[Senate Hearing 109-]
[From the U.S. Government Publishing Office]



 
AGRICULTURE, RURAL DEVELOPMENT, AND RELATED AGENCIES APPROPRIATIONS FOR 
                            FISCAL YEAR 2006

                              ----------                              


                       WEDNESDAY, APRIL 13, 2005

                                       U.S. Senate,
           Subcommittee of the Committee on Appropriations,
                                                    Washington, DC.
    The subcommittee met at 12:30 p.m., in room SD-192, Dirksen 
Senate Office Building, Hon. Robert F. Bennett (chairman) 
presiding.
    Present: Senators Bennett and Kohl.

                       DEPARTMENT OF AGRICULTURE

STATEMENTS OF:
        KEITH COLLINS, CHIEF ECONOMIST
        MARK REY, UNDER SECRETARY FOR NATURAL RESOURCES AND ENVIRONMENT
        GILBERT G. GONZALEZ, ACTING UNDER SECRETARY FOR RURAL 
            DEVELOPMENT
        JOSEPH J. JEN, UNDER SECRETARY FOR RESEARCH, EDUCATION, AND 
            ECONOMICS
        J.B. PENN, UNDER SECRETARY FOR FARM AND FOREIGN AGRICULTURAL 
            SERVICES
        DENNIS KAPLAN, OFFICE OF BUDGET AND PROGRAM ANALYSIS

             OPENING STATEMENT OF SENATOR ROBERT F. BENNETT

    Senator Bennett. The subcommittee will come to order.
    We want to thank you all for your accommodating us at this 
somewhat unusual hour. We were scheduled to go at 2:00 p.m., 
and we have had to move that because of Senate activity. And I 
understand that there is now a vote scheduled for 1:45 p.m.. So 
we will try to move through this in expeditious fashion.
    I am glad to see the curtain is open. That means you are 
not important enough to be on television, but you brought your 
own crowd with you. So it is well attended here today, and we 
appreciate your being here.
    This is our second hearing on the budget request. We heard 
from the Secretary yesterday. And today's witnesses are Dr. 
Keith Collins, the USDA's chief economist; Dr. J.B. Penn, who 
is the Under Secretary for Farm and Foreign Agricultural 
Services; Mark Rey, Under Secretary for Natural Resources and 
Environment; Gilbert Gonzalez, Acting Under Secretary for Rural 
Development; and Dr. Joseph Jen, Under Secretary for Research, 
Education, and Economics, and accompanied by Mr. Dennis Kaplan 
of the Office of Budget and Program Analysis. We appreciate 
your service and appreciate your being here today.
    The witnesses today represent production agriculture, 
trade, conservation, rural development, and the research and 
education, all of which support USDA programs, and we 
appreciate your being here.
    As I said, we are going to have a supplemental on the floor 
today. So I would suggest that Dr. Collins perhaps make some 
opening comments from his perspective as the chief economist. 
And then if the rest of you are willing to hold yourself in 
readiness, we go to questions.
    And we will do our best to hear from all of you as we go 
through the question situation. If that would be acceptable, we 
will do that in the interest of time.
    Senator Kohl.
    Senator Kohl. I thank you very much, Senator Bennett.
    And gentlemen, it is great to have you with us today. I 
also will withhold an opening statement in the interest of 
brevity and getting to your testimony and questions, and we 
appreciate your coming here very much.
    Thank you, Senator Bennett.
    Senator Bennett. All right. Dr. Collins, you have the 
floor.

                       STATEMENT OF KEITH COLLINS

    Mr. Collins. Thank you very much, Chairman Bennett and Mr. 
Kohl. For all of us here today, let me say thank you for 
inviting the Department up here to discuss our 2006 budget 
proposals.
    I am going to start with a very brief overview of the 
general economic situation in agriculture, and I think that 
will help provide some context for the discussions that you 
will have with our under secretaries this afternoon.
    To begin with, I would say that strong domestic and foreign 
economic growth are providing a foundation for U.S. farm and 
rural economies to continue the improved performances that we 
have seen over the past year and the year before. Markets for 
livestock and livestock products, which account for about half 
of the farm economy, continue to remain very strong despite the 
closure of our beef in Asian markets.
    During the first quarter of 2005, in fact, fed cattle 
prices averaged $89 a hundredweight, which was the second-
highest quarterly price for cattle ever. With meat protein 
demand still firm, with cattle slaughter down, and live animal 
supplies expected to continue tight, I think average cattle 
prices are likely to remain historically strong for some time 
to come.
    Likewise, hog, broiler, and milk returns all remain 
favorable as supply expansion thus far has been restrained, 
even in the face of growing demand.
    Turning to major crops, stocks are up, and farm prices are 
down following last year's record production levels. However, 
farm cash receipts are being supported by the fact that farmers 
have more volume to market this year based on last year's 
record crops.
    If you look at 2005, we believe U.S. crop production will 
decline. USDA's prospective plantings report, which was 
released a couple of weeks ago, suggests lower acreage for 
wheat and for soybeans, about the same acreage for rice and 
cotton, and a modest increase for corn. If we have trend yields 
in 2005, production levels would decline for all major crops, 
with declines ranging from 8 to 9 percent for soybeans to 20 
percent for cotton.
    But even with such reduced production, our crop supplies 
would still be ample, and I believe little price appreciation 
seems likely, except for cotton.
    Globally, export competition will remain intense this year. 
Wheat from the European Union and Black Sea region, corn from 
Argentina and China, soybeans from Brazil and Argentina, as 
well as oil and demand-driven increases in shipping costs will 
pressure U.S. prices despite the competitive benefits from the 
weaker dollar.
    For fiscal year 2005, U.S. agricultural exports are 
forecast at $59 billion, down from last year's record, but the 
second highest since 1996. And that is despite the continuing 
loss of beef export value.
    With lower prices for program crops, Government payments 
are forecast to be a record $24 billion in 2005, and that will 
offset the decline in cash receipts for major crops. Under 
Secretaries Penn and Rey can provide more information this 
afternoon on how our farm and conservation programs are 
assisting the farm economy.
    Higher prices for fuel, fertilizer, and chemicals will 
likely push up production expenses in 2005. But those will be 
offset by lower expenses for farm origin inputs, such as feed. 
That should keep overall production expenses about the same as 
last year. And with gross income about the same as last year, 
that means that net cash farm income should likewise be about 
the same as last year's record high level.
    The combination of the growing overall economy, strong 
rural job growth, and record net cash income is expected to 
boost average farm household income. And Under Secretary 
Gonzalez today can relate how our rural development programs 
are helping the performance of the rural economy.
    With another sound income year in prospect, farm credit 
conditions are expected to remain favorable. Farm input sales 
should be good, and farm land values will likely rise again. 
Thus, cash flow and balance sheet prospects indicate a pretty 
solid footing for the farm economy in 2005.
    While many farms will benefit from these income and balance 
sheet trends, high cost/lower margin farms or those adversely 
affected by weather may not see these benefits. And I think 
that is why it is so important, as Dr. Jen can explain, to have 
research programs that can help farms overcome barriers to 
profitability.

                          PREPARED STATEMENTS

    Finally, let me say consumers will continue to have 
abundant, affordable food. Much smaller retail price increases 
are expected in 2005 for meat and for vegetable oils and for 
dairy products. That suggests retail food prices may rise 
between 2.5 and 3 percent in 2005, compared with about 3.4 
percent in 2004.
    That completes my statement, Mr. Chairman. We would be 
delighted to have your questions.
    Senator Bennett. Thank you very much. And for the record, 
all the statements submitted by all of the witnesses will be 
included in the record.
    [The statements follow:]

                  Prepared Statement of Keith Collins

    Mr. Chairman and members of the Committee, I appreciate the 
opportunity to appear at this hearing to discuss the current situation 
and outlook for U.S. agriculture. The recovery in the agricultural 
economy that began in 2003 is expected to continue in 2005. Net cash 
farm income set back-to-back record highs in 2003 and 2004. This record 
performance has led to general improvement in farm balance sheets. An 
important factor supporting the strong financial performance of the 
farm economy is the growth in U.S. agricultural exports. From fiscal 
year 2000 to fiscal year 2004, the value of U.S. agricultural exports 
rose by nearly $12 billion.
    Livestock prices continue to remain strong even though Japan and 
several other countries have failed to open their markets to U.S. beef 
following the discovery of a cow with Bovine Spongiform Encephalopathy 
(BSE) in December 2003. For most major crops, farm prices are down 
following last year's record production, but record government payments 
are forecast to about offset the decline in crop cash receipts. Higher 
prices for energy-related inputs will likely push up production 
expenses for fuel and fertilizer in 2005. However, lower production 
expenses for farm-origin inputs should keep overall farm production 
expenses about unchanged from last year. With gross income and total 
production expenses close to last year's levels, net cash farm income 
in 2005 is expected to be near last year's record. Cash flow and 
balance prospects indicate that the farm economy will remain on a solid 
footing in 2005.

Outlook for United States and World Economies and the Implications for 
        Agriculture
    After several years of a weak and variable global economy that 
constrained the demand for U.S. agricultural products, the United 
States and world economies had back-to-back years of strong growth in 
2003 and 2004. Both the United States and world economies are poised 
for strong growth in the year ahead, which will bolster the demand for 
U.S. agricultural products here and abroad.
    In 2004, the U.S. economy grew 4.4 percent, up from 3 percent in 
2003. Expansionary fiscal policy resulting from the budget deficit and 
the Jobs and Growth Act of 2001; the low interest rates; rising 
consumer income and spending; and increasing business fixed investment 
all boosted growth. In 2005, rising interest rates and energy prices 
are expected to slow the rate of economic growth in the United States 
to a more sustainable 3.7 percent.
    The improving domestic demand base may be seen in the demand for 
food, which also drives demand for animal feed. Personal consumption 
expenditures on food rose a very strong 4.8 percent in 2004, in real 
terms. That compares with average growth of 3.8 percent in 2003 and 
less than 2 percent during the economic slowdown in 2001 and 2002.
    In addition to rising food demand, domestic industrial demand for 
farm products is also increasing. As an example, ethanol production is 
setting new record highs almost every month. In 2005, U.S. ethanol 
production from corn will approach 4 billion gallons and is expected to 
account for over 13 percent of corn use.
    Foreign economies had a very nice recovery in 2004, growing 3.7 
percent after a sustained period of substantially lower average growth. 
The fitful performance of foreign economic growth had been a factor in 
the slow growth in U.S. farm exports since the mid-1990s. For 2005, 
lagging performance in Europe and Japan and slower growth in former 
Soviet countries and a number of developing economies are expected to 
reduce foreign economic growth to 3 percent. China, a $6 billion market 
for U.S. farm products in fiscal year 2004, is pegged to grow at 8.7 
percent.
    By December 2004, the agricultural trade-weighted dollar had 
depreciated almost 18 percent from its peak in February 2002. Over the 
same period, the depreciation compared with competitor agricultural 
exports was over 36 percent. While the dollar has already depreciated 
considerably, it may depreciate further in 2005 due to the historically 
large current account deficit. The depreciation in the dollar and 
robust foreign economic growth helped push U.S. agricultural exports to 
a record $62.3 billion in fiscal year 2004.
    U.S. agricultural exports are forecast to decline to $59 billion in 
fiscal year 2005. The primary factors leading to the decline in exports 
include record global grain, soybean and cotton supplies, increased 
foreign competition and lower prices. This export forecast reflects, in 
part, the assumption that the markets that are now closed to U.S. beef 
and poultry exports because of BSE and Avian Influenza will remain 
closed in 2005. This is not a forecast of what foreign countries will 
do. It simply reflects our standard forecasting procedure to assume the 
current policies of foreign countries remain in place until they are 
changed.
    U.S. meat exports experienced explosive growth in the 1990s but 
have faced slower growth over the past few years due to animal diseases 
and policy-driven import limitations in some countries. The United 
States finding of BSE has resulted in the loss of over 80 percent of 
U.S. export markets for beef and related products in 2004. U.S. poultry 
exports were flat, as outbreaks of Avian Influenza in several States 
resulted in a number of countries placing restrictions on poultry 
imports from the United States. But, U.S. pork exports rose by 27 
percent last year, as trade restrictions on U.S. beef and poultry 
created additional export opportunities for pork. In 2005, poultry 
exports are forecast to increase by 5 percent and pork exports could be 
up 16 percent.. Beef exports are forecast to increase by 37 percent in 
2005, reflecting the resumption of trade with Mexico. Despite the 
projected increase, U.S. beef exports are projected to be only one-
quarter of pre-BSE levels.

Outlook for Major Crops
     For major crops, production is expected to outpace demand for the 
first time in several years leading to a modest rebound in global 
stocks and some decline in market prices for the 2004/2005 crops. 
However, global grain stocks as a percent of total use remain low by 
historical standards. In addition, foreign economic growth appears 
sound. With relatively low world stocks, the potential for reduced crop 
production in 2005 due to a return to trend yields and economic growth 
continuing to support the demand for agricultural products, crop prices 
could move higher over the coming months.
    In 2004/2005, total supplies are generally exceeding total use of 
major crops, leading to higher world and United States carryover. World 
wheat stocks at the end of the 2004/2005 marketing year are expected to 
increase 12 percent from a year earlier. World coarse grain stocks are 
forecast to be up 27 percent, world oilseed stocks are forecast to 
increase 40 percent, and world cotton stocks are forecast to increase 
34 percent. These increases would result in global carryover stocks at 
their highest level in 2 years for wheat and in 3 years for coarse 
grains and for cotton. Reflecting the strong expansion in soybean 
production in South America in recent years, the forecast global 
oilseed stocks would be a record high at the end of 2004/2005.
    For wheat, plantings in 2004 declined by 2.4 million acres to 59.7 
million acres. This decline and lower yields reduced U.S. wheat 
production from 2.35 billion bushels in 2003 to 2.16 billion in 2004. 
U.S. wheat carryover is forecast to decrease by only 5 million bushels, 
as total use is forecast to decline by 119 million. Larger foreign 
wheat production in several traditional importing and major competitor 
countries is forecast to lower U.S. wheat exports by 109 million 
bushels in 2004/2005. For the current marketing year, the farm price of 
wheat is forecast to average $3.35-$3.45 per bushel compared with last 
season's $3.40.
    For 2005/2006, wheat planted area is expected to be down about 2 
percent, based on 4 percent lower winter wheat plantings last fall and 
farmers' intentions to increase spring wheat planted area. With this 
acreage, the lowest since 1972, and trend yields, 2005 wheat production 
would be about 2.1 billion bushels, about 50 million bushels below 
2004. Large global supplies are expected to keep exports under 
pressure, thus 2005/2006 carryover stocks could rise and farm wheat 
prices decline slightly from 2004/2005.
    U.S. rice acreage was up 11 percent in 2004, as rice producers 
responded to a strong recovery in prices and returns in 2003. Stocks at 
the end of the current marketing year are forecast at 37 million cwt, 
up from 24 million cwt from a year earlier and the highest as a percent 
of total use since the 2001/2002 marketing year. Despite the sharp 
increase in carryover, the farm price of rice is forecast to average 
$7.30-$7.50 per cwt this marketing year, compared with $8.08 per cwt in 
2003/2004, as stronger world prices are helping to bolster the United 
States price.
    In 2005, farmers indicated plans to seed 3.36 million acres, about 
the same as in 2004. With trend yields, U.S. rice production would 
decline to about 226 million cwt, but still the second largest crop 
ever. A modest rise in exports and domestic consumption are expected in 
2005/2006, implying that rice carryover stocks and farm prices are 
likely to be very similar to the levels for 2004/2005.
     In 2004, the corn crop was a record 11.8 billion bushels as 
producers harvested a record 160.4 bushels per acre, exceeding the 
previous record set last year by over 18 bushels per acre. The sharp 
increase in total supply is forecast to lead to lower prices and 
increasing carryover. Higher feed and industrial use is forecast to 
increase total use by 328 million bushels, not enough to prevent a 1.3-
billion-bushel increase in carryover stocks. In 2004/2005, the use of 
corn for ethanol production is forecast to increase 20 percent to a 
record 1.4 billion bushels. This marketing year, the farm price of corn 
is projected to average $2.00-$2.10 per bushel, compared with $2.42 per 
bushel last season.
    Farmers indicated plans to plant 81.4 million acres to corn in 2005 
during the USDA planting intentions survey, up less than 1 percent from 
2004. This level was lower than generally expected, as producers 
planned to switch fewer acres away from soybeans than expected and 
producers in the Dakotas preferred to increase area with other 
oilseeds, such as sunflowers and canola. High fertilizer and fuel 
prices may also be a factor in the limited increase in corn area. With 
intended acreage and trend yields, 2005 corn production would be 10.8 
billion bushels, 1 billion less than the 2004 crop. However, total use 
is expected to about match this production, leaving carryover stocks 
and farm prices for 2005/06 about the same as for this marketing year.
     Soybean production reached a record 3.1 billion bushels in 2004, 
contributing to higher domestic use, exports and carryover stocks. 
Soybean crush is forecast to increase by 120 million bushels to 1.65 
billion and soybean exports are forecast to increase by 195 million 
bushels to 1.08 billion. Both crush and exports are forecast to be the 
second highest on record. United State carryover stocks are forecast to 
increase to 375 million bushels, which would be the highest carryover 
as a percent of total use in 6 years. In February 2005, USDA forecast 
Brazil's soybean production at 63 million metric tons for 2004/2005, up 
from 53 million metric tons a year earlier. However, USDA is currently 
projecting Brazil's soybean crop at 54 million metric tons.
    The Brazilian crop potential has been reduced by drought, helping 
to bolster U.S. soybean prices. The farm price of soybeans is projected 
to decrease from last season's average of $7.34 per bushel to $5.25-
$5.55 per bushel this marketing year.
    In 2005, farmers indicated in USDA's recent survey that they would 
plant 73.9 million acres to soybeans. Although down 2 percent from 
2004, this acreage level generally exceeded expectations. The declines 
are largest in the south, where Asian rust was a factor and in the 
northern plains, where shifting to other oilseeds is expected. USDA's 
survey indicated that 11 percent of soybean producers had adjusted 
their planting intentions due to the presence of Asian rust in the 
United States. This low figure combined with the modest decline in 
intended acreage nationally suggests Asian rust is not likely to be a 
major factor in determining this year's United States planted acreage. 
With this acreage and trend yields, 2005 soybean production would drop 
back to 2.9 billion bushels, about equal to projected use, and leave 
carryover stocks about unchanged. Prices in 2005/2006 are projected 
below 2004/2005 when drought reduced carryin stocks.
    In 2004, U.S. cotton production reached a record 23.1 million 
bales, up from 18.3 million in 2003. Larger supplies coupled with lower 
exports and domestic use have increased expected carryover and pushed 
prices lower this season. U.S. exports of cotton are forecast to drop 
from last year's record high 13.8 million bales to 13.2 million in 
2004/2005, as production in China, our largest export market, is up 
from a year ago. Carryover stocks at the end of this season are 
projected to increase to 7.1 million bales, the highest in 3 years. 
During the first 7 months of the current marketing year, cotton prices 
have averaged 43 cents per pound, compared with last season's average 
of 61.8 cents per pound.
    For 2005, producers indicate plans to plant 13.8 million acres to 
cotton, up slightly from 2004. In the Delta States, where Asian rust in 
soybeans is of increased concern, intentions are up 12 percent, led by 
Louisiana's 24 percent. With trend yields, this acreage would produce a 
2005 crop of 18.1 million bales, down 5 million from last year. 
Although domestic use is expected to continue its trend decline under 
pressure from imported textiles and apparel, good export prospects and 
lower production would reduce 2005/2006 carryover stocks substantially.
    A persistent concern in U.S. agriculture is whether we are losing 
our competitiveness in bulk commodities in world markets. The United 
States share of global exports has been declining for decades for 
wheat, coarse grains, rice and soybeans, and only turned up recently 
for cotton in recent years as increased imports of textiles and apparel 
shifted U.S. textile production overseas, creating higher foreign 
demand for our cotton. Brazil, Argentina, China, India and the former 
Soviet countries have increased agricultural exports by either 
expanding arable land, increasing productivity or altering internal 
policies. The share of global export markets of these countries rose 
from 2 percent of world grain and soybean exports in 1994 to a peak of 
30 percent in 2002. But their share of world trade in 2004/2005 is 
expected to be 20 percent, the same as last year.
    In the future, we continue to believe that China will be a steadily 
increasing importer, that India will consume its own grain, and that 
gains for the former Soviet countries, while expected to continue, will 
not come as easily as recent gains; an inhospitable climate may also 
make them an irregular competitor. Thus, while competition will be 
strong, there is every reason to think that the United States will be a 
strong competitor as well.
    China remains an especially important factor in bulk commodity 
trade. China's role as a United States competitor in grain markets 
continued to decline in 2004/2005. China's net imports of wheat are 
expected to reach 6.5 million metric tons, up from less than 1 million 
in 2003/2004. Their net exports of coarse grains are also expected to 
fall from 6.2 million tons in 2003/2004 to 3.2 million in 2004/2005. In 
addition, China's growing oilseed crushing and textile export 
industries have resulted in soaring soybean and cotton imports. China 
is likely to continue to be a positive factor for U.S. agriculture in 
2005/2006. USDA forecasts U.S. agricultural exports to China will fall 
from last year's record of $6.1 billion to $4.6 billion in fiscal year 
2005. The drop primarily reflects much lower United States prices for 
cotton and soybeans. China is expected to remain the fifth largest U.S. 
agricultural export market.
    Horticultural markets have become an important contributor to farm 
income for all size producers. For 2005, cash receipts from fruits, 
vegetables and greenhouse and nursery crops are forecast to be $45.3 
billion, down 2 percent from last year. With average weather, farm 
receipts for fruits and nuts are expected to decline as production 
rebounds, leading to generally lower prices. Exports for horticultural 
crops for fiscal year 2005 are forecast to reach $14.5 billion, up 
substantially from last year's $13.3 billion.
    In recent years, strong demand for imported products has increased 
the sector's trade deficit which is forecast at $11.1 billion in fiscal 
year 2005. During the last 10 years, domestic production growth has 
averaged only 0.5 percent, compared with import growth of 4.4 percent. 
And with commercial and government interest in increasing the role of 
fruits and vegetables in the American diet, the sector's trade deficit 
likely will continue to grow to meet expanding demand.


Outlook for Livestock, Poultry and Dairy
    Reduced supplies of red meat and nearly stable milk production 
combined with increasing demand led to record-high fed cattle, broiler 
and milk prices in 2004. Hog prices were also up sharply, pushing 
livestock cash receipts to a record $122 billion, a 16-percent increase 
from the previous year. While several traditional beef importers have 
failed to open their markets to U.S. beef following the single BSE 
incident in late December 2003, market fundamentals generally remain 
quite strong. In addition, lower feed costs in 2005 are also helping to 
bolster the returns of livestock and dairy producers.
    Beef production dropped 6.4 percent in 2004. The drop in production 
reflected tight domestic cattle inventories, following several years of 
herd liquidation, and the continued closure of the border to Canadian 
cattle imports. In addition to the drop in production, strong consumer 
demand for meat protein, the improving restaurant and hotel business, 
and improved diversity and quality of retail beef products have also 
helped support beef prices. During 2004, the price of choice steers 
averaged a record $84.75 per cwt.
    Cattle herd liquidation ended in 2004 as the U.S. cattle inventory 
on January 1, 2005, was 1 percent higher than a year earlier. This was 
the first increase in herd size since January 1996. Herd rebuilding is 
expected to be slow as the calf crop in 2004 was almost 1 percent 
smaller than the previous year, leaving a small base from which to 
retain heifers in 2005. USDA's April cattle market forecast assumes 
that live cattle imports from Canada will resume during the second half 
of 2005 and that fed cattle prices will average $83-87 per cwt. Prices 
could be substantially stronger if Japan and other Asian countries open 
their markets to U.S. beef.
    In 2004, pork production increased 2.8 percent to a record 20.5 
billion pounds. Despite the increase in pork supplies, the price of 
slaughter hogs averaged $52.51 per cwt in 2004, up from $39.45 in 2003, 
as tight supplies of beef boosted the demand for pork. In addition, 
U.S. pork exports were record high in 2004 as demand has been strong in 
markets that banned beef imports because of BSE or banned broiler 
imports because of Avian Influenza. Other factors contributing to the 
growth in pork exports are the weaker United States dollar and improved 
global economic performance, especially in Mexico.
    Despite high hog prices last year, hog producers have been cautious 
about expanding, as indicated in farrowing intentions surveys. In 2005, 
pork production is forecast up 1.2 percent. Hog slaughter will increase 
as a result of the recent International Trade Commission finding that 
removes duties placed on Canadian hogs and encourages imports of 
Canadian feeder pigs and slaughter hogs. Hog prices are forecast to 
average $48-$50 per cwt in 2005. While down from a year ago, hog prices 
would still be about $10 per cwt higher than during 1998-2003.
    Broiler production increased 4.0 percent to a record 34.1 billion 
pounds in 2004. Higher prices for competing meat products and an 
improving domestic economy pushed whole-bird broiler prices to a record 
74.1 cents per pound in 2004, up from 62.0 cents in 2003. Broiler 
exports fell 3 percent in 2004 as several countries restricted imports 
of U.S. poultry following outbreaks of Avian Influenza in Delaware, New 
Jersey, Pennsylvania, Texas and Maryland.
    Broiler production is forecast to increase about 3 percent in 2005, 
as producers respond to the increase in broiler prices. Continued 
strong prices for competing meats and a rebound in U.S. broiler exports 
are expected to maintain broiler prices at near last year's level. 
Lower broiler part prices compared with mid-2004 should stimulate 
sales, and several countries have either fully lifted the trade ban on 
U.S. poultry following last year's outbreaks of Avian Influenza or 
allowed the importation of U.S. poultry from selected States.
    In 2004, milk production increased by just 0.2 percent, as cow 
numbers fell by 0.8 percent and milk production per cow increased by 
1.1 percent. Over the past 2 years, milk production has increased by 
less than 0.5 percent, marking the slowest growth in milk production 
over a 2-year period since the mid-1980s. Many factors have contributed 
to this sluggish growth, including tight supplies of good quality hay, 
the discovery of BSE in Canada and the subsequent suspension of imports 
of dairy cows and heifers from that country, limitations on the 
availability of bovine somatotropin (rBST), the National Milk Producers 
Federation's CWT program which pays producers to reduce milk 
production, and weak milk prices during 2002 and the first half of 
2003. Tightening milk supplies caused the all-milk price to average a 
record $16.03 per cwt in 2004, up from $12.55 per cwt in 2003.
    During most of 2004, the Commodity Credit Corporation (CCC) 
continued to purchase nonfat dry milk under the price support program 
despite a record-high milk price. In 2004, CCC purchased 278 million 
pounds of nonfat dry milk, down from the 635 million pounds purchased 
in 2003. The CCC did not purchase any butter or cheese under the milk 
price support program in 2004. Tightening domestic and international 
milk supplies are keeping nonfat dry milk prices above support. Since 
mid-November, the CCC has not purchased any nonfat dry milk.
    Higher milk prices in 2004 reduced payments under the Milk Income 
Loss Contract (MILC) program. In 2003, MILC payments were triggered 
during January through August and the MILC payment rate averaged $1.09 
per cwt over the entire year. The MILC payment rate averaged $0.22 per 
cwt in 2004 with payments being triggered during January through April. 
So far this year, no payments have been made under the MILC program.
    Milk production is forecast to increase by 1.6 percent in 2005, as 
production per cow recovers from 2 years of anemic growth. Monsanto has 
announced that it is increasing the supply of rBST, and lower feed 
costs should boost milk production per cow. The all-milk price is 
projected to average $15.00 per cwt in 2005, which would be the fourth 
highest on record.

Outlook for Farm Income
    In 2004, farm cash receipts, net farm income and net cash farm 
income all registered historic high. Farm cash receipts reached a 
record $235 billion in 2004 as both livestock and crop receipts were 
record highs. Livestock receipts rose by $16.7 billion in 2004, 
reflecting strong prices for cattle, hogs, poultry and milk. Prices for 
major crops generally exceeded year-earlier levels through the first 9 
months of 2004, allowing producers to sell the remainder of the large 
harvests from the fall of 2003 at unusually favorable prices. These 
higher prices were largely responsible for a $7-billion increase in 
crop receipts in 2004. Net cash farm income reached a record $77.8 
billion in 2004, up from the previous record of $68.6 billion in 2003.
    In 2005, both crop and livestock receipts are forecast to decline 
from last year's record high. Despite the drop, farm cash receipts in 
2005 are projected to be the second highest on record, surpassing $222 
billion. Higher government payments are forecast to offset the drop in 
farm cash receipts in 2005. The record crops harvested in 2004 have 
lowered prices for major crops, triggering additional government 
payments under the 2002 Farm Bill. In addition, producers affected by 
adverse weather in either 2003 or 2004 will be eligible to receive 
disaster payments in 2005. In 2005, government payments are forecast to 
reach $24 billion, exceeding the record of $22 billion in 2000. With 
higher government payments offsetting lower cash receipts, net cash 
farm income is forecast to remain very near last year's record. While 
most producers will face these generally favorable conditions, some, 
such as high cost producers or those affected by adverse weather, will 
not see these income benefits.
    An indicator of the underlying fundamental strength of commodity 
markets is farm income excluding government payments. In 2000, net cash 
farm income excluding government payments hit a cyclical low of $34 
billion. As markets have strengthened, payments based on prices have 
declined, so that more of net cash income is now coming from market 
sales. In 2004, net cash income excluding government payments increased 
to $63.3 billion. In 2005, net cash farm income excluding government 
payments is projected to fall to $54 billion. While below this past 
year, net cash farm income excluding government payments remains well 
above the cyclical low in 2000.
    Farm production expenses are expected to be about unchanged in 2005 
following a $13-billion increase last year. Higher prices for feed, 
feeder livestock, labor, fuel, fertilizer and other inputs pushed up 
production expenses in 2004. In 2005, lower feed and feeder cattle 
prices are expected to about offset increases in energy-based input 
costs, such as fuel and fertilizer.
    The income earned by farm operator households in 2005 is expected 
to continue the increases of recent years. Average farm household 
income is forecast at $73,059, up nearly 3 percent from 2004. A 3.4 
percent increase is expected in off-farm income, a modest rise from 
2004, but more than enough to offset the also modest reduction in net 
farm income from 2004.
    With another sound income year in prospect, farmland values may 
rise 4-5 percent in 2005. This increase would maintain the improvement 
in the farm sector balance sheet that we saw in 2003 and 2004. After 
ranging between 14.8 percent and 15.2 percent during 1992-2002, the 
farm debt-to-asset ratio fell to 14.2 percent last year and expected to 
remain steady in 2005. Recent increases in debt have been offset by 
larger gains in farm asset values. As a result of farm real estate 
values rising faster than farm mortgage debt, the degree of farmland 
leverage declined slightly. This has provided farmland owners with an 
added equity cushion to lessen the impact of any short-term declines in 
income or asset values. While uncertainty remains over the 
sustainability of the global economic recovery, the value of the 
dollar, issues raised by the Federal budget deficit, trade 
negotiations, emerging competitors, animal diseases, and oil prices, 
U.S. agriculture appears poised for another sound financial year in 
2005.
    That completes my statement, and I will be happy to respond to any 
questions.



