the President's agenda for 
homeland security and defense. However, in light of today's 
slowed economy, the question must be asked, ``Do the revenue 
reductions which are now planned over the next several years 
mean a reduction in maintaining affordable access to 
postsecondary education? Let us hope that the economic stimulus 
predicted as a result of last year's revenue reduction plan 
will happen soon so that revenue growth will fund our important 
security and defense needs and, also, continue to fund 
affordable access to higher education for all of our citizens.
    Chairman Conrad, thank you for this opportunity to visit 
with you today and share our thoughts. Don't hesitate to 
contact me personally if I can be of further assistance as the 
Budget Committee and you move forward with your deliberations.
    [The prepared statement of Dr. Isaak follows:]

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    Chairman Conrad. Thank you, thank you both for your 
testimony, and thank you, Dr. Isaak, for the leadership that 
you provide in higher education in North Dakota. I can tell you 
the word is getting out. As I have talked to businesses who are 
considering coming to North Dakota--I talked to one last night, 
at the Innovators Conference. The awards were being made for 
those who were business innovators in North Dakota. I had a 
businessman approach me about a very substantial investment 
that he was thinking of making here in Grand Forks, North 
Dakota--very substantial, in the millions of dollars. And the 
thing that was attracting him was the higher education facility 
and the excellence of it at the University of North Dakota. It 
was the potential partnership of his company with graduates and 
faculty members at the University of North Dakota that 
intrigued him about making a multi-million dollar investment 
here. We agreed to continue to pursue the matter in the days 
ahead.
    Dr. Cupcella, your ears must have been ringing last night. 
You were at that dinner. When this businessman approached me, 
he talked to me about what he saw as the excellence of the 
institution that you lead. You would have been very proud to 
hear his comments. This man represents a very important 
company, and with deep pockets and the ability to make the kind 
of investment that was being discussed, so we hope that this 
will come about.
    Dr. Isaak, if I could go to the question of Pell grants--I 
want to come back to you, Dr. Sanstead, on the Rural Education 
Program, if I could, but Dr. Isaak, starting with you, we have 
got a shortfall of $1.3 billion in Pell grants. The President, 
instead of just sending up a supplemental request to fund this, 
said, Cut $1.4 billion in previously passed programs including 
$800 million out of other education programs. This is, again, 
the kind of now-you-see-it-now-you-don't accounting that is 
very troubling to me. Can you tell us the importance of the 
Pell Grant program, as you see it, to students in North Dakota? 
Dr. Isaak. It's incredibly important to students in North 
Dakota, especially for a rural State like North Dakota. When 
you look at income levels of North Dakotans compared 
nationally, the economy that we have here, the struggles that 
are going on in the agricultural community, the Pell Grant is 
the main ingredient that will determine whether a student goes 
to college or not. I mean it's the bottom line in many eases. 
It's the defining moment for students whether they will go on 
or not. And so for a State like North Dakota, where we lead the 
Nation, I think, Wayne, and the number of high school students 
that go on to college, you can see how critically important 
that is even with the economy of North Dakota, as it is in a 
rural State, we still lead the Nation. North Dakotans consider 
higher education so important. It's just in our fabric, and 
without that Pell Grant and without maintaining an adequate 
level of the Pell Grant, there are students and their families 
that, no question, they will be denied access because it is the 
first and it is the main determinant of whether some families 
or some citizens or some students can go on.
    Chairman Conrad. We clearly have got a problem with Pell 
Grants. I agree with you, in visiting with students in North 
Dakota they tell me, look, you've got to have that money, 
you've got to expand the Pell Grant award amount to keep up 
with inflation, at least, and of course that is not being done. 
But I guess the most troubling thing I find is that we're 
covering the shortfall by taking money out of other education 
accounts, primarily, and that really can't be the answer.
    Dr. Sanstead, if I could go back to the elimination of the 
Rural Education Achievement program and what that means, I must 
say, as the author of the program along with Senator Collins, 
it's absolutely bipartisan. We have bipartisan support for the 
legislation, overwhelming, and in the first budget cycle they 
eliminate it and they say there is no problem with rural 
education, all the funds that are needed are being provided. 
You indicated in your testimony that that is not the case. Can 
you tell us what it will mean for meeting the goals that have 
been set if we have a program like this eliminated? What does 
it do in terms of the challenge that you face?
    Mr. Sanstead. Yes, I think, Senator, you make the point 
that it is the focus on which rural education really has looked 
to the future, and by arguing, as the administration did, and 
proposing its immediate elimination in the 2003 budget, it is 
really a setback. Really, No Child Left Behind, as even an 
argument point for the Administration at this time, it's 
showing a lack of understanding, in my view, of how necessary 
the rural areas are to this State, and certainly this State, 
but most especially this Nation. So from that perspective I 
think they don't understand that Rural Achievement has been the 
basis for so much of the expansion and success in our economy 
as a Nation. These folks who have left the rural areas have 
built a lot of the industry and the business and the scientific 
progress that has made this country work.
    So the flexibility point I made in my earlier comments, it 
increases the opportunity for rural school districts to combine 
rural program money into the area that they need it most in, 
and most especially that includes technology, because 
technology is the bridge that we have been using to try to 
overcome the factors of distance and transportation.
    So the fact there wouldn't be a targeted stream of money 
flowing to those rural districts I think is going to be a major 
handicap for education in the country. I know the NREA 
colleagues, that is our Nationwide Rural Education colleagues--
by the way, the State next most involved with North Dakota is 
New York, and a lot of people don't think of upstate New York 
as being rural, but in my contacts with NREA spokes persons 
across the country, they have focused a lot on upstate New 
York, not just what we normally think about as farm territory 
out here in the midwest.
    And I would want to piggyback on the comments of Larry in 
the sense of the need for the Pell shortfall money. You know, 
to take some of that is--some of the cuts that I mentioned 
earlier come because they move money over to Pell Grants, and 
that is robbing K-12 education, to do the Pell Grants. But in 
one respect I'd rather see it there because of the access and 
the opportunity it presents to students, but I don't want to be 
put in that position, because it means that, indeed, 
opportunity is going to be lost for kids across this country to 
go forward, and particularly, as you point out so well, in a 
State where we've got such high regard for higher education and 
when we maintain such an open system for students to attend at 
any level of higher education, so that is a major and a severe 
cut.
    Chairman Conrad. I'd just say this: Honestly, when I saw 
this kind of transferring of funds and they say, OK, now they 
don't have a big announcement that they are going to fill in 
the gap on Pell Grants, which all agree is absolutely essential 
to do, then you get the budget, and they funded it by cutting 
800 million of No Child Left Behind programs. Well, I mean that 
can't be the way we do it.
    Dr. Sanstead, would you consider this budget a commitment 
to the No Child Left Behind program that was just signed into 
law a month ago, or how would you take it?
    Mr. Sanstead. Yeah, I think, clearly, now, and I know we 
had, you know, September 11th, and I know there are other 
considerations on the home front besides education protection, 
really, for all of us, but the fact of the matter is to have 
the No Child Left Behind to be the major Presidential 
initiative, that had we not had September 11th, very clearly 
would have moved education as the first item before the budget 
process. It was so disheartening and so discouraging, I think 
to educators across the country, to see the tremendous fanfare 
we had with this kind of a--I have been to Mount Vernon before, 
but never under the circumstances that we were there when the 
President and the Secretary arrived to tell us all the things 
that were going to happen because of this great initiative, and 
then suddenly have the budget come out and have it be a total 
disappointment; I think that is the part that causes--and that 
is every educator in the K-12 system, and I think all of our 
colleagues in the higher education system who see it now simply 
as a fanfare move.
    Chairman Conrad. Well, we have got a tremendous outpouring, 
I can tell you that, from across the country on that issue, and 
people feel strongly. It was the right commitment, but it's got 
to be funded. A commitment verbally doesn't make much 
difference. The rhetoric has to be matched with resources.
    If I could go to Dr. Isaak, you note that the President's 
budget would eliminate the LEAP program. That is a program that 
encourages States to establish scholarships and grants to 
encourage young people to go to college. What impact will that 
have on students in North Dakota? And can you maintain a 
program without any Federal support?
    Dr. Isaak. Mr. Chairman, we hope that that stays in there. 
We have had some difficult funding challenges with that program 
in the State in the last few years, and we are hoping to regain 
that level of support with prorations from the next 
legislature. Without that in place, you know, it's always good 
to go to the State legislature and say, you know, if you folks 
put up a little bit more here, we can bring in a little bit 
more here and we can match what you are going to do, and so 
forth. So it s absolutely critical, it seems to me. It's an 
incentive to the States and to the legislators in the various 
States to put more money into financial aid as well, and that 
incentive will be eliminated as a result of that. And you know, 
I happen to think that some of these things that partnership 
between the States and Federal Government are pretty good, and 
we try to develop partnerships. That partnership and that 
incentive for the States that would do more for students, as 
well, will be eliminated, and I don't know if the legislature--
then we don't have that argument when we go down the halls in 
Bismarck to say, ``If you do this we can help, also, the 
students, with a Federal match.''
    Chairman Conrad. Just a final question: We re seeing Pell 
Grant applications increase nationally at the rate of about 8 
percent. Are you seeing a similar trend here in North Dakota?
    Dr. Isaak. I don't have the statistics, but absolutely, 
yes, we are, because we're seeing our enrollments increase. 
It's kind of wild that while we're having these challenges, our 
enrollments are actually increasing, and they are increasing 
and for part-time students and students taking on-line courses. 
We saw a tripling of about 70 percent of students taking on-
line courses from last spring to this spring. So the 
applications, I would guess, are up quite a bit. And also, when 
you look at the income levels of individuals and what is 
happening in North Dakota recently, that is driving it, as 
well. I know the 10-year history, it just goes off the roof 
when you look at the 10-year history in terms of financial aid 
and applications, so the need is being demonstrated even 
greater than it has been before for these types of grants. And 
I don't have statistics, but based on our enrollments I have to 
know it's growing.
    The other thing that I think is important is we have taken 
a leadership role in this State in opening up access where 
students can take courses from multiple institutions to get a 
degree. We have an on-line associate's degree that just went 
into place a few months ago. We are part of a development 
program that the Department of Education a few years ago gave 
us a grant to take a leadership role, for North Dakota to take 
a leadership role. More and more part-time students, they are 
having to take their courses on a part-time basis just because 
of cost. The Federal programs for these grants do not--you 
know, you have to be a full-time student at one institution to 
get a grant. That is not the way things work in 2001, and I 
mention that point, and my colleagues, as well, I know, are 
very concerned that as we move to the future, that that be 
expanded in terms of eligibility for those grants.
    Chairman Conrad. It's just got to be changed, because of 
realities of higher education today doesn't fit this old 
template where somebody went to one school, stayed there, went 
to all their classes there. Now you have got these partnerships 
with other institutions of higher education, and you take, 
perhaps, most of your classes at one institution, hut you take 
some specialty class elsewhere, and actually that improves the 
effectiveness of the use of taxpayer money because that reduces 
duplication. Isn't that----
    Dr. Isaak. Absolutely. But even more importantly, it's in 
the students best interests, and we ought to be providing the 
opportunities for that to happen for them.
    Chairman Conrad. Very well stated. I want to thank you 
both. I appreciate your being here today.
    As the second panel is coming up, we're going to take just 
a short break, because I believe the television station would 
like to interview Dr. Isaak and Dr. Sanstead. We were told last 
night that they'd like us to take a just a brief break to give 
them a chance to talk to Dr. Isaak and Dr. Sanstead. We will do 
that. We will take a 10-minute break and then we will be back.
    [Recess.]
    Chairman Conrad. We will bring the hearing back to order. 
We invite our second panel: Tanna Kincaid, North Dakota State 
Board of Vocational Education; Bev Nielson, representing the 
North Dakota School Board Association; JoNell Bakke--I hope I 
am pronouncing that correctly--Grand Forks Education 
Association, and Dean Kreitinger, the business manager for 
Grand Forks Public Schools. Welcome to you all. I appreciate 
very much your being here.
    Tanna, why don't you begin.

  STATEMENT OF TANNA M. KINCAID, IT SUPERVISOR FOR THE NORTH 
DAKOTA STATE BOARD OF VOCATIONAL EDUCATION, AND DIRECTOR OF THE 
        NORTH DAKOTA TEACHING WITH TECHNOLOGY INITIATIVE

    Ms. Kincaid. Thank you very much, Senator Conrad. I would 
like to just open with a brief statement, and that is there are 
many days when I wake up in awe of the great education system 
we have in this State, and the commitment and dedication of the 
educators, and I think that is what keeps me going in this job 
from day to day, is just seeing that and seeing that 
involvement, and knowing that that is not the case in every 
State. I think we have a unique situation here and a lot of 
great people here that are working to do the best that they can 
for our kids. And I am proud that--I have two little ones, one 
of which is already in school, that they go to public school in 
North Dakota and know that they are getting the best education 
that they can get. So for those of you that are educators or 
have anything to do with education in North Dakota, I want to 
thank you for that and for my family's opportunity.
    I will move to the formal testimony here. Chairman Conrad 
and Members of the Committee, it is an honor to appear before 
you to discuss the impact of the President's Fiscal Year 2003 
Budget Request on education in North Dakota and America.
    For the record, I am Tanna Kincaid. I am the Information 
Technology Supervisor for the State Board of Vocational and 
Technical Education, as well as the Director for Teaching with 
Technology Initiative which is a technology-based challenge 
grant program.
    For the purposes of this testimony, I am going to confine 
my statements to two major areas, one being vocational and 
technical education, and the other being educational 
technology. I will start with vocational and technical 
education.
    Vocational and technical education was slated for level 
funding in the 2003 budget. It is our feeling that if we're to 
provide students with the knowledge and skills necessary to 
perform in the new economy, we can not be expected to do this 
on level funding. With the increasing needs, particularly in 
information technology and in the area of career development, 
it is very difficult to maintain the traditional educational, 
vocational educational opportunities, and offer increasing 
opportunities in information technology.
    As you know, North Dakota is one of four States that 
receive minimal funding. We receive a minimum amount, and we 
believe that the minimum should be increased.
    Another concern is the elimination of the Occupational and 
Employment Information program. This program has provided a lot 
of informational resources and other valuable resources to our 
students, schools and counselors in the State, and there is 
really no replacement for that, so that is a big concern.
    And then, finally, the Career Clusters project, which isn't 
really mentioned in the 2003 Budget, but I am going to slip it 
in here, should be continued and the development of that should 
remain at the secondary education level. The Career Clusters 
have the potential to reshape how we look at vocational and 
career education, and it will help to provide a continuous 
ladder for students to--will provide students the ability to 
start and stop and to reenter education without hitting the 
dead end that they currently do.
    With respect to information technology, this a career 
cluster that is critical to student success and the economic 
viability of our State and our Country. North Dakota's 
successful progression into the information economy hinges 
heavily on IT career education and the preparation of students 
from K to adult.
    The increased need for information technology programming 
is costly. The training costs for teachers, the equipment 
costs, the curriculum costs, are weighing heavily on our 
department, I know, and it's difficult to continue to expand in 
those areas and still meet the other vocational area needs 
without any increase in funding.
    The last part of my comments are revolving around 
educational technology. I'd first like to thank our entire 
congressional delegation, but in particular, Senator Conrad, 
for support and for securing funding in technology and 
education technology. I think that they have done a tremendous 
job for us in this State. I am also very appreciative of the 
Senator's support and help in ensuring that the Teaching with 
Technology initiative, which is the TICG Federal Grant, 
received full funding for our last year. That is going to make 
a big difference for us in the State with regard to educational 
technology.
    My first concern with educational technology, the way it 
seems to be moving with the 2003 Budget, is revolving around 
the disregard that it seems to take into account for current 
lessons learned and best practices. There has been a wealth of 
knowledge and best practices that have resulted from the 
Technology Innovation Challenge Grant and other programs that 
are slotted for elimination. There is a concern that these 
investments made in the programs are largely going to go by the 
wayside because there is a lack of a plan for the dissemination 
and use of those lessons learned, and I hate to see us reinvent 
the wheel again in new programs without taking into account the 
progress we have already made. One specific example is the fact 
that 25 over $600 million was invested in the TICG program, yet 
there is no plan to utilize the evaluation data from those 
initiatives and best practices models to form new programs.
    Another missing element in the fiscal year 2003 Budget is 
the total lack of funds for true innovation. There appears to 
be no target program to promote and seed innovative approaches. 
The loss of targeted programs may affect our ability to 
efficiently and effectively move forward as a State and to 
innovate as a Nation. I think that would be a mistake to not 
have that in place.
    Another concern is from a regional perspective, and that is 
the potential loss of the consortium that are focused on 
educational technology. That would be, for instance, the North 
Central R-Tech and High Plains R-Tech. Those two R-Techs, in 
particular, have provided a lot of support and resources for us 
in educational technology in this State, and with the limited 
funding that they had in the first place, I think that they 
provide an invaluable and top-notch resource to us as a Nation, 
and I hope that there is some replacement or some other way 
that we can keep that type of resource going.
    Another real concern is the elimination of the PT3 program, 
and particularly failure to provide for a comparable program. 
If we really want to systemically change the way our education 
system works in this State and the Nation, we need to start by 
changing the way we educate future administrators and teachers, 
and there doesn't seem to be any additional means to do that in 
the new budget.
    Finally, there is a fear that the guidelines for the 
distribution of the Educational Technology Block grants may 
result in limited flexibility for our State to align the 
funding processes to support current State priorities. For 
instance, the investment in our statewide network and the 
educational use of that network.
    And as a last point, there is also some indication that 
schools may be able to choose not to use the funds intended in 
the Educational Technology Block grants for educational 
technology, and depending on how those guidelines work out, 
this could very well result in perpetuating inequities in 
schools with regard to educational technology.
    I thank you for the opportunity to present this testimony.
    [The prepared statement of Ms. Kincaid follows:]

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    Chairman Conrad. Thank you. Excellent, excellent testimony. 
We're going to go right down the panel, and then we will have 
questions, as well.
    Welcome. Glad to have you here. Again, JoNell is President 
of the Grand Forks Education Association.

  STATEMENT OF JONELL BAKKE, PRESIDENT, GRAND FORKS EDUCATION 
                          ASSOCIATION

    Ms. Bakke. I appear on behalf of the North Dakota Education 
Association. Gloria Lokken, the president, was unable to be 
here today, and she asked that I give this testimony on her 
behalf.
    I work with the Grand Forks public schools and I have 
worked with them for 19 years in elementary and special 
education. My husband and I have four children, and I am in my 
second year as president of the association.
    The NDEA strongly believes that the Federal Government 
should provide real resources to implement the ``No Child Left 
Behind Act'' and to assure that every student has a high 
quality education. We support guaranteed full funding of IDEA 
by mandating increases of $2.4 billion in each of the next 6 
years.
    The Federal Government should also have increases for 
critical educational programs, including $5.65 billion increase 
for Title I and increases for other important programs, such as 
teacher quality, math and science partnership, and after-school 
programs. NDEA opposes efforts to eliminate funding in Fiscal 
Year 2002 for important elementary and secondary education 
programs, or to pit the ESEA programs against higher 
educational needs and funding.
    Without these Federal dollars, rural States like North 
Dakota will not be able to recruit and retain quality teachers 
to ensure that every student receives a quality education.
    In recognition of the importance of public education in the 
United States, the reauthorization of the Elementary and 
Secondary Education Act, ESEA, was signed into law on January 
8, 2002 in a public schoolhouse rather than in the White House.
    Less than 1 month later, President Bush's proposed budget 
eliminated 29 earmarked project funds in Fiscal Year 2002's 
ESEA Appropriations Bill. In his proposed 2003 budget for ESEA, 
40 educational programs were eliminated, another 16 programs 
were cut in funding but not totally eliminated, 66 programs 
were frozen, 22 programs were increased, 4 programs were added, 
and there is now a new tax provision.
    For 2002, the Bush budget proposal would reduce the 
appropriations increase from $3.507 billion to $2.794 billion. 
The 2002 reductions and the reductions for 2003 were brought 
forward less than 4 weeks after celebrating the big increase in 
funding for education, ensuring that, indeed, ``no child would 
be left behind.'' With these reductions the proposed ESEA 
Fiscal Year 2003 Budget contains the smallest increase since 
1996.
    Well, you may say, at least in these difficult times there 
is an increase. Please remember that this 1000-plus page new 
law makes great changes to Federal educational policy in many 
areas including testing, accountability, and educator quality. 
We know that mandates cost real dollars. Where are these 
dollars going to come from? We are still struggling to obtain 
the promised 40 percent Federal support of IDEA which was 
mandated 29 years ago. Bush's proposed budget does not include 
support for IDEA, but at the rate of $1 billion a year, it will 
take 33 years to achieve the promised 40 percent Federal 
support for IDEA. We are not against accountability, we wholly 
support IDEA and most assuredly we are for quality; however, we 
also understand that funding must support mandates.
    It is not possible at this time to discuss all the affected 
programs in Bush's budget, but we will discuss one that is 
critical to our State. For the first time, and largely due to 
your support and leadership, Senator Conrad, Rural Education 
was established and authorized in ESEA. $300 million a year was 
authorized for 6 years for rural, small and poor schools to 
allow them to combine certain ESEA programs. Rural schools 
educate a significant number of America's children. Nearly 40 
percent of school-age children attend public school in rural 
areas or small towns, 49 percent of the Nation's public schools 
are located in rural areas and small towns, and 41 percent of 
public school educators teach in those rural community schools.
    Nationwide, according to the National Education Association 
research, smaller class sizes and greater community involvement 
have resulted in higher average student achievement scores, 
higher graduation rates, and greater involvement in 
extracurricular activities among rural students. However, among 
the challenges facing the rural schools are funding deficits, 
lack of programs targeted to students with special needs, 
difficulties in recruitment and retention of teachers, and 
inadequate facilities.
    The ESEA appropriations bill provides $163 million for 2002 
Rural Education Funding. President Bush's proposed budget 
rescinds the 2002 funding and eliminates the program in 2003.
    In other words, Bush's proposal doesn't fund the Rural 
Education Achievement Program. This is a huge blow to our 
State. North Dakota has the highest percentage of school 
districts eligible for rural funds, over 78 percent.
    The funding impact of the Rural Education Achievement 
Program in North Dakota, even with very conservative estimates, 
could be over $5 million in 2002. We, in rural America, have 
fought long and hard, along with our congressional team, to be 
recognized for our funding needs.
    It is painful to finally gain recognition for rural schools 
only to hear that the funding might be eliminated. Be assured 
that our congressional team will continue working to make sure 
that the funding is not yanked away.
    The proposed Bush Budget also includes private school tax 
credits with a 5-year cost of over $3.7 billion. This is a 
voucher issue. Both the House and the Senate defeated voucher 
proposals with strong bipartisan votes during the 
reauthorization of ESEA. The $3.7 billion must be used to fund 
rural education along with many of the proposed eliminated and 
cut programs that are so vital to quality education.
    We are faced with the reality with a war on terrorism, 
homeland defense, an economic stimulation package, the needs of 
public education, and the implementation of the ESEA law.
    We support an economic stimulation package that includes 
assistance for States, and help for low income families 
impacted by economic crisis. Federal funding for school 
construction could help create local construction and related 
jobs, as well as provide fiscal relief to local school 
districts. Such funding could act as an economic stimulus.
    North Dakota's school buildings need major improvement. 
Twenty-three percent of North Dakota schools need a building 
extensively repaired or replaced. Sixty-two percent are in an 
unsatisfactory environmental condition, and 29 percent have 
poor ventilation. Twenty-eight percent have bad plumbing.
    Our State and local governments also need broader economic 
help. For instance, temporarily increasing the Federal matching 
rate for Medicaid would help States meet increased costs due to 
rising caseloads and free up funds to help balance their 
budgets without tax increases or program cuts.
    This is not the time to reduce our commitment to public 
education. We know that reform without resources is punitive. 
We know that strong public education for all is the true basis 
of freedom and economics growth, and must be valued in words, 
deeds and funding as the frontline of our homeland defense. 
Thank you.
    [The prepared statement of Ms. Bakke follows:]

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    Chairman Conrad. Thank you very much for that excellent 
testimony.
    Next we will hear from Bev Nielson, who is representing 
North Dakota School Boards Association. Welcome. Please 
proceed.

STATEMENT OF BEV NIELSON, ASSISTANT TO THE EXECUTIVE DIRECTOR, 
             NORTH DAKOTA SCHOOL BOARDS ASSOCIATION

    Ms. Nielson. Thank you, Senator Conrad. Before I begin my 
remarks, I feel like we are sounding like broken records, and 
even when I was listening to Dr. Sanstead and Dr. Isaak, I 
decided that that was a good thing because maybe if you hear it 
a hundred times or a thousand times, that someone might start 
to take notice; so while some of this may sound repetitive, 
please understand that we all prepared our testimony 
independently of each other. So we re kind of going over some 
of the same territory.
    The remarks that you hear in my testimony will reflect 
frustration of those who actually provide the educational 
services to every child. Local school boards cannot, nor would 
they ever want to leave any child behind. It's the law. It's 
also our desire and our mission to do so, to meet the needs of 
every child.
    And as an aside, I must have to say that that is not the 
case with private schools. The law does not make the same 
requirements of them, and that they very often specify which 
students they will or won't take. Those students who are very 
poor or who the $2,500 wouldn't help at all, or students with 
extreme special needs, or those with behavior problems are just 
sent out the door by the private schools and back into the door 
of the public schools. And I think that this is something in 
this discussion that we need to remember when we compare public 
and private. While the quality can be very good, the mandates 
and restrictions and the mission of public schools is entirely 
different than that of private schools. We educate every child 
in the country.
    With that I'll begin my formal remarks.
    Senator Conrad and members of the Senate Budget Committee, 
for the record, my name is Bev Nielson. I am Assistant to the 
Executive Director of the North Dakota School Boards 
Association.
    I want to express appreciation on behalf of the locally 
elected school board members of North Dakota for including 
their perspectives in your deliberations today. Even though 
school boards are the governmental unit where the ``buck 
stops'' regarding the implementation of and accountability for 
federally mandated education programs, they are often treated 
as the ``poor relatives'' and not invited to the party. So 
thank you, Senator Conrad, for inviting us to your party today.
    I want to begin my remarks with brief comments regarding 
the President's proposed budget and impact on local boards 
planning and budgeting processes in general, and then I will 
spend some time sharing boards concerns specifically with IDEA 
funding. Additional information concerning these topics is 
provided in your packet and the committee's packets, and also 
in the audience packets.
    The fiscal year 2003 President's budget proposal for 
Elementary and Secondary Education, I am afraid, sets the stage 
for yet another yo-yo budget cycle for local school boards. 
Even as the myriad of Federal mandates contained in the 
reauthorization of ESEA are just beginning to sink in, and the 
impact they will have on local districts for the need for 
resources, staff time, and so forth, boards are now looking at 
a budget which again changes the focus, the requirements and 
the funding levels of Federal programs.
    This schizophrenia in financial support makes budgeting for 
program sustainability virtually impossible for local school 
boards. Many can't afford, or are asking themselves if they can 
afford to take the money.
    The Executive Budget includes a 2.8 percent increase over 
the 2002 program level.
    I want to stop here just a minute because this is how 
figures work. We are all quoting a little bit different 
figures, and I believe that in preparing mine, it was the 
differential from the appropriated amount, not the authorized 
amount. The deficit comes from the authorized amount in 2002 to 
the proposed amount for 2003, so that is where that 
differential is. We all understand that authorizing money 
doesn't get it to your pockets, so that is where that 
difference is.
    This is, however, even using the 2.8 percent increase, 
misleading, given the fact that the budget eliminates 28 
current programs. The number is larger than 28 if you add sub 
programs that are under one improvement line item. This 
includes our Rural Education program, which you heard about.
    Another one, too, that just kind of slipped in under the 
radar was funding for the State testing, which is a requirement 
of the ``Child Left Behind.'' Again, we have a mandate of the 
testing, which is not free in time or resources or materials, 
and in the 2003 proposed budget, the testing for the State is 
gone, but the mandate is still there. We will still have to do 
the testing.
    Title one increases, which we had--of course we never want 
to say that we don't appreciate an increase, because we 
certainly do. One, I think common misconception, or maybe a 
fact that is little known about rural States, and particularly 
North Dakota, is that even qualifying for the Title funds can 
be difficult in very small communities, because the parents 
will not release their income levels or apply for free and 
reduced lunch. They are a very proud people, they don't want 
any type of charity, which is very admirable, but what is hard 
to explain to them is that it reduces the amount of Federal aid 
that we can receive, and so what do you do? We don't want to go 
out and try and convince people to lay their income levels out 
and apply for free and reduced lunch. Again, I think there 
needs to be some better ways to get the money to where it needs 
to go, and that is one example.
    The Block grants in Title I, while local school boards do 
appreciate the flexibility of Block grants, we kind of prefer 
the way it came in the Rural Education bill directly to the 
districts--not that we don't trust it when it goes to the 
Governor or to the legislature for doling out, but you have to 
understand that is one more political agenda hurdle that local 
school boards have to get over in order to get the money into 
the classroom where we need it. So we would prefer that those 
grants would go to directly to school boards.
    The executive budget also includes provisions for 
refundable education tax credits for parents--I can't believe 
we're still talking about this--who transfer their children 
from what is considered a failing, in someone's opinion, public 
school, to another public or a private school. This proposal is 
predicted to cost up to $175 million in 2003, and as much as 
$3.7 billion over the next 5 years. None of that money will be 
invested to improve that failing school. Think about that. What 
it says is if a child is failing in school, we will give you 
money to take them somewhere else. The thousands of students 
left back in that struggling school don't get a penny. They 
actually lose money. Thousands of children will be left behind 
with this initiative. As a matter of fact, nearly $100 million 
is cut from the President's ``No Child Left Behind Act'' by his 
own Executive Budget.
    North Dakota boards are especially dismayed to see that the 
Rural Education program was cut in the President's proposed 
budget. Thanks to Senator Conrad's strong leadership and the 
bipartisan passing of this Act, almost $163 million was to be 
made available to meet the unique needs of rural schools.
    Federal programs, for those of us that have been in this 
way too long, and longer than we'd like to admit, 20, 30, 35 
years, we have come to see that they concentrate so often on 
urban needs, and we were pleased to see the attention finally 
given to rural issues, which are just as necessary but often 
overlooked. Rural children are now again left behind in this 
newly proposed budget.
    Here is where local school boards are so often left up in 
the air: Programs are mandated, funding is promised. Next 
cycle: Mandates remain, funding is cut or eliminated, or grant 
money is provided for new programs; now, not necessarily 
programs that any schools have asked for, but programs that 
someone else wanted. And then after the schools develop the 
program, hire the staff, the money dries up or it is pulled 
away. The time and resources required to develop and implement 
new programs in our public schools is significant, and when 
sustainability is questionable, schools become hesitant to make 
the investment. They often ask, on the grants, can we afford to 
take the money, which is a real interesting predicament to be 
in. Public schools are set up for failure when they are 
mandated to raise student achievement or lose resources, yet 
are not given the resources necessary for the improved required 
student achievement. You follow that?
    Schools cannot improve simply because Congress or the 
President tells them to. It takes a continued, meaningful 
Federal partnership that includes consistent resources, not 
one-time increases. It's a matter of trust. When you have a 
partnership or a marriage, or whatever, you need to be able to 
trust that promises will be kept, because action is done 
assuming that the trust will be there, and unfortunately, what 
has happened, again, maybe with some of us that have been here 
way too long, you begin to feel that you don't dare go forward 
because 4 weeks from now, or 6 months from now, or 9 months 
from now we're going to be going in an entirely different 
direction. And the public school system in this country is a 
mess, and the cogs move slowly, not because people are so 
opposed to change, but because it's a huge system and it 
requires time and resources to make those changes.
    Probably the best example of this conundrum is the IDEA, 
and I would like to visit with you a little bit about that. In 
our opinion, IDEA simply must be placed within the mandatory 
spending portion of the Federal budget. We heard argument this 
past fall that the government was fearful of creating an 
entitlement. Well, unless I misunderstand the word and the law, 
the entitlement is already there. The children with special 
needs are entitled to these services by law. The only thing 
that hasn't been forthcoming is the guarantee of the money of 
all the partners, the Federal partners, the State partners, and 
the local partners, and that is what puts local districts in a 
bad spot.
    For too long, local school district property taxpayers have 
been paying for the Federal share of IDEA, and we can no longer 
meet all those financial requirements imposed by both IDEA, and 
now the new one, the ESEA. We would agree with MEA's position, 
and the National School Boards Association testified before 
several committees on their plan for the $2.5 billion a year, 
plus inflationary adjustment, which would, hopefully, get the 
Federal Government to its 40 percent committed level within the 
decade.