                                 ______
                                 

                     Prepared Statement of Mark Rey

    Mr. Chairman and members of the Subcommittee, I am pleased to 
appear before you today to present the fiscal year 2006 budget and 
program proposals for the Natural Resources Conservation Service (NRCS) 
of the Department of Agriculture (USDA). I am grateful to the Chairman 
and members of this body for the ongoing support of private lands 
conservation and the protection of soil, water, and other natural 
resources.
    Farmers, ranchers, and other private landowners across America play 
a vital role in conserving our Nation's soil, water, air, and wildlife 
resources while producing abundant food and fiber. This year, NRCS 
celebrates its 70th Anniversary. I am proud to say that even though the 
issues facing farmers and ranchers have grown more complex, NRCS has 
risen to the challenge to help agriculture become even more vibrant and 
productive while helping to protect our private land natural resource 
base.

Fiscal Year 2006 President's Budget
    The President's fiscal year 2006 Budget request for NRCS provides 
resources for the ongoing mission of NRCS while ensuring that new 
challenges faced by landowners can be addressed.
    Because of the overriding need to reduce the deficit, NRCS, like 
every Federal agency, will share in the responsibility of controlling 
Federal spending. There are proposals in the budget that will produce 
savings in both the mandatory and discretionary accounts. These savings 
will enable the Administration to target funding based on need and 
reward performance. It also allows the Administration to commit limited 
resources to the highest priorities, such as accelerating technical 
assistance to help agricultural producers meet regulatory challenges, 
particularly in the area of helping to manage livestock and poultry 
waste.
    With that said, the President's fiscal year 2006 Budget request for 
NRCS recognizes the vital role that natural resource conservation plays 
in securing America's national security. Without productive soil, clean 
water and air, and farmers and ranchers who can make a living off the 
land, the United States would not be the strong Nation it is today.
    The budget includes key increases within the Conservation Technical 
Assistance (CTA) account--an additional $37.2 million to help producers 
comply with Animal Feeding Operations/Confined Animal Feeding 
Operations regulations, and $10 million to control invasive species. 
This year, total NRCS funding for both discretionary and mandatory 
programs is proposed at $2.7 billion.

Building Strong Accountability Measures
    In the current budget environment, it is more important than ever 
to continue working diligently in accountability and results 
measurements for the funds provided by Congress. Mr. Chairman, I am 
proud of the great strides NRCS has made in the past year on 
performance and results, as well as making NRCS information more 
accessible to farmers, ranchers, and the general public. NRCS has taken 
bold steps to address all the challenges identified as a result of the 
Program Assessment Rating Tool (PART) score for the base agency program 
of CTA.
    Meeting the President's Management Agenda is very critical to all 
of us at USDA. Linking program requirements and program allocations to 
performance and accountability measures helps both the Administration 
and Congress make budget decisions. I am proud to report that this year 
was the first year that NRCS could track direct charge through an 
entire budget development cycle. Direct charge has improved the ability 
of NRCS to directly track how NRCS employees spend every day and how 
the technical assistance workload is distributed among programs. This 
is a critical management tool, and will allow the Agency to prioritize 
work and provide even greater accountability to the taxpayers and 
members of Congress.
    In addition, as a result of the accountability management 
processes, NRCS has established national CTA program priorities for 
fiscal year 2005. These priorities include development of Comprehensive 
Nutrient Management Plans (CNMPs) to assist landowners needing to 
comply with the Environmental Protection Agency's Concentrated Animal 
Feeding Operation Rule; reduction of non-point source pollution, such 
as nutrients, sediments, pesticides, or excess salinity in watersheds; 
reduction of emissions that contribute to air quality impairment; 
reduction in soil erosion and sedimentation from unacceptable levels on 
agriculture lands; and promotion of habitat conservation for at-risk 
species.
    I am encouraged to report this direct link between performance and 
priority setting and look forward to reporting further on the results 
of this effort.

Cooperative Conservation
    At the heart of delivery of voluntary conservation programs is 
cooperative conservation. Cooperation in the delivery of programs at 
the Federal, State and local levels with landowners, tribes, government 
agencies and nongovernmental organizations is critical to providing 
accountable, quality land care assistance. In August 2004, the 
President issued an Executive Order on Facilitation of Cooperative 
Conservation. Through this directive, the President has sent a clear 
message that we can look forward to greater cooperation among Federal 
agencies on natural resource issues. The order instructs Federal 
departments and agencies to enter into conservation partnerships, and 
to empower local participation in programs and projects that protect 
and conserve natural resources and the environment. The Department of 
Agriculture has embraced this concept, and is working with other 
Federal agencies to highlight the successes of our joint efforts.

Looking Ahead
    As the NRCS prepares to celebrate its 70th Anniversary this spring, 
we have much to be proud of in private lands conservation. It is 
rewarding to see the changes on the landscape that those early pioneers 
in soil conservation envisioned--conservation terraces that stop sheet 
and rill erosion, streamside vegetative buffers, acres of wetland 
habitat, and healthy grazing and forest lands. Even with all those 
changes, the next 3 years (fiscal year 2005 through fiscal year 2007) 
promise to be record years for conservation implementation and 
spending. This effort will continue to change the face of our Nation's 
private lands landscape. Now more than ever, the field staff of NRCS 
are focused on working with farmers, ranchers and other conservation 
partners to get the job done.
    Mr. Chairman, in summary, we all know that we are trying to plan 
for the future under an atmosphere of increasingly austere budgets and 
with a multitude of unknowns on the domestic and international fronts. 
I believe that the Administration's fiscal year 2006 Budget request 
reflects sound policy, and will provide stability to the vital mission 
of conservation on private lands. The budget request reflects sound 
business management practices and the best way to work for the future 
and utilize valuable conservation dollars.
    I thank members of the Subcommittee for the opportunity to appear, 
and would be happy to respond to any questions that Members might have.
                                 ______
                                 

    Prepared Statement of Bruce I. Knight, Chief, Natural Resources 
                          Conservation Service

    Thank you for the opportunity to appear before you today to discuss 
our fiscal year 2006 Budget request for the Natural Resources 
Conservation Service (NRCS).
    As we look ahead to fiscal year 2006, and the contents of the 
Administration's Budget request, I want to take a moment to reflect 
upon all of the changes that have taken place within NRCS over the past 
year. Since I last appeared before this Subcommittee, a great deal of 
organizational change, streamlining, and improvements have taken shape.
    To begin, we have a new Associate Chief of NRCS, Dana D. York. Dana 
began her new position in August, and is a wonderful addition to our 
management team. She has spent more than 28 years working for NRCS at 
every level, including experience as a District Conservationist in the 
field. She also has a breadth of experience on managing organizational 
change, which is a timely skill, given the major organizational changes 
that NRCS has embarked upon over the past 18 months.

                         AGENCY REORGANIZATION

    Mr. Chairman, since our last hearing with this Subcommittee, we 
also have three Regional Assistant Chiefs on board at NRCS National 
Headquarters. Richard Coombe is heading up operations for the East 
Region; Merlin Bartz for the Central Region, and Sara Braasch for the 
West Region. The Regional Assistant Chiefs are providing leadership 
excellence in management for their respective States. They are also 
providing a critical link directly between the functions of National 
Headquarters and our Agency field activities.
    Overall, the NRCS reorganization is strengthening our support to 
States, better aligning expertise with applied conservation, and making 
NRCS a more efficient and effective organization. In September, we 
launched our three new National Technology Support Centers in 
Greensboro, North Carolina; Fort Worth, Texas; and Portland, Oregon. 
The Centers are providing integrated technological support and 
expertise for field conservationists. We have also reorganized National 
Headquarters to ensure that comparable functions are appropriately 
assigned to staff with similar expertise. For example, we now have a 
single Easement Programs Division, and a single Financial Assistance 
Programs Division to ensure that we have the right people working 
together to meet common program objectives. In general, these changes 
are helping to ensure that hard work from our staff is translating to 
work on the ground.
    I am proud of how NRCS staff, at all levels, has responded to the 
major organizational changes made over the past year. More than 130 
employees impacted by the reorganization have moved into their new 
assignments. Although this process was not easy, and required many 
careful steps and planning, it has gone remarkably well. We are now in 
a position to realize the benefits of the new organizational structure.
    Like most Federal agencies, NRCS faces a retirement bulge with 35 
percent of our natural resource professionals eligible to retire in the 
next 5 years. To ensure we have capable professionals in the future, we 
piloted the Conservation Boot Camp. New employees spent six weeks 
learning conservation planning and application skills. We plan three 
additional pilots this year. The goal of the pilots is to enable the 
agency to maintain its cadre of professional employees well into the 
future.

                       PERFORMANCE UNDER PRESSURE

    Given the shifts that have taken place over the past year, I think 
the agency's accomplishments are all the more impressive. Last year, 
NRCS and our partners:
  --Provided technical assistance on over 27 million acres of working 
        farm and ranch land to reduce erosion, sedimentation and 
        nutrient runoff, enhance water quality, restore and create 
        wetlands, and improve and establish wildlife habitat;
  --Developed 6,100 Comprehensive Nutrient Management Plans and applied 
        3,400;
  --Served nearly 3.8 million customers around the country;
  --Completed or updated soil survey mapping on 28 million acres;
  --Executed over 47,000 Environmental Quality Incentives Program 
        agreements;
  --Enrolled over 3,000 Wildlife Habitat Incentives Program agreements;
  --Helped land managers create, restore, or enhance wetlands through 
        more than 1,000 contracts;
  --Implemented the new Conservation Security program under a tight 
        deadline;
  --Facilitated over one million hours of Earth Team volunteer service; 
        and
  --Brought the number of proposed, interim final, and final rules 
        issued for implementation of the Farm Bill to 21.
    As we move forward in fiscal year 2005, there are numerous 
challenges and opportunities ahead, with NRCS playing a central role in 
meeting the Administration's conservation objectives. We look to you to 
build upon the fine accomplishments achieved this year to reach an even 
brighter future.

              INCREASING THIRD-PARTY TECHNICAL ASSISTANCE

    With the historic increase in conservation funding made available 
by the 2002 Farm Bill, NRCS will continue to look to non-Federal 
partners and private technical service providers (TSPs) to supply the 
technical assistance needed to plan and oversee the installation of 
conservation practices. I am proud to report that as of the beginning 
of March 2005, there are 2,201 TSPs registered with NRCS. Last year, we 
set the goal to use $40 million in TSP assistance. NRCS surpassed this 
goal for fiscal year 2004 and obligated $49.2 million for TSPs. In 
fiscal year 2005, our goal is to reach $45 million for TSPs, or an 
equivalent of 428 staff years.

                              TRANSPARENCY

    Transparency of agency operations is an area that I have 
highlighted in the past, and I want to be clear that it remains a key 
focus of NRCS. NRCS has made tremendous gains in providing complete 
access to program information, allocations, backlog, and contracting 
data to the public. Our goal has been to ensure operational processes 
are completely open to customers and stakeholders. On the NRCS website, 
the Agency provides the following information:
  --State rankings for funding in conservation programs;
  --State Field Office Technical Guides;
  --Program performance data; and
  --Public input sessions to gather feedback on Farm Bill program 
        operation and priority setting.
    NRCS has also taken strides to improve access to information in 
foreign language formats, including many publications offered in 
Spanish.

                         DISCRETIONARY FUNDING

    The President's fiscal year 2006 Budget request for NRCS reflects 
our ever-changing environment by providing resources for the ongoing 
mission of NRCS and ensuring that new opportunities can be realized.

Conservation Operations
    The President's fiscal year 2006 Budget request for Conservation 
Operations (CO) proposes a funding level of $767.8 million, which 
includes $625.6 million for Conservation Technical Assistance (CTA). 
The CTA budget will enable NRCS to maintain funding for ongoing high-
priority work. In addition, the President's Budget request includes an 
increase of $37.2 million for technical assistance to agriculture 
producers facing significant regulatory challenges. This budget 
initiative would be targeted toward animal feeding operations in need 
of Comprehensive Nutrient Management Planning (CNMP) assistance. The 
Budget request does not fund continuation of fiscal year 2005 
congressional earmarks.
    Mr. Chairman, for years we have stated that CTA is a program that 
is at the heart of everything our Agency does. But as an Agency, we 
have had a great deal of difficulty, up to this point, describing the 
program's scope and effect and providing clear guidelines to our 
frontline conservationists on its implementation.
    I am pleased to report that NRCS was successful this year in 
issuing a formal program policy for CTA. For the first time in 70 
years, CTA has the same kind of official program guidance and specific 
implementation framework as our other programs. We are also working to 
revise the allocations process for CTA in order to ensure that we 
reflect the values in the CTA program policy by placing our dollars 
where the needs are. It is key that allocations reflect natural 
resource conditions and the drive to meet our strategic planning 
objectives and accountability. Our aim is to have the new allocation 
formula in place upon enactment of the fiscal year 2006 Appropriations 
Bill.
    We have made great strides in developing an effective 
accountability system with the support of Congress. This system has 
allowed us to accurately track our accomplishments and costs. As 
Undersecretary Rey outlined in his statement, this is the first budget 
that truly integrates an entire cycle in terms of utilization of our 
direct charge data. Based upon the current mechanisms in place for 
funding discretionary and mandatory program technical assistance, it is 
necessary to have sound data for workload in field offices. Our direct 
charge accounting, along with the workload assessment tools that we 
have in place, are providing the solid data to help us make program 
management decisions and to assist in the budget development process. 
For instance, with this data we can tell you that the cost of technical 
assistance per active participant in the Farm Bill Programs has 
decreased 13 percent from fiscal year 2002 to fiscal year 2005.

Watershed Surveys and Planning
    The Watershed Surveys and Planning (WSP) account helps communities 
and local sponsors assess natural resource issues and develop 
coordinated watershed plans that will conserve and utilize their 
natural resources, solve local natural resource and related economic 
problems, avoid and mitigate hazards related to flooding, and provide 
for advanced planning for local resource development. This includes 
Floodplain Management Studies, Cooperative River Basin Studies, Flood 
Insurance Studies, Watershed Inventory and Analysis, and other types of 
studies, as well as Public Law 566 Watershed Plans.
    Over 65 percent of these plans are used to guide local planning 
efforts. The other 35 percent guide experts and sponsors in the 
implementation of watershed projects to solve natural resource 
problems.
    The President's fiscal year 2006 Budget proposes to focus funding 
on ongoing WSP efforts and includes $5.1 million to help approximately 
40 communities complete their watershed planning efforts.

Watershed and Flood Prevention Operations
    The Administration proposes to terminate funding for Watershed and 
Flood Prevention Operations (WFPO) in fiscal year 2006 for several 
reasons.
    The Administration compared the benefits and costs of three Federal 
flood damage reduction programs operated by NRCS, the Corps of 
Engineers, and the Federal Emergency Management Agency.
    The analysis found that the WFPO program provided the least net 
flood damage reduction benefits.
    This decrease in funding in WFPO account will enable the 
Administration to divert limited resources to other priorities such as 
accelerating technical assistance to help agricultural producers meet 
regulatory challenges, particularly in the area of helping them to 
manage livestock and poultry waste.
    Mr. Chairman, I would note that the projects that were earmarked 
for this program had funding requests that exceeded the amount 
appropriated, which has removed the Department's ability to effectively 
manage the program. The intense level of Congressional directives does 
not permit the Agency to prioritize projects based upon merit and local 
need. The fact that the program is entirely earmarked also makes it 
impossible for the Department to attempt to coordinate program efforts 
and implement work that will meet overall strategic natural resource 
goals.

Watershed Rehabilitation
    The President's Budget funding request for fiscal year 2006 
includes funding for Watershed Rehabilitation activities involving 
aging dams. These projects involve dams with a high risk for loss of 
life and property. To date, 134 watershed rehabilitation projects have 
been funded and 37 have been completed. Sixty-six dams have 
rehabilitation plans authorized and implementation of the plans is 
underway.
    The Administration requests $15.1 million to address critical dams 
with the greatest potential for damage.

Resource Conservation and Development
    The purpose of the Resource Conservation and Development (RC&D) 
program is to encourage and improve the capability of State, local 
units of government, and local nonprofit organizations in rural areas 
to plan, develop, and carry out programs for resource conservation. 
NRCS also helps coordinate available Federal, State, and local programs 
that blend natural resource use with local economic and social values. 
Over half of the 375 RC&D areas have received Federal support for at 
least 20 years. At this point, most of these communities should have 
the experience and capacity to identify, plan for, and address their 
local priorities. The President's fiscal year 2006 Budget, therefore, 
proposes to phase out Federal support for local planning councils after 
20 years of funding assistance after which the local councils should 
have the capability to carry out much of the program's purpose 
themselves. The overall proposed budget for RC&D in fiscal year 2006 is 
$25.6 million.

                     FARM BILL AUTHORIZED PROGRAMS

Environmental Quality Incentives Program
    The purpose of Environmental Quality Incentives Program (EQIP) is 
to provide flexible technical and financial assistance to landowners 
that face serious natural resources challenges that impact soil, water, 
and related natural resources, including grazing lands, wetlands, and 
wildlife habitat management. The budget proposes a level of $1 billion 
for EQIP.
    Over the past year, NRCS fully implemented a new agency developed 
system, ProTracts, to speed up the processing of conservation contracts 
with farmers and ranchers. ProTracts, which came about as part of the 
West Texas Telecommunication Pilot, has allowed the Agency to 
streamline the contracts process and, for the first time, see the 
ongoing status of contracts, not just the payments. ProTracts allows 
program managers to manage payments and obligations for a portfolio of 
different contracts. We estimate savings of $5 to $10 million annually 
in administrative costs that can be used to get financial assistance to 
farmers to implement conservation programs. Because the contract 
process is now electronic instead of paper, it speeds up the time 
between contract application and approval. While reducing errors and 
omissions, NRCS worked with the Office of the Chief Financial Officer 
to link ProTracts to prior-year EQIP payments. The Agency is currently 
migrating and reconciling EQIP contracts.

Wetlands Reserve Program
    Wetlands Reserve Program (WRP) is a voluntary program in which 
landowners are paid to retire cropland from agricultural production if 
those lands are restored to wetlands and protected, in most cases, with 
a long-term or permanent easement. Landowners receive fair market value 
for the land and are provided with cost-share assistance to cover the 
restoration expenses. The 2002 Farm Bill increased the program 
enrollment cap to 2,275,000 acres. The fiscal year 2006 Budget request 
estimates that about 200,000 additional acres will be enrolled in 
fiscal year 2006, an appropriate level to keep NRCS on schedule to meet 
the total acreage authorization provided in the Farm Bill.
    I would note, Mr. Chairman, that on Earth Day last year, President 
Bush announced a new policy: ``Instead of just limiting our losses (of 
wetlands), we will expand the wetlands of America.'' ``No-net loss of 
wetlands'' on the part of agriculture is a landmark achievement, and a 
testament to the kinds of investments made in wetlands conservation on 
private lands. I am proud that NRCS' wetland conservation efforts are 
at the core of this initiative, and I look forward to working with the 
Subcommittee toward achieving the goals.

Grassland Reserve Program
    The 2002 Farm Bill authorized the Grassland Reserve Program (GRP) 
to assist landowners in restoring and protecting grassland by enrolling 
up to 2 million acres under easement or long term rental agreements. 
The program participant would also enroll in a restoration agreement to 
restore the functions and values of the grassland. The 2002 Farm Bill 
authorized $254 million for implementation of this program during the 
period fiscal year 2003-fiscal year 2007. Because we estimate that GRP 
will reach the statutory funding cap by the end of fiscal year 2005, 
the fiscal year 2006 Budget assumes that the program will have 
exhausted its funding and not be able to enroll new contracts next 
year.

Conservation Security Program
    Conservation Security Program (CSP), as authorized by the 2002 Farm 
Bill, is a voluntary program that provides financial and technical 
assistance for the conservation, protection, and improvement of natural 
resources on Tribal and private working lands. The program provides 
payments for producers who practice good stewardship on their 
agricultural lands, and incentives for those who want to do more.
    Last year, we conducted a successful program signup in 18 
watersheds across 22 States. Nearly 2,200 farmers and ranchers entered 
contracts that covered 1.9 million acres of privately-owned land. We 
are now offering the program in 220 new watersheds across the country 
in addition to the 18 that were eligible in 2004. Each State has at 
least one participating watershed. The President's fiscal year 2006 
Budget requests $273.9 million in program funding to continue to expand 
the program and enroll excellent conservation stewards.

Wildlife Habitat Incentives Program
    Wildlife Habitat Incentives Program (WHIP) is a voluntary program 
that provides cost-sharing for landowners to apply an array of wildlife 
practices to develop habitats that will support upland wildlife, 
wetland wildlife, threatened and endangered species, fisheries, and 
other types of wildlife. The budget proposes a funding level for WHIP 
of $60 million.

                FARM AND RANCH LANDS PROTECTION PROGRAM

    Through the Farm and Ranch Lands Protection Program (FRPP), the 
Federal Government establishes partnerships with State, Local, or 
Tribal government entities or nonprofit organizations to share the 
costs of acquiring conservation easements or other interests to limit 
conversion of agricultural lands to non-agricultural uses. FRPP 
acquires perpetual conservation easements on a voluntary basis on lands 
with prime, unique, or other productive soil that presents the most 
social, economic, and environmental benefits. FRPP provides matching 
funds of no more than 50 percent of the purchase price for the acquired 
easements. The budget proposes a level of $83.5 million for FRPP in 
fiscal year 2006.

Measuring Outcomes not Outputs
    One of the most common questions that I have answered during my 
tenure as Chief is about measuring the natural resource outcomes of 
NRCS efforts. Rightfully so, policy-makers, such as Members of this 
Subcommittee, as well as conservation and farm organizations, have 
voiced a need for better information about the kinds of changes in 
water and soil quality that are as a result of the investments we have 
made.
    Six months ago, we launched an exciting endeavor to better quantify 
the on-the-ground effects of our conservation work. The Conservation 
Effects Assessment Project (CEAP) is a 5-year effort to better quantify 
the outcomes of our programs. Through CEAP, NRCS is partnering with the 
Agricultural Research Service (ARS), the National Agricultural 
Statistics Service (NASS), Farm Service Agency (FSA), and other 
agencies to study the benefits of most conservation practices 
implemented through the Environmental Quality Incentives Program, 
Wetlands Reserve Program, Wildlife Habitat Incentives Program, 
Conservation Reserve Program, and the Conservation Technical Assistance 
program. This project will evaluate conservation practices and 
management systems related to nutrient, manure, and pest management, 
buffer systems, tillage, irrigation, and drainage practices, as well as 
wildlife habitat establishment, and wetland protection and restoration.
    CEAP will provide the farming community, general public, 
legislators, and others with a scientifically based estimate of 
environmental benefits achieved through conservation programs.

Conclusion
    As we look ahead, it is clear that the challenges before us will 
require the dedication of all available resources--the skills and 
expertise of the NRCS staff, the contributions of volunteers, and 
continued collaboration with partners and Technical Service Providers.
    I am proud of the dedicated work ethic our people exhibit day in 
and day out as they go about the work of getting conservation on the 
ground. We have achieved a great deal of success. We need to focus our 
efforts and work together, because available resources will ultimately 
determine whether our people have the tools to get the job done. I look 
forward to working with you as we move ahead in this endeavor.
    This concludes my statement. I will be glad to answer any questions 
that members of the Subcommittee might have.
                                 ______
                                 

               Prepared Statement of Gilbert G. Gonzalez

    Mr. Chairman, Members of the Committee, it is a pleasure to present 
to you the fiscal year 2006 President's Budget request for USDA Rural 
Development.
    I am honored to serve as Acting Under Secretary of Agriculture for 
Rural Development, and to have the opportunity to work with you to 
carry out Rural Development's fundamental mission to increase economic 
opportunity and improve the quality of life in rural America.
    Everyday, we bring people and resources together. I believe that 
given the opportunity, Americans will create strength through 
investments in their own economic futures. And I believe it is our role 
at Rural Development to stimulate these efforts in ways that will 
maximize the benefits of local economies.
    With the assistance of this subcommittee, the Bush Administration 
has established a proud legacy of accomplishments in rural areas, and 
will work to continue to enhance that legacy.
    Overall, 800,000 jobs have been created or saved through combined 
business, housing, utility, and community development investments by 
USDA Rural Development over the last 4 years. Leveraging of these 
investments with private sector investments are helping to spur 
economic growth throughout rural America.
    The Bush Administration has committed over $50 billion in rural 
development investments in the last 4 years to support rural Americans' 
pursuit of economic opportunities and an improved quality of life.
    Rural Development delivers over 40 different programs enhancing 
business development, housing, community facilities, water supply, 
waste disposal, electric power, and telecommunications. Rural 
Development also provides technical assistance to rural families, and 
business and community leaders to ensure success of those projects. In 
addition to loan-making responsibilities, Rural Development is 
responsible for the servicing and collection of a loan portfolio that 
exceeds $87 billion.
    Rural Development is the only Federal organization that can 
essentially build a town from the ground up through investments in 
infrastructure, homeownership and job creation through business 
development programs. We help rural Americans achieve their part of the 
American Dream, particularly the 60 million rural residents who are not 
involved in production agriculture.
    Rural Development is a catalyst. We focus on our grassroots 
delivery mechanism, building partnerships that will act to 
strategically place Federal resources to serve as catalysts for 
spurring private investment. Partners in this effort include: the 
Department of Housing and Urban Development, the Department of Energy, 
the Environmental Protection Agency, the Minority Business Development 
Agency, the Small Business Administration, the Economic Development 
Administration, and the National Credit Union Association. In addition, 
we are working to increase the ability of faith-based organizations to 
partner with Rural Development to also support local community and 
economic development.
    Successful economic development in rural areas is driven by local 
strategies, where communities take ownership and focus on developing 
leadership, technology, entrepreneurship, and higher education 
opportunities.

                            RESPONSIBILITIES

    Rural Development provides rural individuals, communities, 
businesses, associations, and others with financial and technical 
assistance needed to increase economic opportunity and improve the 
quality of life in rural America. This financial and technical 
assistance may be provided solely by Rural Development or in 
collaboration with other public and private organizations promoting 
development of rural areas.

                                 VISION

    To realize our vision of creating greater economic opportunities 
and improved quality of life for rural citizens, we need to structure 
the delivery of Rural Development programs in a way that can ensure 
those who are most qualified become aware of our programs and receive 
needed investment assistance. Rural Development has to do a better job 
of outreach and education on what programs are available. To accomplish 
this goal, we have embarked upon an aggressive outreach and marketing 
effort that focuses on the programs appropriated, rather than on the 
names of individual agencies. This is a key priority that we believe 
will reduce confusion about who to contact for assistance and help 
ensure more efficient utilization of program investment dollars by 
those who are most qualified. We are also working to better communicate 
with minority sectors, analyze program delivery, and improve the 
overall knowledge of what USDA Rural Development can provide to rural 
citizens and communities.

                    RURAL DEVELOPMENT BUDGET REQUEST

    The President's commitment to rural America is strong, and this 
request will support a total program level of loans and grants of $13.5 
billion. Mr. Chairman, this Rural Development request is one component 
of the President's overarching budget. The budget reflects the 
difficult choices that had to be made among funding opportunities for a 
variety of meritorious programs.
    Over the last 4 years (fiscal year 2001-fiscal year 2004) with your 
assistance, Rural Development has delivered over $50 billion in loans 
and grants to rural Americans. Through this infusion of infrastructure 
investment and local area income stimulus, many rural areas are 
attracting an increase in private sector investment. These Federal 
investments are being returned many times over in the form of increased 
local tax base and new private ventures, with their associated 
multiplier effects on household incomes and local quality of life.
    I will now discuss the requests for specific Rural Development 
programs.

                         RURAL HOUSING PROGRAMS

    The budget request for USDA Rural Development's housing programs 
totals just under $6.5 billion. This commitment will improve housing 
conditions, continue to promote homeownership opportunities for 
minority populations, and initiate our multi-family housing program 
revitalization initiative. Initially, this will put in place a program 
of tenant protection for our multi-family housing residents.
    Rural Development's multi-family housing program includes about 
17,000 properties and 470,000 units, with a loan portfolio value 
approaching $12 billion. Many of the properties exceed 20 years in age 
and face substantial rehabilitation needs. A substantial number of 
owners wish to prepay their loans and remove properties from the 
program. Rental assistance, a vital component of the program, has 
steadily risen. Faced with this reality, this Administration 
acknowledged the need to evaluate tenant protections, the portfolio, 
and program, and identify alternatives to ensure the program's long-
term viability and continued supply of affordable rental housing in 
rural areas.
    Last year, Rural Development engaged private industry experts to:
  --Review and define potential approaches to protect tenants;
  --Review issues and develop solutions directly pertaining to the 
        market demand for such housing;
  --Analyze and develop solutions for the increasing rehabilitation and 
        recapitalization requirements of the aging existing properties; 
        and
  --Perform a comprehensive property assessment.
    A statistically representative sample of the portfolio was selected 
and reviewed. Based on that review and analysis by outside experts and 
Rural Development staff, a comprehensive tenant protection and 
revitalization initiative is being developed. This budget reflects the 
first component of that initiative, which provides protection for the 
very low-income tenants residing in the projects. We are requesting 
$214 million to fund a rural housing voucher program, which will ensure 
that very low-income and elderly tenants are protected in the event of 
project prepayment.
    A comprehensive legislative proposal is under development to 
protect tenants and address the issues of rehabilitation needs and 
prepayment. This proposal will embody the Administration's multi-year 
initiative to ensure adequate rental housing options remain available 
for very low-income rural residents and return the multi-family housing 
program to sound footing.
    Pending the outcome of the comprehensive multi-family property 
assessment, Rural Development did not request funding for section 515 
new construction. As a result of the study, we again are not requesting 
new construction; we are seeking $27 million in the section 515 program 
loan level for repair and rehabilitation only. New construction needs 
will be met through the section 538 guaranteed program, which we are 
requesting to double to a $200 million loan level.
    We are also requesting rental assistance of $650 million to support 
needed renewals, preservation, and a farm labor housing program level 
comprised of $42 million in loans and $14 million in grants. Rental 
assistance contracts should be maintained at the current 4 year term to 
underscore our commitment to our private partners that future rental 
assistance income streams will be supported.
    The request for single-family direct and guaranteed homeownership 
loans approaches $5 billion, which will assist about 40,400 rural 
households who are unable to obtain credit elsewhere. In addition, $36 
million is requested for housing repair loans and $30 million for 
housing repair grants, which will be used to improve existing single 
family houses mostly occupied by low-income elderly residents.
    The community facilities request totals $527 million, including 
$300 million for direct loans, $210 million for guaranteed loans, and 
$17 million for grants. It is expected that a portion of the direct 
loan program will continue to support homeland security and health and 
safety issues in rural areas. Community facilities programs finance 
rural health facilities, childcare facilities, fire and safety 
facilities, jails, education facilities, and almost any other type of 
essential community facility needed in rural America. Rural Utility 
Programs
    USDA Rural Development provides financing for electric, 
telecommunications, and water and waste disposal services that are 
essential for economic development in rural areas. The utilities 
program request exceeds $5 billion, which is comprised of $2.5 billion 
for electric loan programs, $669 million for rural telecommunication 
loans, $25 million for distance learning and telemedicine grants, $359 
million in loans for broadband transmission, over $1 billion for direct 
and guaranteed water and waste disposal loans, $377 million for water 
and waste disposal grants, and $3.5 million for solid waste management 
grants.
    The Rural Telephone Bank (RTB) was established in 1971 to provide a 
supplemental source of credit to help establish rural telephone 
companies. Efforts have been underway to privatize the bank. In fiscal 
year 1996, the RTB began repurchasing Class ``A'' stock from the 
Federal government, thereby beginning the process of transformation 
from a federally funded organization to a fully privatized banking 
institution. However, recent analysis has shown that there are private 
lenders available to fulfill rural telecommunications lending needs. In 
addition, funding for this program has exceeded demand.
    In fact, there is about $300 million in unadvanced loan balances 
for loans available for 5 years or more. This indicates that there is 
little demand for a privatized RTB. The fiscal year 2006 budget 
reflects the Administration's proposal to establish the process and 
terms to implement dissolution of the RTB. Dissolution will result in 
the government being repaid for all outstanding government stock and 
the borrower receiving a cash payout for their outstanding stock. 
Additional funds are requested for the regular telecommunications 
program to maintain and enhance the level of Federal support available 
to rural telecommunications. The fiscal year 2006 budget proposes $359 
million in new discretionary program funding. This, coupled with $1.6 
billion in carryover funds, will provide for almost a $2 billion 
program level.