    Chairman Conrad. Some are saying now that there was no 
commitment.
    Ms. Nielson. Interestingly, though, and I can't say it 
because I didn't go back and look at the record, the actual 
minutes or the records, but I have it in here, so I am hoping 
it's right, that the commitment or our intention is to pay 40 
percent of these costs. It was not only made when it was first 
enacted, but it was, also, in 1997, with the reauthorization, 
it was made again.
    Chairman Conrad. Very explicit.
    Ms. Nielson. I thought so, but then people read things 
differently----
    Chairman Conrad. It is very interesting now, because I was 
there in 1997. Everybody understood this was going to be the 
commitment. Now it is not the commitment, I think it is the No. 
1 frustration. I see Dr. Sanstead nodding. Really, as I go 
around, it is the thing that people talk to me about the most. 
How can the Federal Government come in and tell us they are 
going to pick up 40 percent of the cost? They make the 
requirement, and then they don't keep their word on the thing. 
The mandate is there, the requirement is there, but they don't 
keep their word on their share of the funding, and I hate to 
say it, but history is repeating itself with ``No Child Left 
Behind.''
    ``No Child Left Behind.'' We have all these new 
requirements. Send them out there--and I voted for it on the 
basis the money was going to follow the requirement. Now the 
money doesn't follow the requirement. I think when you talk 
about trust and credibility, that is very hard to trust the 
word of the Federal Government when it makes its promise. It 
didn't make this promise 5 years ago, it made it 1 month ago. 
It said, OK, we can have these new requirements and we're going 
to send you the money. They put the requirements in place, and 
now cut the money. I mean, really, that is poor.
    Ms. Nielson. Thank you, Senator. I was a little windy on my 
side.
    Chairman Conrad. Sorry for interrupting, but it just struck 
me about----
    Ms. Nielson. Exactly. And just to dovetail a little on 
that, you know, those of us out in the field, when we hear so 
often about the public schools being such miserable failures, 
and we pumped all this money into education, and new things 
aren't happening in the classroom, and so forth, and part of 
that frustration is that money was funneled into paying for 
mandatory programs that are under-funded or not funded, and we 
don't get the money for teacher salaries or curriculum or those 
types of things. So ESEA is going to be, unfortunately, 
perhaps, another opportunity for those who choose to do so, to 
point their fingers at public schools and say, ``See, told 
you,'' you know, ``you are failing.'' And it's a miserable 
position to be in. Thank goodness we have committed teachers 
and blessed volunteers who run for school boards, and people 
who care so much about education that. you just keep doing the 
very best you can every single day, you know, regardless.
    But the President's budget leaves a $10.1 billion 
shortfall, again, in that 40 percent commitment. Local school 
districts in North Dakota, the governmental level at which 
there are really the fewest funding resource opportunities at 
the local level, are currently paying 58.75 percent of the cost 
of IDEA in North Dakota, 58.75 percent, while the Federal 
Government pays 12.4, which is a far cry from the 40 percent 
that was the commitment.
    Chairman Conrad. Let me just go over that. I want to stop 
you on that question because, in North Dakota, your calculation 
is the Federal Government is only paying 12.4?
    Ms. Nielson. Yes. Senator, do you have my packet in front 
of you?
    Chairman Conrad. Yes.
    Ms. Nielson. OK. I have the summary of special ed 
expenditures from 2000-2001, and it includes the total amounts, 
the dollar amounts as they break out, and then the percentages 
are on the third page. In 2000-2001 the Federal was 12.4 
percent, the State was 28.85, which is really good from the 
State level, considering----
    Chairman Conrad. Yeah, this is even worse. I am sorry I had 
you testify.
    Ms. Nielson. I am so glad I came.
    Chairman Conrad. It's even worse than I thought.
    Ms. Nielson. I just love being the bearer of good news 
whenever I can. And just for your further information, because 
I did some calculations last night myself, for that last year 
where it was 12.4 percent from the Federal and 58.75 percent 
from the local, that is $22.2 million more coming from local 
property tax than would have had to have come from local 
property tax had the 40 percent been made.
    Now, $22 million is generally, over the years, what we have 
looked at in increases for foundation aid, and when you add 
those up over the 10 years that are on this chart, we're just 
talking about, you know, hundreds of millions of dollars that 
could have gone to teacher salaries and things that we really, 
really struggle to provide here in North Dakota.
    Chairman Conrad. Can I interrupt you one more time?
    Ms. Nielson. Absolutely.
    Chairman Conrad. If you were to identify the single most 
important thing the Federal Government could do to help States 
and communities with education, would it be the keeping of 
promises on IDEA?
    Ms. Nielson. From the local school boards perspective I 
think clearly we can say yes, that is. Now, we have gotten 
extremely dependent on Title I funds. We wouldn't want it to 
have to come out of that. We don't want any of those smoke and 
mirrors like there are in this new budget. If it goes to full 
funding of IDEA, we don't want it to be at the expense of other 
programs.
    Chairman Conrad. No. I am assuming that it is actual new 
money, in terms of priorities for new money; that keeping the 
promise on IDEA would be the most well received from the people 
that you represent, the school boards across the State?
    Ms. Nielson. Absolutely. I would take it a step further, 
Senator, and say that in my opinion, one of the best nationwide 
economic stimulus packages that you could provide would be to 
fully fund IDEA in the mandatory portion of the budget and 
allow for property tax relief in 50 States across the country 
in however many thousands of communities, to where that money 
then actually is right there in the community.
    Chairman Conrad. Or they could make a decision to take 
those additional dollars and use it to improve education, yeah. 
OK.
    Ms. Nielson. Yeah. But right now it is definitely money 
that is causing some other problems that I will get to in just 
a second.
    Local districts justifiably ask how its government can in 
good conscience continue to mandate and not fund its committed 
portion. The answer from Washington, and evident in this new 
budget proposal we have, is that we just can't afford to fund 
the 40 percent because we have other critical budgetary issues 
as well. Even given the fact that we supposedly had surpluses a 
year ago, and we were doing tax cuts and sending money away, 
and I can remember saying to my kids that I thought that was 
kind of a neat idea because if I decided not to pay my bills 
I'd have a lot of surplus money in the bank, as well. And I 
consider this a bill, you know, it's money due and owed and 
promised, and when you don't pay it, you can say that you have 
money left over.
    Chairman Conrad. I just hate to say this, but you know, we 
have just had this debacle with Enron, and Enron got in trouble 
because they didn't face up to their debt.
    They hid their debt. They hid it from their investors, they 
hid it from creditors, And I hate to say it, but the Federal 
Government in many ways is going down the same path because 
we're, in effect, hiding our debt to these trust funds of 
Social Security and Medicare. We don't even carry on the books 
of the United States the liability of those programs. You know 
why we don't? We call it ``contingent liabilities'' on the 
theory that the Congress of the United States could end those 
programs in 30 days, and so it's not carried on the books and 
records of the United States, the liability to Social Security 
and Medicare. Is that stunning? That is trillions of dollars. 
Trillions of dollars that we just make believe doesn't exist.
    I tell you, I think, honestly, if the American people find 
out about this, they will be stunned. It is nowhere on the 
books and records of the United States that we owe the people 
who are eligible for Social Security and Medicare. It's not 
there. Alan Greenspan, the chairman of the Federal Reserve, 
came to my office before he testified before my committee in 
Washington, and this was his No. 1 concern. He said, you know, 
we're fooling ourselves. We have got all these bills that are 
going to come due and we make believe that they are not going 
to come due. That is exactly what Enron did, exactly. They hid 
their debt. They put it in these partnerships. They were off 
the balance sheet, as though they didn't exist. Next thing you 
know, the seventh largest company in America goes right down 
the drain. Why? Because they were fooling themselves, and they 
were fooling others. They acted as though they didn't have 
these debts, when they did, and our country is doing the same 
kind of, what I would call ``funny money accounting.''
    To say that we don't owe the people who have paid taxes all 
their life on Medicare and Social Security because Congress 
could end the program in 30 days, does anybody believe that is 
real? I sure don't. We've got an obligation, just as clear as 
it can be. And that obligation ought to be carried on the books 
and records of the country, just like it would be carried on 
the books and records of any company. So I am sorry to digress, 
but it's very troubling. I think we're not being honest with 
ourselves. I think we fool ourselves. We talk about these 
surpluses. There are no surpluses. The money is all gone. It's 
all committed. It's over-committed. Now we're getting around to 
spending the money twice. I don't know anybody that can do 
that. It sounded to me like you had a theory that maybe you 
could do that.
    Ms. Nielson. Well, Senator, the only thing I know for sure 
is that local school boards are not going to be able to meet 
the under-funding of Social Security like we do the IDEA. We 
are going to have to find another level, a subdivision to do 
that.
    Chairman Conrad. We're searching for something.
    Ms. Nielson. And unfortunately, the State does what it can, 
and then says to us, we just can't fund anymore than what we 
are. And this, of course, leaves the burden of over 50 percent 
of the special ed costs with the local property taxpayers, 
because ``we can not afford it'' is not a legal option for 
local school boards. Legally, we cannot say we can't afford it. 
Legally, the services have to be provided, whether the Federal 
Government meets their obligation, or the State, or whatever.
    When property taxes can no longer be raised--in North 
Dakota you can reach your cap--cutting of regular education 
programs is necessary to keep up with the IDEA mandate. This 
unfortunate reality begins to create divisiveness and 
resentment within a community, and I think this is part of the 
under-funding that we don't often hear about. We hear about the 
cost to the property taxpayers, but taxpayers and parents and 
students unjustly blame IDEA children and IDEA children's 
parents for burdening the district to the point of having to 
cut regular programs, regular ed programs and staff. It's 
difficult for school boards to dispel these perceptions. All we 
can say to our public is that the mandate to provide the 
service is there and the funding is not.
    Everyone agrees that the inclusion of students with 
disabilities in public education is critically important; 
however, we would ask the Federal Government to also 
acknowledge that the ever-increasing scope and expense of the 
provision of these services is part of their obligation to 
meet.
    Special ed expenses have escalated so rapidly. Couple 
reasons: The definition, the scope of the definition of 
disabilities is nowhere close to what it was back in 1975 when 
IDEA was first enacted. We now have behavioral problems and 
emotionally disturbed. The number of kids and kids parents who 
believe that they have a legal right to an IEP is exploding, 
and the courts are going along with it.
    And also the cost of what we term ``related services,'' 
which really are not directly related to education, are 
increasingly being paid with education dollars.
    And Senator Conrad, for you and the committee and for those 
in the audience, I do have in my handout some explanation of 
``related services.'' We have, of course, medical personnel who 
have to be onsite now with some of our more disabled students. 
We have manipulative devices, adaptive devices that have to be 
purchased. We have occupational therapists who are in on life-
skills type of training, psychiatrists, psychologists, social 
workers, all of which are necessary for the overall life of 
this child. But you will see, toward the end of my testimony, 
where I talk about our recommendations, it is our firm belief 
that some of those categories need to be shifted over to other 
governmental services, budgetarily, so that we don't continue 
to use education dollars for things that are really so far 
removed from the actual education, academic education of the 
child.
    North Dakota board members are struggling mightily to 
financially support their schools. Our teachers salaries are 
among the lowest in the country; our test scores among the 
highest, which is something we are very proud of, but in order 
to recruit and retain quality educators, we must concentrate 
resources on staff compensation. Many of our schools are unable 
to update their curriculum materials any more often than six to 
8 years. We have schools that have social studies curriculum 
that they have been unable to update that don't even show 
proper geography anymore, as fast as times are changing. 
Districts have extensive technology needs and buildings which 
barely meet safety codes. We are a sparsely populated State 
with limited resources, and every dollar which goes to make up 
for the Federal shortfall in IDEA funding should be going to 
meet the other financial needs of our local school district.
    Finally, we would support the following in regards to IDEA:
    Fully funding the Federal share of IDEA so more local funds 
will be available to support local services for all students;
    Transfer financial responsibility for non-educational 
related services to service providers outside school districts 
so that resources from local school budget can support IDEA 
education services;
    Reduce the costs related to due process hearings and 
litigation by capping the local districts portion of plaintiff 
attorneys fees. I didn't touch on that much, but I think you 
all know what we mean. The school district pays the plaintiff's 
expenses in IDEA lawsuits and there is no cap on that. That can 
break a school district real fast.
    Also unrelated to the budget, but something that is 
critically important is to create a safer learning environment 
by not requiring a local school district to operate dual 
discipline systems, so that the safety of the kids is on equal 
footing.
    Attached to my testimony you will find a budget summary; a 
North Dakota funding history for IDEA; a summary of IDEA 
mandatory funding proposal, which NSBA and NDSBA support; and a 
copy of a resolution passed by the North Dakota School Boards 
Association at their convention in November relating to full 
funding of IDEA; along with a letter that we sent to Senator 
Conrad, and the resolution was sent to the entire congressional 
delegation, to the President, to our State, and to our State 
officials.
    So I want to thank you, Senator Conrad, and other members 
of the Senate, particularly, for your support of the IDEA Full 
Funding Amendment. I know that that was a struggle, and we 
appreciate the work you did on that, and we appreciate your 
continued commitment to locally controlled public schools.
    Please feel free to contact our office if you require any 
more information.
    [The prepared statement of Ms. Nielson follows:]

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    Chairman Conrad. Thank you very much. That was just 
excellent.
    Dean, I hope you are up to following these three. These are 
pretty high quality witnesses. Good to have you here, and 
please proceed with your testimony.

 STATEMENT OF DEAN KREITINGER, BUSINESS MANAGER OF GRAND FORKS 
PUBLIC SCHOOL DISTRICT #1 AND GRAND FORKS AIR FORCE BASE SCHOOL 
                         DISTRICT #140

    Mr. Kreitinger. Thank you. Again, my name is Dean 
Kreitinger. I am the business manager for the Grand Forks 
Public School District #1 and Grand Forks Air Force Base School 
District #140.
    I have been asked to testify on a specific program, and 
that program is the Impact Aid program. For the audience, or 
for you that are not aware of it, that is in lieu of tax 
payments for students living on Federal property. In other 
words, a good example of that is the Grand Forks and Minot Air 
Force Base School Districts, and also students on reservations.
    You will find my theme is twofold: One is to thank you for 
your past effort, and asking for your continued support. I 
appreciate the opportunity to testify on this this morning.
    Again, I would like to specifically mention the Impact Aid 
Coalition. Senator, you and other senators' leadership in this 
area is, in developing the coalition, is just very crucial to 
the Impact Aid program. We believe that the Impact Aid program 
is functioning at a high level regarding both payment amounts 
and timing of payments, and in large part this is due to the 
Impact Aid Coalition.
    After I have said that, however, we ask for your continued 
support, and ask that the appropriation level be increased to 
help meet the challenges resulting from increasing costs and 
demands. As you are aware, the 2002 appropriation was $1,143.5 
million and the present fiscal year 2003 proposal was $1,140.5 
million, or $3 million less than last year's appropriation 
level.
    Chairman Conrad. So we're going backwards?
    Mr. Kreitinger. Yes. The MISA, the Military Impact Schools 
Association, and the National Association for Federally 
Impacted Schools (NAFIS) goal is $1,642 million.
    In light of the numbers outlined this morning, we know that 
is a large increase; however, we feel it is very crucial and 
well deserved.
    As I indicated, that Impact Aid program is in lieu of tax 
payments. If I can use the Grand Forks Air Force Base School 
District as an example, this is a coterminous district, and 
what that means is that its school district boundary lines are 
the same as the base outline. So, in other words, we have not 
tax revenue, we have no tax base, so the Impact Aid program is 
the funding for all the basis of the education.
    Another component of that large increase is the fact that a 
little over half of the increase in funding is being asked for 
for construction needs. Once again, we'd like to thank you for 
your support regarding the construction needs, but as in prior 
testimony, you heard the demands for construction because of 
the shape that the buildings are in.
    I would lilke to interject that all of you know that this 
building is not indicative of the school buildings around the 
State.
    Chairman Conrad. A lot of Federal money in this building.
    Mr. Kreitinger. Can I digress just a moment on who funded 
this? Insurance money and FIMA. Again, thank you for your 
support of that. A plug in for that, as well.
    At the Grand Forks Air Force Base School District, in 
addition to having 40-year old science labs we would like to 
replace, we have inadequate library, music, classroom, and 
gymnasium space due in part to a shifting in students because 
of housing renovations. I bring that up because the Air Force 
Base School Districts are unique. What is happening here is 
that an entire community is being relocated to a different 
school, and as a result we no longer have adequate space in 
that building, so we need funding to upgrade that building and 
modernize it.
    The last item I'd like to mention is the Department of 
Defense Supplemental Appropriation. Once again, thanks for the 
past support. The MISA and NAFIS request for the supplemental 
appropriation is $50 million. This has been and would continue 
to be a good augmentation of funding for trying to meet the 
construction and operating needs of our school districts. Once 
again, thank you for past support and any future support.
    [The prepared statement of Mr. Kreitinger follows:]

    [GRAPHIC] [TIFF OMITTED] 81882.199
    

    Chairman Conrad. Thank you. Thank you very much for your 
testimony. Thank you all.
    I think the record is really very clear from the testimony 
that has been provided here this morning, the commitments that 
have been made, the rhetorical commitments, are not matched by 
the resources that are in this budget. I have tried to be fair 
about this, I think it is fair, and that leaves us with a 
recommendation, because, as I expressed the other day in 
Bismarck at the hearing on road construction, the budget for 
road construction and water projects, including flood control, 
the Budget Committee is left with this set of choices: Either 
accept these cuts, or raise taxes to pay for the spending, or 
take the money out of the Social Securtiy Trust Fund. Those are 
the choices that are left to the Senate Budget Committee. You 
talk about a bad set of choices. We can either take this budget 
and the cuts that are entailed, and the lack of resources for 
something that everybody says is their priority, or we can 
raise taxes to pay for it, or we can continue to raid the 
Social Security Trust Fund.
    You will notice that I dropped talking about the Medicare 
Trust Fund. You may wonder, why isn't he talking about the 
Medicare Trust Fund? That is because all tlhe money is gone. 
There is no more money to take. It's all gone. $500 billion, 
according to the President's own calculations, are taken out of 
the Medicare Trust Funds. There is no money there. Social 
Security Trust Fund, there is $2.3 trillion over the nex 10 
years. They have already taken $1.65 trillion of that $2.3, and 
that is based on an assumption in the President's budget. The 
Congressional Budget Office estimates the cost of Medicare in 
the next 10 years as $300 billion. They have the lowest rate of 
increase for medical expenses in the heistor of the Medicare 
program as an assumption behind their budget. Anybody believe 
in the next 10 years medical costs are going up at the lowest 
level they have gone up since 1965? Anybody believe that? I 
don't think so. I think Medicare costs, I think health care 
costs are going to increase, especially Medicare. When you've 
got the baby-boomers going to start to retire in six years, 
those costs are going to go up more than they ever have gone 
up, not less than they have ever gone up.
    So I feel a little like the guy that has been handed a live 
grenade. Somebody asked me how I felt when I became Budget 
Committee Chairman. You know, I knew we were headed for a train 
wreck last year. I predicted it. I went repeatedly to my 
colleagues--you cannot count on a 10-year projection. I pleaded 
with them not to be reckless. I pleaded with them not to put at 
risk the intergity of the trust funds of Medicare and Social 
Security and they plunged right ahead, and the President 
leading the charge, and took us right off the cliff. We are 
going to be paying the price for this for a long time. We are 
going to be paying the price in education--funding that is not 
adequate to meet the need. We're going to be paying the price 
for it in every part of the budget. We have got a proposal on 
road building. The President's budget cut buildings 30 percent. 
It cost North Dakota $50 million. We have a major project to 
protect the City of Grand Forks from flooding. The President's 
budget has $30 million. The Corps of Engineers say they need 
$75 million.
    These choices that are made really matter. They really have 
a result, and I don't exactly know yet how to cope with all 
this. I have got to find a way to do it in the next six weeks, 
to write a budget for the United States in the next six weeks, 
and this has been a great help, I can say that. You have 
really, I think, very clearly analyzed this budget. I can tell 
you, you are four of the best witnesses I have ever had before 
the committee either in Washington or in the State. You speak 
very clearly, and I think you have represented the concerns of 
the parents of North Dakota and spoken on behalf of the 
students in a way that is very effective, and I thank you for 
it.
    We will decalre the hearing closed, and we will also, 
without objection, make a statement by the North Dakota Reading 
Association a part of the formal hearing record.
    [The prepared statement of the North Dakota Reading 
Association follows:]

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[GRAPHIC] [TIFF OMITTED] 81882.205


    Chairman Conrad. Let me also indicate I'll leave the record 
open for 10 days. If there are others who wish to submit 
written testimony, we will take that testimony for the next 10 
days. It can either be delivered to my office here in Grand 
Forks, or it could be sent to us in Washington, or e-mailed to 
us in Washington. Either way we'd be happy to accept it.
    Let me just conclude by saying, again that our witnesses 
did a very superb job today.
    [Whereupon, the hearing was adjourned.]

                                    







           ASSESSING THE NEED FOR NATURAL DISASTER ASSISTANCE

                              ----------                              


                        TUESDAY, AUGUST 20, 2002

                                       U.S. Senate,
                                   Committee on the Budget,
                                                         Fargo, ND.
    The committee met, pursuant to notice, at 9:30 a.m., in 
NDSU Memorial Union, Prairie Rose Room, Fargo, North Dakota, 
Hon. Kent Conrad (chairman of the committee) presiding.
    Present: Senator Conrad.