                  RURAL BUSINESS-COOPERATIVE PROGRAMS

    Since fiscal year 2001, USDA Rural Development has provided about 
$4 billion for rural business development in the form of loans, grants 
and technical assistance. Funds assisted with the start up, expansion 
or modernization of businesses and cooperatives in rural areas that 
have helped create or save over 56,400 jobs.
    The Rural Development business and cooperative program budget 
request for fiscal year 2006 totals about $1.3 billion, the bulk of 
which is comprised of $900 million for the business & industry (B&I) 
loan guarantee program.
    The rural business enterprise grant, rural business opportunity 
grant, economic impact initiative, and the empowerment zone and 
enterprise community programs have been included in the President's new 
initiative to help strengthen American's transitioning communities, 
while making better use of taxpayer dollars.
    These grant programs will be consolidated and transformed into a 
new, two-part program: (1) The Strengthening America's Communities 
Grant Program, a unified economic and community development grant 
program; and (2) The Economic Development Challenge Fund, an incentive 
program for communities, modeled after the Millennium Challenge 
Account.
    We are requesting $34 million for the intermediary relending 
program, $25 million for rural economic development loans, $5.5 million 
for rural cooperative development grants, and $15.5 million of 
discretionary funding for the value-added producer grant program.
    The $10 million of discretionary budget authority for renewable 
energy will support $286 million in guaranteed loans and $5 million in 
grants. This program will assist in fulfilling the President's Energy 
Policy that encourages a clean and diverse portfolio of domestic energy 
supplies to meet future energy demands. In addition to helping 
diversify our energy portfolio, the development of renewable energy 
supplies will be environmentally friendly and assist in stimulating the 
national rural economy through the jobs created and additional incomes 
to farmers, ranchers, and rural small businesses. This is important for 
rural communities and our country's ability to rely less on imported 
energy. The President is committed to this program and the benefits it 
holds for America.
    During this Administration Rural Development has invested over $190 
million in Bioenergy/Biomass ventures including $80 million in value-
added and business ventures and $114 million in renewable energy 
utility upgrades and expansions. Under the Farm Bill section 9006, 
$44.9 million in grant funds have been provided for 281 applicants for 
wind power, anaerobic digestion, solar, ethanol plants, direct 
combustion and fuel pellet suppliers, and other bioenergy related 
systems.

                        ADMINISTRATIVE EXPENSES

    Delivering these programs to the remote, isolated, and low-income 
areas of rural America requires administrative expenses sufficient to 
the task. From fiscal year 1996 through fiscal year 2004, Rural 
Development's annual delivered program level increased by 111 percent. 
Over that same period, Rural Development's Salaries and Expenses (S&E) 
appropriation increased only 17 percent. In fiscal year 2001, Rural 
Development was able to deliver $19 program dollars (loans and grants, 
plus servicing the ever-growing portfolio) with one dollar of S&E. By 
fiscal year 2004, Rural Development delivered $23 program dollars with 
every S&E dollar. Over 4 years we were able to increase efficiencies, 
to deliver 21 percent more program dollars with each S&E dollar. Rural 
Development has the staff and the local distribution mechanism to meet 
the ambitious program targets outlined earlier, but adequate 
administrative support must be made available. To maintain our high 
level of efficiency requires continued improvements which must be based 
on continuous effort and investment of administrative resources.
    With an outstanding loan portfolio exceeding $87 billion, fiduciary 
responsibilities mandate that Rural Development maintain adequately 
trained staff, employ state of the art automated financial systems, and 
monitor borrowers' activities and loan security to ensure protection of 
the public's financial interests. New, more sophisticated and 
complicated programs provided through the fiscal year 2002 Farm Bill 
(broadband, renewable energy, value-added, etc.), demand increasing 
technical expertise of our aging workforce.
    Limited S&E funding could jeopardize our ability to provide 
adequate underwriting and loan servicing to safeguard the public's 
interests.
    For fiscal year 2006, the budget proposes a total of $682.8 million 
for Rural Development S&E or an increase of $58.4 million over fiscal 
year 2004. Of this increase, $13.3 million will fund salary costs and 
related expenses; $20 million supports Information Technology (IT) 
needs, including the web farm and data warehousing, continued expansion 
and upgrading of systems supporting the evolving multi-family housing 
program, e-Gov, IT security, and essential licensing and maintenance 
agreements; $4 million for human capital investments, principally 
training; and $7.6 million to continue relocation of facilities and 
operations from downtown St. Louis, Missouri.
    Mr. Chairman, Members of the Committee, this concludes my formal 
statement. We would be glad to answer any questions you may have. Thank 
you for the opportunity to appear before you to discuss the Rural 
Development fiscal year 2006 budget request.
                                 ______
                                 

 Prepared Statement of Russell T. Davis, Administrator, Rural Housing 
                                Service

    Mr. Chairman and Members of the Subcommittee, thank you for the 
opportunity to present the fiscal year 2006 President's budget for the 
USDA Rural Development rural housing programs.
    As an integral part of Rural Development, the rural housing program 
assists rural communities in many fundamental ways. We provide a 
variety of both single and multi-family housing options to residents of 
rural communities. We also help to fund medical facilities, local 
government buildings, childcare centers, and other essential community 
facilities. Rural Development programs are delivered through a network 
of 47 State offices and approximately 800 local offices.
    The proposed budget for the rural housing program in fiscal year 
2006 supports a program level of approximately $6.49 billion in loans, 
loan guarantees, grants, and technical assistance. It also maintains 
the Administration's strong commitment to economic growth, opportunity, 
and homeownership for rural Americans. We believe that our efforts, 
combined with the best of both the non-profit and private sectors, will 
ensure that this budget makes a tremendous difference in rural 
communities. The fiscal year 2006 budget also includes a major 
initiative to revitalize the rural rental housing programs.
    Let me share with you how we plan to continue improving the lives 
of rural residents under the President's fiscal year 2006 budget 
proposal for our rural housing programs.

                     MULTI-FAMILY HOUSING PROGRAMS

    The Multi-Family Housing (MFH) budget preserves Rural Development's 
commitment to maintaining the availability of affordable housing for 
the many rural Americans who rent their homes. Our existing portfolio 
provides decent, safe, sanitary, and affordable residences for about 
470,000 tenant households.
    The total program level request is $1.16 billion. This represents 
an increase of 30 percent from last year's request. Six hundred and 
fifty million dollars will be used for rental assistance (RA) for 
contract renewals, farm labor housing, and preservation. These funds 
will renew more than 46,000 4-year RA contracts. We estimate using $27 
million for MFH direct loans to meet our preservation responsibilities 
including prepayment prevention incentives.

Revitalization Initiative
    In November 2004, we released a report titled the ``Multi-Family 
Housing Comprehensive Property Assessment and Portfolio Analysis.'' 
This report analyzed the issues associated with the preservation of the 
portfolio and provided recommendations for changes to the MFH program. 
The fiscal year 2006 budget addresses the immediate need to provide 
assistance for tenants of projects that prepay and leave the program. 
Included is $214 million for the initial stage of the multi-family 
housing Revitalization Initiative that establishes a tenant protection 
program. Later this year, the Administration will propose legislation 
to ensure that projects remain in the program and that they are 
properly maintained. The authority to make rural housing vouchers is 
contained in the Housing Act of 1949. Regulations will need to be 
developed in order to use this authority.
    The report recommended three primary strategies to revitalize our 
aging portfolio, which continue to play a critical role in delivering 
affordable rental housing to rural communities across the nation:

Allowing Prepayment While Protecting Tenants
    While a significant segment of the portfolio has the legal right to 
prepay, the report concluded that prepayment is economically viable for 
only about 10 percent of owners. Recent court decisions require that 
owners of projects that are eligible to prepay under the terms of their 
loans, be allowed to do so. This would leave the tenants of these 
projects at risk of significant rent increase and potential loss of 
their housing. Therefore, we are proposing that all tenants of these 
projects be adequately protected through the use of housing vouchers.

Creating an Equitable New Agreement With Project Owners Electing to 
        Stay With the Program
    The report recommended that new agreements be reached with project 
owners to keep their projects in the program and, thus, be used for 
housing low income families. This new agreement would allow owners and 
project managers to exercise their entrepreneurial planning and 
management skills. Performance expectations and performance-based 
incentives would be provided so that high-performing owners and project 
managers are rewarded. Conversely, owners and property managers 
performing poorly would be subject to sanctions.

Using Debt Relief as the Primary Tool to Stabilize Projects at Risk of 
        Physical Deterioration
    The report also recommended that a majority of the existing MFH 
portfolio is in need of additional financial assistance to achieve 
long-term viability. The report recommended our using debt 
restructuring as the primary tool. Additional financial assistance 
would be provided in exchange for the owner's commitment to providing 
long-term affordable housing.
    The Administration continues to evaluate the costs and benefits of 
various options to address items (2) and (3). We expect to complete 
this evaluation and to propose legislation later this year. However, 
the fiscal year 2006 budget includes $27 million for direct loans that 
are to be used to meet immediate revitalization needs.
    We anticipate our revitalization efforts will span the next several 
years and have initiated a demonstration program to test the viability 
of the revitalization concepts. In addition, we will be initiating a 
demonstration program for making loans through the use of revolving 
funds for preservation purposes, as provided for in the fiscal year 
2005 Appropriations Act.

Section 538 Guaranteed Rural Rental Housing Program
    The fiscal year 2006 budget request will fund $200 million in 
section 538 guaranteed loans, funds that may be used for new 
construction. The section 538 guaranteed program continues to 
experience ever-increasing demand, brisk growth, and is rapidly 
becoming recognized within the multi-family housing finance, 
development, and construction industry, as a viable conduit to 
facilitate the financing of housing projects. In fact, Rural 
Development received an overwhelming response to the latest Notice of 
Funding Availability with over 150 applications received.
    In fiscal year 2004, we distributed more than $99 million in 
guarantees to fund housing projects with over $243 million in total 
development costs. The risk exposure to the government continues to be 
very low, as loan guarantees to total development costs are well under 
50 percent. We also have a delinquency rate of zero. A ``notice to 
proceed'' was given to 44 applicants with an average loan guarantee 
request of $2.2 million and an average total development cost of $5.5 
million. Thirty-five out of the 44 applications given the approval to 
proceed included the use of Low-Income Housing Tax Credits from the 
various State governments where the projects will be located.
    Since inception of the program, the section 538 guaranteed program 
has closed 71 guarantees totaling over $171 million. The program also 
has an additional 89 loans in process and not yet closed, totaling over 
$352 million. The seventy one closed guarantees will provide over 4,200 
rural rental units at an average rent per unit of approximately $500 
per month.
    The rural housing program recently published a final rule to 
address program concerns from our secondary market partners and make 
the program easier to use and understand. We look forward to 
administering the fiscal year 2006 proposed budget of $200 million, 
which will enable Rural Development to fund a significant number of 
additional guaranteed loan requests.
    The fiscal year 2006 budget also request funds $42 million in loans 
and $14 million in grants for the Section 514/516 farm labor housing 
program, $2 million in loans for MFH credit sales, and $10 million for 
housing preservation grants.

                     SINGLE FAMILY HOUSING PROGRAMS
 
   The Single Family Housing (SFH) programs provide several 
opportunities for rural Americans with very low- to moderate-incomes to 
purchase homes. Of the $4.7 billion in program level requested for the 
SFH programs in fiscal year 2006, $3.7 billion will be available as 
loan guarantees of private sector loans, including $207 million for 
refinancing more affordable loans for rural families. Also, with $1 
billion available for direct loans, our commitment to serving those 
most in need in rural areas remains strong. This level of funding will 
provide homeownership opportunities for 40,400 rural families.
    Effective outreach and an excellent guarantee, coupled with 
historically low interest rates have increased the demand for the 
section 502 guaranteed program. Approximately 2,000 lenders participate 
in the guaranteed SFH program. The competitive low-interest rate 
environment has enabled the rural housing program to serve low-income 
families that would typically receive a Section 502 direct loan with a 
guaranteed loan instead. In fiscal year 2004, approximately 32 percent 
of guaranteed loans were made to low-income families.
Section 523 Mutual and Self-Help Housing
    The President's fiscal year 2006 budget requests $34 million for 
the mutual and self-help housing technical assistance program.
    The fiscal year 2004 ended with over $35 million awarded for 
contracts and 2-year grants. There were 39 ``pre-development'' grants 
awarded in fiscal year 2004, including many first-time sponsors, 
several faith-based groups, and groups in States with no self-help 
housing programs. Pre-development funds may be used for market 
analysis, determining feasibility of potential sites and applicants, 
and as seed money to develop a full-fledged application. Groups in the 
pre-development phase typically need 6 to 12 months before they are 
ready to apply for full funding.
    The fiscal year 2006 proposed budget also includes $36 million in 
program level for home repair loan funds and $30 million for grants to 
assist elderly homeowners. It also includes $5 million in loan level 
for each of two site loan programs, $10 million in loan level for sales 
of acquired properties, and $1 million for supervisory and technical 
assistance grants.

                           COMMUNITY PROGRAMS

    The Community facilities budget request will provide essential 
community facilities, such as educational facilities, fire, rescue, and 
public safety facilities, health care facilities, and child care 
centers in rural areas. The total requested program level of $527 
million includes $300 million for direct loans, $210 million for loan 
guarantees, and $17 million for grants.
    In partnership with local governments, State governments, and 
federally recognized Indian tribes, the fiscal year 2006 budget will 
support more than 240 new or improved public safety facilities, 105 new 
and improved health care facilities, and approximately 80 new and 
improved educational facilities to serve rural Americans.
    In fiscal year 2004, we invested over $130 million in 113 
educational and cultural facilities serving a population totaling over 
3.3 million rural residents, over $97 million in 338 public safety 
facilities serving a population totaling over 1.7 million rural 
residents, and over $304 million in 141 health care facilities serving 
a population totaling over 3.2 million rural residents. Funding for 
these types of facilities totaled $531 million. The remaining balance 
was used for other essential community facilities such as: food banks, 
community centers, early storm warning systems, child care centers, and 
homeless shelters.

                           PROGRAM HIGHLIGHTS

    I am pleased to provide you with an update on several highlights 
from our major programs, as well as key initiatives being undertaken.

Rental Assistance
    We have continued to improve the internal controls in the Rental 
Assistance (RA) program and plan to implement a number of new 
initiatives in this regard with the recent publication of a 
comprehensive revision of our regulations. The new initiatives include 
an increased emphasis on verification methods and procedures for 
certifying income reported by tenants and improving management of 
tenants with no reported income. We are currently in discussions with 
the Department of Health and Human Services concerning USDA receiving 
access to the National Directory of New Hires database. This will 
enable us to match the data in the national directory against the 
information provided by the tenant, and therefore reduce fraud and 
abuse within the program. Additional training of borrowers and property 
managers will also be the key to reducing errors when certifying 
tenants for residency in MFH properties.
    The automated RA forecasting tool is now in place and operational. 
The forecasting tool was used to develop the fiscal year 2006 RA budget 
and is able to forecast when RA contracts will either exhaust funds or 
reach their 4-year term limit. The forecasting tool can also develop 
the cost of new contracts based on an actual RA usage rate or a 
selected inflation rate. The fiscal year 2006 RA budget, an inflation 
rate of 2.4 percent was used, as recommended by the General Accounting 
Office. We will continue to provide State offices with additional 
guidance on the transfer of RA units and will centralize the 
redistribution of unused RA.

Automation Initiatives
    Last year, we reported that the rural housing program was 
developing a data warehouse for MFH and SFH loans to improve our 
reporting capabilities. I am pleased to report that we are currently 
utilizing our data warehouses, making needed improvements, and training 
staff on how to expand their reporting capabilities. Our Multi-Family 
Information System (MFIS) database is now in Phase 5 of development, 
following a very successful completion of Phase 4, which integrated 
electronic debiting and crediting of borrowers accounts and eliminated 
funds handling in area offices. We now have a website available to the 
public to locate all MFH properties, with property and contact 
information. Also implemented is the Management Agent Interactive 
Network Connection (MAINC), which allows property managers to transmit 
tenant and property data electronically to MFH via the Internet. This 
data goes directly into the MFIS database and the data warehouse.
    Last year, we also reported that an Automated Underwriting System 
(AUS) was being developed that would allow lenders to input SFH 
customer application data, pull credit, and determine immediately 
whether the rural housing program would issue a commitment. The AUS 
should be fully operational by next winter.
    In December 2004 our Centralized Servicing Center (CSC) in St. 
Louis, Missouri began the centralization of loss claims submitted by 
lenders under our SFH guaranteed program. As of September 30, 2004, CSC 
provided loss mitigation for approximately 110,000 guaranteed loans. 
CSC is also supporting the rollout of the Lender Interactive Network 
Connection (LINC), which is an Internet-based alternative for lenders 
to submit loss claims electronically. Centralization will improve 
efficiency, consistency, customer service to lenders, and provide 
better management data to program officials.

     USDA'S FIVE STAR COMMITMENT TO INCREASE MINORITY HOMEOWNERSHIP

    The rural homeownership rate continues to outpace the national 
rate. In 2004, it stood at 76.1 percent compared to the national rate 
of 69.2 percent. But, while rural America has the highest percentage of 
homeownership, we are committed to do more, particularly to assist more 
minority families in living the American Dream. For USDA's part, we 
developed a Five-Star Commitment to increase minority homeownership 
opportunities.

Reducing Barriers to Minority Homeownership
    Origination fees can now be incorporated into the loan amount. 
Through reduction of such barriers the program guaranteed a total of 
$3.18 billion in loans in fiscal year 2004, a record for the program.
Doubling the Number of Self-Help Participants by 2010
    Over 54 percent of the families who participate in this program are 
minorities. In fiscal year 2004, we helped over 1,100 families build 
their own home.

Increasing Participation by Minority Lenders Through Outreach
    Rural Development offices across the country have developed a 
marketing outreach plan to increase participation in the guaranteed 
loan program by lenders serving rural minorities.

Promoting Credit Counseling and Homeownership Education--Critical to 
        Successful Homeownership
    Since the signing of an agreement with the Federal Deposit 
Insurance Corporation to promote and utilize their ``Money Smart'' 
training program, nearly 700 Rural Development field staff received 
training and will deliver the training to others. Over a third of our 
State offices have already made the Money Smart Program available to 
non-English speaking groups.

Monitoring Lending Activities to Ensure a 10 Percent Increase in 
        Minority Homeownership
    USDA has jointly developed with the Departments of Housing and 
Urban Development (HUD) and Veteran Affairs (VA) an internal tracking 
system to measure the success of each of the 53 States and territories 
we serve. Overall, the number of loans to minorities has increased by 
more than 1,000 per year--an increase of more than 12 percent.

Improving Successful Homeownership
    We are also pleased to report our achievement in helping our 
customers remain successful homeowners. Rural Development has lowered 
its direct loan housing program gross delinquency rate by 35.6 percent 
and new loan delinquency rate by 61.8 percent over the past 5 years. As 
of today, our gross delinquency rate is 12.85 percent and the new loan 
delinquency rate is 1.92 percent. Our portfolio recently outperformed 
the delinquency rate for sub-prime mortgage loans as tabulated by the 
Mortgage Bankers Association's National Delinquency Survey.
    To ensure that we were also providing a high level of customer 
service, a satisfaction survey was recently completed. This was our 
first independent homeowner survey and established a benchmark for 
customer satisfaction. The survey was conducted by an outside 
contractor and showed an average homeowner satisfaction rate of 8.6 on 
a scale of 1 to 10. The study used the J.D. Power 2004 home mortgage 
study to compare these results to the results of other organizations 
providing financial services. The J.D. Power survey includes such well 
known and respected major lending institutions as Bank of America, 
Wells Fargo, and Chase. The average satisfaction level for the 
organizations included in the survey is 7.2 with the highest rating 
going to USAA (a private mortgage corporation) at 8.6. USDA Rural 
Development is at the top of the list for customer satisfaction at 8.6 
percent.

Rural Partners
    In fiscal year 2006, we will continue to stretch the rural housing 
program's resources and its ability to serve the housing needs of rural 
America through increased cooperation with HUD and other partners. We 
are committed to working with these partners to leverage resources for 
rural communities. For example, we are working with HUD and expect to 
adopt their ``TOTAL'' scorecard, modified for SFH guaranteed loans. 
This cooperation between USDA and HUD will save time and money in 
system development. Additionally, Rural Development information 
technology staff and the CSC worked with HUD and VA to develop a one-
stop web portal, www.homesales.gov, to market government homes for 
sale.
    In our MFH program, HUD has been extremely helpful in sharing data 
for development of our Comprehensive Property Assessment and in 
providing knowledgeable, professional staff from their Office of 
Affordable Housing Preservation to consult with before making 
determinations on our rural portfolio. This eliminates duplicative work 
and ensures better consistency.

                               CONCLUSION

    Through our budget, and the continued commitment of President Bush, 
rural Americans will have the tools and opportunities they can put to 
work improving both their lives and their communities. We recognize 
that we cannot do this alone and will continue to identify and work 
with partners who have joined with the President to improve the lives 
of rural residents.
    I would like to thank each of you for your support of the rural 
housing program's efforts. I look forward to working with you in moving 
the fiscal year 2006 rural housing program budget forward, and welcome 
your guidance as we continue our work together.
                                 ______
                                 

  Prepared Statement of Peter Thomas, Administrator, Rural Business--
                           Coopertive Service

    Mr. Chairman and Members of the Subcommittee, thank you for the 
opportunity to present the fiscal year 2006 President's Budget for USDA 
Rural Development's business and cooperative programs.
    This is my first opportunity to appear before you as administrator 
of the rural business and cooperative programs USDA Rural Development. 
I am honored to serve in this position, and to have the opportunity to 
work with you to carry out Rural Development's fundamental mission to 
increase economic opportunity and improve the quality of life in rural 
America. Everyday, we bring people and resources together.
    Mr. Chairman, the programs and services of Rural Development, in 
partnership with other public and private sector businesses, continue 
to improve the economic climate of rural areas through the creation or 
preservation of sustainable business opportunities and jobs. Rural 
Development programs help close the gap in opportunity for under-served 
rural areas and populations, moving them toward improved economic 
growth by providing capital, technology, technical assistance, and an 
improved quality of life. The $1.279 billion program level requested in 
this budget for the rural business and cooperative programs will assist 
in creating or saving 56,400 jobs.

                           BUSINESS PROGRAMS

Business and Industry Guaranteed Loan Program
    For the business and industry (B&I) program, the fiscal year 2006 
budget includes $44 million in budget authority to support $900 million 
in guaranteed loans. We estimate that the funding requested for fiscal 
year 2006 will create or save about 24,560 jobs and provide financial 
assistance to 489 businesses. Through the lender's reduced exposure on 
guaranteed loans, they are able to meet the needs of more businesses at 
rates and terms the businesses can afford. B&I guaranteed loans may 
also be used by individual farmers to purchase cooperative stock in a 
start-up or existing cooperative established for value-added 
processing.
    I would like to share a story to illustrate how our programs work 
together to assist rural businesses. Unicep Packaging, Inc. is located 
in City of Sandpoint, Idaho. The area has been affected by the decline 
in the logging industry and has an increasing reliance on the tourism 
industry for its economic base in addition to light manufacturing.
    Dr. John Snedden started his business in 1990 in a Sandpoint 
business incubator. In 1995, with the help of a USDA Rural Economic 
Development Loan made through Northern Lights, Inc., the electric 
cooperative in the Sandpoint area, the company constructed its initial 
9,500 sq. ft. manufacturing plant, becoming the first company to 
``graduate'' from the incubator. The business' original focus was 
manufacturing professional tooth whitening products. Since then it has 
shifted to unit-dose packaging and expanded its product lines and 
manufacturing capacity to include custom packaging and contract 
manufacturing for medical, dental, pharmaceutical, cosmetic, 
nutraceutical, and industrial customers.
    The B&I guaranteed loans of $2,150,000 to Unicep Packaging, Inc. 
and $2,410,000 to Dr. John and Mary Jo Snedden financed a major 
expansion completed in 2003, with the manufacturing facility now 
encompassing 64,000 square feet. Dr. Snedden and his wife own the land 
and building and lease the property to their business, Unicep 
Packaging, Inc. Originally projected to create 62 additional jobs, the 
expansion has resulted in the creation of 68 jobs. In addition, the 
project has saved 58 jobs. On November 10, 2004, Unicep Packaging, 
Inc., received the Business of the Year award from the Bonner County 
Economic Development Corporation (BCEDC).

Intermediary Relending Program
    The fiscal year 2006 budget includes $14.7 million in budget 
authority to support $34 million in loans under the intermediary 
relending program (IRP). The proposed level of funding will create or 
save an estimated 26,172 jobs over the 30-year period of this year's 
loans.
    Participation by other private credit funding sources is encouraged 
in the IRP program, since this program requires the intermediary to 
provide, at a minimum, 25 percent in matching funds. To illustrate the 
benefits IRP provides to rural America, I would like to share with you 
a success story from rural Maine.
    Wrabacon, Inc. was established in 1986 to design and build food and 
drug packaging systems for customers throughout the United States. It 
is located in a rural community with a population of less than 6,000 
and a 5.8 percent state unemployment rate and a 7.1 percent town 
unemployment rate. Wrabacon, Inc. employs about 13 highly skilled 
engineers and technicians with an annual payroll in excess of $600,000. 
The economic slow-down of 2001 had a deep effect on the company's sales 
and cash flow. Recently, with the economic recovery, the company is 
experiencing increased orders and sales.
    Using IRP funds received from Rural Development, the Kennebec 
Valley Council of Governments provided a $150,000 gap loan to bring 
Wrabacon's accounts payable under control and to fund a part of the 
company's operations. As a result of the loan, Wrabacon was able to 
approach a commercial lender and received a $245,000 line of credit. 
The combination of financing tools enabled Wrabacon to obtain needed 
working capital, continue its growth, and maintain its level of 
success. While retaining their existing employees, Wrabacon is now 
anticipating the construction of a 30,000 square foot addition to their 
existing facility for storage and expanded manufacturing. This is 
expected to produce an additional 10 to 15 new jobs.

Rural Business Enterprise Grant Program and Rural Business Opportunity 
        Grant Program
    No funding is requested for the rural business enterprise grant and 
rural business opportunity grant programs. For grants like these that 
are for community organizations to stimulate economic development, the 
President's fiscal year 2006 Budget proposes to consolidate them into a 
new economic and community development program to be administered by 
the Department of Commerce. The new program would be designed to 
achieve greater results and focus on communities most in need of 
assistance.

Rural Economic Development Loan and Grant Programs
    The fiscal year 2006 budget includes $25 million in rural economic 
development Loans (REDL) and $10 million in rural economic development 
grants (REDG). These programs represent a unique partnership, since 
they directly involve an Rural Development electric and 
telecommunications borrower in community and economic development 
projects. We provide zero-interest loans and grants to intermediaries, 
who invest the funds locally. The return on our equity from rural 
America is strong.
    The following is an example of how one REDLoan was utilized to 
expand capacity and create jobs with higher than average wages in 
Kentucky. P.J. Murphy Forest Products Corporation received a $250,000 
loan through the South Kentucky Rural Electric Cooperative Corporation. 
The family owned business, located in Bowling Green, produces bedding 
for laboratory animals and wood flour which is used as filler in the 
plastics industry. Demand for the company's products exceeded its 
production capacity. The company built a new facility in Wayne County, 
a designated Empowerment Zone, with an unemployment rate of 6.6 percent 
at the time of the loan, as compared to the national unemployment rate 
of 6 percent at the time of the loan. The $250,000 loan will be used to 
purchase new equipment for the new facility. By locating the new 
facility in the Empowerment Zone, the company will reduce its 
transportation and shipping costs and create up to 15 new jobs in Wayne 
County. These new jobs are expected to pay up to 1.8 percent above the 
current average per capita income for the county, demonstrating the 
Administration's commitment to increasing economic opportunities in 
isolated rural areas.

Renewable Energy Grants Program
    The fiscal year 2006 budget for the renewable energy systems and 
energy efficiency improvements program proposes $10 million of budget 
authority to support a $5 million grant program and a $286 million 
guaranteed loan program. Fiscal year 2006 will be the first full year 
of implementation of this combined loan and grant program. We 
anticipate publishing a final rule to implement the program on a 
permanent basis by August 2005. To date, we have relied on annual 
notices of available funding, a procedure that is generally limited to 
grant making.
    These programs support the President's Energy Policy by helping to 
develop renewable energy supplies that are environmentally friendly. In 
addition, they contribute to local rural economies through the creation 
of jobs and the provision of new income sources to rural small 
businesses, farmers, and ranchers. We anticipate 292,000 households 
will be served, and 3 million-kilowatt hours of energy generated while 
reducing greenhouse gasses by 6.3 metric tons.
    In fiscal year 2004, for example, a $10,000 grant was provided to a 
farmer in Cassia County, Idaho. The farmer purchased and installed a 
20kW wind turbine which began producing power in June of 2004. The 
turbine produces power that is sold to Idaho Power. It also is expected 
to supply the majority of the power consumed by the farmer's farm 
machinery repair shop as well as his residence. The program directly 
supports the President's goals of decreasing reliance on foreign oil, 
increasing the use of renewable energy, and reducing toxic emissions 
into the atmosphere.

                          COOPERATIVE PROGRAMS

    The cooperative form of organizational governance continues to be a 
cornerstone of business development in our rural communities. From the 
large agricultural marketing cooperatives that bring additional value 
to its members' products, to the small rural telephone cooperative that 
brings broadband technology to its community's businesses and 
residents, cooperative organizations provide our rural residents with 
new and exciting job opportunities, enhanced educational and health 
care opportunities, and the products and services that enable viable 
rural communities to compete with their urban and suburban 
counterparts.
    The participatory, self-help foundation upon which cooperative 
organizations are based is evidence of the very grass roots effort that 
made our Nation great and continues to serve our rural communities 
well. The mission of Rural Development's cooperative programs is ``to 
promote the understanding and use of the cooperative form of business 
as a viable organizational option for marketing and distributing 
agricultural products.'' Cooperative program staffs successfully carry 
out their mission by providing an array of educational and technical 
assistance, research, and funding services to cooperatives, their 
members, directors, and managers. Cooperative program staffs identify 
and respond to the opportunities and challenges facing rural 
cooperatives and agricultural producers, with a special emphasis on 
helping its cooperative clientele adjust to the continually changing 
economic forces in which they operate and compete in today's global 
marketplace. The cooperative programs are relatively modest in size, 
yet provide opportunities to encourage farmers and rural residents to 
organize cooperatives as a way to expand their income base.

Value-Added Producer Grant Program
    For fiscal year 2006, the budget requests $15.5 million for the 
value-added producer grant program. The value-added producer grant 
program encourages independent agricultural commodity producers to 
further refine or enhance their products, thereby increasing their 
value to end users and increasing the returns to producers. Grants may 
be used for planning purposes such as conducting feasibility analyses 
or developing business plans, or for working capital accounts to pay 
salaries, utilities and other operating costs. Program revisions were 
made in fiscal year 2005 that target grant funds to smaller, more 
economically challenged independent producers. In so doing, not only is 
Rural Development poised to infuse capital to meet rural America's most 
critical needs, but it is able to assist more producers by funding 
additional projects. With this budget request, Rural Development will 
be able to fund approximately 60 projects.
    The successful blending of modern technology with age-old tradition 
is evident in Northern Iowa and Southern Minnesota where Amish dairy 
farmers are producing and marketing blue cheese. With a $500,000 value-
added producers grant for marketing expenses, the Golden Ridge Cheese 
Cooperative was able to turn a first place tie at the American Cheese 
Society's 2004 contest into a profitable business opportunity. After 
winning for its Schwarz und Weiss natural rind blue cheese at one of 
world's most prestigious contests for specialty cheeses, ``Cheese is 
now flying out of here.'' Forming a cooperative to produce cheese in a 
modern plant was a difficult decision for the group because Old Order 
Amish do not use modern machinery. However, the group went forward with 
the modern cheese plant in order to preserve their way of life for 
their families to enjoy. The plant now uses about 5,000 pounds of milk 
a day that is purchased from the cooperative members and processed into 
the Schwarz und Weiss cheese, as well as two other brands of blue 
cheese. The plant employs about 20 full-time staff.
    Since the passage of the Farm Bill in 2002, funding for the 
Agricultural Marketing Resource Center (AgMRC) has been set at 5 
percent of the funding made available to the other value-added 
programs. Therefore, $775,000 of the $15.5 million budget request will 
fund the AgMRC's activities. AgMRC is an electronically based 
information center that creates, processes, analyzes, and presents 
information on value-added agriculture. The center is housed at Iowa 
State University and has partners at Kansas State University and the 
University of California--Davis. The center provides producers, 
processors, and other interested parties with critical information 
necessary to build successful value-added businesses.

Rural Cooperative Development Grant Program
    For fiscal year 2006, the budget requests $5.0 million for the 
rural cooperative development grant program. The rural cooperative 
development grant program provides funds to establish and operate 
centers for developing new cooperatives and improving the operations of 
existing cooperatives, with the primary goal of improving the economic 
conditions of rural areas. This program complements our national and 
State office technical assistance efforts by increasing outreach and 
developing feasibility studies and business plans for new cooperatives 
and assisting existing cooperatives in meeting the demands of today's 
ever-changing global economy. With this budget request, Rural 
Development will be able to fund additional 3 or 4 centers.
    A rural cooperative development grant made in 2003 enabled a rural 
Missouri cotton growers' cooperative to participate in today's emerging 
global markets. With assistance from the Missouri Enterprise Business 
Assistance Center in Rolla, Missouri, Delta Fibers, located in 
Caruthersville, Missouri, was introduced to Porter Tech, a Mexican 
import company. After visiting the Delta Fibers site, officials from 
Porter Tech entered into an agreement with Delta Fibers and in the 
summer of 2004, Missouri cotton began shipment into Mexico.

Cooperative Research Agreements
    For fiscal year 2006, the budget requests $500,000 for cooperative 
research agreements to encourage the study of those issues essential to 
the development and sustainability of cooperatives. Because so much of 
rural America's business endeavors are cooperatively formed, their 
continued success is critical for the continued sustainability of the 
Nation's rural communities. Through cooperative research agreements, 
Rural Development can continue to develop and maintain the information 
base vital for innovative, creative, and prudent decision making.

                               CONCLUSION

    Mr. Chairman, and Members of the Subcommittee, this concludes my 
testimony for the Rural Development fiscal year 2006 budget for rural 
business and cooperative programs. I look forward to working with you 
and other Committee members to administer our programs. I will be happy 
to answer any questions the Committee might have.
                                 ______
                                 

 Prepared Statement of Curtis M. Anderson, Acting Administrator, Rural 
                           Utilities Service

    Mr. Chairman, Members of the Subcommittee, thank you for the 
opportunity to present the fiscal year 2006 President's Budget for 
Rural Development utilities programs.
    A strong rural America is important for a strong Nation. We 
consider the rural utilities programs an important part of the USDA 
Rural Development mission. Safe, affordable, modern utility 
infrastructure is an investment in economic competitiveness and serves 
as a fundamental building block of economic development. Changes in the 
landscape of rural America, along with developments in technology, and 
changes in market structure combined with an aging utility 
infrastructure is occurring in the electric, telecommunications and 
water sectors. Without the help of USDA Rural Development's rural 
utility programs, rural citizens face monumental challenges in 
participating in today's economy as well as maintaining and improving 
their quality of life.
    The $40 billion RUS loan portfolio includes investments in 7,500 
small community rural water and waste disposal systems and 
approximately 2,000 electric and telecommunications systems serving 
rural America. This local/Federal partnership is an ongoing success 
story. Eighty percent of the Nation's landmass continues to be rural, 
encompassing 25 percent of the population. For an economy to prosper, 
we need infrastructure investment to spur economic growth, create jobs 
and improve the quality of life in rural America.

                            ELECTRIC PROGRAM

    The electric program budget proposes $6 million in budget authority 
to support a program level of $2.52 billion. The President's budget 
requests $920,000 in budget authority for a hardship program level of 
$100 million and over $5 million in budget authority for a $100 million 
program level for municipal rate loans. The direct Treasury rate loan 
program level is proposed to be $700 million provided for with a budget 
authority of $70 thousand. The guarantee of Federal Financing Bank 
(FFB) direct loans is proposed at a program level of $1.62 billion with 
no budget authority required. The FFB loans are made at the cost of 
money to the Federal Government plus one-eighth of a percent. As a 
result, no budget authority is required for this part of the FFB 
electric loan program. Over the past 4 years, we have eliminated most 
of the backlog of loan applications and we strongly believe that the 
President's budget request will meet the demand during the fiscal year 
2006.
    The electric program provides financing for rural electric 
cooperative to expand and upgrade the transmission and distribution 
systems needed to meet the demands of economic growth across our 
Nation.

              ADVANCED TELECOMMUNICATIONS IN RURAL AMERICA

    The area of rural telecommunications is the most rapidly changing 
aspect of rural utilities infrastructure. Job growth, economic 
development, and continued quality of life in rural America require 
access to today's high speed telecommunications.
    At the forefront of our telecommunications program is the broadband 
program created by the 2002 Farm Bill. The broadband loan program is 
distinctive from all other lending programs within the agency's 
portfolio. Nearly half of the applicants are ``start-up'' companies 
with little, if any, history of doing business in this industry. In 
addition, two distinctly different characteristics are at play--
competition (rather than a monopolistic environment) and multi-state 
businesses (rather than a single cooperative or independent company 
serving a single rural community). Very few of the applications are 
designed to serve a single rural community or even a small grouping of 
geographically close rural communities. Most are applications 
requesting to serve 50, 75, or in excess of 100 rural communities in 
multiple States. In these multiple community applications, the vast 
majority of the communities already have broadband service available in 
some of the proposed service area; in some instances, from more than 
one provider. As you can imagine, these factors contribute to increased 
review and processing efforts.
    In fiscal year 2004, the agency made 33 loans totaling $602.9 
million which will serve 535 communities. This means those communities 
are connected to global business opportunities, improved quality 
education and modern health care that was not available without those 
high speed telecommunications connections. Since 2001, 
telecommunications loan programs have provided funding to make 
available internet access to 1.3 million rural residents.
    In order to balance fiduciary responsibility with mission delivery, 
USDA is focusing on ``quality loans.'' A failed business plan 
translates not only into loss of taxpayer investment, but deprives 
millions of citizens living in rural communities of the technology 
needed to attract new businesses, create jobs, and deliver quality 
education and health care services.
    Building on USDA's experience and local presence in serving rural 
communities, we bring a unique lending expertise that includes the 
tools necessary to examine, and provide solutions for, the financial 
and the technical challenges facing entities dedicated to serving rural 
America. This model has resulted in a lending agency with unprecedented 
success in our other programs and we are dedicated to bringing that 
same level of success to this program.
    From the beginning, the President has recognized the importance of 
broadband technology to our rural communities. The President stated, 
``. . . we must bring the promise of broadband technology to millions 
of Americans . . . and broadband technology is going to be incredibly 
important for us to stay on the cutting edge of innovation here in 
America.'' The Bush Administration has been unwavering in its support 
for this and other programs that will revitalize and strengthen our 
rural communities.
    Let me assure you that we are on track, we remain focused, and we 
will complete our mission. We must continue to balance fiduciary 
responsibility with mission delivery everyday. Our unique lending 
expertise--the marriage of financial and technical analysis--helps to 
maximize the success rate of borrowers' business models. We will strive 
to do our part for rural America in fulfilling the President's promise 
of bringing broadband service to millions of citizens.

                       TELECOMMUNICATIONS BUDGET

    The fiscal year 2006 budget proposes a broadband loan program level 
of $359 million driven by $10 million in budget authority. This 
replaces the mandatory funding provided in the Farm Bill. In addition, 
$1.6 billion in unused loan authority that the Farm Bill provided 
remains available.
    Included in the discretionary broadband loans is $30 million in 
direct 4 percent loans requiring $2.4 million in budget authority; $299 
million in direct Treasury rate loans requiring $6.4 million in budget 
authority and $30 million in guaranteed loans requiring $1.1 million in 
budget authority.
    In the regular telecommunications program, the fiscal year 2006 
Budget calls for a program level of $669 million. Included is $145 
million in direct 5 percent loans, $424 million in direct Treasury rate 
loans, and $100 million in Federal Financing Bank (FFB) direct loans 
guaranteed by RUS. All of this is driven by $212,000 thousand in budget 
authority.
    The budget also reflects the Administration's commitment to resolve 
the complicated issues involving the administration of the Rural 
Telephone Bank by proposing dissolution. When the Rural Telephone Bank 
was created in 1971, there was no lender other than what was available 
through the USDA. However, there are now major lenders that provide a 
commercial source of rural telecommunications financing. In addition, 
funding for this program has exceeded demand. There are about $300 
million in unadvanced loan balances for loans available for 5 years or 
more. Dissolution will result in the government being repaid for all 
outstanding stock and the borrowers receiving a cash payout for their 
outstanding stock. Since the Administration is recommending 
dissolution, the budget does not request any budget authority to 
support RTB lending for fiscal year 2006. To ensure that rural 
telecommunications providers have access to adequate levels of 
financing, the budget requests that the standard RUS telecommunications 
loan programs be increased by $175 million.

                   DISTANCE LEARNING AND TELEMEDICINE

    Distance learning and telemedicine technologies are having a 
profound impact on the lives of rural residents. Helping rural schools 
and learning centers to take advantage of the information age and 
enabling rural hospitals and health care centers to have access to 
quality medical services only found in large hospitals, the distance 
learning and telemedicine (DLT) program pulls together the best of 
Federal assistance and local leadership.
    The DLT grants are budgeted at $25 million, the same as Congress 
appropriated for fiscal year 2005. The Budget proposes to zero out the 
loan program, simply because the nature of the prospective applicants, 
schools and hospitals, have placed the ability to repay loans out of 
reach.

                    WATER AND ENVIRONMENTAL PROGRAMS

    The water and environmental programs provide the most basic of 
infrastructure needs for rural citizens: clean, safe, affordable 
drinking water and ecologically sound waste disposal. No element is 
more vital to human life and dignity as clean, safe water. Rural 
communities are challenged to provide this vital service while facing 
increasing regulatory requirements and persistent drought conditions 
across a large area of the country.
    The budget request seeks $449.6 million in budget authority for a 
program level of $1.455 billion in loans and grants. The proposed loan 
levels are $1 billion in direct loans and $75 million in loan 
guarantees for water and waste disposal programs. The direct loan 
program requires $69 million in budget authority. To augment the loan 
programs, the budget request includes $377 million in grants. In 
addition, the budget requests an additional $3.5 million in solid waste 
management grants.

                                SUMMARY

    Rural utility infrastructure programs are interwoven in the fabric 
of USDA Rural Development programs. To provide safe, clean, water; 
modern communications; and reliable electric power means businesses can 
develop, homes can have light and heat, and markets can be opened to 
the rest of the world.
                                 ______
                                 

                  Prepared Statement of Joseph J. Jen

    Mr. Chairman, members of the Subcommittee, it is my pleasure to 
appear before you to discuss the fiscal year 2006 budgets for the 
Research, Education, and Economics (REE) mission area agencies of the 
USDA. I have with me today Deputy Under Secretary Rodney Brown, 
Administrator of the Agricultural Research Service (ARS) Edward 
Knipling, Administrator of the Cooperative State Research, Education, 
and Extension Service (CSREES) Colien Hefferan, Administrator of the 
Economic Research Service (ERS) Susan Offutt, Administrator of the 
National Agricultural Statistics Service (NASS) Ronald Bosecker, and 
Office of Budget and Program Analysis' (OBPA) Deputy Director for 
Budget, Legislative, and Regulatory Systems Dennis Kaplan. Each 
Administrator has submitted written testimony for the record.
    Before addressing the fiscal year 2006 budget, I want to express my 
appreciation for the support received from Congress in our 
appropriations for fiscal year 2005. We fully understand the pressure 
the Congress, in addition to the Executive branch, is under to keep a 
tight reign on the budget and control the Federal deficit. As much as 
that was needed in developing the budget for fiscal year 2005, it is 
even more true for the fiscal year 2006.
    As you know, the President is committed to cutting the Federal 
deficit in half over the next 5 years. Reducing the Federal deficit is 
critical for continuing the current strength of the economy. As 
Secretary Johanns said in his testimony before this subcommittee, ``no 
department can opt out of helping in Federal deficit reduction. USDA 
must play its role as much as any department.'' In the same way, REE is 
not exempt from helping USDA achieve this government-wide goal.
    The President's fiscal year 2006 budget proposes $2.320 billion for 
the four REE agencies, $347.2 million less than the fiscal year 2005 
appropriations, and close to the fiscal year 2005 President's proposed 
budget of $2.403 billion. The importance of research in promoting a 
competitive and secure food and agriculture sector, safe food, and a 
healthy population, remains critical, even under constrained budgets. 
Recently at the Agricultural Outlook Forum, Secretary Johanns said, 
``Advances in science and technology have always been a part of our 
success and they will continue to be.'' The phenomenal increases in 
agricultural productivity over many decades in this country are the 
product of science and technology. The same can be said for the 
increasingly environmentally-friendly production practices used across 
the Nation. Much of the improvement in our food safety system can be 
attributed to research, and the recently released Dietary Guidelines 
for Americans 2005 are firmly based on up-to-date research findings. 
The bottom line is that science and technology are the foundation of 
the American food and agricultural system.
    REE agencies are at the center of the research system, supporting 
the food and agricultural sector. They have a proud history over many 
decades of finding solutions to the challenges confronting farmers, 
ranchers, and others involved in agriculture, resulting in a high 
return on the Federal investment to our Nation, which enjoys a 
plentiful, affordable, and safe food supply. This remarkable history of 
success continues today, yielding new knowledge, technologies, 
statistics, and analysis for effectively addressing today's problems 
and building the scientific and technological foundation for addressing 
tomorrow's problems and opportunities.
    However, high quality and relevant research cannot guarantee a 
successful, competitive food and agricultural sector. Natural events, 
market conditions, and resistance to the adoption of new technologies 
can be barriers to the translation of new knowledge and technology into 
business gains. At the same time, in the absence of such research, the 
food and agricultural sector runs the risk of losing its competitive 
edge in global markets.
    A most notable example of addressing today's problems relates to 
the recent arrival of soybean rust on our shores. For some time 
scientists have been saying that this plant disease would inevitably 
arrive in the United States, carried by winds from South America where 
the disease has been residing for several years. REE agencies, their 
partners in other USDA agencies, the research and scientific community, 
State departments of agriculture, and soybean industry organizations, 
have been preparing for this anticipated event that became a reality 
last November in Louisiana. There are now 29 confirmed cases in nine 
States.
    Effective management and control of soybean rust relies on early 
detection, correct identification, and proper and timely application of 
fungicides. Starting in 1998, REE agencies have played a critical 
leadership role with the ultimate goal of providing producers with 
effective disease management options. For example, ARS scientists have 
developed a real-time rapid detection test that has been adopted by the 
Animal and Plant Health Inspection Service (APHIS). It will provide a 
quick, easy and accurate means to detect soybean rust as part of a 
national surveillance system. CSREES has been at the forefront of 
training first detectors. In June of 2004, a regional soybean rust 
teleconference attracted nearly 1,000 participants who grow or service 
nine million acres of soybeans. CSREES, in collaboration with APHIS, 
has also been instrumental in establishing a National Plant Diagnostic 
Network of strategically located university-based laboratories that 
support APHIS laboratories, facilitating rapid and accurate detection.
    In September 2004, ERS published an article on the economic risks 
of soybean rust in the United States in its publication, Amber Waves. 
The article indicated that the economic effects of the pathogen's entry 
into the United States could vary considerably, depending on growing 
conditions, the severity and spread of the disease, and producers' 
responses. This analysis presented policymakers and the soybean 
industry with information to make more informed decisions in responding 
to the detection of the soybean rust in 2004.
    Similar to our work on soybean rust, the REE agencies and their 
partners in the research community are also collaborating effectively 
in genomics research. The future of agriculture is in genomics and 
related fields such as proteomics and functional genomics. Sequencing 
the genome of important agricultural plants and animals and learning 
about the functions of different genes and genetic markers hold the 
promise of a whole new generation of agricultural products that are 
nutritionally enhanced, disease resistant, and less dependent on 
fertilizers and herbicides. Genetic research is also central to the 
development of rapid diagnostic tests, such as the ones used by APHIS 
to identify avian influenza and exotic Newcastle disease.
    Genomics is a prime example of research that takes years to 
complete and years to realize many of the benefits, but that fact makes 
it no less valuable. The ARS budget proposes an increase of $12.8 
million for animal and plant genomics and related research and 
preservation of animal and plant genetic resources. Under CSREES' 
National Research Initiative (NRI), $11 million is proposed for 
agricultural genomics research focused on the maize and swine genomes.
    Another pioneering research direction, such as nanotechnology, 
provides a new approach for addressing perennial challenges in 
agriculture and capitalizing on new possibilities. Nanotechnology 
refers to research and development at the atomic, molecular or 
macromolecular levels, in the length scale of approximately 1 to 100 
nanometer range. The technology takes advantage of novel properties and 
functions of systems and structures because of their size. Already used 
in both the medical and environmental arena, we are only beginning to 
explore the promise this technology holds for agriculture. For example, 
it could be used to develop healthy and tasty foods and products that 
can be identified and tracked based on nanoscale bar codes. Eight 
million dollars of the proposed increase in NRI funding will be 
allocated to nanotechnology.
    I would like to highlight three high priority programs in which the 
REE agencies have a major role that would be enhanced with additional 
funding in the President's proposed budget.
    Food and Agriculture Defense Initiative.--The interagency Food and 
Agriculture Defense Initiative, now in its second year, focuses on 
strengthening the Federal Government's capacity to identify and 
characterize bioterriorist attacks. The USDA component specifically 
relates to protecting the food supply and agricultural production, 
protecting USDA facilities, and ensuring USDA staff preparedness for a 
potential event. The fiscal year 2006 budget provides increased program 
funding of $35 million and $26 million for ARS and CSREES, 
respectively, to expand their participation in this initiative. This 
investment is just another step in President Bush's commitment to 
protect homeland security.
    The ARS increases will allow the agency to expand the National 
Plant Disease Recovery System designed to ensure that disease resistant 
seed varieties are continually developed and made available to 
producers in the event of a natural or intentional catastrophic disease 
or pest outbreak. The increased funds will also support the 
strengthening of ongoing ARS research on rapid response systems to 
selected agents, improved vaccines, and identification of genes 
affecting disease resistance.
    A $59 million request in the ARS buildings and facilities account 
will complete the modernization of the National Centers for Animal 
Health in Ames, Iowa. This consolidated ARS and APHIS facility will 
house and support an integrated, multidisciplinary scientific 
capability, combining animal disease research with the development of 
diagnostic tools and vaccines. Including its biosecurity level two 
(BSL-2), BSL-3, and BSL-3 Ag spaces, the Centers will be a state-of-
the-art facility, unique in the world.
    The budget provides CSREES with $30 million, an increase of $21 
million, to maintain and enhance the National Diagnostic Laboratory 
Network of public agricultural institutions that serves as a backup to 
APHIS' diagnostic laboratories for both animals and plants. The network 
is playing an important role in the detection and control of soybean 
rust and sudden oak death. The network laboratories are now in a 
position to do confirmatory tests of soybean rust at the county and 
farm level and are ready to detect and track the rust in the coming 
growing season. The diagnostic laboratory network has also been 
important in identifying sudden oak death on nursery stock before being 
sold to the public. The initiative also includes $5 million for a 
CSREES competitive program that would promote the training of food 
system defense professionals who are critically needed in securing our 
Nation's agricultural and food supply.
    BSE Related Activities.--Bovine Spongiform Encephalopathy (BSE) 
continues to be a challenge for the livestock sector. While no new BSE 
has been detected in the United States since the first case in December 
2003, two cases have been identified in Canada. Building on its current 
BSE and related prion research program, the budget provides ARS with an 
additional $7.5 million to further our scientific understanding of the 
disease and develop technology needed by regulatory agencies to 
establish science-based policies and control programs.
    Nutrition Research and Education.--Concern continues regarding the 
epidemic of obesity in our Nation. Particularly disquieting is the 
incidence of obesity in children, estimated to be approximately 15 
percent and essentially doubling between 1980 and 2000. At any age and 
for any group, the causes of obesity are many and complex. They include 
reduction in physical activity, greater reliance on convenience foods 
and restaurants, and more basically, the consumption of more calories. 
The reasons behind these behavior choices are complicated and not well 
understood. Moreover, without a better understanding of the drivers of 
these behaviors, it will be difficult to design effective types of 
interventions, such as education programs, public information 
announcements, or community campaigns, to help individuals and families 
achieve and maintain healthy weights.
    USDA, with its food assistance, nutrition education, and nutrition 
research programs, plays an important role in promoting healthy 
nutrition and weight, in general, and in addressing the obesity, in 
particular. Contributing to the President's Healthier United States 
initiative, the fiscal year 2006 budget proposes increases for ARS, 
CSREES, and ERS that will strengthen the Department's capacity to 
address this major national health problem and associated issues. The 
increases will focus principally on gaining a better understanding of 
the factors influencing food consumption patterns and the development 
of effective interventions to promote healthy dietary choices and 
prevent obesity.
    An ARS increase of $6 million will improve the accuracy and ethnic 
representation of ``What We Eat in America,'' a component of the 
National Health and Nutrition Examination Survey (NHANES). This joint 
USDA/Centers for Disease Control and Prevention survey is the principal 
source of Nation-wide information on individuals' food consumption and 
associate health status. An additional $2.3 million will be used for 
nutrition research on obesity and nutrition survey research on the 
energy and nutrient content of food consumed by minority populations.
    The CSREES increase of $7.5 million in the NRI will focus on 
understanding the environmental and social factors influencing 
behaviors leading to childhood obesity.
    A $0.6 million increase in the ERS budget will support a behavioral 
economic research program to identify strategies for developing 
effective nutrition messages that motivate consumers to adopt more 
healthful diets.
    The Expanded Food and Nutrition Education Program (EFNEP) in the 
CSREES budget works directly with low-income individuals to help them 
better manage food budgets, gain skills in safe food preparation, and 
improve their diets. The program has a very impressive track record of 
achieving positive, sustained behavioral changes related to food and 
diet. The fiscal year 2006 proposed budget provides EFNEP an increase 
of $4.5 million to $63 million, reaching a legislatively required 
funding level needed for the 1890 Land-Grant Institutions to 
participate in the program. The increase allows the program to reach 
more people in more counties.
    Before turning specifically to the REE agency budgets, I would like 
to discuss a specific proposal found in the CSREES budget. The 
Administration strongly believes that competitive research programs 
provide the best mechanism for ensuring the allocation of funds to the 
highest quality projects. Consistent with this policy position, this 
year's CSREES budget proposes the redirection of funds from the Hatch 
and McIntire-Stennis formula research programs to competitively awarded 
grant programs over the next 2 years, and the reallocation of Animal 
Health research formula funds in fiscal year 2006. A new State 
Agricultural Experiment Station (SAES) Competitive Grants Program of 
$75 million will support the same types of research at Agricultural 
Experiment Stations that are currently supported by formula funds. The 
budget also proposes eliminating the cap on indirect costs for CSREES 
grants. Instead, the indirect cap for grants will be at a negotiated 
level for each institution, a practice consistent with most other 
Federal research grant programs.
    Finally, all four REE agencies are currently initiating or 
strengthening a formal process framed by the criteria of relevance, 
quality and performance called for in the President's Management Agenda 
initiative on research and development programs. These agency processes 
are centered on reviews by external scientists that provide valuable 
objective insights and recommendations for the programs, as well as 
ratings that are used in the Program Assessment Rating Tool (PART) 
employed by the Office of Management and Budget under the President's 
Management Agenda. I am pleased to report that the three REE agency 
programs that were reviewed under the PART in fiscal year 2004 received 
scores of moderately effective, and we continue to improve agency 
performance measures as part of a larger effort to enhance the 
effectiveness of the REE programs.

                  REE AGENCY FISCAL YEAR 2006 BUDGETS

    I would now like to turn briefly to the budgets of the four REE 
agencies.
    Agricultural Research Service.--As the principal intramural 
biological and physical science research agency in USDA, ARS plays a 
critical role for the Department and the larger agricultural community 
in conducting research to develop new scientific knowledge and 
technologies to solve high priority agricultural problems of broad 
scope. It also is home to the National Agricultural Library (NAL), the 
Nation's major information resource in the food, agricultural and 
natural resource sciences. The fiscal year 2006 budget requests $1.1 
billion for ARS. Within that total, $996 million is proposed for 
research and information programs, approximately $100 million less than 
was appropriated in fiscal year 2005. The $65 million proposed for 
buildings and facilities is principally directed to complete the 
modernization of the National Centers for Animal Health in Ames, Iowa.
    The ARS budget proposes increases totaling $97 million for high 
priority program areas of national and regional importance, such as 
food safety, emerging and exotic diseases, BSE, human nutrition/
obesity, genomics and genetic resources, and climate change. To offset 
these increases the budget proposes the elimination of approximately 
$175 million in Congressional earmarks and $28 million in other project 
terminations.
    In addition to those previously described, the ARS budget proposes 
increases for controlling emerging diseases and invasive species 
affecting animals ($8.6 million) and plants ($17.7 million), a 
significant portion of which is included in the Food and Agriculture 
Defense Initiative. Targets for the fiscal year 2006 animal protection 
research program include developing systems for rapid response to 
selected agents and implementing a vaccine research program for control 
and eradication of biological threat agents. Plant protection research 
targets for fiscal year 2006 include developing and releasing to 
producers new varieties of plant stock with insect and disease 
resistance. An increase of $15.3 million in food safety research is 
proposed to develop surveillance, sampling, and detection methods to 
rapidly detect and identify foodborne pathogens as part of the Food and 
Agriculture Defense Initiative.
    High energy prices, instability in petroleum exporting countries, 
environmental concerns, and the potential for new markets for 
agricultural products have generated great interest in the development 
of bioenergy. ARS continues to conduct research to generate scientific 
knowledge and technologies to support production of affordable 
bioenergy products. An increase of $2.5 million will be used to 
accelerate this bioenergy research and technology program, as well as 
other biobased products research. Fostering increased use of renewable 
fuels and decreasing our dependence on foreign oil is a key component 
of the President's energy plan.
    Agricultural production is vulnerable to changes in climate, such 
as rising temperatures, changing amounts of precipitation, increased 
variability in weather, and increases in the frequency and intensity of 
extreme weather events. These environmental changes also offer 
opportunities for agriculture to help address the undesirable 
accumulation of greenhouse gasses. An increase of $3.2 million in the 
President's budget for the Climate Change Research Initiative will 
support research providing information on balancing carbon storage, 
emissions, and agricultural productivity in different agricultural 
systems across the Nation. In particular, the research will generate 
new knowledge on how to manage livestock, manures, fertilizers, 
biological nitrogen fixation, and soils to minimize emissions and 
increase sinks for greenhouse gasses. Other increases will support 
research on agricultural air quality ($0.9 million) and water 
protection and management ($0.9 million).
    In the age of digital information, NAL is providing national 
leadership through the development of the National Digital Library of 
Agriculture. The requested increase of $1.9 million will allow NAL to 
enhance development and delivery of content for the digital library, as 
well as continue to integrate the AGRICOLA database into the digital 
library.
    Advances in information technology (IT), including the ability to 
store and share information, are enabling agencies, such as ARS, to 
gain great efficiencies and collaborative power in conducting research. 
These advances, however, also make ARS' IT infrastructure more 
vulnerable to cybersecurity attacks. The safety of sensitive research 
information from unauthorized intruders is critical to the agency's 
research program. As part of the USDA Homeland Security request, the 
fiscal year 2006 budget proposes $3.6 million to strengthen ARS' 
cybersecurity program by increasing the number of cybersecurity 
officers and securing and implementing new cybersecurity tools.
    Cooperative State Research, Education, and Extension Service.--The 
President's fiscal year 2006 budget provides just over $1 billion for 
CSREES. Compared to fiscal year 2005, the budget includes an increase 
of $38 million in on-going programs and the elimination of $181 million 
in unrequested increases. The Administration's request places a strong 
emphasis on increases in the REE mission area for Food and Agriculture 
Defense and peer-reviewed competitive grants. In providing critical 
funding for the research, education, and extension programs of the Land 
Grant system and other universities and organizations across the 
country, CSREES continues to play a central role in the generation of 
new knowledge and technology and the transfer of that knowledge and 
technology to producers and consumers.
    As described above, the budget proposes shifting the research 
formula funds under the Hatch Act, Cooperative Forestry Research 
Program (McIntire-Stennis), and Animal Health and Disease Research 
programs to competitive programs over the next 2 years. The proposal 
for fiscal year 2006 redirects half of the Hatch and McIntire-Stennis 
funds and all of the Animal Health and Disease funds. State 
Agricultural Experiment Stations will be eligible to apply for grants 
under the new State Agricultural Experiment Station (SAES) Competitive 
Grants Program funded at $75 million. Other formula funds will be 
shifted to the NRI which would be funded at $250 million, an increase 
of $70 million over the fiscal year 2005 appropriation level. The 
details of the new SAES program will be developed by CSREES in 
consultation with the land grant institutions and other stakeholders.
    Administration of research previously funded under the competitive 
406 integrated program has been moved to the NRI and SAES Competitive 
Grants Program, where the same range of research will be supported. 
Finally, the budget proposes eliminating the current indirect cost cap 
for CSREES grants, currently set at 20 percent. Instead, the cap will 
be negotiated for each institution, following the standard practice of 
most other Federal competitive research programs. Lifting the cap 
responds to frequently voiced concerns that researchers in some 
institutions are discouraged from applying for NRI grants because the 
20 percent cap does not cover true indirect costs to the grantee 
institution.
    The NRI, the agency's flagship competitive program, continues to be 
a very valuable avenue for supporting cutting-edge research conducted 
by the finest scientists across the country. The $70 million increase 
in the NRI for fiscal year 2006 will support new research in genomics, 
nanotechnology for functional foods and food safety, and emerging 
issues in food and agricultural defense. The investment in food and 
agricultural defense will help fill critical knowledge gaps in real 
time or near real time rapid detection tests and monitoring 
surveillance systems of animal and plant disease. Extensive efforts are 
underway in several agencies to produce rapid, sensitive detection 
tools. However, their value relies on their being used correctly to 
help minimize the probability that animal disease outbreaks in the 
United States may spread widely before containment procedures begin. 
CSREES will support research that fills this critical knowledge gap on 
the use of these tests in real time or near real time detection and 
monitoring.
    The budget calls for an increase of $1.5 million in the CSREES 
Graduate Fellowship Grant Program. Despite recent gains in support for 
minority-serving institutions and programs encouraging diversity in 
higher education and the workforce, the Nation faces chronic challenges 
in promoting human capital development that enables all citizens to 
realize their educational potential. The food and agricultural system 
would benefit from an expanded base of skilled scientists, technicians, 
and other professionals as the baby-boomers begin to retire. The 
proposed increase will allow CSREES to further expand the number of 
fellowships offered at the Master of Science level, essential for 
recruiting minority graduate students.
    Economic Research Service.--ERS is provided $80.7 million in the 
President's fiscal year 2006 budget. As the Department's principal 
intramural economics and social science research agency, ERS conducts 
research and analysis on the efficiency, efficacy, and equity aspects 
of issues related to agriculture, food safety, human nutrition, the 
environment, and rural development. Its programs and products are 
shaped principally to serve key decision-makers who routinely make or 
influence public policy and program decisions.
    The budget provides an increase of $5.8 million to continue the 
development of ERS's Consumer Data and Information System, a data and 
analysis framework of the post-farm gate food system. It is designed to 
identify, understand and track changes in food support and consumption 
patterns for use in policy decisions in the food, health, and consumer 
arenas. Fiscal year 2005 appropriations provided funds for implementing 
one component of the system, the Flexible Consumer Behavior Survey 
Module (FCBSM). The survey will be coordinated with the NHANES survey 
managed by the National Center for Health Statistics of the Centers for 
Disease Control and Prevention. in order to link data on individual's 
knowledge and attitudes about dietary guidance and food safety with 
data on food intake, dietary status, and health outcomes.
    The increased funds will support a second component, a Rapid 
Consumer Response Module that will provide real-time information on 
consumer reactions to unforeseen events and disruptions, current market 
events, and government policies. The funds will also be used to create 
a Food Market Surveillance System of surveys and analyses to identify 
food consumption patterns and how consumers respond to changes in the 
food market place and in customers' lifestyles over time.
    The data and analytical capacity made possible through the proposed 
Consumer Data and Information System is crucial to understanding the 
quickly evolving consumer-driven food and agricultural system. The 
information from this system will help producers and processors to 
continue competing effectively in domestic and global markets and will 
help policymakers to identify and develop strategies addressing 
nutrition and obesity issues at different levels of the food system.
    National Agricultural Statistics Service.--NASS' budget requests 
$145.2 million, an increase of $16.7 million over fiscal year 2005. 
NASS' comprehensive, reliable, and timely data are critical to policy 
decisions, maintaining stable agricultural markets, and ensuring a 
level playing field for all users of agricultural statistics.
    The budget provides $7 million for continuing a multiyear 
initiative begun in fiscal year 2004 to restore and modernize NASS' 
core estimates program to meet data users' needs with an improved level 
of precision. A second increase of $1.8 million will incrementally 
improve statistically defensible survey precision for small area 
statistics that are used by the Risk Management Agency and the Farm 
Service Agency in USDA, among others.
    The Census of Agriculture, conducted by NASS, provides 
comprehensive data on the agricultural economy on a 5-year cycle. In 
the fiscal year 2006 budget, NASS is requesting an increase of $6.5 
million to prepare for the 2007 Census, including finalizing, field 
testing and evaluating the questionnaire.