              OPENING STATEMENT OF SENATOR CONRAD

    Chairman Conrad. Good morning and welcome. It is good to 
have you here. This is a hearing before the Senate Budget 
Committee on the question of disaster assistance as a result of 
drought and flooding in various parts of the country and 
certainly in various parts of North Dakota. The Committee on 
the Budget has a special interest because if the Congress 
decides to provide disaster assistance, Congress may have to 
waive the Congressional Budget Act in order to provide 
additional emergency spending. Thus, the purpose of this 
hearing is to determine the level of losses due to natural 
disasters in 2001 and 2002, the resulting need for assistance 
and the overall impact of natural disasters on Federal outlays 
for agriculture.
    The amount of the losses incurred by agriculture during 
2001 is already well established. Here in North Dakota many 
producers suffered losses last year stemming from excessive 
moisture that led to floods, preventive planning, yield losses, 
and quality reductions. As part of the original Senate-passed 
farm bill, the Senate included nearly $2.5 billion in disaster 
assistance in order to cover some of the losses incurred by 
farmers in 2001.
    As a member of the conference committee that negotiated the 
final farm bill, I can tell you when the four of us sat down, 
Senator Harkin, the chairman of the Agriculture Committee--I 
was there as a senior member of the Senate Agriculture 
Committee. We met with our colleagues from the House: 
Congressman Combest, the chairman of the House Agriculture 
Committee; Congressman Stenholm, the ranking member. We were 
told by Congressman Combest there were two subjects we could 
not discuss in the conference committee. Those two subjects 
were opening up Cuba to trade and disaster assistance.
    He said the Speaker of the House has to make these 
decisions on behalf of the House, they could not be made by the 
conferees. That is a highly unusual circumstance. And when the 
Majority Leader of the United States Senate called the Speaker 
of the House for his answer, he said clearly and unequivocally, 
the Speaker of the House, that no disaster assistance would be 
permitted in the final farm bill.
    I must say Congressman, I was especially surprised to see 
your opponent invite the Speaker to North Dakota to deliver the 
message that he needed a different Congressman from North 
Dakota. That is the kind of help that we don't need. Very 
frankly, we need disaster assistance. We have always provided 
it in the past for others, and we have received it ourselves 
when disaster struck. That has been the history and it is 
critically important.
    I have gone all over North Dakota during the July break, 
during this break. I have been in every corner of the State. I 
have met with producers. I have talked to people, and the 
message that they have delivered to me is as clear as it can 
be. If there is not disaster assistance provided this year, 
thousands of farmers are going to be in jeopardy of failure. 
That is a fact. That is a reality.
    Now, the President went to South Dakota and said that there 
would be no disaster assistance this year, he would not support 
it, and he said that the help will come from the farm bill. I 
would remind the President there is no disaster assistance in 
the farm bill. He opposed having disaster assistance in the 
farm bill. The Speaker opposed having disaster assistance in 
the farm bill. So there is none. Looking to the farm bill for 
disaster assistance is an empty gesture.
    Let me just say for those who argue that we ought to cut 
other provisions of the farm bill to provide disaster 
assistance, that is not going to help producers. We can't rob 
from Peter to pay Paul. We can't take out of one pocket to put 
it in the other pocket and have made any difference for the 
people that have been so hard hit by overly wet conditions. We 
saw in Minnesota the worst flooding in many years. In North 
Dakota, you go to southwestern North Dakota, the crops are 
gone. And no crop insurance program makes up for it. No part of 
the farm program makes up for it; there are no disaster 
provision. So to say to people we will just rely on the old 
pioneer spirit says to farmers, you are on your own, good luck, 
tough luck, you lose. I don't think that is the way we operate.
    I tell you, the pioneer spirit that I remember was when 
your neighbor suffered a disaster, others neighbors helped out. 
That is pioneer spirit. Pioneer spirit was we helped our 
neighbors when they suffered a calamity and that has been the 
history of the United States. When there was a disaster we 
helped out.
    Let me just point out that on the fiscal side of this 
issue, there are going to be savings from the farm bill and 
they are going to be substantial. Why? Because prices are 
higher than was previously anticipated. Prices are higher 
because of these disaster conditions.
    Let me just point out that under the price projection of 
the Congressional Budget Office, wheat was estimated to be in 
2002 $2.82, it is higher; soybeans $4.26, they are higher; 
corn, $2.16, corn is higher. We are talking now national 
prices. And they are higher because of these disasters. That is 
going to mean savings to the farm program. I believe we ought 
to think about those savings as one way of providing the 
resources for disaster assistance. This isn't the way President 
is proposing it. The President is saying cut some other part of 
the farm program to pay for it. That doesn't help us. To 
eliminate direct payments to farmers, to eliminate LDPs, that 
is not going to help us out of this crisis situation.
[GRAPHIC] [TIFF OMITTED] 81882.206

    And, so, I hope the President reconsiders. I hope he thinks 
very carefully about the implications. He says he is interested 
in economic development. There is going to be precious little 
economic development with a disaster that is forcing farmers 
and ranchers across this State--and not just this State but 
other parts of the country as well--to the brink of the 
financial failure. That will have a ripple effect that will 
affect every city and town in North Dakota. Make no mistake 
about it.
    Let's go to the next chart. Secretary Veneman said on 
August 12, the cost of the disaster aid must be offset by cuts 
in farm bill spending. That is not a reasonable expectation. 
That would be a double whammy. First, the farmers suffer an 
economic disaster, a loss of crops because of flooding or 
drought, and then they are told to take it out of the rest of 
the farm bill, cut out direct payments to farmers, cut out loan 
deficiency payments. That is no help. That cannot be the 
answer.
[GRAPHIC] [TIFF OMITTED] 81882.207


    Let's go to the next one. The President was quoted as 
saying, ``As we move forward to help our ranchers with drought 
relief, I expect that help to come from the $180 billion in the 
farm bill.'' I would remind the President, there is no disaster 
assistance in the farm bill. His opposition and the opposition 
of the Speaker precluded it. It was in the Senate bill. It was 
prevented from being in the final version of the farm bill 
because of his opposition. So saying that you are going to look 
to the farm bill for disaster assistance is an empty gesture. 
There is no assistance there.
[GRAPHIC] [TIFF OMITTED] 81882.208

    Let's go to the--now, let me just indicate where we are 
with respect to various options. One is the Baucus, Burns, 
Daschle, Conrad, Dorgan's Disaster Assistance that provides 
full eligibility for 2001 and 2002 for crop- and livestock-
related losses. And as I indicated there will be savings out of 
the farm bill. There will be savings because prices are higher 
than were anticipated, and I believe those savings ought to be 
applied, not by cutting other farm programs as the President 
proposes, but by taking account of the savings generated by 
higher prices than were anticipated. It is a fundamentally 
different approach and far more fair.
[GRAPHIC] [TIFF OMITTED] 81882.209

    Senator Roberts of Kansas requires farmers and ranchers to 
choose between coverage for either 2001 or 2002 losses. Well, 
to provide disaster assistance he would make farmers choose. We 
have never done that before in a disaster. Farmers didn't 
choose if they were going to have a disaster. I don't think we 
ought to make them choose now whether they get assistance for 1 
year or another. We have never, ever done that in any disaster 
in the history of the country, say to those who are the victims 
of disaster, you choose which disaster you get covered for. It 
would be like saying to a patient who has heart disease or 
cancer, choose which one you want to get treated for. We don't 
operate like that as a society. We didn't do that to California 
when they were hit by mudslides and earthquakes. We didn't say 
choose which one you want help with. And I don't think it is 
fair to say to farmers in North Dakota and Minnesota and South 
Dakota, choose which disaster you are going to get help with.
    The Hagel Bill, Senator Hagel provides $600 million to fund 
the livestock assistance program and, again, producers have to 
choose between 2001 and 2002. And they partially paid for it by 
funding offsets, including reductions in farm bill loan rates, 
cuts in the Environmental Quality Improvement Program and other 
farm bill conservation programs. Again, I don't think it is a 
reasonable matter to go to a producer and say you have suffered 
a loss, now we are going to cut the loan deficiency program to 
make up for it.
    You know, the fundamental tenet of disaster assistance has 
been that it is emergency funded, unanticipated. You don't take 
it out of the other parts of the farm program which are 
critically important to maintaining the viability of our family 
farmers out across the land.
    Finally, there is the Thune bill. That is similar to the 
Baucus bill except it is not paid for. It is not provided for 
as an emergency designation, which means it is not paid for, 
which means there is no money. If you don't allow an emergency 
designation that allows you to be on top of the other matters 
that have been budgeted for the farm bill, you are going to 
have to take it out of other provisions of the farm bill--in 
essence, taking it out of one pocket and putting it in the 
other. That is no additional help. Again, it violates the 
tradition of what we have always done for people in disasters.
    Well, look, we have got a lot at stake as a State. I had a 
producer call me the other night in anticipation of this 
hearing, somebody who has been one of the most respected 
farmers in this State for over 30 years, and he told me, Kent, 
if there is not disaster assistance for 2001, I am done. My 
banker has told me unless Congress comes forward and helps out 
like we have always helped out before, I am finished.
    Now, that story is repeated time and time again across this 
State, and the question is: Are we going to extend a helping 
hand the way we have always done? When the people of Grand 
Forks were flooded and had a terrible disaster, the people in 
the country helped out. When people in California had natural 
disasters, we helped out. When the people of Florida were hit 
by a hurricane and had enormous devastation, we helped out. I 
don't think it is unreasonable to ask the same now.
    I saw a report night before last on television of a farmer 
in southwestern North Dakota walking his fields with a 
television reporter. There was nothing left. He didn't even 
bother to run the combine because there was nothing to harvest. 
And he made very clear if there isn't some assistance coming, 
he is gone.
    Now, that farmer suffered those losses through no fault of 
his own, and the question is: How do we function as a society? 
When somebody is devastated by a natural disaster, do we help 
out or do we turn our back on them and say you are on your own? 
This has always been a generous country, one that cares about 
the citizens who have something bad happen. I tell you, that is 
the culture of North Dakota. And when the President talks about 
the pioneer culture, that is the pioneer culture I know about. 
The pioneer culture in this State is if the barn burned down at 
your neighbor's, all the rest of neighbors got together and 
helped fix the barn, build a new one. And when somebody was 
sick--I was just at a farm where the neighbor across the road 
has been sick for a year, and you know what the neighbors did? 
They planted his crop, they harvested his crop, and they helped 
him out. And they made it possible for that guy to go on. That 
is pioneering tradition, helping out your neighbor when they 
have had a disaster, and I hate to see us lose it.
    With that, I turn to my colleague Congressman Pomeroy for 
his remarks and then we will go to our witnesses, starting with 
the Governor.

 STATEMENT OF HON. EARL POMEROY, A REPRESENTATIVE IN CONGRESS 
                 FROM THE STATE OF NORTH DAKOTA

    Mr. Pomeroy. Thank you very much for holding this field 
hearing and thank you for including me. There are simply a 
couple of headlines, front pages, and I think they tell the 
story of what North Dakota has at stake, first, for the 2001, 
2002 seasons under discussion, as well as the prospect of going 
forward, because, really, the matter before us is a critical 
test. Will we get disaster relief that we need due to the 
growing circumstances of last summer and this summer? And will 
we be able to establish that there shall be emergency disaster 
assistance for production loss truly of a devastating character 
under this farm bill? That is what is at stake.
    The opponents not only want to deprive us of what we need 
now. They want to make certain we never get it in the future. 
In crops and livestock North Dakota we are a State of extremes. 
We produce in areas subject to volatile weather, dramatic 
changes in precipitation, and what could demonstrate it more 
convincingly than this summer, when we had disasters from 
drought and disasters from flooding and--in between those--
disasters from disease, because of too much precipitation yet 
again. The reach goes far beyond the individual producers 
affected, although many, many have been affected. This creeps 
fundamentally into the small-town economies throughout North 
Dakota.
    My dad was a farm retailer. I learned growing up when the 
farmers do well, we all do well; when the farmers are hurting, 
the entire State is hurting. Agriculture is the number one 
component of our economy, and having our State face a future of 
unprotected farmers in light of disaster losses is 
unacceptable. That is what makes this test so completely 
critical. It is not whether disaster assistance is needed. It 
is how much we need it. How unfortunate that the question we 
are fighting about is whether we will get any relief at all.
    As far as I am concerned, this is strike three for 
Secretary Veneman, the point person on behalf of the 
administration in terms of trying to prevent disaster 
assistance. Strike one was when she tried to stop the farm bill 
in the House. Strike two was when she tried to stop, 
successfully delaying, for a time, passage of the farm bill in 
the Senate. In the end they lost. We moved the farm bill and 
restored price protection for farmers.
    Now, the next question. Shall there be disaster assistance? 
Just looking across North Dakota, you see some troubling 
statistics. Yields for wheat, down 12 percent from last year; 
soybeans, 8 percent; corn, 9 percent. But those statistics 
hardly tell the story because that is an average. It is like 
getting completely wiped out and the other fellow not being 
wiped out and on average you are down 50 percent. The losses 
for many are 100 percent. Farmers have told me some really 
horrifying stories of their financial predicaments in light of 
their financial loss going backward when they didn't have 
backward to go, in terms of room on credit. Every day you meet 
people in the coffee shops up and down the highway that are 
hauling hay from sometimes hundreds of miles away just trying 
to feed their crop--they happen to have access to CRP hay. 
Senator Conrad, I commend you for the efforts you lead, and I 
was proud to be a part of that in terms of getting that CRP 
opened up. But the cost of extracting it for our farmers is 
extraordinarily significant. I am part of the legislation in 
the House, bipartisan, of course, to get the disaster 
assistance which includes as lead sponsors, Congressman Thune 
out of South Dakota. We are working it through to fund savings 
of the Commodity Credit Corporation in light of the fact that 
countercyclical payments will not be paid this year and the 
LDPs will be significantly lower. But I agree with you this is 
less than what I would hope for in terms of a disaster 
response.
    We crafted a bipartisan package to try to overcome 
objections to the Speaker of the House to provide disaster 
assistance for farmers. He represents Illinois. That reminds me 
of Chairman Lugar, former Chairman Lugar, represents Indiana, 
where you don't have the volatility and production 
circumstances that some of us have out here in the high plains. 
It seems the need for disaster assistance is completely 
unheeded in light of the changing production circumstances that 
we have to deal with. I hope that this August work period has 
been a time where Members of Congress that were not with the 
program have been able to go back and see firsthand just how 
devastating the losses have been. How can Senator Roberts spend 
a month in Kansas and not come back as a full-fledged partner 
in your efforts to get disaster assistance?
    I hope we've made some converts. And the circumstances are 
such that I can't imagine that we haven't. But beyond that, it 
is the advocates collecting, in this most effective form 
possible, the information from this summer, supporting the need 
for the 2002 disaster assistance coupled with the 2001 disaster 
assistance we have already been fighting for. That is why I so 
value this hearing, Mr. Chairman. I appreciate being allowed to 
participate and look forward to the witnesses. Your stories 
will be recorded, your arguments will be recorded. We will be 
using what you tell us this morning as we try to convince our 
colleagues in the few weeks remaining in this congressional 
session.
    So with that let's get on with the hearing.
    [The prepared statement of Mr. Pomeroy follows:]
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    Chairman Conrad. Thank you so much. Thank you for 
everything that you have done to help persuade colleagues that 
we do need to take action. That is the first threshold 
question. Do we take action? The second question is: How do we 
pay for it? We believe it is important to have an emergency 
designation. This is an emergency. This was not anticipated. 
And to say, as the Secretary of Agriculture has said and the 
President has said, that the other provisions of the farm 
program should be cut to pay for it doesn't help, doesn't solve 
the problem, doesn't help dig out of this deep financial hole 
that people have been thrust into as a result of drought and 
many cases of flooding in this State.
    Next we will turn to our witnesses. We are pleased to 
welcome the Governor, the Honorable John Hoeven, and our 
Commissioner of Agriculture, the Honorable Roger Johnson. 
Welcome. It is good to have you both here.
    Governor Hoeven. Thank you, Senator. I appreciate the 
invitation.
    Chairman Conrad. We appreciate your coming.
    Governor Hoeven. Congressman, good to see you.
    Chairman Conrad. We will ask the Governor to go first and 
provide his testimony, and then we will go to our Commissioner 
of Agriculture, and we very much appreciate--I know that there 
are a scheduling conflicts for the two of you, and we very much 
appreciate that you have managed to work those out so that you 
could be here today. I think that this is critically important. 
We have got to make the case. If we don't make the case, 
goodness knows nobody else is going to do it. So with that, 
Governor, thank you for being here.