                                SUMMARY

    In summary, I want to reinforce the message that, while developed 
within the context of the need to reduce the Federal deficit, the REE 
budget reflects a continuing commitment to investment in high priority 
agricultural research, statistics, education, and extension programs. 
As such, it supports the Federal commitment to solving today's problems 
and challenges faced by agricultural producers and to developing the 
knowledge and tools of cutting-edge science to address future problems 
and explore new scientific advances. This concludes my statement. Thank 
you for your attention.
                                 ______
                                 

     Prepared Statement of Dr. Edward B. Knipling, Administrator, 
                     Agricultural Research Service

    Mr. Chairman and members of the Subcommittee, I appreciate this 
opportunity to present the Agricultural Research Service's (ARS) budget 
recommendations for fiscal year 2006. The President's fiscal year 2006 
budget request for ARS' research programs is $996.1 million, a net 
decrease of $105.9 million from the fiscal year 2005 funding level. The 
budget recommends $87.9 million in new and expanded research programs 
which address the Nation's highest food and agriculture priorities. 
Nearly half of the increase requested, $42.6 million, is in support of 
the Federal Government's initiative to strengthen the Nation's homeland 
security. ARS homeland security research focuses on the areas of food 
safety, emerging and exotic diseases of animals and crops, and the 
National Plant Disease Recovery System. There are also new and expanded 
initiatives in critical research areas, such as Bovine Spongiform 
Encephalopathy (BSE), invasive species of animals and plants, and 
obesity. Other ARS program initiatives include research on genetics and 
genomics, biobased products and bioenergy, air and water quality, and 
climate change. The Agency is also requesting an increase of $9.3 
million to finance pay costs required in fiscal year 2006.
    The budget again proposes the termination of unrequested research 
projects and resources appropriated in recent years. The appropriations 
associated with the proposed project terminations total $203.1 million. 
The savings to be achieved through the proposed terminations will be 
redirected to finance the higher priority research initiatives proposed 
in ARS' budget, as well as to help reduce overall Federal spending.
    The ARS budget also includes $64.8 million under the Buildings and 
Facilities account for the design, modernization, and construction of 
ARS facilities. In particular, the budget requests $58.8 million for 
the completion of the modernization of the National Centers for Animal 
Health at Ames, Iowa.

                       PROPOSED PROGRAM INCREASES

    Food Safety ($15.3 million).--Ensuring the safety of the Nation's 
food supply is essential and vitally important to U.S. Homeland 
Security. Bioterrorism against our food supply would affect the health 
and safety of consumers and their confidence in the safety of the food 
they consume. It would also have far-reaching impacts on the country's 
economy, given that U.S. agriculture contributes over $1 trillion to 
the gross domestic product. ARS research will focus on assessing the 
vulnerabilities of the food supply, strengthening and expanding 
laboratory preparedness, and developing technologies that rapidly 
identify suspected food pathogens and toxins. ARS will work in these 
areas of prevention, detection, and response with the Food Safety and 
Inspection Service and other USDA agencies through programs such as the 
Collaboration for Animal Health and Food Safety Epidemiology.
    Emerging and Exotic Diseases of Animals and Plants ($19.5 
million).--The United States is increasingly vulnerable to emerging 
animal and plant diseases which could threaten the country's Homeland 
Security. The threat of new diseases--whether they are a result of 
bioterrorism or of naturally occurring epidemics--is an urgent and 
growing challenge to livestock producers. Bovine Viral Diarrhea in 
cattle, Porcine Reproductive Respiratory Syndrome in swine, and Marek's 
disease virus in chickens are examples of these exotic diseases. 
Harmful animal diseases introduced into the United States in recent 
years from foreign countries include Avian Influenza and Exotic 
Newcastle Disease. Brucellosis, Leptospiroris, and West Nile Virus are 
still other examples of zoonotic diseases that pose a threat not only 
to animals but to humans as well. Similarly, exotic and emerging plant 
diseases--wheat and barley rusts, citrus canker, and corn viruses--
present a potential threat to the Nation. With the proposed increase, 
ARS will develop vaccines, intervention strategies, and diagnostics for 
the prevention, detection, identification, control, and eradication of 
biological threat agents. ARS will also strengthen its collaborative 
partnerships at the national and international levels to obtain access 
to essential agents and data.
    National Plant Disease Recovery System ($4.2 million).--The 
emergence or spread of certain plant diseases, such as soybean rust, 
citrus variegated chlorosis, or bacterial wilt, could seriously harm 
America's agriculture. Recovery from a significant disease outbreak 
requires a national system to manage host/pathogen interactions and 
deploy resistant plant resources using cultural, biological, and 
chemical control strategies. Homeland Security Presidential Directive 
(HSPD-9) has charged ARS with the responsibility for leading this 
effort with the Cooperative State Research, Education and Extension 
Service (CSREES), the Animal and Plant Health Inspection Service 
(APHIS), and others. ARS will use the proposed increase to minimize the 
impacts of devastating crop diseases by documenting and monitoring 
plant diseases, developing germplasm and plant varieties with improved 
disease resistant characteristics, implementing integrated pest 
management approaches, and transferring genetic resources (i.e., 
disease resistant plant varieties) to its customers.
    Bovine Spongiform Encephalopathy ($7.5 million).--BSE is a 
progressive, degenerative, fatal disease affecting the central nervous 
system of adult cattle. It is believed that eating contaminated beef 
products particularly from BSE-affected cattle causes a variant form of 
Creutzfeldt-Jacob Disease in humans. The first case of BSE was 
identified in the United States on December 23, 2003. We must discover 
the cause of BSE and develop diagnostic tools to protect the U.S. food 
animal industry and human health. The proposed increase will allow ARS 
scientists to enhance the implementation of a national, coordinated 
research program (with European scientists and others) in BSE 
pathogenesis, diagnostics, and intervention.
    Invasive Species ($6.8 million).--The security of the U.S. 
livestock and poultry industries is threatened by the emergence of 
animal parasites. Of particular concern is the worldwide emergence of 
drug resistant nematodes and protozoa. Plants are also at risk. Sudden 
Oak Death has had negative effects on California's plant nurseries. 
Salt Cedar and Yellow Starthistle (invasive weeds) have caused 
agricultural and environmental damage in several western States. Lobate 
Lac Scale, Asian Longhorned Beetle, and Emerald Ash Borer (invasive 
insects) have caused damage to a wide range of plant species. ARS will 
use the proposed increase to target its research on controlling Sudden 
Oak Death, Salt Cedar, Yellow Starthistle, Lobate Lac Scale, Asian 
Longhorned Beetle, and Emerald Ash Borer. It will also develop control 
technologies for invasive drug resistant nematodes and protozoa of 
livestock and poultry. These new technologies will help facilitate 
trade of U.S. commodities and reduce the risk of new harmful species 
being inadvertently introduced into the United States.
    Geonomics ($9.2 million).--Genomics holds the key to maintaining 
America's agricultural competitiveness in global markets. Advances in 
genomics research can improve the production and quality of food 
products, prevent animal and plant diseases, and produce foods which 
are richer in nutrients. ARS needs to continue its work on 
characterizing, identifying, and manipulating the useful properties of 
genes and genomes. In this regard, ARS will use the proposed increase 
to identify genes that influence animal and plant growth and quality, 
disease resistance, and other economically important traits. ARS will 
continue to coordinate its genomics research with NIH's National Human 
Genome Research Institute, CSREES, and the National Science Foundation.
    Genetic Resources ($3.6 million).--The rate of extinction of lines 
and strains of food animals and plants is rapidly accelerating. The 
Nation needs a more comprehensive program to maintain threatened 
germplasm to prevent the loss of genetic diversity. An adequate supply 
of useful genes is essential in the event of bioterrorism or other 
crises (e.g., Foot and Mouth Disease, Exotic Newcastle Disease, etc.). 
With the proposed increase, ARS will enhance its ability to collect, 
identify, characterize, and incorporate plant germplasm into 
centralized gene banks. The additional funding will help sustain ARS' 
National Plant Germplasm System repositories. The additional funding 
will also enable further development of cryopreservation technologies 
for the long-term storage of important animal germplasm (i.e., of 
poultry, aquaculture, cattle and swine).
    Human Nutrition/Obesity Research ($8.3 million).--Obesity is one of 
this country's fastest growing public health problems. It contributes 
to heart disease, cancer, diabetes, and other illnesses resulting in 
hundreds of billions of dollars in health care costs each year. 
Understanding food consumption trends and the factors that influence 
dietary choices is critical for developing strategies for preventing 
and mitigating obesity. ARS will use the proposed increase to conduct 
nutrition surveys and research to prevent obesity in children, middle-
aged adults and others.
    Biobased Products/Bioenergy Research ($2.5 million).--Soaring 
energy prices, environmental concerns, and depressed agricultural 
commodity prices highlight the need to develop alternative domestic 
sources of energy. In addition, chemical and energy companies are 
seeking renewable feedstocks for the production of chemicals and 
materials that are currently made from petroleum feedstocks. The 
Biomass Research and Development Act of 2000 promotes the use of 
biobased industrial products, and the Food Security and Rural 
Investment Act of 2002 encourages the development and use of bioenergy. 
ARS will focus its research on: (1) improving the quality and quantity 
of agricultural biomass feedstocks for the production of energy, (2) 
developing technologies to produce biofuels from agricultural 
commodities, and (3) developing technologies leading to new value-added 
products from food animal byproducts. Increased development of 
bioenergy and biobased products will expand market opportunities for 
U.S. agriculture and reduce the Nation's dependence on petroleum 
imports from unstable regions.
    Air and Water Quality ($1.8 million).--Millions of Americans are 
exposed to air pollution levels that exceed the Environmental 
Protection Agency's air quality standards. Agricultural activities, 
such as animal production operations, which produce ammonia, 
particulate matter, and volatile organic compounds, can adversely 
affect air quality. Another concern is the Nation's 11,000 small 
watershed dams that no longer meet current safety standards and need to 
be updated. ARS will use the proposed increase to develop new 
technologies that reduce gaseous and particulate matter emissions from 
animal feeding operations. It will also improve water quality and 
environmental benefits through agricultural systems research, as well 
as develop technologies which can be used to rehabilitate the Nation's 
aging watershed dams.
    Global Climate Change ($3.2 million).--Climate change encompasses 
global and regional changes in the earth's atmospheric, hydrological, 
and biological systems. Agriculture is vulnerable to these 
environmental changes. The objective of ARS' global change research is 
to develop the information and tools necessary for agriculture to 
mitigate or adapt to climate change. ARS has research programs on 
carbon cycle/storage, trace gases (i.e., methane and nitrous oxide), 
agricultural ecosystem impacts, and weather/water cycle changes. ARS 
will use the proposed increase to develop climate change mitigation 
technologies and practices for the agricultural sector. Specifically, 
ARS will: (1) conduct interdisciplinary research leading to 
technologies and practices for sustaining or enhancing food and fiber 
production and carbon sequestration by agricultural systems exposed to 
multiple environmental and management conditions, (2) expand the 
existing network of ARS sites conducting measurements of greenhouse gas 
fluxes between the atmosphere and the land, and (3) identify ways to 
decrease methane emissions associated with livestock.
    National Digital Library for Agriculture and Improved Agricultural 
Information Services ($1.9 million).--In 2001, both a ``Blue Ribbon 
Panel'' and an advisory board concluded that NAL needed increased 
resources to meet its potential, taking advantage of technological 
innovations for timely information access and retrieval. The proposed 
funding will support the development of additional information content 
for emerging diseases effecting crops and continue the revitalization 
of NAL, enabling it to better deliver relevant information products, 
satisfy increasingly complex customer demands, and provide leadership 
as the premier agricultural information resource of the United States.
    Information Technology ($4.2 million).--ARS information technology 
(IT) systems and networks are exposed to an unprecedented level of 
risk. Of particular importance is safeguarding the agency's pathogenic, 
genomic, and other sensitive research information from being acquired 
or destroyed by unauthorized intruders through unprotected or 
undetected cyber links. Agencywide centralized security measures are 
needed to counter security threats. ARS must also ensure that its IT 
infrastructure (i.e., computers, network hardware, etc.) is up-to-date 
and reliable. ARS will use the proposed increase to replace, upgrade, 
and secure its IT equipment and systems.

                      PROPOSED OPERATING INCREASES

    In addition to the proposed research initiatives, ARS' fiscal year 
2006 budget provides funding to cover costs associated with pay raises. 
An increase of, $9.3 million, is critically needed to avoid erosion of 
the agency's base resources. Absorption of these costs reduces the 
number of scientists and support personnel essential for conducting 
viable research programs.

                       PROPOSED PROGRAM DECREASES

    ARS' budget proposes a decrease of $203.1 million that currently 
finances unrequested or lower priority research projects added in 
recent years. The fiscal year 2006 budget requires that we exercise 
fiscal discipline to live within available resources. Within those 
resource levels, the Administration has had to exercise its judgment 
about what is needed to fund the highest priority programs. The 
initiatives described earlier meet that test. Therefore, other 
programs, such as those not previously requested by the Administration, 
could not be funded within the Budget.

             PROPOSED FUNDING FOR BUILDINGS AND FACILITIES

    The fiscal year 2006 budget recommends $64.8 million for ARS' 
Buildings and Facilities account. Most of the proposed funding, $58.8 
million is for the National Centers for Animal Health in Ames, Iowa. 
The National Centers for Animal Health are critical to supporting 
American agriculture from both domestic and foreign diseases 
intentionally or unintentionally introduced. The new facility combines 
ARS' National Animal Disease Center with the Animal and Plant Health 
Inspection Service's National Veterinary Services Laboratory and the 
Center for Veterinary Biologics. The Centers will provide an 
integrated, multidisciplinary scientific capability, combining animal 
disease research with the development of diagnostic tools and vaccines. 
This request will provide the remaining funds necessary to complete 
this state-of-the-art complex.
    ARS is also recommending $3 million for the planning and design of 
new, up-to-date containment facilities at the Foreign Disease Weed 
Science Research Laboratory at Ft. Detrick, Maryland. ARS scientists at 
this facility conduct research on foreign plant pathogens that must be 
kept under containment and pose a potential threat to American 
agriculture.
    In addition, ARS is recommending $3 million for continuation of 
repairs to the National Agricultural Library. Constructed in 1968, many 
of the building's systems and structures require replacement. In fiscal 
year 2006 ARS plans to finance the replacement of windows and to 
complete the repairs to the brick veneer.
    Mr. Chairman, this concludes my presentation of ARS' budget 
recommendations for fiscal year 2006. I will be happy to respond to any 
questions the Committee my have.
                                 ______
                                 

 Prepared Statement of Dr. Colien Hefferan, Administrator, Cooperative 
            State Research, Education, and Extension Service

    Mr. Chairman and Members of the Committee, I appreciate the 
opportunity to submit the proposed fiscal year 2006 budget for the 
Cooperative State Research, Education, and Extension Service (CSREES), 
one of the four agencies in the Research, Education, and Economics 
(REE) mission area of the United States Department of Agriculture 
(USDA).
    The CSREES fiscal year 2006 budget proposal is just over $1 
billion. CSREES, in concert with the Secretary of Agriculture and the 
intent of Congress, works in partnership with the land-grant university 
system, other colleges and universities, and public and private 
research and education organizations to initiate and develop 
agricultural research, extension, higher education, and related 
international activities to advance knowledge for agriculture, the 
environment, human health and well-being, and communities. In addition, 
CSREES implements grants for organizations to better reach and assist 
disadvantaged farmers in accessing programs of USDA. These partnerships 
result in a breadth of expertise that is ready to deliver solutions to 
problems facing U.S. agriculture today.
    The fiscal year 2006 CSREES budget request aligns funding and 
performance with the USDA strategic goals. CSREES manages its many 
budget elements in support of research, education, extension, and 
outreach programs as part of a cohesive whole supporting all five of 
the Department's strategic goals. Distinct performance criteria, 
including strategic objectives and key outcomes with identified annual 
targets, are defined for each program or activity. As part of an 
integrated budget and performance process, CSREES conducts periodic 
portfolio reviews by external experts to monitor overall program 
progress, suggest alternative approaches, and propose management 
improvements.
    The CSREES fiscal year 2006 budget proposal supports the 
Administration's commitment to competitive programs, in which awards 
are made based on an objective peer-review process, and to streamlining 
program delivery. Over the past several years, CSREES has demonstrated 
the capacity to reshape competitive programs to address not only 
fundamental science through individual investigator research, but also 
programmatic, multi-institutional efforts aimed at short to 
intermediate term problem solving, while maintaining the highest 
standard of peer-review. We believe this is the most effective way of 
achieving quality results that respond to critical program needs. 
Therefore, the fiscal year 2006 budget proposes to: (a) phase out 
funding for the Hatch Act and McIntire-Stennis Cooperative Forestry 
programs within 2 years; (b) eliminate the Animal Health and Disease, 
Section 1433 Research Program; and (c) redirect funding for Section 406 
activities, formerly supported under the Integrated Activities account, 
to the Research and Education account. Activities for these programs 
will be supported through the National Research Initiative (NRI) and 
the new State Agricultural Experiment Station (SAES) Competitive Grants 
Program. This shift of funding will allow greater flexibility and 
responsiveness to critical agricultural issues.
    CSREES continues to provide new opportunities for discoveries and 
advances in knowledge through the NRI program. The fiscal year 2006 
budget request of $250 million for the NRI is a significant step 
towards reaching the authorized level of $500 million, and it is a 
strong statement of the importance that the Administration places on 
competitively awarded grants to advance knowledge for agriculture. The 
NRI will continue to support current high priority programs with an 
emphasis on critical issues. Through the NRI Coordinated Agricultural 
Project (CAP), multi-million dollar awards support multi-year large-
scale projects to promote collaboration, open communication, and 
coordinate activities among individuals, institutions, States, and 
regions to address priority issues of national importance. A $5 million 
CAP award supports research to improve rice crops by using new genomic-
based tools. The support included a multidisciplinary team of 14 
institutions that will engage rice extension and industry personnel in 
agricultural genomics research to explore the potential of the 
technology. Extension personnel also will educate the public on the 
merits of applying genome information to improve agricultural crops. 
Another $5 million CAP award is being led by the University of Maryland 
and includes researchers and extension specialists representing 17 
States. It is expected that the research and education from this 
project will help prevent and control avian influenza, a disease that 
continues to threaten the commercial poultry industry with millions of 
dollars in losses.
    Expanded partnerships with other Federal agencies on research 
topics of mutual interest will be possible with the increase in the NRI 
funding. For example, research on the maize genome will be supported 
through partnership with the National Science Foundation and the U.S. 
Department of Energy. A comprehensive sequence resource will be 
developed for the maize genome, providing the scientific community with 
accurate and detailed information in a timely and cost-effective 
manner. This information will include a complete sequence of all maize 
genes and the full integration of the sequence with genetic and 
physical maps leading to improved maize varieties. The NRI also will 
support research on swine genomics. The Interagency Working Group on 
Domestic Animal Genomics has identified the swine genome as a high 
priority. The complete genomic sequence of swine is needed to provide 
the basic information to pursue studies of gene function and marker-
assisted selection of animals for genetic improvement of swine in 
production systems. We are requesting an increase of $11 million in the 
NRI to support genomics research.
    An increase of $4.6 million is proposed to address emerging issues 
in food and agricultural defense under the NRI. The requested funding 
will support research, education, and extension activities to increase 
the safety and security of U.S. agriculture and food systems to 
minimize threats to domestic plants and animals posed by infectious 
diseases and invasive species.
    In fiscal year 2006 an increase of $8 million is proposed under the 
NRI for nanotechnology for functional foods and food safety. The 
requested funds will support innovative research in nanoscale science 
and engineering that will have specific applications to agriculture and 
food systems. Nanotechnology studies will lead to nutrient dense, 
healthful and flavorful foods with consumer appeal. Food function will 
be enhanced by using nanotechnologies to facilitate the delivery of 
health-providing bioactive nutrients to consumers.
    Under the NRI, an increase of $7.5 million is proposed in fiscal 
year 2006 for nutrition and obesity studies with emphasis on research 
and evaluation methods to prevent childhood obesity. Research efforts 
will be specifically aimed at understanding the environmental and 
social factors influencing behaviors leading to childhood obesity and 
how to change them to reduce and prevent obesity. In addition, 
requested under the NRI is an increase of $39.3 million for ongoing 
research and integrated research and education projects that focus on 
water quality, food safety, and pest-related programs formerly funded 
under the Integrated Activities account.
    The fiscal year 2006 budget also proposes a change to the general 
provisions of the fiscal year 2005 Consolidated Appropriations Act to 
increase from a maximum of 20 percent to a maximum 30 percent the 
amount provided for the NRI that may be used for competitive integrated 
activities.
    As part of a coordinated plan to shift formula funding to 
competitively awarded grants and replace some of the multistate efforts 
currently supported by formula funds, CSREES requests $75 million for 
the new SAES Competitive Grants Program. As with the current multi-
State program, funding would be available to all State Agricultural 
Experiment Stations. This program will support systemwide research 
planning and coordination, as well as regional, State, and local 
research in such areas as new products/new uses, social sciences, and 
the environment, including ecosystem management. In fiscal year 2006, 
it is proposed that research programs focused on methyl bromide and 
organic transition could be supported through this program. However, we 
will work closely with the SAES to ensure that this program also is 
responsive to their needs.
    In continuing and expanding our efforts for agricultural security 
and in support of the President's Food and Agriculture Defense 
Initiative, CSREES, through cooperative efforts with the Animal and 
Plant Health Inspection Service, has established a unified Federal-
State network of public agricultural institutions to identify and 
respond to high risk biological pathogens in the food and agricultural 
system. The network is comprised of 13 State animal diagnostic 
laboratories and 6 plant diagnostic laboratories, strategically located 
around the country. These 19 key laboratories are developing a two-way, 
secure communications network with other university and State 
Department of Agriculture diagnostic laboratories throughout their 
respective regions. The diagnostic laboratories are responsible for 
identifying, containing, and minimizing the impact of exotic and 
domestic pests and pathogens that are of concern to the security of our 
food and agricultural production systems. For example, within a few 
weeks after soybean rust was first detected in Louisiana, private 
interest disease surveillance activities were conducted by first 
detectors. Samples submitted to diagnostic laboratories, as a result of 
these first detectors, identified soybean rust in Mississippi, Florida, 
Georgia, Alabama, Arkansas, Missouri, South Carolina, and Tennessee. 
The budget proposal requests an increase of $21.1 million for a total 
of $30 million to maintain the national diagnostic laboratory network. 
The proposed increase also will allow the optimization of the security 
value of the diagnostic network which includes: a coordinated ground 
surveillance and response component with appropriate educational and 
training programs, a more extensive plant and animal disease and pest 
diagnostic capability, upgraded and enhanced equipment, increased 
information technology, expanded connectivity of State laboratories, 
and targeted research to develop improved diagnostic and treatment 
capabilities. The network will continue its link with the Extension 
Disaster Education Network (EDEN) to disseminate information to 
producers and professionals at the State and county level, and to 
expand these activities to provide more current and timely educational 
resources.
    CSREES proposes $5 million for the Agrosecurity Education Program 
that will support educational and professional development for 
personnel in securing the Nation's agricultural and food supply. The 
program will develop and promote curricula for undergraduate and 
graduate level higher education programs that support the protection of 
animals, plants, and public health. The program is designed to support 
cross-disciplinary degree programs that combine training in food 
sciences, agricultural sciences, medicine, veterinary medicine, 
epidemiology, microbiology, chemistry, engineering, and mathematics 
(statistical modeling) to prepare food system defense professionals.
    Also within the fiscal year 2006 budget request is a proposed 
increase of $4.5 million for the Expanded Food and Nutrition Education 
Program (EFNEP). The EFNEP program reaches predominantly minority, low-
income youth and families with nutrition education that leads to 
sustained behavior changes. EFNEP works with various partners in 
providing its services, including collaborating with the National 
Institute of Health on the 5-A-Day program promoting increased 
consumption of fruits and vegetables, and with the Centers for Disease 
Control and Prevention on their VERBtm program sharing curriculum 
material directed at teaching young people about the importance of 
nutrition and physical activity. Increased funding also will allow 
EFNEP to move forward with efforts to add a physical activity focus to 
help combat the rising problem of obesity in children and adults. 
Funding at this level will allow participation by 1890 institutions who 
are uniquely positioned to reach those in need of nutrition education.
    CSREES continues to expand diversity and opportunity with 
activities under 1890 base and educational programs, and 1994 and 
Hispanic-Serving Institutions educational programs. In fiscal year 
2006, the budget requests an increase of approximately $1.5 million for 
both the research and extension 1890 base programs. Funding for our 
1890 base programs provides a stable level of support for the 
implementation of research and extension programming that is responsive 
to emerging agricultural issues. Funding for the 1994 Institutions 
strengthens the capacity of the Tribal Colleges to more firmly 
establish themselves as partners in the food and agricultural science 
and education system through expanding their linkages with 1862 and 
1890 Institutions. Sustained funding for the Hispanic-Serving 
Institutions promotes the ability of the institutions to carry out 
educational training programs in the food and agricultural sciences. 
This proven path of research, extension, and educational program 
development rapidly delivers new technologies into the hands of all 
citizens, helping them solve problems important to their lives.
    CSREES also will continue to effectively reach underserved 
communities through sustained support for the Outreach and Assistance 
for Socially Disadvantaged Farmers and Ranchers Program (OASDFR). 
CSREES will fund competitive multi-year projects to support outreach to 
disadvantaged farmers and ranchers. Funds for the OASDFR program will 
encourage and assist socially disadvantaged farmers and ranchers in 
their efforts to become or remain owners and operators by providing 
technical assistance, outreach, and education to promote fuller 
participation in all USDA programs.
    The higher education programs contribute to the development of 
human capacity and respond to the need for a highly trained cadre of 
quality scientists, engineers, managers, and technical specialists in 
the food and fiber system. The fiscal year 2006 budget provides a $1.5 
million increase in the Food and Agricultural Sciences National Needs 
Graduate Fellowship program. This program prepares graduates to deal 
with emerging challenges in such areas as agricultural biosecurity to 
ensure the safety and security of our agriculture and food supply, new 
issues in natural resources and forestry, and human health and 
nutrition, including problems related to obesity such as diabetes and 
cardiovascular health. Other higher education programs will provide 
important and unique support to Tribal Colleges, the 1890 Land-Grant 
Colleges and Universities, and the 1862 Land-Grant Universities as they 
pilot important new approaches to expand their programs.
    CSREES is committed to improving the management of resources 
through the development and implementation of an electronic grants 
application and reporting system and the Research, Education, and 
Economics Information System (REEIS). The fiscal year 2006 budget 
proposes increases of $0.2 million and $0.3 million, respectively for 
these efforts. Currently, CSREES receives approximately 6,000 proposals 
annually, resulting in about 2,000 grants and cooperative agreements. 
These numbers are expected to grow with the proposed program increases 
in the fiscal year 2006 budget. We are committed to streamlining the 
process through participation in a common Federal electronic 
application and report system. We are rapidly developing and enhancing 
the capability to electronically receive, process, and award proposals, 
including electronic distribution to reviewers nationwide, and support 
for electronic financial and technical reporting on awards. We are 
implementing and expanding the capability of REEIS as a platform to 
link some 40 different databases and to serve as a single source of 
information on issues related to accountability, strategic planning, 
and performance assessment.
    CSREES also is requesting funds to accelerate and innovate the e-
Extension network that will offer Americans unparalleled access to 
scientifically-derived and unbiased information, education, and 
guidance about the things that matter the most in their lives. The 
fiscal year 2006 budget proposal includes $3 million for the New 
Technologies for Ag Extension Program to support systems that will make 
available research-based education offered by the e-Extension network.
    Peer-reviewed competitive programs that meet national needs are a 
much more effective use of taxpayer dollars than earmarks that are 
provided to a specific recipient for needs that may not be national. 
Based upon its broad scope, including the expanded integrated 
authority, and proposed funding increase, alternative funding from the 
NRI could be used to provide a peer-reviewed forum for seeking and 
assessing much of the work funded through earmarks. For example in the 
past 4 years, CSREES supported research in animal identification and/or 
animal tracking under earmarked projects which fit within the scope of 
the NRI. In addition, earmarked projects for human nutrition and food 
safety are within the program areas of the NRI. In order to ensure the 
highest quality research which addresses national needs within 
available funding, the fiscal year 2006 budget has therefore proposed 
to eliminate earmarked projects.
    The fiscal year 2006 budget proposes changes in the general 
provisions including, as previously mentioned, increasing the amount 
provided for the NRI that may be used for competitive integrated 
activities from up to 20 percent to up to 30 percent. Also proposed is 
the elimination of the cap on indirect costs for competitively awarded 
grants. In the past indirect cost rate caps have resulted in 
recipients' inability to recover legitimate indirect costs, thus 
penalizing recipients who choose to do business with CSREES. This 
elimination allows full indirect cost recovery under competitive awards 
and places CSREES competitive programs on an equal footing with other 
Federal assistance programs.
    CSREES, in collaboration with university and other partners 
nationwide, continually meets the many challenges facing the food and 
fiber system. The programs administered by the agency reflect the 
commitment of the Administration to further strengthen the problem-
solving capacity of Federally-supported agricultural research, 
extension, higher education, and outreach and assistance programs. In 
addition, we continue to enhance our responsiveness and flexibility in 
addressing critical agricultural issues.
    Mr. Chairman, this concludes my statement. I will be glad to answer 
any questions the Committee may have.
                                 ______
                                 

Prepared Statement of Susan E. Offutt, Administrator, Economic Research 
                                Service

    Mr. Chairman and members of the Committee, I am pleased to have the 
opportunity to present the proposed fiscal year 2006 budget for the 
Economic Research Service (ERS).