 STATEMENT OF HON. JOHN HOEVEN, GOVERNOR, STATE OF NORTH DAKOTA

    Governor Hoeven. Thanks, Senator. I appreciate that and, 
Congressman, thanks to you as well. Now, as is only fitting, as 
you all know--first of all, good morning. As you all know, 
Senator Conrad has established a reputation in the Senate for 
being the guy that comes with the charts, and so again it is 
only appropriate that I show up with a couple of charts.
    Chairman Conrad. Always good.
    Governor Hoeven. If that is all right, sir. We got a unique 
situation in North Dakota one that I think all of you are well 
aware of. And, of course, this is part of the sending the 
message which Senator Conrad talked about, and Congressman 
Pomeroy as well. In the Western States, there is no question we 
had a terrible time with drought this year and we are all well 
aware of it. We see these tremendous fires that we have ongoing 
throughout the Western States, and, of course, we got 
incredible fires in North Dakota this year. We have burned 
about 52,000 acres in North Dakota, which is an incredible 
amount, and we have been out battling those fires, which, of 
course, goes hand in hand with the drought situation. But we 
truly have a unique situation in North Dakota in that we also 
have areas that have washouts and flooding from too much rain.
    Now, that is particularly acute in Minnesota, particularly 
in western Minnesota. What we have got in the eastern part of 
our State, particularly the northeast--and so what this first 
charts shows is the vast and significant drought we have had 
throughout the Western States, and, of course, how that impacts 
the southwest and south central portions of North Dakota as 
well. But at the same time then we have got flooding from these 
very significant rains, and you can see on this chart in the 
green here how that is impacted, particularly the northeast 
part of our State. So, we are kind of on the line between the 
two. And, of course, the counties in white are the counties 
that are faring better. But we have got the drought counties 
here and the flood counties here up in the northeast corner. So 
that is what that chart shows.
    insert chart
    The other one, this just shows the rain patterns and as you 
can see--it is probably hard for you to see the colored coding. 
But, again, it shows the same kind of thing in terms of lack of 
rainfall out here and significant rainfall up in this area, 
which translates into the unique situation for our State, and I 
will leave this up for just a minute. But you can kind of see 
why that really does put North Dakota in a unique situation 
because we are right on the line there. But what does that mean 
in numbers, in dollar amounts? We checked with NDSU and they 
have run the figures for us. But in terms of losses as 
estimated by NDSU per crop--and this is from the drought--the 
direct crop losses are about $168 million; $168 million is the 
estimate right now for direct losses due to drought on our 
crops. Indirect would then total about $452 million, and this 
goes to what Congressman Pomeroy was talking about in that, you 
know, farming really is the base of the pyramid in terms of our 
economy here in North Dakota. And, of course, that percolates 
up all the way up through the rest of our economy. So the total 
crop loss is coming in at about $620 million in terms of the 
estimated losses right now based on NDSU figures.
    Now, for the livestock--that is just crop loss. For 
livestock the direct and indirect, I don't have those broken 
out. But the livestock losses are estimated at about $246 
million. So between crop and livestock losses, the estimate 
right now is about $865 million in terms of direct and indirect 
impact to our State.
    As far as the flooding, because we talked about that issue, 
we really don't have an estimate for that yet. Because until 
our farmers get out there and make an effort to harvest that 
crop or determine what they can harvest based on what has been 
washed out and what is blighted due to the excessive moisture, 
we really don't know.
    Now, estimates for the infrastructure damage in the 
northeast are about a little bit over $1 million in flood 
damage to date. Now, that is just public infrastructure. And so 
we don't have the estimates on flood losses at this point. You 
can see it is a very significant figure at $865 million, just 
based on the drought figures.
    At the State level we are doing all we can. On May 30, I 
issued a statewide fire emergency and that triggered our fire 
emergency task force. In early July, I issued a statewide 
drought emergency and that triggered a number of things, 
including our State's Drought Mitigation Plan, and under that 
plan we set up a task force to provide State measures to 
respond to the drought emergency, and that is chaired by Ag 
Commissioner Roger Johnson. And he will go through some of the 
things they have done and the recommendations that they are 
making as well. So I won't go into that because he will 
describe those efforts.
    And our fire task force have been hard at work. I mean, we 
have had Federal, State, and local resources in fighting these 
fires, and as I mentioned we have already had more than 52,000 
acres burning in those prairie fires, primarily in south 
central and southwest North Dakota. And we have also set up 
fire response units now in Hettinger, in Dickson, in Bismarck, 
and so forth. And those are Federal, State, and local combined 
task forces to respond to these fires. But, obviously, we are 
in August now, and we are not out of the fire season yet.
    As far as drought relief, we worked closely with USDA to 
get the CRP acres opened up, and that has been incredibly 
important to get access to hay and grazing for our ranchers, 
and those are open on a statewide basis. The deadline for that 
has been August 31. And now we have contacted USDA. Jim 
Kerzman, who I saw here, and others have gotten a hold of me 
and we have contacted USDA, and they will now allow the grazing 
and haying on CRP acres up until November 30. So we did get 
that in. And, again, we appreciate you folks talking to us 
about that, and we have agreed to extend that to November 30. 
So that is an important step.
    Also we worked with game and fish to get CRP available, 
availability through some of the plot acres, and they are 
working with land owners to make those acres available as well. 
I ordered that the no-mow areas, about 363 miles of no-mow 
areas along the U.S. and State highways be available to 
ranchers. Our Department of Transportation, we have eased the 
hauling regulations, both in terms of weight restrictions and 
length restrictions for folks that are willing to haul hay to 
help our ranchers. And through the State Water Commission last 
week--Roger is also a member of the State Water Commission. We 
made $200,000 available through our Drought and Disaster 
Livestock Water Supply Assistance Program.
    So those are some of the State's efforts, but the reality 
is we are going to need Federal assistance. There is just no 
doubt about it. I have issued, requested both the Secretarial 
Ag Disaster Declaration and a Presidential Disaster 
Declaration, which would involve all three elements--the 
drought, the fires, and flooding--because we are working on all 
three. The difficulty is that primarily frees up low-interest 
loans. And that may be helpful in some cases, but really what 
we need is direct assistance to recover these losses. There is 
no question about that.
    USDA made a step in the right direction last week when 
announced that they would provide up to $150 million in 
livestock feeding assistance through the old milk program, the 
Section 32 program. But the way they came out with it initially 
is it will only apply to four States: South Dakota, Wyoming, 
Colorado, and Nebraska. And the reason they came out with it on 
that basis is because 75 percent of the rangeland, the 
grassland in those four States is rated poor or very poor. And, 
again, North Dakota, because of its unique situation--and in 
some of the other States they don't have 75 percent. We don't 
have 75 percent of our total grassland acreage in that 
condition. But we have counties where that certainly holds true 
and, more particularly, the 20 counties that have been most 
dramatically affected by the drought. And so I have written to 
Secretary Veneman and talked to her chief of staff over the 
course of the last week and today talked with Chuck Connor, who 
is the Ag advisor to the President, and said look, this one has 
to be expanded. And, two, it has got to be done on a county-
wide basis, not a statewide basis, so that counties in other 
affected States like North Dakota receive the benefit.
    Now, they have got 1.3 billion pounds of dry milk that they 
are using to fund this program. And I don't know the exact 
figures, but that sells for around 50 cents. They should have 
close to half a billion dollars that they could potentially 
fund under this program. They need to do that and they need to 
make it available on a county-by-county basis so that our North 
Dakota counties and producers receive that benefit and that 
assistance. And we are hopeful that over the course of the next 
week they will do that and they will announce substantially 
that program both in the terms of the funding level and making 
it available on a county-wide basis. We will continue to push 
them to do that and to provide other assistance through the 
USDA.
    The USDA has a livestock assistance program, and this is 
one of the ways they would be able to fund it. It has not been 
a funded program, and that is something that we are talking to 
Senator Conrad and other members of Senate and Congressman 
Pomeroy and other Members of Congress about to fund that 
livestock assistance program. We think that is important that 
that be there on an ongoing basis.
    I think ultimately the real solution will be a disaster 
assistance bill through Congress. We absolutely need it. I 
would like to see it funded with new funding rather than taking 
funding out of the farm bill in line with the Baucus-Burns 
bill. That is what I have been lobbying for in both the 
Congress and the administration. If it is taken out of the 
existing farm program, it needs to be done out of savings, due 
to lower LPDs or lower deficiency payments of this year and not 
through any cost cuts in the farm program. And again we are 
pushing as hard as we can both in terms of lobbying the 
Congress and the administration to move forward on that. Our 
farmers and ranchers need that assistance, and we are going to 
do everything we can to get it.
    Senator again, I want to thank you for the opportunity to 
present this information to Congress. Thank you, Congressman, 
as well.
    [The prepared statement of Governor Hoeven follows:]
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    Chairman Conrad. Thank you, Governor Hoeven. We very much 
appreciate your being here. We very much appreciate the 
position that you have taken. I think it is absolutely the 
right position for North Dakota. I think beyond our own 
borders, it is the right position for the Nation. This is what 
we have done always in the past when there is an unanticipated 
disaster; we have moved to help out our neighbors. And goodness 
knows it is desperately needed in North Dakota both on the 2001 
disaster and the 2002 disaster. And I have to believe before we 
are done that there will be a response. We had, as I indicated, 
in the Senate farm bill a Disaster Assistance Program, and I 
believe support is building. I believe as my colleagues go out 
across the country, they are finding what I have found, that it 
is badly needed. Your testimony makes clear that it is needed 
in North Dakota. And for those who say, well, just cut the farm 
program to pay for it, that is no help; that isn't going to 
solve the problem. That is robbing Peter to pay Paul. And so we 
must have either an emergency designation or have it covered by 
taking into consideration the savings out of the farm bill, 
savings that flow naturally.
    Now, under the budget accounting rules in Washington, you 
can't pay for a program in that way. That is not permitted. But 
I think it is a strong rationale. Look, there are savings in 
the bill because of these disasters. Prices are higher than 
they would otherwise have been. That means the cost of the rest 
of the provisions of the farm bill are less. There is a pool of 
money that is available, and if we are not going to do it 
through an emergency designation, we ought to do it in that 
way, and those are the two major versions--the version we have 
in the Senate and the version we have in the House.
    Unfortunately, the President has rejected both those 
versions and said no, cut farm programs. And, again, that would 
be a double whammy for an economy like ours.
    Chairman Conrad. Commissioner Johnson, thank you so much. 
Let me just acknowledge publicly what I have never been able to 
do before, and that is, nobody played a bigger role in advising 
us as we negotiated the farm bill than our own Commissioner 
Roger Johnson. He organized the commissioners around the 
country and did it in the most effective way to convince our 
colleagues we needed a new farm policy and a new farm bill. And 
I was never more proud of Roger Johnson than the leadership he 
provided on the farm bill and the leadership he has provided on 
the question of disaster assistance. Welcome.

    STATEMENT OF ROGER JOHNSON, COMMISSIONER, NORTH DAKOTA 
                   DEPARTMENT OF AGRICULTURE

    Mr. Johnson. Thank you, Senator Conrad, Mr. Chairman. And 
thank you for the leadership that you have provided not only in 
your work on the farm bill, but as the years have gone on you 
have been the leader in the Senate in making the case for 
disaster assistance for agriculture on the same premise that it 
has been made historical for other natural disasters, and I 
think we all recognize that and appreciate that very much.
    Let me say it is an honor to be here with the Governor, 
with the Congressman, with yourself, and I do in a bipartisan 
way suggest that disaster assistance again is needed. My 
testimony is lengthy so I am just going to hit a few of the 
highlights. It is lengthy because I know how important it is 
for you to create a record so that you can convince your 
colleagues of the nature and the extent of the disaster, even 
in fringe areas of the drought, as you can see on the national 
map up there. As the Governor talked about, as you talked about 
earlier, it is important that we document this. As everyone 
here knows, agriculture is the backbone of the economy in North 
Dakota, and I am not going to go into all the statistics other 
than to say that we lead the Nation in the production of 11 
different commodities.
    It is a big deal in North Dakota, and as agriculture goes, 
most of the rest of the State goes as well. Unfortunately, in 
recent years farmers and ranchers have not reaped the benefits 
of profitable or even break-even prices for many of the high-
quality products that they have produced. And that, of course, 
has been much of the focus of the farm bill.
    The new farm bill is certainly a substantial improvement 
over the previous Freedom to Farm law. Again, thank you for the 
leadership that you have provided in that, and let me 
reemphasize the point for the record that all of us recognize 
that that new farm bill was designed primarily to deal with the 
price and the income side, not natural disasters. For reasons 
that you have already discussed, natural disaster provisions 
are not a part of the farm bill. So, as good as it is, as big 
an improvement as it is over pre-existing farm law, it does not 
deal with natural disasters. And so that is really the focus of 
this here.
    Well, as you have already heard, North Dakota producers 
have been struggling with disaster situations on both ends of 
the spectrum, as the Governor alluded to in the map of the 
State, both drought and excessive moisture. The same year, the 
same time in different areas of the State and certainly the 
drought conditions in south central and southwestern North 
Dakota are most extreme. Pasture land is burned up. Dugouts and 
other water sources are drying up and stagnant, and crops that 
did grow are only a few inches in height and in many places the 
seeds that were planted have not even germinated yet today.
    The drought is extreme. The Governor mentioned briefly some 
of the economic analysis that NDSU has provided. Let me 
reemphasize that the direct impact of the drought alone, not 
the floods, but the drought alone in North Dakota, is about a 
quarter of a billion dollars, $223 million. It is the direct 
impact of crop and livestock loss in North Dakota. When you add 
the rest of the impact together, it is about $866 million 
total. And in my testimony following page 12, you will see a 
sheet here that breaks out in some detail the calculations of 
those losses.
    The Governor already talked about many of the measures the 
State has undertaken. They are repeated in my testimony. I am 
not going to repeat them orally here because of time concerns. 
A number of folks have taken drought reports. I did one in the 
middle of the July, and I provided following page 13 a number 
of pictures of the impact of the drought. I provided them in 
color for you so that you can go back and show your colleagues 
just how extreme the situation is here in North Dakota, even 
though we are on border of the drought area in the rest of the 
Nation. And they are certainly some very, very telling 
photographs.
    In terms of actions that have already been taken, we would 
be remiss if we didn't thank USDA for opening up CRP for haying 
and grazing. I think all of us worked in a bipartisan effort to 
make that happen. We are thankful for that. We are thankful for 
the extension of the CRP haying and grazing that was just 
recently announced. That was absolutely needed. We have taken 
many of the these measures. Even on the Federal level water 
bank lands were open for haying and grazing this year. On the 
State level we opened water bank acres as well.
    The Governor has already mentioned what DOT has done with 
the no-mow areas and changing the restrictions to allow for 
more economical hauling of hay, and we thank him for the 
actions there. Operation Hayride is sort of the latest thing 
that we have begun in cooperation with a number of agencies, 
including the Governor's office has principally the lead, in 
this case, the Wildlife Federation, and my agency is 
cooperating with a lot of the data base requirements. It is 
basically an effort to match up volunteers both with money and 
resources who are willing to haul hay from long distances to 
help some of these ranchers in the southwest and south central 
part of the State, and we are looking for that to help as well.
    Beginning on page 7 of my testimony----
    Chairman Conrad. Can I just interrupt you? I have been 
looking through these pictures, Congressman Pomeroy and I are 
looking through these pictures. These are really excellent. I 
am going to take these and blow them up and show them on the 
floor to show people the devastation. You know, a picture 
really is worth a thousand words. And these pictures just show 
that in large chunks of North Dakota there is nothing there.
    Mr. Johnson. Yes.
    Chairman Conrad. These are pictures of a sunflower crop, 
never germinated. These are pictures from Emmons County, the 
sunflower field, nothing ever came up. These will be very 
useful. Thank you.
    Mr. Johnson. You are welcome. In terms of recommendations, 
beginning on page 7 there is a long series of recommendations 
that have been compiled of the task force meetings that have 
been held pursuant to the Governor's order and declaration of a 
drought disaster existing. I summarize those on page 7 and also 
on page 8. Let me highlight the ones that I think most people 
here understand need to be right at the top of the list.
    Before I get to the disaster relief bill that needs to be 
passed by Congress, I need to reemphasize an issue that I 
commented on last week, which I think is a step in the wrong 
direction for the USDA. For a number of years there has been a 
program called the Disaster Set-Aside Program that has been 
useful for FSA borrowers in disaster years, and there is a 
proposed rule change that has just been issued that effectively 
would gut that whole program and no longer make it available to 
producers in drought disaster years. Page 9 in particular 
provides some detail of what needs to happen. But, basically, 
the answer to USDA in their proposed regulations is they ought 
to throw it away and stay with the system that has been 
working.
    One of the delightful parts of the Disaster Set-Aside 
Program is that in almost every other FSA lending program there 
are reams and reams of paper. With this one there are not. This 
is the first one that is really red-tape-free. It allows local 
credit officers to make decisions based on disaster situations 
and without extensive reams of documentation, and getting rid 
of that ability, I think, would be a serious blow to how a lot 
of our more hard-pressed borrowers are going to have to deal 
with disaster situations, and I want to make sure that that 
makes the record, with respect to the need for disaster 
assistance by Congress this year.
    On page 10 of my testimony, I provide what I think is going 
to be the body of a final letter that all of the ag 
commissioners around the country will be sending to Congress 
and to the White House later this week. As you know, the Rural 
Development Financial Security Committee of NASDA, National 
Association of State Departments of Agriculture, is a committee 
that I chair, and this is one of the issues that falls under my 
jurisdiction. We have drafted a letter; let me read, I think, 
the language that is going to be the most helpful for you. It 
is near the bottom of page 10. ``As Congress decides on 
responsible levels of natural disaster assistance for farmers 
and ranchers, we would suggest that the Food Security and Rural 
Investment Act of 2002''--the farm bill--``remain intact and 
not be changed.''
    We don't want to reopen the farm bill to provide for 
disaster. And I think that is a resounding feeling across the 
country with all the ag commissioners, and as you know, having 
been in the middle of this, a lot of blood, sweat, and tears 
went into the drafting of that final document, and we think it 
would be a mistake to undo that.
    So, with that, Mr. Chairman, I am going to close and be 
pleased to respond to any questions.
    [The prepared statement of Mr. Johnson follows:]
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    Chairman Conrad. All right. Thank you very much. Thank you, 
Governor, for staying with us, and we will to go to brief 
questioning. I know that the two of you have other obligations, 
and we are going to just be very brief.
    Governor, let me ask you, in light of what you outlined as 
the losses that are occurring, what would be the effect on the 
State economy if there were not disaster assistance provided?
    Governor Hoeven. Well, as the numbers show, it is a 
tremendously large impact on our economy, very negative impact. 
The direct loss figures from NDSU between crop and livestock 
are about a quarter of a billion dollars. And that is primary 
sector money. And so that percolates all the way through the 
economy.
    Now, different economists use different multiplier effects. 
If you start with a direct loss of a quarter of a billion 
dollars, the multiplier at NDSU is about 2 times for indirect 
loss. That takes you up to three-quarters of a billion dollars 
in impact. Sometimes that multiplier, sometimes that number is 
as high as 6 or possibly 7. So, in any event, you are somewhere 
between potentially $1 billion and $2 billion in terms of the 
impact, which is a very significant negative impact.
    The other thing is it goes right to the heart of our rural 
economy, our rural areas, and our small towns. And so we are 
fighting a national recession anyway, and we have worked hard 
to do that through job creation and other efforts, but this 
impact on particularly the small towns and rural areas would be 
very, very difficult.
    Chairman Conrad. Commissioner Johnson, if the President 
came to South Dakota and said no disaster assistance, what 
would you say to him to try to persuade him to change his mind?
    Mr. Johnson. I think I would say, I would make the 
argument, Mr. Chairman, that you made at the opening: that this 
is a disaster like other disasters. It is really no different 
than a hurricane or a volcano erupting, a mudslide. It is an 
unpredictable natural disaster, and in all of those 
circumstances, this country has always risen to the occasion 
and provided some assistance for those folks that were harmed 
by unpredictable natural disasters. This ought to be handled in 
the same fashion.
    I think also I would argue that the numbers that you put up 
in the beginning of this hearing when you talked about price 
guesses that were the official numbers that were used when the 
farm bill was debated and ultimately adopted, in virtually 
every case market prices for those commodities are greater 
today than what they were predicted to be the case. The 
absolute net result of that is there will be substantially 
lower Government outlay to farmers as a result of the higher 
prices. However, those higher prices mean nothing to someone 
who is in the grips of a disaster and has nothing to sell. And 
so you have got clear economic savings from the farm bill, what 
was projected. Those economic savings ought to at least be 
recognized in some fashion and used to make the case for 
emergency disaster assistance for this kind of a disaster.
    Chairman Conrad. Let me just make clear--and I know this is 
confusing to people, but it is critically important to 
understand. As Commissioner Johnson has indicated, there is 
going to be saving in the farm bill. Because these disasters 
prices are higher, there is less production, so prices are 
higher. That means the farm bill provisions are going to cost 
less.
    But when the Secretary of Agriculture says there has to be 
offsets to pay for disaster assistance, those aren't the things 
she is referring to. She is not talking about the savings from 
the farm bill. They don't count for the purposes of the what is 
considered an offset in Washington. The only thing that counts 
as an offset is to cut spending on the rest of the farm bill. 
And if you cut spending on the rest of the farm bill, that 
means you are robbing Peter to pay Paul. You are not giving any 
additional assistance, and always, always, we have given 
emergency assistance to those hit by natural disaster. Whether 
it was a flood, a hurricane, a drought, a fire, an earthquake, 
we have helped out. There is no reason, it seems to me that we 
shouldn't help out in this circumstance.
    Congressman Pomeroy?
    Mr. Pomeroy. A couple of quick questions, Mr. Chairman.
    Governor Hoeven, I thought your testimony was absolutely 
right on the point. How are the discussions coming among the 
Governors of this region? Are you in accordance with your 
colleagues and are they mobilizing as you have indicated, as 
you have in North Dakota's position in response to disaster 
assistance?
    Governor Hoeven. Congressman, yes, that is definitely the 
case, and I think you see it in Congress as well both in terms 
of the bills that you had listed up here earlier, and in the 
Senate and the House you are seeing a push for support.
    Really, it seems to me the debate now is focused on is it 
new funding or is it funding that comes under the ag bill? If 
it is funding that comes under the ag bill, as Senator Conrad 
described, it is funding generated by higher prices, more LDPs 
this year versus cuts in programs. I think that is really the 
way the debate is breaking out. But clearly the support is 
there for assistance. And, again, that is why I hope that you 
are able to move forward in Congress with a bill.
    Mr. Pomeroy. It looks to me like we have a situation where 
the Secretary opposed the farm bill and now is trying to reduce 
the farm bill by coercing Congress to fund disaster assistance 
out of reductions that we would pass to the farm bill. The farm 
bill debate is over. We passed it. She didn't like it, though. 
We got price protection for our farmers. Now, that price 
protection, which is the core of the farm bill, doesn't relate 
to disaster loss. That gets to the question that I have for the 
Commissioner.
    As a student of North Dakota agriculture, way back from 
your days here at NDSU as a student, what is our production 
volatility and how critical is the question of disaster 
assistance to the future of North Dakota agriculture?
    Mr. Johnson. Well, I think it is very critical. One of the 
things that I think has already been talked about in this 
hearing is the fact that because of the area of the country 
where we are located, we don't have the predictability of 
weather events, of growing seasons, of crop yields that you 
have as you move south and east of here. And in sort of the 
corn and soybean belt, a lot of my colleagues out there say we 
have never had a disaster assistance, except for the last 5 
years under the old farm bill. They stood shoulder to shoulder 
with all of us and said we need economic disaster assistance, 
and that is something that Congress has delivered for the last 
4 years in a row.
    Now, there is a nuance in the debate this year that I think 
is important for us to recognize, and that is that the old 
debates were all about the policy has failed. We need to 
provide some economic assistance as well as natural disaster 
assistance in each of those years, and for that work I would 
thank both of you and all the Members of Congress for providing 
that assistance. The nuance is this----
    Mr. Pomeroy. Don't thank them all----
    Mr. Johnson. Well, I----
    Mr. Pomeroy. Some of them have fought us every step of the 
way. I am sorry, Mr. Chairman.
    Mr. Johnson. The nuance is this: the economic disaster 
needs of the last 4 or 5 years have largely been dealt with 
through the adoption of the farm bill. We should no longer have 
to annually make the case for that assistance.
    Now, what remains is just the second part of that, and that 
is the natural disaster component. Now, that makes your job a 
bit tougher because you are not going to have as many of my 
friends in the corn and soybean country, who right now are 
looking at some pretty strong yields and huge incomes because 
the farm bill is there, but market prices have moved up 
substantially, and they don't have a disastrous loss. It is 
going to be more difficult for them to go home and vote for 
these things, but it is so critical for States like ours that 
are sort of on the margin between the big crop country and the 
big cattle country. We have these vagaries of weather that 
frequently we are dealing with.
    Mr. Pomeroy. The final point. The picture from your 
testimony that I am going to have blown up and show to my House 
colleagues is one field--this looks like a field, an easily cut 
field, a fellow who cut his hay. The only thing is you can't 
see the swath. It was so incredibly thin that there is nothing 
there.
    Now, this speaks, I think, to the heart of North Dakota 
farmers and their plight. It isn't that they are not trying. 
They are trying as hard as they possibly can. This individual 
put the blood, sweat, and tears, and gas money into cutting 
this crop that has nothing to show for it, not even a visible 
swath. Certainly nothing he could pick up. This isn't this 
producer's fault that there is nothing that shows up by way of 
a swath. It is a natural disaster, and the Federal Government 
ought to help out.
    I will circulate this around the room. It is an 
extraordinary photo that tells a story.
    Chairman Conrad. Thank you. Again, thank you very much, 
Governor, for being here, Commissioner of Agriculture as well. 
We appreciate the presentations and we appreciate very much the 
position that you have taken.
    Governor Hoeven. Do you want my charts so you can show them 
on the Senate floor, too?
    Chairman Conrad. We would love to have them.
    Chairman Conrad. OK. We have Rodney Froelich, State 
Representative, District 35; Eric Aasmundstad, president of the 
North Dakota Farm Bureau; Richard Schlosser, vice president of 
the North Dakota Farmers Union; Jay Olson, adult farm 
management instructor of Lake Region Junior College; Wade 
Moser, the executive director of the North Dakota Stockmen's 
Association; and a representative--I believe we have a change--
Duane Claymore, representing the Standing Rock Sioux Tribe. If 
those witnesses would come up, we would certainly appreciate 
having their participation.
    Someone asked me why are you having a Budget Committee 
hearing rather than an Agriculture Committee hearing with the 
question of the disaster assistance. Well, first of all, I am 
the chairman of the Budget Committee. I am also the chairman of 
several of the subcommittees of the Agriculture Committee. But, 
honestly, this has become as much a budget question as it has 
become an question of agriculture policy. And so we thought 
that it was very important to establish for the record in the 
Budget Committee the need. If we can't establish the need, we 
are not going to have any luck. That is what this hearing is 
all about--to establish the need.
    I know of no one better to speak to that issue than Rodney 
Froelich, the State Representative from District 35, who has 
experienced some of the toughest conditions I have seen 
anywhere in the State at any time. I have been in his district. 
I was there after the disastrous fire in Shields and following 
wild fires in other parts of that district. I have also seen 
the pictures and heard the testimony of those who have been so 
adversely affected. It is good to have a firsthand witness here 
today.
    Please proceed, Rodney.