                                MISSION

    The Economic Research Service informs and enhances public and 
private decision making on economic and policy issues related to 
agriculture, food, the environment, and rural development.

                                 BUDGET

    The agency's request for 2006 is $80.7 million. The agency is 
requesting a $5.8 million increase to continue the development of an 
integrated and comprehensive data and analysis framework of the food 
system beyond the farm-gate that will provide a basis for 
understanding, monitoring, tracking, and identifying changes in the 
food supply and in consumption patterns.

                  CONSUMER DATA AND INFORMATION SYSTEM

    In fiscal year 2006, ERS is requesting an increase of $5.8 million 
to fully fund the Consumer Data and Information System which was 
partially funded in fiscal year 2005. The new data would be used to 
identify, understand and track changes in food supply and consumption 
patterns, and to explore the relationship between consumers' knowledge 
and attitudes and their consumption patterns.
    Understanding consumer behavior is critical for addressing many of 
the Nation's problems related to eating behavior. Obesity, in 
particular, has become a major problem by increasing the risk for 
chronic diseases, increasing medical costs, and reducing productivity. 
Studies estimate that obesity is responsible for 365,000 deaths 
annually, costs society $92.6 billion in increased medical 
expenditures, and taxpayers finance half of these costs through 
Medicare and Medicaid. Additionally, research is pointing to a decline 
in life expectancy in the United States caused by the dramatic rise in 
obesity, especially among young people and minorities. Many people 
believe that formulating more effective programs and policies to end 
obesity hinges on a clearer understanding of eating behaviors. This 
initiative will support research that will provide the information and 
knowledge to develop, implement, and target improved nutrition programs 
and policies to reduce obesity.
    Understanding consumer behavior is also critical for policy-making, 
and program development and implementation in many other USDA program 
areas. USDA officials require up-to-the-minute information on food 
prices, product movements, and potential consumer reactions to events 
to effectively make commodity support decisions, provide nutrition 
education, and ensure the safety of our food. This initiative will 
provide USDA with current food prices, sales volumes, food purchases, a 
data base on consumer characteristics and purchasing behavior, and the 
ability to quickly survey consumer reactions, knowledge, attitudes, and 
awareness on a host of issues.
    The Consumer Data and Information System has three major components 
providing intelligence across and within the food and agricultural 
complex. ERS has initiated work on the first component, a very limited 
version of the Food Market Surveillance Report, which will be issued 
quarterly to USDA officials. These quarterly reports will provide the 
Department with the most up-to-date information on food prices, 
purchases, and sales data publicly or privately available. This 
information is critical to improve USDA decision-making and to provide 
data for understanding consumer purchasing behaviors. Additional 
funding is necessary for full implementation that will integrate food-
away-from-home consumption patterns and associated markets into the 
system.
    The second component, a new Rapid Consumer Response Module, will 
provide real-time information on consumer reactions to unforeseen 
events and disruptions, current market events, and government policies. 
The questions in the module will be asked to members of several 
proprietary consumer data panels currently maintained by private 
vendors. The first proposed module is a special survey that will 
provide a baseline for measuring consumer nutrition knowledge and 
implementation of the new Dietary Guidelines. A follow-up survey of the 
same respondents will provide information on consumer reaction to the 
guidelines. An examination of the respondents purchase records would 
reveal if dietary changes have actually occurred. Information will be 
used to better implement dietary guidance strategies and will provide 
policymakers with up-to-the-minute information and analyses. Another 
planned survey will measure consumer knowledge of BSE and quantify the 
relationships between knowledge levels and meat purchases.
    Using fiscal year 2005 funding, ERS has initiated development of 
the third component, a Flexible Consumer Behavior Survey (FCBS) that 
will complement data from the National Health and Nutrition Examination 
Survey (NHANES). The FCBS will provide information needed to assess 
linkages among individuals' knowledge and attitudes about dietary 
guidance, and food safety, their economic circumstances, their food-
choice decisions, and their nutrient intakes. Combining the NHANES with 
this new survey allows analysis of how individual behavior, 
information, and economic factors affect food choices, dietary status, 
and health outcomes. A team of representatives from government and non-
governmental entities is developing and implementing the survey. 
Additional funding will provide data and research to link food prices 
with the NHANES and FCBS data.
    Two additional components of the budget request are (1) additional 
staff to ensure the successful design and implementation of the 
Consumer Data and Information System and (2) a research grants program 
to complement and augment the ERS research program. A targeted research 
program will provide outside expertise to assist with the complex task 
of integrating survey information as well as provide seed funds for 
innovative nutrition and obesity studies using the data system. The 
design and implementation of this information system is currently being 
accomplished using existing staff through the reallocation of 
resources.

                ERS CONTRIBUTIONS TO MISSION AREA GOALS

    ERS supports the five USDA strategic goals to: (1) enhance economic 
opportunities for agricultural producers; (2) support increased 
economic opportunities and improved quality of life in rural America; 
(3) enhance protection and safety of the Nation's agriculture and food 
supply; (4) improve the Nation's nutrition and health; and (5) protect 
and enhance the Nation's natural resource base and environment.

Goal 1: Enhanced Economic Opportunities for Agricultural Producers
    ERS helps the U.S. food and agriculture sector adapt to changing 
market structures in rapidly globalizing, consumer-driven markets by 
analyzing the linkages between domestic and global food and commodity 
markets, as well as the implications of alternative domestic and 
international policies on competitiveness. ERS economists analyze 
factors that drive change in the structure and performance of domestic 
and global food and agriculture markets; provide economic assessments 
of structural change and competition in the agricultural sector; 
analyze the price impacts of evolving structural changes in food 
retailing; analyze how international trade agreements and foreign trade 
restrictions affect U.S. agricultural production, exports, imports, and 
income; and provide economic analyses that determine how fundamental 
commodity market relationships are adjusting to changing trade, 
domestic policy, and structural conditions. ERS will continue to work 
closely with the World Agricultural Outlook Board (WAOB) and USDA 
agencies to provide short- and long-term projections of United States 
and world agricultural production, consumption, and trade.
    In 2005, several initiatives are increasing the timeliness and 
availability of data and information, while simultaneously saving staff 
time. We are increasing the transparency of our commodity projections 
processes, automating calculations where possible, and embedding them 
within databases. Our goals are to: (1) make the work transparent, 
inviting critique from both internal and external users; (2) transition 
to fewer outlook analysts as retirements near, and (3) increase 
timeliness in the release of data. We will have databases available for 
all major crop and livestock commodities within the next 2 years.
    ERS provides assessment of the effects of farm policy on the food 
and agricultural sector. The agency led the development of analytical 
studies that responded to requests to USDA for studies in the 2002 Farm 
Act. For example, the 2004 USDA report, Economic Effects of U.S. Dairy 
Policy and Alternative Approaches to Milk Pricing, provides a 
comprehensive assessment of the effects of current U.S. dairy programs 
that takes into account the ongoing structural change in consumer 
demand, farm structure, and the processing industry.
    China is one of the top 10 markets for U.S. agricultural exports 
and is the world's largest producer and consumer of a range of 
commodities. ERS research continues to examine key factors that will 
shape the size and pattern of China's agricultural trade: water 
scarcity, implementation of WTO commitments, changes in Chinese 
consumers' demand for food, and factors influencing these changes, 
including the declining role of subsistence farming, effects of 
urbanization, and the rising demand for convenience. ERS' China 
briefing room (www.ers.usda.gov/briefing/china) provides access to 
reports that cover both specific market conditions and policy 
developments.
    ERS continues to expand research on how the dynamics of consumer 
demand, notably the growing consumption of and trade in high value 
products, are shaping global markets. The United States has one of the 
most complex trade patterns for high value food products, including 
strong growth in imports. This is attributable to its large productive 
capacity, high-income consumers, and its heavy involvement in overseas 
investment in food processing and brand licensing. Research to 
understand the relative importance of these and other factors builds on 
recently completed studies and takes advantage of newly available 
global data sets on the food retail industry.
    Organic farming continues to be one of the fastest growing segments 
of U.S. agriculture and can potentially enhance environmental 
protection, as well as economic opportunities for producers. 
Appropriations received in fiscal year 2005 allow ERS to continue to 
explore in greater depth the market for organic products and other 
commodities, and foods that are differentiated in the marketplace by 
virtue of how or where they are produced. In 2004, ERS co-sponsored a 
workshop with the Farm Foundation and Giannini Foundation that brought 
together industry leaders, academics and government agency staffers to 
identify research needed to understand the potential oversight role of 
government relative to various types of differentiated products, and 
the implications of alternative public or private regulatory 
approaches. In 2005, ERS is adding a targeted sample of organic dairy 
producers to USDA's annual Agricultural Resources Management Survey 
(ARMS). Survey data for both organic and conventional operations will 
enable, for the first time, a side-by-side comparison of the economic, 
structural, and production characteristics of these farms.
    Food price determination is increasingly important for 
understanding domestic and international markets and for seizing 
opportunities to promote U.S. agriculture. ERS food markets research 
focuses on enhancing knowledge and understanding of food prices, both 
their objective measurement and how they are set by firms at different 
stages of the food system. ERS has begun to use micro-level household 
and store scanner data to measure the impact of changing store formats 
on food prices in order to focus on the changing economic environment 
and how these changes could affect customers' retail food purchasing 
habits.
    In 2005, ERS will publish a series of reports on the impacts of 
concentration and consolidation along the food marketing chain. One 
report focuses on the dramatic change in the competitive dynamics of 
retail markets, measuring the price impact of Wal-Mart's success in 
marketing food. Another report examines supermarkets' resulting 
consolidations and measures the extent by which associated increases in 
the efficiency of supermarket operations would reduce food prices. 
Another report summarizes research on consolidation and structural 
change in the following food industries: meat packing, meat processing, 
poultry slaughter and processing, cheese, fluid milk, flour milling, 
feeds, and oilseed (corn, cottonseed, and soybean) processing. Findings 
to be published in 2005 suggest that even industries with growing 
demand experienced consolidation, and that technological change was the 
primary driver of consolidation from 1970-90. In addition, during the 
period under investigation, firms tended to acquire highly productive 
plants and then improve their performance. The evidence refutes the 
claim that mergers and acquisitions lead to worker dislocations and 
lost wages.
    For producers, contracting can reduce income risks of price and 
production variability, ensure market access, and provide higher 
returns for differentiated farm products. For processors and other 
buyers, vertical coordination through contracting is a way to ensure 
the flow of products, obtain differentiated products, ensure 
traceability for health concerns, and guarantee certain methods of 
production. ERS continues to conduct research to improve understanding 
by decision-makers of changes in the agricultural sector's structure 
(for example, the implications for producers of the increasing 
replacement of open markets by contractual arrangements and vertical 
integration). ERS is currently examining the potential efficiency-
enhancing motives for the increasing use of contracts by food 
manufacturers and processors. At the farm level, the new Family Farm 
Report--Structural and Financial Characteristics of U.S. Farms, which 
was published in March 2005--documents the ongoing changes in farms' 
structure, financial performance, and business relationships in 
response to consumer demands, competitive pressures, and changing 
opportunities for farm families. This report is based on analysis of 
2001 ARMS data. A shorter Family Farm report based on 2003 ARMS data 
will be released later in 2005.
    ERS will continue to work closely with the Foreign Agricultural 
Service (FAS) and the Office of the U.S. Trade Representative to ensure 
that ongoing negotiations on the Doha Development Agenda under the 
auspices of the World Trade Organization (WTO) and regional trade 
agreements are successful and advantageous for U.S. agriculture. The 
demands of developing countries for sharp cuts in domestic agricultural 
policies, along with exemptions that would limit the opening of their 
markets, serve as stumbling blocks to reaching an agreement in current 
WTO negotiations. While ERS analysis of the global benefits of trade 
liberalization shows potential gains for all types of countries, 
developing countries remain skeptical. Two common critiques are that 
the analysis does not include potential market effects of decoupled 
payments and does not include preferential market access by developing 
countries to developed country markets. Current ERS research addresses 
these questions with reports forthcoming in 2005 on the effects of farm 
programs and an analysis of preferential trade programs.
    Since 1980, legislation has encouraged patenting and license 
agreements by Federal laboratories as a means of technology transfer. 
The ERS report, Government Patenting and Technology Transfer, which 
will be released in 2005, examines issues raised by government 
patenting behavior through a case study of the Agricultural Research 
Service. The report describes trends in patent use and considers its 
effectiveness toward this policy goal. The report compares patenting 
with alternative methods of technology transfer--such as scientific 
publication--and analyzes factors that determine the most effective 
means of promulgating the results of public research. Among the 
findings are that increased patenting and licensing by USDA has 
supplemented, not supplanted, the traditional instruments of technology 
transfer such as scientific publications.
    Data from ARMS underlie important estimates of farm income and 
well-being, and constitute an essential component in much of ERS' 
research. In 2004, the ARMS survey sample was expanded sufficiently to 
allow ERS, with the National Agricultural Statistics Service (NASS), to 
produce State level estimates for the largest fifteen States (as 
measured by value of farm output). Also in 2004, ERS collaborated with 
NASS to develop new survey instruments and data collection approaches 
that merge mail surveys with in-person surveys, thereby reducing 
respondent burden and improving the efficiency of data collection. In 
addition, ERS has developed a path-breaking, web-based, secure ARMS 
data retrieval and summarization prototype tool that is easy to use. 
Implemented in 2004 in both public and restricted-access web versions, 
this system retrieves ARMS data in formats customized to the customers' 
needs, while assuring that sensitive data are not disclosed.

Goal 2: Support Increased Economic Opportunities and Improved Quality 
        of Life in Rural America
    ERS research explores how investments in rural people, businesses, 
and communities affect the capacity of rural economies to prosper in 
the new and changing global marketplace. The agency analyzes how 
demographic trends, employment opportunities, educational improvements, 
Federal policies, and public investment in infrastructure and 
technology affect economic opportunity and quality of life for rural 
Americans. The rural development process is complex and sensitive to a 
wide range of factors that, to a large extent, are unique to each rural 
community. Nonetheless, ERS assesses general approaches to development 
to determine when, where, and under what circumstances rural 
development strategies will be most successful.
    ERS assesses rural needs by examining the changing demographic, 
employment, education, income and housing patterns of rural areas. Data 
from the 2000 Census and other Federal information sources provide the 
most up-to-date information on the current conditions and trends 
affecting rural areas, and provide the factual base for rural 
development program initiatives. In 2005, the agency is continuing its 
series of publications that report current indicators of social and 
economic conditions in rural areas for use in developing policies and 
programs to assist rural people and their communities. Rural America at 
a Glance: 2005, Rural Transportation at a Glance, Rural Children at a 
Glance, and Rural Minorities at a Glance, all designed for a policy 
audience, will summarize the most current information relevant 
information on these topics.
    In fiscal year 2005, ERS will disseminate research findings from an 
ERS--Cornell University conference on ``Population Change and Rural 
Society,'' held in January 2004. This conference showcased an 
integrated set of demographic studies by leading social scientists that 
analyzed critical demographic trends from the 2000 Census and drew 
conclusions about their implications for economic and social life in 
rural America. The conference focused on the policy implications of 
changing demographic composition, economic restructuring, changing land 
use patterns, and geographic patterns of chronic disadvantage and 
emerging growth. The compendium of papers marks the first comprehensive 
look at rural America based on data from the 2000 Census.
    For over 30 years, ERS has captured aspects of the broad economic 
and social diversity among rural areas in various county 
classifications. These typologies have been widely used by policy 
analysts and public officials to determine eligibility for and the 
effectiveness of Federal programs to assist rural America. In August of 
2004, ERS released a new county typology that maps out a geographic 
portrait of the rich diversity of rural America in ways that are 
meaningful for developing public policies and programs. In fiscal year 
2005, ERS will publish a series of policy briefs that will address how 
the economic, demographic, and policy themes identified in this 
typology translate into effective rural development strategies for 
enhancing rural economic opportunities and well being.
    ERS is at the forefront of analysis assessing the critical role of 
education in local, regional, and national economic development. The No 
Child Left Behind Act of 2002 created a new era of increased school 
accountability to ensure that our public schools adequately prepare 
students for the increasingly high-skill ``new economy'' in which we 
now live. However, rural schools and communities present a distinct set 
of challenges to education reform. In 2005, findings from a conference 
sponsored by ERS and the Southern Rural Development Center will be 
published as special issues of two academic journals, the Review of 
Regional Studies and the Journal of Research in Rural Education. 
Research findings will focus on student achievement in rural schools, 
and the linkages among schools, rural communities, and the labor 
market.
    Rural communities view increased educational investments as an 
important part of economic development but are sensitive to the partial 
loss of their investment in the form of youth outmigration to areas 
with better opportunities. ERS is partnering with land-grant 
universities in a research program designed to measure the relationship 
between education and economic outcomes, both for the individual worker 
and rural community, to help local communities better target their 
economic development and school improvement efforts.
    ERS also continues its long tradition of economic research on the 
welfare of disadvantaged population groups in rural areas, including 
low-income families, children, the elderly, and racial/ethnic groups, 
as well as the Federal assistance programs that serve them. Through its 
research on the measurement and dimensions of rural poverty, ERS helps 
to better target and improve the effectiveness of Federal assistance 
programs. In 2005, ERS will publish a study of the changing nature of 
the rural low-skill labor force and its implication for the economic 
well being of rural areas.
    ERS conducts ongoing research on the impact and effectiveness of 
Federal programs in rural areas. For example, ERS assists USDA's Rural 
Development mission area in efforts to improve the delivery and 
effectiveness of rural development programs through targeted economic 
analysis. In 2005, ERS will continue to work with Rural Development 
staff and cooperators at the University of Missouri to develop 
measurable performance indicators for USDA rural business programs. In 
addition, ERS is now focusing greater attention on the effects of 
Federal farm policy on rural areas and farm households in preparation 
for the upcoming debate over the 2007 Farm Bill. A 2005 conference, 
jointly sponsored by ERS and the National Center for Food and 
Agricultural Policy, will help provide policymakers with a better 
understanding of the linkages between farm policy, farm households, and 
rural communities. A new ERS briefing room on our website will be 
continually updated during 2005 to provide an economic assessment of 
the implications of farm policy reform and adjustment for agriculture 
and rural America.

Goal 3: Enhance Protection and Safety of the Nation's Agriculture and 
        Food Supply
    ERS research is designed to support food safety decision-making in 
the public sector and to enhance the efficiency and effectiveness of 
public food safety policies and programs. The program focuses on 
valuing the societal benefits of reducing and preventing illnesses 
caused by microbial pathogens; assessing the costs of alternative food 
safety policies; assessing industry incentives to enhance food safety 
through new technologies and supply chain linkages; evaluating 
regulatory options and change; and exploring linkages between food 
safety and international trade. ERS has worked closely with various 
USDA agencies and the Centers for Disease Control and Prevention (CDC) 
on various pathogen risk assessments and on analyzing the benefits and 
costs of implementing the Hazard Analysis and Critical Control Points 
(HACCP) rule. ERS and the Food Safety and Inspection Service (FSIS) 
work together to identify research projects and activities that address 
the needs of the Department.
    As part of several national homeland security activities, ERS 
continues to develop the capacity to assess the impact of accidental 
and intentional disruptions to our food and agricultural system. ERS 
staff are prepared to conduct the complex economic analysis needed to 
assess the cost of securing our food supply, which includes protecting 
production, processing, distribution, and consumption of food and 
agricultural products. ERS is working with the Animal and Plant Health 
Inspection Service (APHIS) and the Food and Drug Administration (FDA) 
to improve tools for the analysis of disruption and disease mitigation 
strategies that require both sound biological and economic analysis.
    ERS has become well-known for its pioneering estimates of the 
societal costs associated with foodborne illnesses due to E. coli and 
other known pathogens. ERS and researchers from Harvard and the 
University of Wyoming are collaborating to develop new methodologies 
for more accurately eliciting and measuring the value of reductions in 
health risk associated with foodborne pathogens. Results from both 
studies are expected in 2005.
    ERS is heading a project supporting the Department's reevaluation 
of the appropriate roles for performance versus process standards in 
enhancing food safety. Recent massive recalls of beef and poultry 
products, the creation of international food safety standards, and a 
recent court ruling rejecting failure to meet Salmonella standards as a 
legal basis for closing a meat-processing plant have created concern 
about the basic principles behind U.S. food safety regulation. This 
project analyzes the costs and benefits of food safety performance 
standards and develops guidelines for the application of such 
standards. Preliminary results indicate that recent advances in testing 
technology provide more accurate results, shorter time to result, 
greater ease of use, and lower costs than in the past.
    In the event that unsafe food enters the marketplace, public health 
officials and food safety regulators ultimately rely on records 
maintained by private industry and retailers to track the manufacture 
and distribution of that food. Privately maintained traceability 
bookkeeping records provide investigators with information on the 
extent and distribution of a contaminated product--and on how to remove 
such a product from distribution channels efficiently. The strength of 
private traceability systems and the readiness of the food industry to 
track and recall a contaminated product is important for safeguarding 
the Nation's food supply. In 2005, ERS is working with agricultural 
economists from the University of Arkansas to investigate how various 
food companies in different industries handle product recalls, the 
operation of designated recall teams, and the frequency and results of 
mock recalls. The research will examine the type and scope of 
information collected from auditing and certification activities, 
characteristics of firms with recall practices, and the proportion of 
firms in given sectors participating in auditing and certification 
activities.
    In response to increased risks to the Nation's agriculture and food 
supply due to bio-terrorism, ERS embarked on an ambitious project known 
as Geo-Spatial Economic Analysis (GSEA). The GSEA system merges an 
extensive Geographic Information System with the analytical expertise 
of ERS's economists and the Security Analysis System for U.S. 
Agriculture (SAS-USA), which is a framework to tie systematically all 
food supply processes from farm production, food manufacturing, 
distribution of food products, to food consumption in every region of 
the country. The GSEA system is designed to serve as a platform for 
collaborative analysis across agencies in USDA and with appropriate 
groups in FDA and the Department of Homeland Security (DHS). These 
capabilities mean that emergencies can be managed efficiently and 
expeditiously by assessing vulnerabilities and predicting outcomes. In 
2005, the GSEA team expects to launch joint projects with the Army 
Corps of Engineers and several national labs to improve our ability to 
measure the economic consequences in the food and agricultural 
industries caused by disruptions in other critical infrastructures. In 
support of broad USDA initiatives such as the National Plant Disease 
Recovery System, the GSEA system will serve as a tool to improve 
economic assessments of crop and animal disease outbreaks using 
alternative control strategies.

Goal 4: Improve the Nation's Nutrition and Health
    ERS studies the relationships among the many factors that influence 
food choices and eating habits and their health outcomes. The roles of 
income, age, race and ethnicity, household structure, knowledge of diet 
and health relationships, nutrition information and labeling, and 
economic incentives and policies that affect food prices and 
expenditures are of particular interest. Reducing obesity through 
understanding its costs to individuals and society, how income, diet 
and health knowledge affect obesity status, and considering private 
versus public roles in reducing obesity is a priority for this 
Administration.
    ERS research has a major focus on the economic dimensions of 
obesity, including understanding the societal costs of obesity, 
explaining obesity trends among different demographic and income 
groups, and assessing the benefits and costs of alternative options for 
influencing Americans' food choices and dietary behaviors, including 
roles for nutrition education and Federal food and nutrition assistance 
programs. In 2005, ERS is investigating the factors that influence 
consumers' food choices when eating away from home using the NHANES 
data. This research will focus on discovering consumer preferences, 
such as convenience and entertainment that compete with healthy eating. 
Information about these factors help social marketers design effective 
campaigns to influence consumers' away from home eating behavior.
    Through the Food Assistance and Nutrition Research Program (FANRP), 
ERS conducts studies and evaluations of the Nation's food and nutrition 
assistance programs. FANRP research is designed to meet the critical 
information needs of USDA, Congress, program managers, policy 
officials, clients, the research community, and the public at large. 
FANRP research is conducted through internal research at ERS and 
through a portfolio of external research. Through partnerships with 
other agencies and organizations, FANRP also enhances national surveys 
by adding a food and nutrition assistance dimension. FANRP's long-term 
research themes are dietary and nutritional outcomes, food program 
targeting and delivery, and program dynamics and administration.
    ERS continues to fund a national survey of food security and 
hunger, conducted by the Census Bureau, as a supplement to the Current 
Population Survey (CPS). The survey measures the number of U.S. 
households that face difficulties in putting enough food on the table. 
A new ERS effort, in cooperation with USDA's Food and Nutrition 
Service, is designed to assess and strengthen food security measurement 
by providing support for a National Academy of Sciences panel. The 
panel is reviewing methods and procedures that underlie the current 
measure and will consider various approaches to enhance these methods 
for monitoring, evaluation, and related research purposes.
    As part of our effort to improve the timeliness and quality of the 
Department's food consumption data, in 2003 ERS launched an interagency 
effort to develop a proposal for an external review of USDA's food 
consumption data needs and gaps. Enhancements to the food consumption 
data infrastructure are critical to understanding and addressing many 
market and policy issues in the Department. The interagency effort led 
to the funding of a review by the National Research Council's Committee 
on National Statistics. A panel of experts was compiled, and the first 
stage of the data review was a workshop held in the spring of 2004. A 
final report will be issued by the Committee in 2005.