 STATEMENT OF RODNEY FROELICH, STATE REPRESENTATIVE, DISTRICT 
                   35, STATE OF NORTH DAKOTA

    Mr. Froelich. Good to have you here. Thank you, Senator.
    First off, Senator, I need to thank you, thank you very 
much, Representative Pomeroy, Senator Conrad, Governor Hoeven, 
Roger Johnson, Gary Nelson, and all you guys who have all just 
come through for us. And my problem is we are going to need you 
again. You guys have taken your time and made the effort and 
gotten the CRP in. We know we have had some problems. We don't 
need to dwell on that. We appreciate the fact that we go 
forward and put up some more feed, because many of us are 50 
miles from home, many of us are 300 miles from home trying to 
put feed together. Transportation costs are killing us. It is 
easy to see the disaster to come and visit it. But it is one 
thing when you have to live with it and experience it.
    First we started off with drought, and then we went to 
fires. Just recently we went through a horrendous windstorm 
where a lot of farmers and ranchers lost their buildings. And 
now we have had the West Nile disease that has infected our 
country.
    Senator as one of my constituents commented, frankly, I am 
leaving the county for higher grounds. Senator, I will speak 
specifically to the needs of Sioux County, because I live 
there, I know them. I know that there is not going to be 5,000 
bales of hay put up in Sioux County for 35,000 head of 
livestock. That is a fact. There will be no crops harvested in 
Sioux County this year. None whatsoever, not for hay or for 
grain.
    Senator we are all going elsewhere for feed, those of us 
that can. There are those that cannot, that cannot afford to. 
There are dairy farmers that can't leave and travel 200 miles 
and back to milk their cows in the evening. These people are 
critical to our needs.
    Senator the transportation to feed the livestock in Sioux 
County this winter will be over $2.1 million in our county 
alone. If you take that times the 16 counties with the various 
degrees of drought in there, the estimates will be well over 
$25 million for transportation alone. That is transportation 
only.
    Senator my idea of Government is simple. Don't make laws 
that make life more difficult or confusing. But be there when 
the times for people get tough and can't help themselves. My 
constituents are willing to help people with disaster relief in 
Africa and South America, hurricanes on the East Coast. 
Senator, we are asking for help now. We need it here. We are 
tax-paying citizens. We are willing and able to help out other 
people in their times of needs.
    Senator I ask you one thing. In the past when we have had a 
disaster--it has been numerous years ago. There has never been 
much in the farm bills livestock producers. We like to be 
independent. We don't want Government involvement. Senator, in 
the past we have had a livestock feeding assistance back in the 
1980's that did not work. The people that went out and worked 
the hardest got the least. With the help of some of the county 
agents, producers spent weeks talking to these people. If you 
can help us get a disaster bill, we will be more than happy to 
give you some food on how to implement the situation. We want 
it to go to the people that need it the most.
    Now, Senator, I guess I would just as soon answer questions 
as go on.
    Chairman Conrad. Thank you very much, and what we will do 
is we will reserve questions for the whole panel until we have 
completed the testimony of each member of the panel.
    Next is Eric Aasmundstad, the head of the North Dakota 
Farmers Bureau. Eric, thank you very much for being here and 
please proceed.

  STATEMENT OF ERIC AASMUNDSTAD, PRESIDENT, NORTH DAKOTA FARM 
                             BUREAU

    Mr. Aasmundstad. Thank you, Mr. Chairman. Actually, I want 
to see the people that are here to testify at the microphone to 
do that, and I am not going to take a lot of time. Rod has said 
everything that I want to say, probably better than I can say 
it, and I know that Jay Olson who is sitting down here has some 
very good numbers put together through Adult Farm Management 
that have been very, very helpful to you.
    I guess one of the things I would really like to touch on, 
though, and I feel for people like Rod that are living in the 
drought areas and have lost their crops completely, have lost 
their feed supply, more importantly, and hopefully don't lose 
their cow herds. But as has been said so well earlier, we have 
got another wreck going on in the State. And that is the flood. 
And we have got a vast number of producers and a large number 
of producers in the eastern part and northeastern part of the 
State that have crop remaining, that is probably going to be 
good enough. Or at least in the case of my farm, we probably 
lost 30 percent of our acreage of my farm alone to floods. But 
the crop that remains, thank God, is good. But is it going to 
be good enough so that Federal crop insurance does not kick in 
and provide any payment for the acres that we have lost? Well, 
if you take a third-year farm or fourth-year farm that you have 
already put the expense into and have that taken away from you 
with no chance of recovery, the end result for many producers 
in the eastern and northeast part of State is going to be no 
different than the end result of the people down in Rod's 
county that have lost it to drought. They are going to not be 
in business next year. And we certainly ask that you, Senator 
Conrad, Congressman Pomeroy, work with us to try to overhaul 
the Federal crop insurance system. I know many attempts have 
been made, no disrespect, but those attempts have fallen quite 
short. We have talked about this many times. We need something 
and I think there is a mechanism out there that we have been 
working on with other ag groups where we can ensure a 
producer's true actual cost of production.
    Now, that is not to say that he is going to make a profit, 
but, by God, he is going to be able to pay the bank off and go 
again next year, and that is what is needed in this case. And I 
am going to defer to the other folks and finish it up and take 
any questions you have.
    Thank you, Senator.
    [The prepared statement of Mr. Aasmundstad follows:]
    [GRAPHIC] [TIFF OMITTED] 81882.253
    
    [GRAPHIC] [TIFF OMITTED] 81882.254
    
    [GRAPHIC] [TIFF OMITTED] 81882.255
    

    Chairman Conrad. Very good. Thank you.
    Richard, you are next up.

 STATEMENT OF RICHARD SCHLOSSER, VICE PRESIDENT, NORTH DAKOTA 
                         FARMERS UNION

    Mr. Schlosser. OK. I guess I, too, would like to defer to 
some of the other folks here, producers that are in the room to 
talk about their personal experiences, Senator. But we at North 
Dakota Farmers Union support emergency disaster legislation for 
crop and livestock producers who have suffered losses due to 
natural disasters in both the years 2001 and 2002.
    We are here today to ask for your continued support of the 
farmers and ranchers in North Dakota, and thank you, Senator, 
for providing us the opportunity to visit with you here today 
regarding the various weather disasters our producers have 
recently experienced. As we see the USDA map here--and a lot of 
us look at the Palmer Drought Index just about every morning. 
We pull that up and you know this is a national issue. A recent 
Washington Post article said that about 40 percent of the 
country is suffering the effects of the drought. The USDA 
suggests that 49 percent of the contiguous United States is in 
moderate to extreme drought and 37 percent is considered severe 
to extreme.
    By way of comparison, in 1988, which most of us recall as 
the last great drought, that drought covered about 36 percent 
of the country. In a typical year, about 15 percent of the 
country might experience some dry weather and some drought. So 
I think the severity of this dry weather and drought is really 
indicative to what is happening.
    In North Dakota this year, it was a year of weather 
contrast, as we all know. While some places in northeastern 
part of the State, in Eric's--I have been up in Eric's area 
there trying to fish, and every time I go up there it rains. 
Poor fishing weather. But up in that area northeast of there 
they have experienced single-event rainfall totals of 10 and 11 
inches, leaving devastation.
    In the south central and southwestern part of the State, 
which is where I live, we usually measure our rainfalls in 
hundredths of an inch. So whether producers suffer losses due 
to floods or drought or disease or insect infestations--which 
some areas are experiencing right now with the increase of 
grasshoppers infestations. And if you talk to some of the 
ranchers out in the western part of the State, the result is 
the same, loss of income and opportunity. That is why we need 
and are asking for some disaster assistance, Senator.
    It was disappointing to hear President Bush's statement 
last Friday in South Dakota that he opposes additional disaster 
relief, despite the repeated requests from farmers and ranchers 
to the contrary. This is a matter of most urgent priority for 
rural America. Calling on us to endure these disasters 
conditions of the pioneer spirit really does not adequately 
address the situations that we face.
    USDA, on the other hand, we believe, has taken some 
positive actions to address the weather-related disasters 
experienced by crop and livestock producers. Given the scope of 
the disaster, the present resources available, the USDA-
included disaster assistance is inadequate, while crop 
insurance, disaster loans, emergency haying and grazing CRP and 
other programs are helpful. They fall short in covering the 
financial losses of the farmers and ranchers.
    Additionally, the new farm bill, even with its higher loan 
rates and components, is incapable of adequately dealing with 
natural disasters. On July 30--and I do believe you have a copy 
of this Senator--20 farm organizations signed a letter urging 
the Senate to support Senate Resolution 2800, legislation 
introduced by Montana Senator Max Baucus and Conrad Burns. We 
support this effort because it is a bipartisan proposal of 
about approximately $5 billion designated of emergency spending 
with no farm bill offsets. This bill would cover 2001 and 2002 
losses and would provide for both crop and livestock 
assistance. I think we simply need to look back to 2000 and the 
crop disaster program, and that could serve as a model on how 
we expedite this and for qualifications for assistance, and we 
hope that it would be similar and fall in that program to 
expedite this as we saw in the 2000 crop and livestock 
assistance programs.
    Additionally, as I mentioned before, we do not support 
budget offsets for disaster funding. We would support an income 
deferral livestock repurchase program that isn't already in 
place, maybe lengthening that out to maybe 4 years or whatever, 
for producers that are forced to sell livestock because of 
disaster conditions.
    Senator your leadership was key in the passage of the new 
farm bill despite the administration's roadblock for the 
passage of disaster assistance. We urge you to take the lead in 
this effort and continue to push for this much needed 
assistance for North Dakota's farmers and ranchers.
    Thank you.
    [The prepared statement of Mr. Schlosser follows:]
    [GRAPHIC] [TIFF OMITTED] 81882.256
    
    [GRAPHIC] [TIFF OMITTED] 81882.257
    

    Chairman Conrad. Thank you very much. We appreciate your 
testimony.
    Jay?

STATEMENT OF JAY OLSON, ADULT FARM MANAGEMENT INSTRUCTOR, LAKE 
                      REGION STATE COLLEGE

    Mr. Olson. Thank you, Senator. I think we are pretty much 
all in the same voice here, and from my point of view what I 
would like to do is point out some actual numbers of farmers 
around the State. Obviously, we don't have 2002 numbers done 
yet, so there are no actual numbers to look at there. But I 
think most of that has been pretty well documented about the 
severity of the 2002 disaster program. So what I really want to 
look at is a 2001 situation and the consequences of a disaster 
assistance bill for our area of the State and really for the 
whole State of North Dakota.
    What I have done here is pulled out some graphs looking at 
the whole State of North Dakota as well as the north central 
region of North Dakota for the last 10 years. And just look at 
some quick numbers that got pulled out, I have got six or eight 
graphs here. This first one is looking at the whole State of 
North Dakota, average of farmers enrolled in the farm business 
management programs around the State. We have 15 programs 
located around the State, and there are some areas of the State 
that are not represented here. But we feel it is a pretty 
representative group.
    Right now there are only about 14,000 farmers in North 
Dakota that gross over $50,000. And so we represent somewhere 
around 4 or 5 percent of all of the farmers in North Dakota 
that are what we think of as full-time farmers. So if we take a 
look at this, this is net farm income then; that would be net 
after all expenses and before any family living or any return 
on assets.
    Chairman Conrad. So this shows without farm program 
payments, there is no----
    Mr. Olson. Without Government payments, right. Without 
Government payments this is the net farm income for the whole 
State, before any family living or any return on their 
investment is taken out.
    This one then is basically the same graph only without 
insurance payments. So this would be net farm income without 
farm payments or insurance payments for the State as a whole as 
well. And, obviously, we see a trend there. And this is the 
whole State.
    Now, in some areas of the State, we are seeing larger 
situations, greater situations than that as individual areas, 
individual farmers, of course, are variable. This again is an 
average. This is return on equity per farm for that same 
period. The early 1990's we had some better crops and some 
better prices. During the mid-1990's we had livestock price 
problems and, of course, we had our big disaster problems in 
1997 and 1998, and we had disaster payment programs that we did 
receive in 1999 and 2000 to offset some of those losses that we 
did have in 1997 and 1998. I think a lot of the people aren't 
fully aware of the severity of the problems in 2001.
    Again, this is statewide and there are areas like in our 
area of the State that it would be worse than this. Go ahead, 
next slide.
    This again is a change of the net worth for 80 percent of 
the farms in North Dakota. What we have done here is pulled out 
the 20 percent of the farms that had the highest net farm 
income and then look at the remaining 80 percent. There is one 
mistake I noticed in the display that I gave out earlier. In 
there I said that in 2001 more than 80 percent of all the 
farmers had a reduction net worth. It should say in 2001, an 
average of 80 percent of the farms had a reduction in net 
worth. So in 2001, an average of 80 percent of the farms had a 
reduction of net worth. It is about $1,600 reduction net worth 
and that is before--well, that would be including everything so 
that it was a pretty severe year. And in 1999 and 2000, of 
course, we had disaster payments and we are hoping that the 
same thing in 2001. It is obviously a severe problem.
    When I was driving down here this morning, I was visiting 
with a banker and he related to me an example just exactly as 
you stated earlier about there was a lender that he was working 
with, and a customer, and they were starting foreclosure 
proceedings on them and he was going to continue to farm in 
2002 because he is getting some supplier credit. But he doesn't 
have an operating loan. In his case, if we can get a disaster 
program through before it is too late, then he still has a 
chance. And there are an awful lot of those people around. I 
visited with a lot of lenders, and the same story is true for 
everyone, that a 2001 disaster bill is, I think, critical for 
the area.
    Chairman Conrad. I spoke to the Independent Bankers 
Association last week right here in Fargo, and it was one of 
the highest items on their agenda, disaster assistance. I 
wanted one of the bankers on the panel here today to 
demonstrate, I think, the seriousness that they view this 
issue. And they are saying you have got to have a disaster 
program for this year or we are going to lose a lot of the 
people. And that is really what your message is here today.
    Mr. Olson. Exactly. I think that is exactly right. It is a 
serious problem, and obviously 2002 is a well-documented 
situation, but what I am trying to point out is that 2001 is 
also a very severe year, due to various reasons, land that 
wasn't planted, but also as Eric said, a lot of this had 
operating overhead inputs into it and then it is gone and then 
they try to put more inputs into it to try to save it with 
fungicides or insecticides.
    Chairman Conrad. Kind of chasing the----
    Mr. Olson. Exactly. And inputs get to be huge, and even 
though your yields maybe not all that bad on an average, if you 
lose 10 or 20 percent of a field the average on a seeded acre 
basis may not be actually very good.
    Chairman Conrad. Would it be a correct statement to say, 
based on this slide, Jay, that the correct statement would be 
on average 80 percent of the farms in North Dakota had a loss 
of net worth in 2001?
    Mr. Olson. Yes.
    Chairman Conrad. On average?
    Mr. Olson. Pretty much. And remember, this is an average of 
the farms enrolled in our program.
    Chairman Conrad. Right. Although there--we know that that 
is a very good reflection of it.
    Mr. Olson. Right. Right. And this also excludes the Red 
River Valley. These numbers, we usually pull out the Red River 
Valley separate during that time. We only have a couple of 
programs in the valley, and there are a number of farm 
management programs on the Minnesota side of the valley, so we 
do average together the valley, so we pulled those numbers out.
    Chairman Conrad. And we know that in 2001, the valley had a 
very significant portion of the losses. The Devils Lake Basin 
and the valley in terms of overly wet conditions had a 
disproportionate share of the losses. All right.
    Mr. Olson. Then those numbers that we looked at so far were 
for the State, and then these numbers then would be for what we 
call Region 2 where the north central part of the State is 
about a 12- or 13-county area from the center of North Dakota.
    Chairman Conrad. Does that go over to the border with 
Minnesota?
    Mr. Olson. No, not quite; it stays out of the valley.
    Chairman Conrad. Out of the valley, all right.
    Mr. Olson. Again, net farm income for that is the total 
including Government payments in each of those 10 years, and it 
looks like we are making $25,000 or $26,000. But, again, we 
have to take our family living out of that. So if the average 
farmer has about a $45,000 family living expense, plus, 
including health insurance and taxes, et cetera, plus, he is 
trying to get some type of return on his investment, he 
probably had to invest about $300,000 of his own money to do 
this. So that is a pretty serious situation.
    Go ahead. This, again, is a similar graph to what we looked 
at before. Again, this is just for our north central region of 
the State, net farm income without Government payments. Next 
one, and this, again, is net farm income without Government 
payments or insurance. And obviously we see a pretty obvious 
trend there. And, again, that is before family living or any 
return on his investment. And this, again, return on assets for 
that north central part of the State 1997, 1998 and 2001 stick 
out pretty clearly there, I think. And normally anything about 
6 percent is a pretty serious situation. And now, of course, we 
are looking at 0.5 percent, half of 1 percent. And so it is a 
pretty serious thing. And as that takes effect, we just borrow 
more and more money. And in 2002 operating loans are the 
largest I have ever seen. Operating loans are mammoth in 2002. 
As farmers become highly leveraged--and it is a really 
stressful situation for a lot of guys.
    I think that is pretty much what I wanted to say. I would 
be happy to answer any questions later.
    [The prepared statement of Mr. Olson follows:]

                   Prepared Statement of Jay M. Olson

    My name is Jay M. Olson, I have been an agriculture teacher 
in North Dakota for 29 years, the last 18 years as a Farm 
Management Instructor at Lake Region State College. I was also 
a loan officer for Farm Credity Services and farmed in the area 
for 15 years.
    Farm Management programs in the North Central area of North 
Dakota consist of five Instructors in a 13 County area that 
serve avout 200 farm families. State wide there are 15 
instructors that serve approximately 600 farm families. These 
numbers represent about 4 percent of all the farmers in North 
Dakota with a gross farm income over $50,000. The average 
farmer enrolled in this programis about 44 years old and farms 
about 2300 acres. A detailed set of farm records is completled 
by these farmers and leads to the completion of an extensive 
farm business analysis that is then used for a myriad of 
business decisions. Farms located in the Red River Valley are 
not included in the State averages.
    It is my hope that in providing some of this information to 
this hearing that I can stress the extreme need for 2001 
Disaster Assistance.
    I have seen some first hand examples of the financial and 
emotional stree that has been placed on farmers in North Dakota 
due to a variety of extreme weather conditions the last few 
years. These weather extremes have resulted in a loss of income 
due to drought in some areas of the State as well as flooding 
in other areas. Flooding not only cause land from being planted 
even though many inputs may already have been invested, but 
also a number of related insect and disease conditions that 
create further expensive inputs in an attemt to salvage some of 
the yield. The result is lower efficiencey and productivity 
with increased devt loads.
    At this time I do not have completed numbers for the 2002 
year, however I have been able to put together some information 
that begins to describe the seriousnes of the 2001 Disaster in 
North Dakota.
    The Average Net Farm Income for farms enrolled in the Farm 
Business Management Progran in North Central North Dakota in 
2001 declined 54 percent from the year before. The percent 
return on equity for farms in this area decelined from 10.7 
percent in 2000 to only .5 percent (one half of one percent) in 
2001. Normally a return on equity below 6 percent is considered 
extremely serious.
    While losses in 2001 were more concentrated in the eastern 
areas of the State, the entire State saw some losses. All farms 
enrolled in the program statewid saw their percent return on 
equity decline form 10 percent in 200 to only 2.2 percent in 
2001.
    In 2001 more than 80 percent of all the farms enrolled in 
the Farm Business Management Program in North Dakota had a 
reduction in net worth from the previous year.
    Without government payments all farmers in North Dakota 
enrolled in the Farm Business Management Program had a negative 
net farm income of -$20,078 without government payments and 
before any family living or return on invest was taken out.
    Loan officers in the area have stressed to me the need for 
2001 Disaster Assistance. They have related cases where working 
capital and equity has been reduced beyond their ability to 
provide financing any longer. While crop insurance helps to 
protect perhaps 75 oercent of their investment, when the 
average farmer is investing over $250,000 into the farm each 
year, a 25 percent short fall may be enough to put that farmer 
out business.
    Thank you for your continued support of farmers and 
agriculture in North Dakota.

    Mr. Pomeroy [presiding]. We are holding questions, Jay, and 
we will deal with them panelwide at the end. The chairman has 
had to step out. He has asked me to run the meeting in the 
meantime, and he will be back for the question period.
    Now we get to the executive director of the North Dakota 
Stockmen's Association, Wade Moser.

   STATEMENT OF WADE MOSER, EXECUTIVE DIRECTOR, NORTH DAKOTA 
                     STOCKMEN'S ASSOCIATION

    Mr. Moser. Thank you. We appreciate Senator Conrad having 
this hearing here in North Dakota today. We represent the 
cattle industry in North Dakota, and the North Dakota 
Stockmen's Association feels that there is a need to put in 
place a disaster program that will assist cattle producers in 
offsetting the additional costs caused by the current drought.
    We want to make sure that we are very clear today that we 
oppose activating the past feed assistance program that 
penalized the good producers who made arrangements and 
management decisions in the past to help themselves. If this 
program was implemented today. many of those producers who went 
and hayed CRP across the State would disqualify themselves from 
assistance. So we want to make that very clear that as the 
program is designed that we do not activate the old one that 
was in place years ago. We have calculated that in just the 16 
counties that were impacted the most by the drought, it would 
cost more than $15 million just to transport that hay back. 
That was just assuming a 100-mile round trip, as we know is the 
case of Rod Froelich, that he is a lot further from 50 miles 
from home when he is putting up the hay. And that would only 
impact 428,000 cows in the State. It does not take into account 
any background of calves or any other livestock, just the basic 
cow herd.
    We do have some suggestions to deliver a program that we 
think will benefit the producers in the disaster areas. One 
item, it should be handled on a State-by-State basis as much as 
possible. We feel that a national program will not work simply 
because of the variations from the north to south and the 
variations in the producer needs. A program in North Dakota 
will not work for a producer in Arizona. An example of that is 
the current program that is in place now, the Livestock 
Assistance Program. It addresses only grazing.
    I think as a tribute to North Dakota producers, we have 
probably dodged the bullet on the grazing issue this year, 
simply because when we realized that we didn't have a grain 
crop or didn't have a hay crop, we turned the cattle out and 
used those resources. Plus some of the good management that has 
been implemented, I think stretches beyond the grazing period. 
Now we are looking at a feed program that we have to address 
for the winter feed, and, again, the Livestock Assistance 
Program that is in the farm bill or addressed in the farm bill 
talks about grazing only. It will not get us through the 
winter. We also feel that probably the way to address this is 
to identify how many cattle are impacted across the Western 
United States. And as you see the map up there, I think that 
would be very easy to do. The ag statistics could identify the 
number of animal units for the number of head impacted in the 
Western United States caused by drought. You can take those 
numbers, divide by the amount of money that is available to the 
livestock, and then turn that money over to the State FSA to 
have a program. Have a sign-up program for the ranchers to come 
in and identify their needs and then pro-rate it out.
    We have had several people involved--Rod Froelich has been 
one, and some county agents, Rodney Johnson of the Ag 
Department--trying to identify a system that would allow people 
to manage their program, their operations, instead of 
identifying it as a transportation issue or a feed issue or a 
hay issue, to allow them to get money into their hands. And 
that may be identifying the number of cattle impacted and 
assigning a dollar value to those cattle. Once you do that, 
then rate the impact that the county has. If Sioux County had a 
100 percent disaster, they would get 100 percent of the dollars 
assigned to that county. If you had a 60 percent disaster in 
your county, you get 60 percent of that base price paid back to 
the producer, and we think that would probably be equitable for 
most people involved.
    The disaster assistance then could be used for various 
purposes. It could be used to help pay the transportation, you 
could buy hay, buy grain or be used in any manner to assure the 
operation remains viable. This needs to be a management 
decision by the producer and not dictated by the FSA.
    We would offer our assistance in formulating a plan for 
North Dakota that would be fair and not penalize ranchers who 
make the extra effort to keep their operation together, which 
the past feed assistance program did. If we set the dollars 
aside, I think another thing that we haven't talked about 
today, is the psychological impact that it has had on the 
producers in North Dakota or across the whole West. There is a 
frustration level by producers on most people who are not in 
agriculture and their lack of understanding about the impact 
that this has. And what about the next generation? What signal 
are we sending to the youth of this State, that if you have a 
disaster, a hurricane disaster, the Government is there to help 
you. If you have another natural disaster, we are bickering and 
fighting over whether or not we ought to even have a program. 
And I think that sends a strong signal to our youth that maybe 
this isn't an industry you want to be in, and we certainly 
don't want to send that signal. And if we don't produce the 
food, then we are going to rely on another foreign country to 
do it for us, and I think we realize how detrimental that could 
be for us.
    Thank you.
    [The prepared statement of Mr. Moser follows:]
    [GRAPHIC] [TIFF OMITTED] 81882.258
    
    [GRAPHIC] [TIFF OMITTED] 81882.259
    

    Mr. Pomeroy. Thank you, Wade.
    The final witness this morning is Duane Claymore, 
representing the Standing Rock Sioux Tribe Land Management 
Administrator.
    Mr. Claymore. No, I am not the Land Management 
Administrator.
    Mr. Pomeroy. Oh, OK. Well, speaking on behalf of Gary 
Marshall, and you are here on his behalf, is that correct?