Goal 5: Protect and Enhance the Nation's Natural Resource Base and 
        Environment
    In this area, ERS research and analytical efforts, in cooperation 
with the Natural Resources Conservation Service (NRCS), support the 
development of Federal farm, conservation, and environmental policies 
and programs. These efforts require analyses of the profitability and 
environmental impacts of alternative production management systems in 
addition to the cost-effectiveness and farm income impacts of public 
sector conservation policies and programs.
    With passage of the Farm Security and Rural Investment (FSRI) Act 
of 2002, USDA looked to ERS to provide comprehensive, detailed, and 
understandable information to public and private users, including 
information on programs in the Conservation Title. In addition, ERS 
provided extensive support to other USDA agencies in developing rules 
for implementation of Farm Bill conservation programs. ERS participated 
in Farm Service Agency (FSA) and NRCS working groups on the 
Conservation Reserve Program (CRP), the Environmental Quality 
Incentives Program (EQIP), the Conservation Security Program (CSP), and 
implementation of conservation technical assistance by third-party 
technical service providers. In 2004, ERS contributed substantially to 
the NRCS benefit-cost assessment for CSP. For instance, ERS helped to 
prepare the NRCS report, Conservation Security Program: Benefit Cost 
Analysis released in June 2004. ERS analysts played a central role in 
both conceptualizing and developing a model of CSP participation that 
is recognized by NRCS and others within USDA as an important 
contribution to USDA's analytic capability with respect to conservation 
programs. ERS assisted FSA with the implementation of the CRP program 
by providing input data and suggesting ways to improve the Willingness-
to-Bid model used by FSA to set an environmental benefits index (EBI) 
cutoff for enrollment in the twenty-ninth signup. ERS also participated 
in forward-looking planning exercises concerning major CRP enrollment/
reenrollment decisions expected in 2007.
    The FSRI sharply increased conservation funding and earmarked most 
of it for working lands conservation rather than for farmland 
retirement. The ERS report, ``Flexible Conservation Measures on Working 
Land: What Challenges Lie Ahead?'' to be released in 2005, tackles the 
issues and complexities that pertain to the design of working-land 
payment programs (WLPPs). Program design and implementation will 
largely determine the extent to which environmental goals are achieved, 
and whether they are achieved cost-effectively, i.e., at a minimum cost 
to society. A cost-effective program: (1) anticipates economic and 
environmental outcomes associated with enrolling specific producers; 
and (2) attracts and enrolls producers that are most likely to deliver 
the desired outcomes. The report analyzes the critical role of program 
design in gathering information (from producers in a bidding process) 
and using that information to identify and enroll producers who, 
collectively, are most likely to achieve program objectives cost-
effectively. Empirical analysis also shows how the environment, 
commodity prices, and farm incomes could be affected by alternative 
designs.
    In 2004, ERS transmitted to Congress the report, The Conservation 
Reserve Program's Economic and Social Impacts on Rural Counties, as 
mandated by the FSRI, as well as the public version released in October 
2004, The Conservation Reserve Program: Economic Implications for Rural 
America. These reports address a number of concerns about the 
unintended consequences of high levels of enrollment in the CRP. Our 
research finds no statistically significant evidence that high 
enrollments in the CRP have had a systematic, adverse effect on 
population or community services in rural counties across the country.
    In the course of the production of food and fiber, agriculture also 
produces many by-products (externalities) such as open space, 
recreational amenities, scenic views, groundwater recharge, and 
wildlife habitat. Historically, the standard policy practice has been 
to address each externality through a separate policy instrument. 
However, when the transaction costs of administering policies (e.g., 
information gathering, contract formulation, enforcement) are positive, 
using one instrument to address each externality or objective may not 
be optimal. Using an empirical analysis focusing on the CRP, the ERS 
report The Multiple Objectives of Agri-Environmental Policy, to be 
released in 2005, explores the extent to which environmental attributes 
may be jointly produced, e.g., efforts to reduce soil erosion may also 
reduce nutrient runoff and increase soil carbon, with implications for 
simultaneously targeting multiple environmental and cost objectives. 
The report also provides an in-depth look at the costs, benefits, and 
tradeoffs associated with the use of indices (such as the EBI used to 
implement the CRP) for simultaneously targeting multiple environmental 
and cost objectives.
    Furthermore, applying environmental policies in an uncoordinated 
fashion fails to account for interactions among environmental mediums 
(i.e., air, land, water). This can result in conflicting policies, in 
that addressing one environmental problem can make another worse. The 
ERS report, Manure Management for Multimedia Environmental Improvement: 
A Comparison of Single Media versus Multi-Media Policy Optimization, to 
be released in 2005, provides a concrete example of the tradeoffs of 
alternately and simultaneously meeting air and water quality 
objectives, in terms of farmers' costs, production decisions, and 
environmental indicators, by focusing on livestock and poultry 
production. Among the results in the report is that, if enacted, 
restrictions on ammonia emissions from concentrated animal feeding 
operations could increase the cost of meeting Clean Water Act 
regulations for spreading manure.
    Many economists, ecologists, and wildlife biologists have argued 
that less productive agricultural lands are environmentally sensitive. 
If true, then this would have important implications for agricultural 
policy. For instance, programs that stimulate production may cause 
farmers to bring the relatively less productive lands that are 
environmentally more sensitive into production. Using data from the 
USDA's National Resources Inventory, the ERS report to be released in 
late 2005, Land-Use Change and the Environment at the Extensive Margin 
of Cropland, finds that there is a general relationship between lower 
productivity and environmental sensitivity in terms of several agri-
environmental indicators examined, but this relationship does not hold 
within all locations.
    In fiscal year 2004, ERS continued the Program of Research on the 
Economics of Invasive Species Management (PREISM) that was initiated in 
fiscal year 2003. PREISM supports economic research and the development 
of decision support tools that have direct implications for USDA 
policies and programs for protection from, control/management of, 
regulation concerning, or trade policy relating to invasive species. 
Program priorities have been selected through extensive consultation 
with APHIS, the Office of Budget and Program Analysis (OBPA) and other 
agencies with responsibility for program management. In 2004, APHIS 
used an ERS-supplied pest ranking decision tool to determine which 
pests would be on its 2004 Federal-State Cooperative Agricultural Pest 
Survey list, making transparent the basis for selecting the pests for 
which State cooperators could receive targeted pest surveillance and 
detections funds. The recent and rapid spread of the pathogen, soybean 
rust (SBR), in South America prompted ERS, in April 2004, to publish a 
study of the economic and policy impacts of its windborne entry into 
the United States, Economic and Policy Implications of Wind-Borne Entry 
of Asian Soybean Rust into the United States. This study quantifies the 
potential economic impacts in the United States in both the first year 
of SBR's entry and subsequent years when producers have adapted to this 
new pest. On November 10, 2004, APHIS confirmed the presence of SBR on 
soybean leaf samples taken from two plots associated with a Louisiana 
State University research farm. The already published ERS analysis was 
used by the USDA in refining rapid response strategies in anticipation 
of SBR entry to North America.
    In addition to ERS-led analysis of invasive species issues, PREISM 
has allocated over $2.4 million in extramural research cooperative 
agreements through a peer- reviewed competitive process. To share 
review progress made by cooperators who received PREISM funding, and to 
provide a forum for dialogue on economic issues associated with 
agricultural invasive species, ERS organized a workshop in August 2004 
with 90 attendees from academia and Federal agencies. Among the 
projects funded in fiscal year 2004 were a GIS-based decision support 
tool to help forest land managers prioritize their efforts to eradicate 
or control invasive species, and a decision tool for establishing 
efficient border protection controls against potentially damaging 
species under conditions of extreme uncertainty and limited budgets.

Customers, Partners, and Stakeholders
    The ultimate beneficiaries of ERS' programs are the American 
people, whose well-being is improved by informed public and private 
decision-making that leads to more effective resource allocation. ERS 
shapes its program and products principally to serve key decision-
makers who routinely make or influence public policy and program 
decisions. This clientele includes White House and USDA policy 
officials and program administrators/managers; the U.S. Congress; other 
Federal agencies, and State and local government officials; and 
domestic and international environmental, consumer, and other public 
organizations, including farm and industry groups interested in public 
policy issues.
    ERS depends heavily on working relationships with other 
organizations and individuals to accomplish its mission. Key partners 
include: NASS for primary data collection; universities for research 
collaboration; the media as disseminators of ERS analyses; and other 
government agencies and departments for data information and services.
Closing Remarks
    I appreciate the support that this Committee has given ERS in the 
past and look forward to continue working with you and your staff to 
ensure that ERS makes the most effective and appropriate use of public 
resources. Thank you.
                                 ______
                                 

   Prepared Statement of R. Ronald Bosecker, Administrator, National 
                     Agricultural Statistic Service

    Mr. Chairman and members of the Committee, I appreciate the 
opportunity to submit a statement for this Committee's consideration in 
support of the fiscal year 2006 budget request for the National 
Agricultural Statistics Service (NASS). This agency administers the 
U.S. agricultural statistics program, created in USDA in 1863, and, 
beginning in 1997, conducts the U.S. Census of Agriculture, first 
collected in 1840. Both programs support the basic mission of NASS to 
provide timely, accurate, and useful statistics in service to U.S. 
agriculture.
major activities of the national agricultural statistics service (nass)
    The continual progression of American farms and ranches to make 
greater use of agricultural science and technology, coupled with the 
growing complexity of global marketing, increases the need for modern 
and reliable statistical information. The periodic surveys and censuses 
conducted by NASS contribute significantly to economic decisions made 
by policymakers, agricultural producers, lenders, transporters, 
processors, wholesalers, retailers, and ultimately, consumers. Voids in 
relevant, timely, and accurate data contribute to wasteful 
inefficiencies throughout the entire production and marketing system.
    The Farm Security and Rural Investment Act of 2002 created the need 
for several new data series. For example, the 2002 Census of 
Agriculture data were used to help prepare the first annual report to 
Congress on USDA program participation of socially disadvantaged 
farmers and ranchers. Census data on race, ethnicity, and gender were 
used at the county level in preparing the report. These Census of 
Agriculture data are the only source of comprehensive information 
available on the agricultural sector. The 2002 Farm Bill also 
reinforced the importance of existing data series to ensure the 
continuation of farm security and rural investments. For example, 
counter-cyclical payments are determined in part by market year average 
prices determined by NASS. Each $0.01 change in the average corn price 
may have resulted in a change of more than $110 million in counter-
cyclical payments during 2004. Similarly, large payment changes also 
apply for the other program crops. These are only a few specific data 
needs required by the Statute, but they clearly highlight the 
importance of a strong, reliable agriculture statistics program.
    NASS works cooperatively with each State Department of Agriculture 
throughout the year to provide commodity, environmental, economic, and 
demographic statistics for agriculture. This cooperative program, which 
began in 1917, has served the agricultural industry well and is often 
cited by others as an excellent model of successful State-Federal 
cooperation. This joint State-Federal program helps meet State and 
national data needs while minimizing overall costs by consolidating 
both staff and resources, eliminating duplication of effort, and 
reducing the reporting burden on the Nation's farm and ranch operators. 
NASS' 46 field offices, which cover all 50 States and Puerto Rico, 
provide statistical information that serves national, State, and local 
data needs.
    NASS statistics contribute to providing fair markets where buyers 
and sellers have access to the same official statistics, at the same 
pre-announced time. This prevents markets from being unduly influenced 
by ``inside'' information, which might unfairly affect market prices 
for the gain of an individual market participant. Empirical evidence 
indicates that an increase in information improves the efficiency of 
commodity markets, minimizing price fluctuations for U.S. producers. 
Measures relating to the competitiveness of our Nation's agricultural 
industry have become increasingly important as producers rely more on 
world markets for their sales.
    NASS statistical reports are critically important to assess the 
current supply of and demand for agricultural commodities. They are 
also extremely valuable to producers, agribusinesses, farm 
organizations, commodity groups, economists, public officials, and 
others who use the data for decision-making. For example, the U.S. 
cattle and hog industries requested joint reports of United States and 
Canadian livestock. The resulting publications provide composite 
information on potential supplies and inventories of cattle and hogs. 
This information can be used to make informed decisions, such as 
marketing, expansion, or contraction, in today's global economy. 
Without these data, the United States would be at a disadvantage in 
global trade discussions and would find it very difficult to secure 
global contracts and develop strong, reliable relations with our 
trading partners.
    NASS has been a leader among Federal agencies in providing 
electronic access to information. All reports issued by NASS' 
Agricultural Statistics Board are made available to the public at a 
previously announced release time to ensure that everyone is given 
equal access to the information. All of NASS' national statistical 
reports and data products, including graphics, are available on the 
Internet, as well as in printed form. Customers are able to 
electronically subscribe to NASS reports and can download any of these 
reports in a format easily accessible by standard software. A summary 
of NASS and other USDA statistical data are produced annually in USDA's 
Agricultural Statistics, available on the Internet through the NASS 
Home Page, on CD-ROM disc, or in hard copy. All of NASS's 46 field 
offices have Home Pages on the Internet, which provide access to 
special statistical reports and information on current local commodity 
conditions and production.
    NASS released the results of the 2002 Census of Agriculture in the 
Spring of 2004. The Census of Agriculture is taken every 5 years and 
provides comprehensive data at the national, State, and county level on 
the agricultural sector. The Census of Agriculture is the only source 
for this information on a local level, which is extremely important to 
the agricultural community. Detailed information at the county level 
helps agricultural organizations, suppliers, handlers, processors, and 
wholesalers and retailers better plan their operations. Important 
demographic information supplied by the Census of Agriculture also 
provides a very valuable database for developing public policy for 
rural areas. The 2002 Census of Agriculture included for the first time 
data on demographic information for up to three operators, enhanced 
data on agricultural activity on American Indian Reservations, acreage 
of organically produced crops, and information on production contracts 
used in agriculture. Additionally, agriculture census results reflected 
the status of all U.S. farms instead of only those represented on the 
census mail list as was done previously. New statistical methodology 
was employed to provide the most complete picture of U.S. agriculture 
in many years. Census data were also released for agriculture census 
programs in Puerto Rico, Guam, and the Commonwealth of the Northern 
Mariana Islands. All of these results are available on the NASS 
Website.
    Statistical research is conducted to improve methods and techniques 
used for collecting and processing agricultural data. This research is 
directed toward achieving higher quality census and survey data with 
less burden to respondents, producing more accurate and timely 
statistics for data users, and increasing the efficiency of the entire 
process. For example, NASS officially deployed its Electronic Data 
Reporting (EDR) system in 2004, which provides respondents with the 
ability to electronically complete the data collection process and thus 
reduces reporting burden. Plans are to complete the system with the 
electronic availability of the 2007 Census of Agriculture. The growing 
diversity and specialization of the Nation's farm operations have 
greatly complicated procedures for producing accurate agricultural 
statistics. Developing new sampling and survey methodology, expanding 
modes of data collection including electronic data reporting, and 
exploiting computer intensive processing technology enables NASS to 
keep pace with an increasingly complex agricultural industry.
    The fiscal year 2005 budget included $2.7 million for agricultural 
estimates restoration and modernization. These funds provided the 
continued development of a foundation for quality improvements in 
forecasts and estimates. The 2005 funds are being used to improve the 
precision level from commodity surveys conducted by NASS. The majority 
of the funding is being allocated to increasing sample sizes and the 
data collection activities of local interviewers throughout the Nation.
    The primary activity of NASS is to provide reliable data for 
decision-making based on unbiased surveys each year, and the Census of 
Agriculture every 5 years, to meet the current data needs of the 
agricultural industry. Farmers, ranchers, and agribusinesses 
voluntarily respond to a series of nationwide surveys about crops, 
livestock, prices, chemical use and other agricultural activities each 
year. Periodic surveys are conducted during the growing season to 
measure the impact of weather, pests, and other factors on crop 
production. Many crop surveys are supplemented by actual field 
observations in which various plant counts and measurements are made. 
Administrative data from other State and USDA agencies, as well as data 
on imports and exports, are thoroughly analyzed and utilized as 
appropriate. NASS prepares estimates for over 120 crops and 45 
livestock items which are published annually in over 400 separate 
reports.
    Approximately 65 percent of NASS's staff are located in the 46 
field offices; 21 of these offices are collocated with State 
Departments of Agriculture or land-grant universities. NASS' State 
Statistical Offices issue approximately 9,000 different reports each 
year and maintain Internet pages to electronically provide their State 
information to the public.
    NASS has developed a broad environmental statistics program under 
the Department's water quality and food safety programs. Until 1991, 
there was a serious void in the availability of reliable pesticide 
usage data. Therefore, beginning in 1991 NASS cooperated with other 
USDA agencies, the Environmental Protection Agency (EPA), and the Food 
and Drug Administration, to implement comprehensive chemical usage 
surveys that collect data on certain crops in specified States. NASS 
data allows EPA to use actual chemical data from scientific surveys, 
rather than worst case scenarios, in the quantitative usage analysis 
for a chemical product's risk assessment. Beginning in fiscal year 
1997, NASS also instituted survey programs to acquire more information 
on post-harvest application of pesticides and other chemicals applied 
to commodities after leaving the farm. These programs have resulted in 
significant new chemical use data, which are important additions to the 
database. Surveys conducted in cooperation with the Economic Research 
Service (ERS) also collect detailed economic and farming practice 
information to analyze the productivity and the profitability of 
different levels of chemical use. American farms and ranches manage 
nearly half the land mass in the United States, underscoring the value 
of complete and accurate statistics on chemical use and farming 
practices to effectively address public concerns about the 
environmental effects of agricultural production.
    NASS conducts a number of special surveys, as well as provides 
consulting services for many USDA agencies, other Federal or State 
agencies, universities, and agricultural organizations on a cost-
reimbursable basis. Consulting services include assistance with survey 
methodology, questionnaire and sample design, information resource 
management, and statistical analysis. NASS has been very active in 
assisting USDA agencies in programs that monitor nutrition, food 
safety, environmental quality, and customer satisfaction. In 
cooperation with State Departments of Agriculture, land-grant 
universities, and industry groups, NASS conducted 138 special surveys 
in fiscal year 2004 covering a wide range of issues such as farm 
injury, nursery and horticulture, farm finance, fruits and nuts, 
vegetables, and cropping practices. All results from these reimbursable 
efforts are publicly available.
    NASS provides technical assistance and training to improve 
agricultural survey programs in other countries in cooperation with 
other government agencies on a cost-reimbursable basis. NASS's 
international programs focus on developing and emerging market 
countries in Asia, Africa, Central and South America, and Eastern 
Europe. Accurate information is essential for the orderly marketing of 
farm products. NASS works directly with countries by assisting in the 
application of modern statistical methodology, including sample survey 
techniques. This past year, NASS provided assistance to Brazil, China, 
El Salvador, Guatemala, Kazakhstan, Mexico, Nepal, Russia, and the 
Ukraine. In addition, NASS conducted training programs in the United 
States for 219 visitors representing 24 countries. These assistance and 
training activities promote better quality data and improved United 
States access to data from other countries.
    NASS annually seeks input on improvements and priorities from the 
public through the Secretary of Agriculture's Advisory Committee on 
Agriculture Statistics, displays at major commodity meetings, data user 
meetings with representatives from agribusinesses and commodity groups, 
special briefings for agricultural leaders during the release of major 
reports, and through numerous individual contacts. As a result of these 
activities, the agency has made adjustments to its agricultural 
statistics program, published reports, and expanded electronic access 
capabilities to better meet the statistical needs of customers and 
stakeholders.

                         FISCAL YEAR 2006 PLANS

    The fiscal year 2006 budget request is for $145.2 million. This is 
a net increase of $16.7 million from fiscal year 2005.
    The fiscal year 2006 request includes increases to continue 
restoration and modernization of NASS' core survey and estimation 
program ($7.0 million); improvement in the statistical integrity and 
standardization of the data collection and processing activities of the 
Local County Agricultural Estimates program ($1.9 million); cyclical 
activities associated with preparing and conducting the Census of 
Agriculture ($6.5 million); and funding for increased pay costs ($1.3 
million).
    An increase of $7.0 million and 10 staff years are requested to 
fund the continuation of the restoration and modernization of NASS' 
core survey and estimation program. This increase will be directed at 
continuing to restore and modernize the core survey and estimation 
program for NASS to meet the needs of data users at necessary levels of 
precision for State, regional, and national estimates. Decisions 
affecting billions of dollars in the U.S. food and agricultural sectors 
are facilitated in both public and private venues through access to 
reliable statistical information. The USDA NASS statistical program 
serves most agricultural commodity data needs in the United States, as 
well as supplying important economic, environmental, and demographic 
data that are used to impact lives of rural residents. Escalating 
survey expenses, staff costs, and operating expenses, including higher 
contract costs, forced detrimental adjustments to many of the Agency's 
survey and estimates programs. These actions over time led to 
reductions in the quality of the survey data on which NASS estimates 
are based. Funding received in fiscal year 2004 and fiscal year 2005 
was part of this multi-year initiative to restore survey accuracy to 
previous levels. These changes were designed to increase precision at 
the State and regional levels to promote the NASS goal for fiscal year 
2005 of reaching precision target levels at least 75 percent of the 
time for major survey indications. The additional funding requested in 
fiscal year 2006 will allow continued improvements and provide the 
necessary resources to reach precision target levels an estimated 83 
percent of the time.
    An increase of $1.9 million and 4 staff years are requested to 
provide for data acquisition for the annual integrated Local County 
Agricultural Estimates program. Local area statistics are one of the 
most requested NASS data sets, and are widely used by private industry, 
Federal, State and local governments and universities. This funding 
supports the NASS goal to incrementally improve survey precision for 
small area statistics. Current estimates are derived through a survey 
process that does not support scientific probability design to produce 
statistically defensible survey precision. Proper follow-up data 
collection activities and redesign of survey systems will improve the 
critical annual county-level data. The Risk Management Agency (RMA) 
uses these statistics in indemnity calculations for Group Risk Plans 
and the Group Risk Revenue Plans as part of the risk rating process. 
This affects premium levels paid by producers. The FSA uses county 
estimates to weight posted county prices to national loan deficiency 
payments, and as an input to assist producers to update their base 
acreage and yields as directed by the 2002 Farm Bill. In addition, 
financial institutions, agriculture input suppliers, agricultural 
marketing firms, and commodity transport firms utilize county level 
data to make informed business decisions.
    An increase of $6.9 million and 15 staff-years is requested for the 
Census of Agriculture. The Census of Agriculture budget request is for 
$29.1 million. This includes a cyclical program cost increase of $6.5 
million and $389,000 for employee compensation. The available funding 
includes monies to prepare for the 2007 Census of Agriculture and to 
conclude analysis and publication of the Census of Aquaculture in 
December 2006. The increase will be used to finalize questionnaire 
content for the 2007 Census of Agriculture. Mail list development 
activities will continue during fiscal year 2006 with the assistance of 
locally employed enumerators. Contract employees will aid in updating 
and streamlining census processing systems needed for conducting the 
Census of Agriculture and its follow-on surveys. Finally, hardware and 
software will be upgraded to allow for testing and implementation of 
the processing systems.
    This concludes my statement, Mr. Chairman. Thank you for the 
opportunity to submit this for the record.
                                 ______
                                 

                    Prepared Statement of J.B. Penn

    Mr. Chairman and Members of the Committee, I am pleased to appear 
before you this afternoon to present the 2006 budget and program 
proposals for the Farm and Foreign Agricultural Services (FFAS) mission 
area of the Department of Agriculture (USDA). The FFAS mission area is 
comprised of three agencies: the Farm Service Agency, Risk Management 
Agency, and Foreign Agricultural Service.
    Statements by the Administrators of the FFAS agencies, which 
provide details on their budget and program proposals for 2006, have 
already been submitted to the Committee. My statement will summarize 
those proposals, after which I will be pleased to respond to any 
questions you may have.
    Mr. Chairman, the programs and services of the FFAS mission area 
provide the foundation for the Department's efforts to ``enhance 
economic opportunities for American agricultural producers'', one of 
the five primary goals in the Department's strategic plan. The wide 
range of services provided by our agencies--price and income support, 
farm credit assistance, risk management tools, and trade expansion and 
export promotion programs--are the bedrock for ensuring the economic 
health and vitality of American agriculture.
    FFAS also plays an important role in protecting and enhancing the 
Nation's natural resource base and environment, another of the 
Department's strategic goals, by providing critical support for 
improved management of private lands.
    The 2006 President's budget supports continuation of these diverse 
activities and ensures our continued efforts on behalf of America's 
agricultural producers. Although the budget does contain proposals for 
savings in both discretionary and mandatory programs as part of 
government-wide efforts to reduce the deficit, it fulfills our 
priorities of promoting and enhancing the economic opportunities of our 
farmers and ranchers and for protecting the environment.

                          FARM SERVICE AGENCY

    The Farm Service Agency (FSA) is our lead agency for delivering 
farm assistance. It is the agency that the majority of farmers and 
ranchers interact with most frequently. Producers rely on FSA to access 
farm programs such as direct and countercyclical payments, commodity 
marketing assistance loans, loan deficiency payments, farm ownership 
and operating loans, disaster assistance, and certain conservation 
programs, such as the Conservation Reserve Program (CRP). Because FSA 
is the prime delivery agency for most of the major farm assistance 
programs, the budget places a priority on maintaining and enhancing 
FSA's ability to provide efficient, responsive services to our 
producers.

Farm Program Delivery
    The 2002 Farm Bill required FSA to undertake the massive task of 
implementing a complex set of new farm programs within a short time 
period, and the agency met that challenge successfully and with 
distinction. With the major workload associated with Farm Bill 
implementation having been completed, FSA recently has faced other 
program implementation challenges that have required the full 
commitment of agency resources. Last October, the President signed a 
disaster assistance bill that included more than a dozen programs and 
$2.9 billion for farmers and ranchers who were affected by drought and 
other weather-related problems in 2003 and 2004. Sign-up for crop 
disaster assistance began March 14th, and payments began by March 30th. 
FSA also has implemented an emergency relief program, supported with 
$600 million of section 32 funds, for Florida's citrus, nursery, and 
vegetable growers who were affected by three hurricanes last year.
    Also enacted last October was legislation containing the so-called 
tobacco buy-out provisions that has major consequences for the Federal 
tobacco program. Under those provisions, transition payments will be 
made to tobacco quota holders and producers, ending all elements of the 
Federal tobacco price support program effective with the 2005 crop. FSA 
is now actively engaged in the steps needed to implement the 
legislation as quickly and efficiently as possible. Sign-up for the 
transition payment program began on March 14th and will continue 
through June 17th.
    The 2006 budget is designed to ensure the agency's efforts can move 
forward. It provides a total program level for FSA salaries and 
expenses of nearly $1.4 billion, a net increase of $70 million above 
2005. The requested level will support a ceiling of about 5,500 Federal 
staff years and 10,300 non-Federal staff years. Staff levels have been 
reallocated among FSA's program activities to reflect the decreased 
workload associated with farm income program support and other areas, 
while accommodating rising workload needs for conservation and other 
programs. Permanent full time non-Federal county staff years are 
estimated to remain unchanged from this year's level, while temporary 
staff years are reduced with the completion of disaster assistance 
activities.
    FSA is taking other actions designed to improve their services on 
behalf of America's producers. Among the most important of these are 
information technology (IT) improvements, including the adoption of 
web-based applications that allow farmers to sign up for programs, as 
well as receive payments, on line. This reduces the paperwork burden 
significantly and provides for more timely receipt of payments. By 
2006, FSA expects all of its major programs will be web-based and 
available on-line.
    FSA also continues to implement Geospatial Information Systems 
(GIS) and Global Positioning System technology that will provide 
increasingly better services in the future and should result in 
significant long-term savings. Funding for FSA IT modernization and 
related GIS initiatives has been provided in the Common Computer 
Environment account managed by the Department's Chief Information 
Officer.
    Finally, FSA is making considerable progress in reaching out to its 
small farm and minority constituency base. In January, final guidelines 
were implemented that provide reforms to ensure fair representation for 
socially disadvantaged farmers and ranchers in county committee 
elections. This has been complemented by expanded communication and 
outreach activities to increase the number of minority and women 
nominees in the election process.

Commodity Credit Corporation
    Domestic farm commodity price and income support programs are 
financed through CCC, a Government corporation for which FSA provides 
operating personnel. CCC also provides funding for conservation 
programs, including the CRP and certain programs administered by the 
Natural Resources Conservation Service. In addition, CCC funds most of 
the export programs administered by the Foreign Agricultural Service.
    In 2004, as a result of strong prices and a healthy farm economy, 
CCC net expenditures declined 39 percent below the previous year to 
$10.6 billion. For 2005 and 2006, CCC outlays are expected to increase 
significantly due to recent large crops that have contributed to 
growing supplies and weakened prices. CCC outlays are now projected to 
reach $24.1 billion in 2005 and then decline to $19.8 billion in 2006.
    The President's budget includes a number of proposals to reduce the 
level of farm spending consistent with the government-wide goal of 
reducing the Federal deficit. These proposals are designed to work 
within the existing structure of the 2002 Farm Bill and achieve savings 
over the next 10 years. The proposals, which are spread across the 
entire agricultural production sector, include reducing commodity 
payments across the board by 5 percent; basing marketing loan benefits 
on historical production; tightening payment limits; lowering dairy 
program costs while extending the Milk Income Loss Contract program for 
2 years; and reinstituting a 1.2 percent marketing assessment on sugar 
processors.
    These proposals are expected to save $587 million in 2006 and $5.7 
billion over 10 years. The majority of the savings is achieved through 
the across-the-board reduction in program payments.
    The budget also proposes to limit the CCC bioenergy incentive 
program to $60 million, similar to the limitation of $100 million that 
applies to the 2005 program. An assessment of this program has found 
that additional incentives for ethanol are less critical than other 
Federal assistance, including tax credits and production mandates and 
that greater emphasis should be placed on incentives for biodiesel 
production rather than ethanol.

Conservation Programs
    The 2002 Farm Bill provided for significant growth in the 
Department's conservation programs. The CRP, which is funded by CCC and 
administered by FSA, is the Department's largest conservation/
environmental program. The Farm Bill extended CRP enrollment authority 
through 2007 and increased the enrollment cap by 2.8 million acres to a 
total of 39.2 million acres.
    As of the end of December, CRP enrollment totalled 34.7 million 
acres. Another 1.2 million acres were accepted in the 29th general 
signup in 2004 and will be enrolled once contracts are finalized. Once 
that step is completed, the CRP will have reached more than 90 percent 
of the total acreage authorized in the Farm Bill.
    Our current baseline assumptions are that CRP acreage will increase 
gradually to 39.2 million acres by 2008 and remain at that level 
through 2015.

Farm Loan Programs
    FSA plays a critical role for our Nation's agricultural producers 
by providing a variety of direct loans and loan guarantees to farm 
families who would otherwise be unable to obtain the credit they need 
to continue their farming operations. By law, a substantial portion of 
the direct loan funds are reserved each year for assistance to 
beginning, limited resource, and socially disadvantaged farmers and 
ranchers. For 2006, 70 percent of direct farm ownership loans are 
reserved for beginning farmers and 20 percent are reserved for socially 
disadvantaged borrowers, who may also be beginning farmers.
    The 2006 budget includes funding for about $937 million in direct 
loans and $2.9 billion in guarantees. We believe these proposed loan 
levels will be sufficient to meet demand in 2006.
    The 2006 budget also maintains funding of $2 million for the Indian 
Land Acquisition program. For the Boll Weevil Eradication loan program, 
the budget requests $60 million, a reduction of $40 million from 2005. 
This reduction is due to the successful completion of eradication 
efforts in several areas. The amount requested is expected to fund 
fully those eradication programs operating in 2006. For emergency 
disaster loans, the budget requests $25 million. About $175 million is 
currently available for use in 2005, and a portion of that is likely to 
carry over into 2006. The combined request and anticipated carryover 
are expected to provide sufficient credit in 2006 to producers whose 
farming operations have been damaged by natural disasters.

                         RISK MANAGEMENT AGENCY

    The Federal crop insurance program represents one of the strongest 
safety net programs available to our Nation's agricultural producers. 
It provides risk management tools that are compatible with 
international trade commitments, creates products and services that are 
market driven, harnesses the strengths of both the public and private 
sectors, and reflects the diversity of the agricultural sector.
    In 2004, the crop insurance program provided about $46 billion in 
protection on over 221 million acres, which is about 3 million acres 
more than were insured in 2003. Our current projection is that 
indemnity payments to producers on their 2004 crops will be about $2.9 
billion which is about $1 billion less than in 2003. Our current 
projection for 2006 shows a modest decrease in the value of protection. 
This projection is based on the Department's latest estimates of 
planted acreage and expected declines in market prices for the major 
agricultural crops, and assumes that producer participation remains 
essentially the same as it was in 2004.
    The 2006 budget requests an appropriation of ``such sums as are 
necessary'' as mandatory spending for all costs associated with the 
program, except for Federal salaries and expenses. This level of 
funding will provide the necessary resources to meet program expenses 
at whatever level of coverage producers choose to purchase.
    Despite the successes of the crop insurance program, more can be 
done to improve its effectiveness. One of the overarching goals of the 
crop insurance program has been the reduction or elimination of ad hoc 
disaster assistance. However, in recent years Congress has passed four 
disaster bills covering 6 crop years and costing the Government about 
$10 billion. Therefore, the budget includes a proposal to link the 
purchase of crop insurance to participation in farm programs, such as 
the direct and counter-cyclical payment programs. This proposal would 
require farm program participants to purchase crop insurance protection 
for 50 percent, or higher, of their expected market value or lose their 
farm program benefits. This level of coverage is nearly double the 
amount of protection provided at the catastrophic level.
    Additionally, participants in the Federal crop insurance program 
would contribute to the President's deficit reduction program. The 
budget includes several proposals that would reduce subsidies paid to 
producers and approved insurance providers. In total, these changes are 
expected to save about $140 million annually beginning in 2007.
    In addition, the budget includes a general provision that would 
provide $3.6 million in mandatory funds to continue data warehousing 
and data mining activities authorized in the Agricultural Risk 
Protection Act of 2000 (ARPA). ARPA provided $23 million in mandatory 
funds for a variety of purposes, including data mining; however, that 
funding expires in 2005. Data mining is an instrumental part of the 
Department's efforts to combat fraud, waste, and abuse in the crop 
insurance program. In its first year of operation, data mining is 
estimated to have prevented the payment of about $94 million in 
potentially fraudulent claims and assisted in the identification and 
recovery of about $35 million in claims that should not have been paid.