 STATEMENT OF DUANE CLAYMORE, ON BEHALF OF STANDING ROCK SIOUX 
                             TRIBE

    Mr. Claymore. I am representing the Native American 
Ranchers from Standing Rock. I am not trying to isolate them, 
but I have the facts for that group. I brought Rod Froelich's 
area also. And we have 60 cattle operators there that are 
enrolled members. Approximately 20,000 producing cows over a 
half a million acres of land. We have lost all of our hay crop 
this year. If we estimate for our part of the country, the 
severe winters, we have to have about 2 ton per cow. If we have 
to buy $100 hay, that is $4 million right there. Most of our 
producers are not able to get financing and credit, so they are 
not able to participate in this hay program to the CRP and 
moving equipment. So then they are sitting there without 
anything. And it has happened to us in the past where people 
try to go into these winters in our part of the country without 
feed, and we happen to get a bad winter and a lot of cattle are 
lost, and Government, these loans haven't worked for us in the 
past. They are still chasing around some of our people from 
1980 and 1989 on these loans, and threatening prison and 
everything else, so we need this assistance and direct 
payments. This milk thing has become a joke down here because 
we will give it to North Dakota if they want it. You know, we 
had to drink that when we grew up on the reservation, and we 
wouldn't be that cruel to our animals. You walk in the elevator 
with a bag of milk, you know, and you tell me, that is 
ridiculous. And, you know, telling everybody in the world that 
we are helping the ranchers, it is a joke.
    And so we need assistance like the other people have said 
here. We would like to see that and spelled out in simple terms 
so we get it. You know, you turn it over to the bureaucracy and 
lawyers in Washington, and it comes out a lot different than it 
went in. And we can't--we have to qualify and meet all these 
rules and regulations. And we feel the same way as everybody 
else that spoke here that we are entitled to this natural 
disaster help. We don't come to the table very often. We are 
independent people. We went and visited with our tribal council 
there, and they are doing all they can, but with unemployment 
the way it is down there and everything, it is pretty hard for 
them to do anything for us. And we are just--I guess we are 
sitting there waiting to see what happens, and what is going to 
happen to us is that the hay is going to be done shortly. 
Everybody is out hustling right now, and most of these people 
don't have the financing to do that. So I guess it is about as 
dry there as anywhere in the country. We had fires, 15,000 
acres or so burnt in the prairie. And that is the same as your 
house burning up, I guess, when you don't have any feed, I 
guess.
    That is about all I have. We are in the same boat as 
everybody else and hoping for some Government assistance.
    Mr. Pomeroy. I called the chairman during the fire--and his 
home was almost consumed by that fire. So very serious and he 
knew how well, just how well, how serious this fire was that 
almost took his home. He said really the broader problem is it 
is so dry down here, whether it burned or whether it did not, 
there is no hay. And when I came down and literally would felt 
the crunch of dry, brittle ground under my feet, it was 
sickening. And I understand the problem is very, very dire, 
particularly in the south, southwestern quadrant and, most of 
all, maybe in Sioux County. It is really an extraordinary 
situation.
    I have several questions. I expect that the Senator will 
when he gets back, but let's begin. And I would like to start 
with Mr. Olson. I missed some of your--most of your testimony. 
I regret that. Do you have a view in terms of production 
management from a perspective of farm management assistance in 
North Dakota what the future of North Dakota agriculture will 
be if disaster programs are a thing of the past?
    Mr. Olson. Well, the new farm bill, of course, gives us a 
lot of protection that we didn't have before. So from that 
standpoint it has been really good. I mean, I think we have 
done all we could hope there, I think.
    And as far as the farm bill is concerned, as far as price 
protection--but as was stated earlier there is no production 
protection there. And, in fact, as the national average price 
goes up, countercyclical payments go down. If you don't have 
any production to sell at that higher price, you don't get 
any--you get less from the Government and also you have no crop 
to sell. So you get kind of a double whammy there. And so each 
year--and I would agree with what Roger Johnson said earlier, 
and some of the other people here, that long term we need some 
type of production assistance there as well, and even if you 
have a crop insurance program that might cover 75 percent of 
your inputs, if you are spending $300,000 or $400,000 on inputs 
and you are 25 percent short, it doesn't take too long and you 
are going to be gone. And you have got a tremendous amount of 
risk, and it is very, very stressful. And so we are still in a 
situation where we have to come back on almost an annual basis. 
At some point, some place in the United States is almost for 
sure going to have some type of problem, and even though it 
might not be us next year, it might be someone else. So long 
term, yes, I think that we need something like that. What that 
is and how it is administered is a difficult situation.
    Mr. Pomeroy. And you are most familiar with the Devils Lake 
area and the Devils Lake region?
    Mr. Olson. Right. Right.
    Mr. Pomeroy. What do we see likely in terms of disease and 
infestation out of this year's crops? Is it going to be a 
little better than it has been?
    Mr. Olson. In 2002 I think it is a little better than it 
was or has been. Early in the season we didn't really have any 
rain. It was really dry, and then in June we had a couple of 
very large rains, and some of the areas that had been seeded 
were flooded out and some--what would have been the better 
areas of the field a lot of the times. And, in general, I think 
we have less disease problems than we have seen in the last 
several years. There certainly are some areas that have some 
serious disease problems, but, in general, I think that is 
probably true.
    Mr. Pomeroy. Last year the disease problem was epidemic.
    Mr. Olson. Well, ever since 1993, you know, we have had 
weather- or water-related problems primarily causing insect 
disease problems that have caused additional inputs. And, of 
course, we have inputs that might have been there for a 40- or 
50-bushel yield and wind up with a 25- or 30-bushel yield, and 
we have seen the results of that. And the livestock situation 
has been a similar problem in the mid-1990's where prices were 
down for about 5 years in a row there and now they have 
rebounded a little bit, but still the input in the area for 
livestock people have gone up as well.
    Mr. Pomeroy. I think the disaster programs have worked 
better for crops than livestock, and possibly that's because 
the farm programs typically address crop issues. And so when it 
comes to livestock we really don't know how to do it as well.
    Wade, I was very intrigued by your suggestions in terms of 
a new delivery mechanism, and I would like you to outline it 
briefly for me once again. You identify the number of affected 
cattle. Is that a number that would be hard to reach? Then you 
devise the program accordingly and would you, the county 
committees, devise a program what would work for them?
    Mr. Moser. I think the program could be delivered State by 
State, is probably the easiest way, so you didn't have 
thousands of different programs. And if USDA and Washington 
want the oversight, allow them to sign off on a program 
approved by the State FSA Committee. But, yes, back to--we know 
which counties are disaster across the whole Western United 
States. We know based on the January 1, 2002, ag statistics how 
many cattle are the estimates in each county. So we know how 
many cattle are impacted. And then you have also got the 
declaration in each of these counties how much losses they got. 
And I think all the figures are there.
    We could put it together and identify how much money is 
available and pro-rate it out so that it is spread around and 
nobody gets shorted. We may not get as much as we need, but it 
will be spread around so that--again, going back to Senator 
Conrad, you know, I don't need all the money if we can get some 
to my neighbor, that is fine. We all need to stay in business 
together here. I think the program should be implemented that 
way where you identify dollars per head, have the cattlemen go 
in and certify their numbers, and just work out the details 
that way based on how severe the disaster was in your county.
    Mr. Pomeroy. I was taken by your point that the past 
feeding assistance program would be totally non-responsive to 
the transportation costs people are incurring as they scramble 
right now to get their hay in place. It seems to me people are 
taking whatever steps necessary to get their hay in place, and 
worry about figuring out how those costs are paid for is the 
next challenge.
    Mr. Olson. I think we probably learned from the last 
disaster if we are going to wait for Uncle Sam, it is probably 
not going to help us. So they probably went into this thing 
thinking we probably aren't going to get any disaster 
assistance, so we have got to go protect our operations. But 
the last program it raised transportation cost because people 
knew that money was there. It raised hay cost because they knew 
the money was there, thinking, well, it wasn't going to cost 
the producer more, but it did in the long run. So if we don't 
tie it to a specific item, get a per head for the rancher and 
let him make those management decisions, if he could find a 
cheap way to transport it, if he could find a cheaper feed to 
buy, let him make those management decision; or if he was able 
to through whatever means scrounge up enough feed he could pay 
down a bank. But if you tie it to something that you have to 
have a receipt to get it reimbursed, it is not going to work. 
It is going to fail, like the old one failed.
    And I know some producers the last time around that put up 
a lot of junk feed because they were going to try to make it 
work, road ditch hay, thistles, kochia, and when you went in to 
certify, they said how many bales do you need, how many did you 
put up, they subtracted those. You were penalized for going out 
and making that effort.
    Now, this year when people went from Sioux County up to 
north of Devils Lake to get feed, you are going to disqualify 
yourself, you are automatically going to be out of the program 
with that old program. And the only one that will identify any 
feed assistance now is the feed assistance program that 
addresses grazing. We are beyond the grazing issue. We are in 
the wintering mode right now. We have got to consider how to 
maintain those basic cow herds.
    Mr. Pomeroy. Thank you.
    Chairman Conrad [presiding]. Thank you. I want to thank 
Congressman Pomeroy for filling in for me while I went out and 
did a couple of interviews trying to make sure that the message 
is abundantly clear here that we are trying to deliver 
collectively.
    Let me, if I could, ask each of you two questions, and 
those two questions would be: Should there be a disaster 
assistance program, yes or no? No. 2, should it be paid for by 
cutting other parts of the farm program?
    Rodney, I will start with you. Should we have a disaster 
program?
    Mr. Froelich. Senator, without a disaster program, 
livestock feed assistance program--I will address myself to 
that because I am familiar with that. I don't speak on crops. 
We don't have a lot of crops in my area. Without a livestock 
feed assistance program this year, we will lose, in my 
estimation, 20 to 25 percent of our producers. They will be 
forced to liquidate.
    Now, if we don't have these people out there paying the 
taxes on this land, who is going to pick up the dollars that we 
need to run Government with? As far as taking it out of--did 
you say the current farm bill? I don't believe that's right. If 
we take it out of the current farm bill, by God, Senator, when 
there is a disaster in Florida or North Carolina--we had a 
disaster this summer fighting fires. I am sure there is a 
budget there. And when they exceed that budget, do they just 
say no, we are not going to fight fires anymore? No. They go 
ahead and appropriate more money. That is all we are asking for 
as livestock people.
    We are willing to help out everybody else out in the 
Nation, when it comes time of a disaster, whether it is 
Missouri because of a flood. We are in crunch time right now. 
By God, if they can't help us, why should we help the people in 
Florida? But that is not the way this country should work. We 
need to help each other.
    Chairman Conrad. Eric?
    Mr. Aasmundstad. Absolutely we need a disaster program, and 
we need it now. We can't wait. We have waited for 2001, and as 
Jay talked earlier, there are a lot of producers that are right 
up against it. And I think if you talked to some of your local 
elevators around the State of North Dakota and they are going 
to--especially in the northeast and the northern valley, they 
are going to tell you they have never seen so much inputs of a 
crop going under supplier liens or on credit cards. People are 
looking at 16, 18, 21 percent interest. There is no way on 
God's green Earth they are going to pay that back. So we 
certainly need one.
    You know, Rod best described it, I think, and Wade, what is 
happening with the livestock industry far better than I could. 
But certainly in the areas of the crops, we need it, we need it 
now. We need it in 2001; we need it in 2002. We certainly have 
been on record and today are still supportive of S. 2800 and we 
feel it needs to be done.
    I guess the view we have taken here in the North Dakota 
Farm Bureau is that if that can't be done, then we have got to 
get it somewhere. Do we want it to come out of the farm bill 
appropriations? No, we don't. But we need it bad; we need it 
now. The producers of North Dakota need disaster assistance now 
more than a farm bill.
    Chairman Conrad. Let me ask you this: Wouldn't it be 
reasonable--it seems reasonable to me--to understand that there 
are going to be savings in the farm bill? We don't need to cut 
something. We don't need to cut direct payments. We don't need 
to cut loan deficiency payments. We don't need to cut--we 
should understand--it seems apparent to me there are going to 
be savings in the farm program because LDPs are going to be 
less. Does it strike you as reasonable, as an economic matter, 
that we consider those savings in funding a disaster bill?
    Mr. Aasmundstad. I guess for me that is a tough one, 
Senator. If the money wasn't going to be spent, is it a savings 
or--yes, I understand the argument clearly that----
    Chairman Conrad. Yes.
    Mr. Aasmundstad. That that money is not going to be put 
out, it was money that was appropriated, or expected to be 
spent, it is not going to be spent out now. So certainly it is 
a savings and it is probably something that could be done to 
put toward a disaster program. Is that going to be enough? Who 
knows?
    Chairman Conrad. We will know shortly because next week we 
will get CBO's new numbers. Those numbers will come out on 
Tuesday. And we will know what the level of savings is, at 
least the anticipation of the level of savings.
    Mr. Aasmundstad. And I think, Senator, that we have got 
to--we have to look at the--of course, we need an ad hoc 
disaster program. It is vital to this State. But I don't think 
I am wrong, and I don't think there are many people that will 
disagree with me when I say that is probably the second best 
option. The best option would be to have a standing mechanism 
to deal with agriculture disaster. Maybe we shouldn't call 
Federal crop insurance Federal crop insurance anymore. Maybe we 
should call it Federal agriculture disaster insurance. I don't 
know. But the fact is that the farm bill, even with the safety 
net in it that is in the current bill, falls woefully short in 
supporting the people that really need it and, that is, the 
people that don't have anything to feed their livestock or 
anything to sell our loan on.
    Chairman Conrad. Yes.
    Mr. Aasmundstad. And that is----
    Chairman Conrad. And I think we have got to be very direct 
with people. I think there is a lot of misunderstanding. There 
is no disaster program in the farm bill. It is just not there.
    Mr. Aasmundstad. No, no.
    Chairman Conrad. Richard, what would be your answer? Do we 
need a disaster assistance package and should it come out of 
the farm bill?
    Mr. Schlosser. Yes and no.
    Chairman Conrad. OK.
    Mr. Schlosser. I think Jay's testimony really was a 
testimony to a trend that we don't want to see continue. I mean 
decline in net worth beginning in 2001, decline in return on 
investment, operating loans up. This is not a good trend for us 
out there as producers, whether you are a livestock producer or 
a crop producer.
    The second thing as far as offsets are concerned, the farm 
bill historically--in the old farm bill, when I first began 
farming there were disaster assistance provisions written in 
those old farm bills. Not today. I guess as Rod said at the 
outset here, when there is a disaster or a flood or a hurricane 
or anything else anywhere else, there is no offset anywhere 
else in the budget. We just--we show up.
    Chairman Conrad. That is, I hope that is not lost on 
people. I really do. When there is a disaster, a natural 
disaster in any part of the country, we don't cut other 
programs to pay for it. There is an understanding that there is 
going to be a certain level of natural disasters every year. 
Nobody can predict where it is going to be. I proposed actually 
budgeting for it, because you know what, we know that on 
average we are going to do $5 to $10 billion of disaster 
assistance a year. I proposed to my colleagues we actually 
budget for it, not knowing where it is going to be, but knowing 
that the greater likelihood is that it is going to occur, and 
have that money set aside, not in specifics, but in a pot that 
says we don't know where it is going to happen. We wish it 
wasn't going to happen, but we ought to fund it up front.
    Actually, I think going forward that would be the more 
fiscally responsible way to do this. I have not been able to 
persuade my colleagues to have such an approach. But I think at 
some point we will. To me it makes common sense.
    Jay, your answer to those questions. Disaster assistance 
should be paid for by cuts in other parts of the farm program?
    Mr. Olson. Well, obviously, you know my answer, that 
obviously we need a disaster program in 2001 and 2002. And 
obviously I don't think it should come from our current farm 
bill. The current farm bill I think was fine and provided some 
price protection, and I think we did a pretty good job there. 
But, again, there is no production protection there.
    I guess one of the consequences that I see in North Dakota 
is that we are losing about roughly 1 percent of our farms 
every year in North Dakota. Now, we have about 30,000 farms; 
that is around 300 farms that we are losing a year. But that is 
deceiving. That is all farms. And to be a farmer in North 
Dakota, I think you only have to gross a $1,000. And if you 
look at the full-time farmers, the ones that are grossing over 
$50,000, over $100,000, we have only got about 9,000 farmers, I 
think, that gross over $100,000 in North Dakota. And around 
14,000 gross over $50,000, and we are losing a district portion 
of all of those farmers because we are losing 1 percent total. 
But we are gaining a bunch of small farms, hobby farms, and we 
are gaining a few mega, larger farmers. So really, in effect, 
we are losing 3 or 3 percent perhaps--I am not sure of those 
numbers--up to 5 percent perhaps of those full-time farmers. 
And this whole trend kind of continues. It has continued. It 
has been there for 75 years.
    But one of the duties, I think, of Federal farm programs is 
to help moderate that situation. And if we lose all those 
people, instead of losing 1 percent, it is possible we could 
lose 5 or 10 or 15 percent in 1 year, which could have a 
dramatic effect on all of the economies of North Dakota. 
Agriculture is obviously the largest industry in North Dakota. 
We have other industries. We have got some tourism, 
manufacturing, energy, et cetera. But in many communities, 
agriculture is the only industry we have.
    Chairman Conrad. And it is still the No. 1 industry in this 
State by a long margin.
    Wade?
    Mr. Moser. The answer to the program is, yes, we do need 
it, and I agree with what Eric said. We need it now, and as 
Congressman Pomeroy said, we are not used to the programs. So 
we feel that the program must be addressed in the bill. We 
can't wait for the rules. That will drag things out way too 
long, and as we talked about with the rules that you have the 
intent and when the rules come back they don't seem to mirror 
each other. Maybe we don't have very much trust in the 
rulemaking process.
    I will give you an example of the rulemaking process in the 
livestock assistance program. Again, it just addresses grazing. 
To be eligible, a producer must have sufficient grazing 
available or eligible livestock in order to receive the maximum 
payment. You don't have any grazing. So you have to have 
grazing. This is the confusion that we have with the program. 
And so, yes, we do need a program now and the language must be 
there.
    As far as how it should be funded, we think it only makes 
sense if you have some savings to take it from the farm bill in 
areas that you can save and then make up the difference. I 
mean, that is--again, I think agriculture has contributed 
enough to the U.S. economy that we deserve to receive some 
assistance.
    Chairman Conrad. Very good.
    Yes, sir?
    Mr. Claymore. I am Duane Claymore.
    Chairman Conrad. Yes, good to have you, Duane. We got a 
substitution so----
    Mr. Claymore. I am a rancher from Standing Rock.
    Chairman Conrad. We are glad to have you here.
    Mr. Claymore. I definitely think we need a program down 
there on the reservation. We are required to leave a lot of 
grass, 50 percent in normal years. So that is why we have a lot 
of old grass and burr, and also weren't able to qualify for the 
grass situation in the past because we weren't grazed out. And 
it is still dead and useless.
    So one of the things that wasn't mentioned, we talked about 
the crops going up, well, the cattle went down. I mean, a 
thousand dollar cow last spring is going to be around $700, 
maybe $600. Calves are going to be $50 less due to the drought 
because of the numbers flooding the market. I am on the border 
of North and South Dakota, and the western half of South Dakota 
has already sold off 40 percent of their cows, and talking 
about $6 billion loss, and, of course, Sioux County is probably 
right in that.
    Chairman Conrad. We see it very directly in the prices we 
are talking about. You are exactly right in a crop 
circumstance, dry conditions, less production, higher prices; 
in the cattle circumstance, wild fires, dry conditions, less 
feed and a need to liquidate herds, force prices down.
    Mr. Claymore. Right.
    Chairman Conrad. And it is just the opposite of the cycle, 
and it has been devastating and there has got to be--and again, 
I am preaching to the choir. We are trying to establish a 
record here. There has got to be assistance or there will be 
massive failure. There will be thousands of families forced off 
the farms and ranches.
    Isn't it the case in your area that you will lose a 
significant percentage of your people?
    Mr. Claymore. At least 50 percent, we are estimating, maybe 
more, because some of these people still have debts from the 
last drought and have to pay these loans back, and it is just 
not feasible at this point to, when you got--you know, we were 
able to ride these out over the years because the cost of 
operating was lower. You know, a baler in the 1970's was 
$2,500; now it is $28,000. So it is difficult, almost 
impossible to come back if you have to sell your cow herd. You 
may just as well go get a janitor's job or something, because 
you are not going to get back in. The younger generation is all 
talking about getting out of here and going and getting a job 
where you get paid.
    I told this friend of mine, if you have got a little minute 
here, I was up to Fort Berthold, with Dennis Huber, who has a 
little hay there, and we were both in our sixties and we were 
getting up at about 5 in the morning and had about a half a 
crop in, and coming in ten, and I told him how many people in 
this country would work knowing they were losing money every 
day, as hard as we are? But we are thinking about the winter 
coming, and we have to have feed for our cattle. They depend on 
us, and that is one of the reasons we work like we do.
    Chairman Conrad. Thank you very much.
    Let me ask those who are here in the audience, we are 
moving to the conclusion here. We scheduled this for 2 hours 
because we have other commitments that we have to keep today. I 
would just like to see a show of hands in the audience. How 
many believe that it is important that we have a disaster 
assistance program this year? Let me just see a show of the 
hands.
    All right. That is pretty overwhelming. Let me say, let the 
record show that virtually everyone in this audience had their 
hand raised.
    I would now call on anybody in the audience who would like 
to come to the microphone if you would identify yourself, and 
make a statement, if you would make it as succinctly as 
possible because we have run over and we do have other 
commitments. But if anybody has got a statement they would like 
to make, you would be welcome.
    Mr. Huber. Senator Conrad, thank you for your efforts in 
the past. Congressman Pomeroy and my good friend Duane has been 
up there, like he said helping us up in Fort Berthold, to put 
up a little hay. We are about a 50 percent deal. We are on the 
south side of the lake. So we are going to get about 50 percent 
of our crops. So what does that mean? Do I sell 50 percent of 
our cattle?
    Well, I am no dummy. I am going to sell them all if I sell 
50 percent and then I am going to sell that hay to him for $100 
a ton.
    And so about the only other comment I would like to make, 
and I think he forgot, in the past we were always shuffled back 
to the Bureau of Indian Affairs for any aid. I know most 
recently, though, you tried to keep them out of it. So in the 
future if you come with some sort of livestock assistance 
program, please keep the Bureau of Indian Affairs out of our 
hair, because we need the assistance now, not 2 or 3 years from 
now. The trickle-down effect, we don't ever get it then. But 
Fort Berthold is just at the edge of that drought. So what do 
you do? You hang on.
    Like Duane said, we are just a couple of old guys. I got a 
young son. He plays golf and his young son team ropes, but they 
are probably not going to be back out on the ranch, you know, 
so they can see how tough it is out there in these kinds of 
situations. You know, we are out there getting up early and 
coming in late, so--but I kind of retired from United Tribes 
and thought I had it pretty easy, but this hasn't been an easy 
year for us, not Fort Berthold, especially. Our brothers down 
in South Dakota, Pine Ridge, Rosebud, we are all in the same 
boat. But please keep--you know, there are a lot of things that 
we need to fix, you know, the paddock, the checkoffs, the 
country boards and you guys came through. But there are a lot 
of things, and we appreciate all of your efforts in the past. 
Packer ownership, that is another big animal there that needs 
to be taken care of. But right now, take a run at this one and 
I think you will prevail.
    Chairman Conrad. Thank you very much.
    Any others that would like to testify?
    Mr. Breker. Thank you, Chairman Conrad. My name is Joe 
Breker. I brought along a couple of farmer friends of mine 
today, Randy Pearson and Mark Wyum. They are presenting you 
with some information we have gathered in the southeastern part 
of North Dakota. Today I know we have talked about drought, and 
we have talked about floods. But we have been blessed with 
timely rainfall in the southeastern part of North Dakota, but 
we have another subject that we want to bring to your 
attention, that if you are plagued with it on your farm, it can 
be just a major disaster as flood or drought, and that is the 
increasing population of Canada geese in the State of North 
Dakota.
    Just a short history. In the early 1990's they 
reestablished the Canada geese population in southeast North 
Dakota as well as a few other sites around North Dakota. And in 
the early 1990's we also had abundant rainfall, which was a 
blessing for water fowl. Those populations have increased 
exponentially, and now from 1997 to 1998 and on, we are 
sustaining substantial crop loss from those populations.
    Chairman Conrad. These pictures are very dramatic, by the 
way.
    Mr. Breker. And you can get them all over eastern North 
Dakota. We just happened to gather some from our little corner 
of the State.
    Chairman Conrad. Can I just ask you to cut to the chase on 
this? What needs to be done?
    Mr. Breker. We have some suggestions in there. What we 
primarily need is we need to control numbers, that is what we 
need----
    Chairman Conrad. What is the best way to do that?
    Mr. Breker. Through legal hunting seasons, and legal other 
control methods. Allowing----
    Chairman Conrad. Could you expand the hunting season?
    Mr. Breker. That is one of the suggestions we have. 
Possibly a spring hunt, you know, like they have the snow goose 
conservation season in the State to reduce numbers, we need a 
conservation Canada geese season.
    Chairman Conrad. Can you tell me what has happened to the 
numbers? When we say there is an explosion, do you know how 
much the population has increased?
    Mr. Breker. We had an meeting last evening with Dean 
Hildebrandt and Lloyd Jones----
    Chairman Conrad. Yes.
    Mr. Breker. And those numbers were thrown out, Randy Crowd 
threw out some numbers, and I hate to repeat them now. Do you 
guys remember some of them?
    Chairman Conrad. How big a numbers did they----
    Mr. Breker. We could get them for you.
    Chairman Conrad. That would be helpful, if we could get 
some estimates as to the increase in population that would be a 
useful thing to have.
    Mr. Breker. We can sure get those for you.
    Chairman Conrad. All right, thank you very much. With that 
we are going to conclude this hearing. I want to thank all of 
the witnesses, starting with the Governor and our Agriculture 
Commissioner, the six of you on this panel. You have been 
excellent. You have been very helpful to the work of the 
committee. We appreciate it very much.
    Finally, I want to thank my colleague Congressman Pomeroy 
who has worked very hard on these issues and has produced 
results time after time. We are going to do our level best to 
produce results again this year. It has been made more 
difficult by the position of the President. I am hopeful that 
as members come back and hear from their constituents as we 
have heard from ours that there will be a softening in this 
position and a recognition that there simply has to be disaster 
assistance this year.
    Congressman Pomeroy?
    Mr. Pomeroy. Mr. Chairman, thank you for this hearing. 
There is no better advocate for agriculture than you. This 
hearing is another important part in making a push for disaster 
aid.
    Chairman Conrad. Thank you. That would conclude the 
hearing.
    [Whereupon, at 12 p.m., the committee was adjourned.]
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