Salaries and Expenses
    For salaries and expenses of the Risk Management Agency (RMA), $88 
million in discretionary spending is proposed, an increase of $17 
million from the 2005 level of about $71 million. This net increase 
includes additional funding for IT, increased staff years to improve 
monitoring of the insurance companies, and pay costs.
    RMA has an aging IT system; the last major overhaul occurred about 
10 years ago. At that time, the crop insurance program offered seven 
plans of insurance covering roughly 50 crops and providing about $14 
billion in protection. In 2004, protection was offered through 20 plans 
of insurance covering 362 crops, plus livestock and aquaculture, and 
providing over $46 billion in protection.
    Several major changes also have occurred over the years in the way 
producers protect their operations from losses. In 1994, there were no 
plans of insurance which offered protection against changes in market 
prices. Today, over 50 percent of the covered acreage has revenue 
protection and nearly 62 percent of the premium collected is for 
revenue based protection. In addition, ARPA authorized the development 
of insurance products to protect livestock. RMA has implemented several 
new livestock price protection products. Because livestock production 
occurs year-round, these products must be priced and sold in a 
different manner than traditional crop insurance. The advent of new 
types of insurance, not contemplated when the IT system was designed, 
has placed tremendous strain on an aging system.
    ARPA also instituted new data reconciliation, data mining, and 
other anti-fraud, waste, and abuse activities that require the data to 
be used in a variety of new ways. The current IT system was not 
designed to handle these types of data operations. Consequently, the 
data must be stored in multiple databases which increases data storage 
costs and processing times and increases the risk of data errors.
    The development of the new IT system will result in some additional 
up-front costs to the Government because we will be required to finance 
both the developmental costs as well as the increasingly expensive 
maintenance costs of the legacy system. However, once the new system is 
operational, the legacy system will be eliminated, and a substantial 
reduction in maintenance costs is projected.
    Finally, I would note that the budget for RMA includes a request 
for 17 additional staff years. This increase will provide RMA with the 
additional resources necessary to monitor the financial and operational 
condition of the companies participating in the crop insurance program. 
In 2002, American Growers', the Nation's largest crop insurance 
company, failed. RMA, in concert with the Nebraska Department of 
Insurance, did a tremendous job of ensuring that both the producers' 
and the Government's interests were protected, indemnities paid, and 
policies transferred to other insurance providers. The additional 
staffing will help to ensure that a similar failure does not occur in 
the future.

                      FOREIGN AGRICULTURAL SERVICE

    I would now like to turn to the international programs and 
activities of the FFAS mission area. As Secretary Johanns highlighted 
in his recent testimony before the Committee, expanding trade is 
critically important for the economic health and prosperity of American 
agriculture. Expanding international market opportunities and promoting 
trade are among the most important means the Department has to enhance 
economic opportunities for our farmers and ranchers.
    We have made solid progress during the past year in our market 
expansion activities. Central to these efforts is the Framework 
Agreement on agriculture that was reached last July by Members of the 
World Trade Organization (WTO) as part of the current round of 
multilateral trade negotiations. The agreement incorporates key U.S. 
objectives for the negotiations and provides strong principles for 
further liberalization of agricultural trade. Much work remains to be 
done to translate those principles into actual reform commitments, 
however, and we are working very diligently to achieve consensus among 
WTO Members on as many areas as possible by this summer. This should 
pave the way for a successful WTO Ministerial meeting next December in 
Hong Kong.
    Regional and bilateral trade agreements provide another important 
avenue for opening new markets, and we continue to participate in the 
ambitious agenda that has been established for the negotiation of such 
agreements. During the past year, agreements were concluded with 
Australia, Morocco, Bahrain, five Central American countries, and the 
Dominican Republic. Negotiations are continuing with Panama, Thailand, 
three Andean countries, the five members of the Southern African 
Customs Union, the United Arab Emirates, Oman, and 34 countries that 
will comprise the Free Trade Area of the Americas.
    Our efforts to maintain and expand market access are not limited to 
the negotiation of new agreements, however. Trade agreement monitoring 
and compliance activities are vital if we are to protect U.S. trade 
rights.
    During the past year, among our highest priorities has been our 
work to recover access to markets for U.S. beef that were closed due to 
the December 2003 discovery of one case of bovine spongiform 
encephalopathy (BSE) in the United States. To date, we have recovered 
markets worth $1.2 billion, based on 2003 values. Most recently, Egypt 
opened its market to U.S. beef and beef products from animals less than 
30 months of age.
    The current focus of our efforts is restoring access to the 
Japanese market, and we are committed to reaching a resolution of this 
matter as soon as possible. In October, the United States and Japan 
reached agreements on the terms by which trade in U.S. beef would 
resume. Since that time, U.S. experts have traveled to Japan to provide 
additional technical explanations. We have worked across the 
Administration to apply pressure to convince the Japanese that they 
must open their market expeditiously. Last month, their Food Safety 
Commission adopted a new domestic standard excluding cattle 20 months 
of age and younger from mandatory testing. This is progress. We now 
need an expedited import review process to get the market reopened.

Salaries and Expenses
    The Foreign Agricultural Service (FAS) is the lead agency for the 
Department's international activities and is at the forefront of our 
efforts to expand and preserve overseas markets. Through its network of 
78 overseas offices and its headquarters staff here in Washington, FAS 
carries out a wide variety of activities that contribute to the goal of 
expanding overseas market opportunities.
    As the Committee may be aware, FAS is currently undergoing an 
extensive review of its activities, organization, and operations. Many 
factors have prompted this assessment, including the changing nature of 
the global agricultural trade and trade-related issues; the need for 
greater efficiency in the delivery of services to the public; and 
budgetary constraints stemming in large part from significantly 
increased overseas operating costs. Recent declines in the value of the 
dollar relative to other currencies, coupled with local wage and price 
increases at overseas posts, have created major challenges in managing 
the agency's overseas presence.
    FAS has already taken steps to respond to these challenges. Earlier 
this year, the agency exercised buy-out and early-out authorities, 
approved by the Office of Personnel Management, to reduce staff levels 
at headquarters. In addition, its travel budget has been reduced by 50 
percent, and promotional activities carried out by FAS overseas staff 
and other international programs have been sharply curtailed.
    Even with the actions that have been taken thus far and further 
steps that are likely to result from the current organizational review, 
FAS will continue to face fiscal hurdles as it strives to maintain the 
services it provides to American agriculture. These factors were taken 
into account during development of the 2006 budget, with particular 
attention given to maintaining FAS' overseas presence so the agency can 
continue to represent and advocate for U.S. agricultural interests on a 
global basis.
    The budget provides a program level of $152 million for FAS 
activities in 2006, an increase of just over $11 million above 2005. 
This includes funding to meet higher operating costs at the agency's 
overseas posts, including increased payments to the Department of State 
for administrative services that State provides at overseas posts.
    Funding also is provided for FAS' contribution to the Capital 
Security Cost Sharing program. Under that program, which is being 
implemented this year, agencies with an overseas presence in U.S. 
diplomatic facilities will contribute a proportionate share of the 
costs of the construction of new, safe U.S. diplomatic facilities over 
a 14-year period.
    The budget also requests funding to support an FAS presence in the 
new embassy in Baghdad, Iraq, as well as funding for increased agency 
personnel costs.

Export Promotion and Market Development Programs
    FAS administers the Department's export promotion and market 
development programs which play an important role in our efforts to 
assist American producers and exporters take advantage of new market 
opportunities overseas.
    The CCC export credit guarantee programs provide payment guarantees 
for the commercial financing of U.S. agricultural exports. Those 
guarantees facilitate exports to buyers in countries where credit is 
necessary to maintain or increase U.S. sales, but where financing may 
not be available with CCC guarantees. For 2006, the budget projects a 
program level of $4.4 billion for CCC export credit guarantees.
    For the Department's market development programs, including the 
Market Access Program and Foreign Market Development Program, the 
budget provides funding of $173 million. This is somewhat below the 
2005 current estimate reflecting a proposal to limit the Market Access 
Program to $125 million. That proposal is intended to achieve savings 
in mandatory spending and contribute to government-wide deficit 
reduction efforts.
    The budget also includes $52 million for the Dairy Export Incentive 
Program and $28 million for the Export Enhancement Program.

International Food Assistance
    The United States continues to be the world's leader in global food 
aid efforts, providing over one-half of world food assistance. In 
support of our commitment to help alleviate hunger and malnutrition in 
developing countries, the supplemental appropriations package submitted 
by the President on February 14th includes a request for $150 million 
to support additional Public Law 480 Title II food donations to meet 
critical needs in Sudan and other emergency situations. It also 
requests funding for recovery and reconstruction activities in tsunami-
affected countries and allows a portion of those funds to cover the 
cost of Public Law 480 Title II commodities used to respond after the 
tsunami.
    For 2006, the budget continues our support for these efforts by 
providing a program level of approximately $1.8 billion for U.S. 
foreign food assistance activities, including $300 million that is 
being requested in the Foreign Operations Appropriations Bill.
    The Public Law 480 programs remain the primary vehicle for 
providing U.S. foreign food assistance. The 2006 budget provides 
funding that would support a Title I credit and grant program level of 
$145 million. For Title II donations, funding is provided to support a 
program level of $964 million. These estimated program levels include 
unobligated funds carried over from previous years and projected 
reimbursements from the Maritime Administration for costs associated 
with meeting U.S. cargo preference requirements in prior years.
    In the case of Title II, the level of appropriated funding 
requested has been reduced by $300 million below the level requested in 
recent annual budgets, and an equivalent level of funding is being 
requested in the Agency for International Development's (AID) 
International Disaster and Famine Assistance account to support 
emergency food assistance activities that will be administered 
separately by AID. This change is intended to expedite the response to 
emergencies overseas by allowing food aid commodities to be purchased 
more quickly and closer to their final destination, while increasing 
the total amount of commodities that can be procured to meet those 
emergencies.
    For the McGovern-Dole International Food for Education and Child 
Nutrition Program, the budget provides appropriated funding of $100 
million, an increase of 15 percent above the 2005 enacted level. That 
funding will be supplemented by anticipated reimbursements from the 
Maritime Administration, and the total combined program level of $106 
million is expected to support assistance for as many as 2.6 million 
women and children.
    The budget also includes an estimated program level of $137 million 
for the CCC-funded Food for Progress program, which supports the 
adoption of free enterprise reforms in the agricultural economies of 
developing countries. The budget also assumes that donations of nonfat 
dry milk will continue under the authority of section 416(b) of the 
Agricultural Act of 1949. The total value of the commodity assistance 
and associated costs is projected to be $151 million.

Trade Adjustment Assistance
    The budget includes $90 million for the Trade Adjustment Assistance 
(TAA) for Farmers Program, as authorized by the Trade Act of 2002. This 
program provides assistance to producers of raw agricultural 
commodities who have suffered lower prices due to import competition, 
and to fishermen who compete with imported aquaculture producers. In 
order to qualify for assistance, the price received by producers of a 
specified commodity during the most recent marketing year must be less 
than 80 percent of the national average price during the previous 5 
marketing years. In addition, a determination must be made that 
increases in imports of like or competitive products ``contributed 
importantly'' to the decline in prices.
    During 2004, the first full year of implementation, 12 petitions 
for TAA assistance were approved. Commodities that were certified for 
assistance included blueberries, Pacific salmon, shrimp, catfish, and 
lychees. The total program costs for 2004 are estimated at $16 million.
    The deadline for submission of petitions for 2005 TAA assistance 
closed on January 31st. Thus far, TAA assistance has been certified for 
Pacific salmon fishermen in 2 States, shrimpers in 7 States, Concord 
juice grape producers in 3 states, black olive producers in California, 
and potato producers in Idaho. Additional petitions are currently under 
review, and decisions on their eligibility should be announced in the 
near future.
    That concludes my statement, Mr. Chairman. I would be pleased to 
answer any questions that you and other Members of the Committee may 
have. Thank you.
                                 ______
                                 

  Prepared Statement of James R. Little, Administrator, Farm Service 
                                 Agency

    Mr. Chairman and Members of the Subcommittee, I appreciate the 
opportunity to present the fiscal year 2006 budget for the Farm Service 
Agency (FSA). Since we met last year, I am pleased to report that FSA 
has made substantial progress in a number of areas to enhance customer 
service. We are putting in place an infrastructure that will help us 
quickly respond to new legislation and provide better access to our 
programs and data for our customers and business partners. We have made 
great strides in reaching out to our small and disadvantaged 
constituency base and engaging our stakeholders to help us develop a 
new Strategic Plan that is aligned with the Secretary's plan, all 
designed to support productive farms and ranches that are competitive 
in global markets; promote a secure and affordable food and fiber 
supply; and conserve natural resources and enhance the environment.
    This budget is fiscally responsible and proposes several measures 
to achieve savings in farm programs. It also includes a number of 
projects and initiatives designed to achieve substantial and systemic 
improvements that will position us for prompt implementation of the 
next farm bill or any other enacted legislation. Your support for the 
budget request will enable FSA to meet the challenges of a shifting 
economic environment and the influence of natural and man-made 
disasters. Before I begin addressing the details of the budget, I would 
like to comment on some of our recent successes, some of the 
initiatives we currently have underway, and some of the challenges we 
face.

Disaster Assistance
    The past year provided us with tremendous challenges from Mother 
Nature, with record rainfall in parts of the country, a pervasive 
drought in the West, and the worst hurricane season in decades. In all 
cases FSA showed its colors and responded proactively to provide 
support in record time. The disaster assistance bill signed by the 
President on October 13, 2004, included more than a dozen programs and 
$2.9 billion for farmers and ranchers who have been affected by drought 
and other weather-related problems in 2003 and 2004, including damage 
caused by the devastating 2004 hurricanes and tropical storms that 
ravaged Florida, the Southeast and Eastern shore. Delivery of these 
programs has been a massive undertaking, which included implementing 
the Emergency Conservation Program in 12 days following passage of the 
bill that provided new funding. In total, this important legislation 
provided relief for losses of crops, livestock, dairy, cottonseed, and 
trees, including orchards, timber and pecans. In addition, FSA 
implemented an emergency relief program utilizing over $600 million 
from Section 32 funds for Florida's citrus, nursery, and vegetable 
growers who were especially impacted by back-to-back hurricanes 
Charley, Frances and Jeanne.
    FSA is working diligently to implement all of these disaster 
programs as soon as possible. Signup for the Section 32 initiative 
began last October, with more than $315 million already paid out. 
Various other programs are being phased in; for example, the Tree 
Assistance Program began February 7 and the major Crop Disaster Program 
began March 14. I am pleased to note that these delivery times are 
consistent with previous ad hoc disaster programs, which have generally 
been implemented within 5\1/2\ months of enactment.
    In addition, we continued the very successful Nonfat Dry Milk (NDM) 
Livestock Feed Assistance Initiative, which provided drought relief to 
foundation livestock producers in States hardest hit by drought. 
Surplus Commodity Credit Corporation (CCC) stocks of NDM, which have 
been denatured to prevent human consumption, are provided to 
participating States at a greatly reduced cost. Under the 2004 
initiative, 135.8 million pounds of NDM, including some of the unused 
NDM from the 2003 initiative, was made available to eligible producers 
in 96 counties in Arizona, Idaho, Montana, Nebraska, Nevada, New 
Mexico, Oregon, Utah, and Wyoming.

Tobacco Transition Program
    On October 22, 2004, President Bush signed into law the American 
Jobs Creation Act of 2004, which includes the Fair and Equitable 
Tobacco Reform provisions commonly referred to as the Tobacco Buyout. 
Under this statute, payments will be made to tobacco quota holders and 
producers, ending all aspects of the Federal tobacco support program, 
including marketing quotas and non-recourse marketing loans, effective 
with the 2005 crop. This is an historic event, Mr. Chairman, since the 
tobacco price support program has been in place since the 1930's and 
has defined a way of life for many of our Nation's small family 
farmers.
    Current tobacco program requirements for the 2004 marketing year 
will remain in effect through the end of the 2004 marketing season, 
which ends June 30, 2005, for flue-cured tobacco and September 30, 
2005, for all other types of tobacco. The funds required to pay for the 
transition, estimated to total $10.14 billion over a 10-year period, 
will be obtained through assessments on manufacturers and importers of 
all tobacco products sold in the United States. The payments to 
producers will be made in 10 equal annual installments beginning in 
2005 and ending September 30, 2014.
    A sign-up period began on March 14. Tobacco quota holders will 
receive payments of $7 per pound based on their basic quota at the 2002 
marketing year level. Producers of quota tobacco will receive payments 
of $3 per pound based on their shares of risk in the 2002, 2003, and 
2004 crops of quota tobacco. FSA is working aggressively to implement 
this historic piece of legislation as quickly and effectively as 
possible. We are also working diligently to put in place a 
comprehensive communication and educational strategy to ensure all 
farmers, especially minority and disadvantaged farmers, are aware of 
the program and informed about how to sign up and obtain their 
benefits.

Technology Modernization
    Over the past year, FSA has moved aggressively and collectively to 
a more streamlined environment using state-of-the-art information 
technology. FSA made significant progress in moving our systems to a 
web-based environment, improving the way we do business, providing 
better access to our data for our customers and business partners, and 
improving customer service. In keeping with the President's Management 
Initiatives on making programs more accessible using today's 
technology, last April Secretary Veneman unveiled the USDA Customer 
Statement, which enables producers to view all their program 
information through one Web portal. According to the 2002 Census of 
Agriculture, approximately 48 percent of all farmers have access to the 
Internet, enabling them to check on their CCC payments, collections, 
debt, and IRS reporting, via the Web. FSA Web-based applications also 
allow farmers to sign up for the Direct and Counter-cyclical Payment 
Program on line and receive their loan deficiency payments on line, 
significantly reducing the paperwork burden and providing benefits more 
timely. In addition, other partners are being provided electronic 
access. For example, participating U.S. banks and exporters can now 
electronically submit registrations, evidence of exports, and notices 
of default under the General Sales Manager's Export Credit Guarantee 
Program.
    To take advantage of USDA's and FSA's electronic commerce (e-
commerce) programs, the FSA is encouraging all producers to sign up for 
the capability. Over the next several months, we will be conducting an 
extensive public relations campaign to promote e-commerce and its 
benefits. Through a substantial modernization effort, FSA expects that 
by 2006 all of its major programs will be Web-based and available on 
line to our customers and partners.
    In addition to e-commerce, FSA, along with other USDA agencies, 
continues to implement Geospatial Information System (GIS) and Global 
Positioning System (GPS) technology. GIS and GPS are helping FSA staff 
more efficiently measure land features by allowing computer-generated 
maps to interact with databases that store information about the land 
and its characteristics and background. In collaboration with the Risk 
Management Agency (RMA), FSA has digitized 80-90 percent of our most 
critical component of GIS--the Common Land Unit, which is the smallest 
land unit or field. This is the first major step toward creating a 
common management information system that can be shared by FSA and RMA 
and tremendously reduce redundancies.

Conservation
    This past year, FSA set new standards for the Conservation Reserve 
Program (CRP), which is the Federal Government's largest private lands 
conservation program, assisting farm owners and operators in conserving 
highly erodible and other environmentally sensitive land to improve 
soil, water quality, air quality, and wildlife resources. I will talk 
more about the Conservation Reserve Program in the ``Budget Requests'' 
section of this statement.

Program Outreach
    Over the last year, FSA made great strides in reaching out to its 
small farm and minority constituency base with support from Secretary 
Veneman. Most importantly, on August 17, 2004, Secretary Veneman 
published in the Federal Register Proposed Uniform Guidelines for 
conducting FSA County Committee (COC) elections. The guidelines 
mandated reforms intended to ensure fair representation of socially 
disadvantaged farmers and ranchers on COCs. Detailed actions contained 
in the guidelines include improved outreach and communications; 
improved election procedures; nominations by the Secretary; and 
additional reporting and accountability requirements, which were 
implemented for the 2004 COC elections held December 6, 2004. FSA also 
launched a massive communications campaign in partnership with many 
minority and small farm organizations, with the specific goal to 
increase the numbers of minority and women nominees on COC election 
ballots. Analysis of the election data is under way, and FSA 
anticipates some positive results. In keeping with congressional 
intent, USDA will continue to review the results of the elections and 
determine what next steps are needed to ensure adequate minority 
representation on COCs.
    Last year, FSA and the USDA Office of Civil Rights crossed a major 
milestone when it implemented the Minority Farm Register and sponsored 
several listening sessions to allow minority farmers to interact with 
top Agency officials to discuss their problems and ways to improve 
customer service. FSA has teamed with the Cooperative State Research, 
Education, and Extension Service (CSREES) to train minority-serving 
institutions to teach minority producers how to apply for farm loans 
and operate their farms more efficiently. The partnership between FSA 
and CSREES has been extremely proactive and should prove very 
beneficial in helping improve FSA's program delivery.

Budget and Performance Management System
    As part of FSA's vigilance towards our mission and meeting the 
President's Management Agenda focusing on improved customer service, 
FSA has developed the framework for a new performance-based, results-
focused Strategic Plan. Known as the Budget and Performance Management 
System (BPMS), this framework aims to improve Agency and individual 
performance, accountability, and decision-making; fully comply with 
President's Management Agenda objectives; and ensure a customer focus 
to all activities. To accomplish all this, FSA formed a BPMS Core Team 
representing all major Agency functions. The Core Team looked at 
everything FSA does to help farmers, ranchers, and agricultural 
partners as well as how FSA manages its employees. Over 450 external 
and internal stakeholders participated in the plan's development. The 
Strategic Plan focuses on what FSA will do; BPMS focuses on how the 
Agency will get it done. The BPMS involves a range of activities to 
ensure taxpayer dollars are directed to efficient and effective 
programs that get results. The cornerstone of BPMS is the new Strategic 
Plan.
    BPMS is the vehicle that will help FSA meet its performance goals. 
Technology changes associated with BPMS will integrate all aspects of 
budget and performance and associated costs for improved decision-
making and accountability to stakeholders and taxpayers. FSA has begun 
to examine requirements for fully costing the performance measures it 
uses to deliver results.

Organizational Efficiency
    FSA is actively engaged in a comprehensive review of its operations 
and organization at all levels, including headquarters, State offices, 
and our 2,400 service centers. This review is necessary to better 
understand how to meet the demands of a dynamic and ever changing 
United States and world agricultural marketing system. FSA needs to 
better utilize current technology, encourage e-government and web-based 
programs, and expand GIS capabilities to improve customer service 
across all business lines. Our review is examining ways to make access 
to and delivery of our programs more efficient and at less cost, with 
the help of technology and a streamlined infrastructure.

Fiduciary Accomplishments
    Fiscal year 2004 marks the third consecutive year in which FSA and 
CCC earned unqualified (clean) audit opinions for their activities, 
which have program levels exceeding $25 billion.

                            BUDGET REQUESTS

    Turning now to the specifics of the 2006 Budget, I would like to 
highlight our proposals for the commodity and conservation programs 
funded by the Commodity Credit Corporation (CCC); the farm loan 
programs of the Agricultural Credit Insurance Fund; our other 
appropriated programs; and administrative support.

                      COMMODITY CREDIT CORPORATION

    Domestic farm commodity price and income support programs are 
administered by FSA and financed through the CCC, a government 
corporation for which FSA provides operating personnel. Commodity 
support operations for corn, barley, oats, grain sorghum, wheat and 
wheat products, soybeans, minor oilseed crops, upland cotton and extra 
long staple cotton, rice, milk and milk products, honey, peanuts, pulse 
crops, sugar, wool and mohair are facilitated primarily through loans, 
payment programs, and purchase programs.
    The 2002 Farm Bill authorizes CCC to transfer funds to various 
agencies for authorized programs in fiscal years 2002 through 2007. It 
is anticipated that in fiscal year 2005, $2.11 billion will be 
transferred to other agencies.
    The CCC is also the source of funding for the Conservation Reserve 
Program administered by FSA, as well as many of the conservation 
programs administered by the Natural Resources Conservation Service. In 
addition, CCC funds many of the export programs administered by the 
Foreign Agricultural Service.

Program Outlays
    The fiscal year 2006 budget estimates largely reflect supply and 
demand assumptions for the 2005 crop, based on November 2004 data. CCC 
net expenditures for fiscal year 2006 are estimated at $19.8 billion, 
down about $4.3 billion from $24.1 billion in fiscal year 2005. If the 
President's proposals for farm program savings are enacted, CCC outlays 
would decline by an additional $587 million in fiscal year 2006.
    This net decrease in projected expenditures is attributable to 
decreases for crop, tree and livestock disaster payments, loan 
deficiency payments, and the Noninsured Assistance Program, partially 
offset by an increase in counter-cyclical payments.

Reimbursement for Realized Losses
    CCC is authorized to replenish its borrowing authority, as needed, 
through annual appropriations up to the amount of realized losses 
recorded in CCC's financial statements at the end of the preceding 
fiscal year. For fiscal year 2004 losses, CCC was reimbursed $12.5 
billion in fiscal year 2005.

Conservation Reserve Program
    The Conservation Reserve Program (CRP), administered by FSA, is 
currently USDA's largest conservation/environmental program. It is 
designed to cost-effectively assist farm owners and operators in 
conserving and improving soil, water, air, and wildlife resources by 
converting highly erodible and other environmentally sensitive acreage, 
normally devoted to the production of agricultural commodities, to a 
long-term resource-conserving cover. CRP participants enroll acreage 
for 10 to 15 years in exchange for annual rental payments as well as 
cost-share assistance and technical assistance to install approved 
conservation practices.
    The 2002 Farm Bill increased authorized enrollment under this 
program from 36.4 million acres to 39.2 million acres. Under the 
general signup that ended September 24, 2004, FSA accepted offers to 
bring nearly 1.2 million acres into the CRP. Also under the 2004 
continuous and Farmable Wetlands Program (FWP) signup, a combined total 
of 275,000 acres was enrolled. We issued incentive payments totaling 
approximately $85 million under continuous signup, Conservation Reserve 
Enhancement Program (CREP), and FWP under the incentives program that 
began in May 2000 to boost participation. As of April 5, 2005, total 
CRP enrollment is 34.8 million acres, nearly 90 percent of the 39.2 
million acres authorized under the Farm Bill.
    However, a challenge lies ahead. In 2007, 16 million acres 
currently under CRP contracts are scheduled to expire, followed by 
another 6 million acres in 2008, 4 million acres in 2009, and 2 million 
acres in 2010. To ensure that the benefits of CRP continue, in August 
2004 the President declared the Administration's commitment to full CRP 
enrollment and announced that FSA will offer early reenrollments and 
extensions of existing contracts. In addition, FSA encouraged public 
comment on CRP through a Federal Register notice. Over 5,100 comments 
were received, and FSA expects to complete its analysis and announce 
reenrollment and contract extension provisions later this year.
    President Bush also announced the Northern Bobwhite Quail 
Initiative, aimed at creating 250,000 acres of habitat for the northern 
bobwhite quail and other upland bird species, and a wetland restoration 
initiative to restore up to 250,000 acres of wetlands and playa lakes 
located outside the 100-year floodplain.
    The CREP is also a major initiative under CRP that seeks to address 
recognized environmental issues of States, Tribes, and the Nation. CREP 
is a voluntary program implemented through Memoranda of Agreement with 
partners, such as States, Federal agencies, and private groups. FSA 
currently has 30 CREP agreements with 25 States with over 1.7 million 
acres reserved for enrollment. The program is very popular with 
environmental and wildlife groups, in addition to States and private 
landowners. More than 600,000 acres are currently enrolled in CREP 
nationwide. Most recently, in March 2005, FSA launched a second new 
CREP project in Nebraska.
    The fiscal year 2006 budget assumes general signups in fiscal years 
2005 and 2006 to enroll approximately 1.0 million acres and 1.3 million 
acres, respectively. In each of fiscal years 2005 and 2006, we 
anticipate enrolling 450,000 acres under continuous signup and the 
CREP. About 50,000 acres are estimated to be enrolled in the FWP in 
fiscal year 2005 and 60,000 acres in fiscal year 2006.
    Overall, CRP enrollment is assumed to gradually increase from 34.7 
million acres at the end of fiscal year 2004 to 39.2 million acres by 
fiscal year 2008, and to remain at 39.2 million acres through fiscal 
year 2015, maintaining a reserve sufficient to provide for continuous 
signup and CREP.

                           FARM LOAN PROGRAMS

    The loan programs funded through the Agricultural Credit Insurance 
Fund provide a variety of loans and loan guarantees to farm families 
who would otherwise be unable to obtain the credit they need to 
continue their farming operations.
    The fiscal year 2006 Budget proposes a total program level of about 
$3.8 billion. Of this total, approximately $0.9 billion is requested 
for direct loans and nearly $2.9 billion for guaranteed loans offered 
in cooperation with private lenders. These levels should be sufficient 
to provide adequate funding for the neediest farmers and ranchers 
throughout the year.
    For direct farm ownership loans we are requesting a loan level of 
$200 million. The proposed program level would enable FSA to extend 
credit to about 1,700 small and beginning farmers to purchase or 
maintain a family farm. In accordance with legislative authorities, FSA 
has established annual county-by-county participation targets for 
members of socially disadvantaged groups based on demographic data. 
Also, 70 percent of direct farm ownership loans are reserved for 
beginning farmers, and historically about 35 percent are made at a 
reduced interest rate to limited resource borrowers, who may also be 
beginning farmers. Recently, however, the reduced-rate provisions have 
not been utilized since regular interest rates are lower than the 
reduced rates provided by law. For direct farm operating loans we are 
requesting a program level of $650 million to provide approximately 
14,775 loans to family farmers.
    For guaranteed farm ownership loans in fiscal year 2006, we are 
requesting a loan level of $1.4 billion. This program level will 
provide about 4,800 farmers the opportunity to acquire their own farm 
or to preserve an existing one. One critical use of guaranteed farm 
ownership loans is to allow real estate equity to be used to 
restructure short-term debt into more favorable long-term rates. For 
guaranteed farm operating loans we propose an fiscal year 2006 program 
level of approximately $1.5 billion to assist over 8,500 producers in 
financing their farming operations. This program enables private 
lenders to extend credit to farm customers who otherwise would not 
qualify for commercial loans and ultimately be forced to seek direct 
loans from FSA.
    We are particularly proud of all of our loan programs. As a matter 
of fact, since fiscal year 2000, our direct and guaranteed loans to 
minorities and women have increased every year. In fiscal year 2004, 
there was an increase in the percentage of direct loans to each 
minority group, and we set a record for guaranteed farm ownership 
loans.
    In addition, our budget proposes program levels of $2 million for 
Indian tribe land acquisition loans and $60 million for boll weevil 
eradication loans. For emergency disaster loans, our budget proposes a 
program level of $25 million to provide sufficient credit to producers 
whose farming operations have been damaged by natural disasters.

                      OTHER APPROPRIATED PROGRAMS

State Mediation Grants
    State Mediation Grants assist States in developing programs to deal 
with disputes involving a variety of agricultural issues including 
distressed farm loans, wetland determinations, conservation compliance, 
pesticides, and others. Operated primarily by State universities or 
departments of agriculture, the program provides neutral mediators to 
assist producers--primarily small farmers--in resolving disputes before 
they culminate in litigation or bankruptcy. States with mediation 
programs certified by FSA may request grants of up to 70 percent of the 
cost of operating their programs. Legislative authority expires at the 
end of fiscal year 2005; the Department plans to propose extending the 
program through fiscal year 2010.
    For fiscal year 2005, grants have been issued to 34 States. With 
the requested $4.5 million for fiscal year 2006, we anticipate that 
between 30 and 34 States will receive mediation grants.

Emergency Conservation Program
    Since it is impossible to predict natural disasters, it is 
difficult to forecast an appropriate funding level for the Emergency 
Conservation Program. No funding was provided for the program in 2002 
or 2003; however, it continued to operate throughout the 2 fiscal years 
using unobligated funds carried forward, together with recoveries of 
unused funds previously allocated to the States.
    For fiscal year 2004, the Consolidated Appropriations Act provided 
$11.9 million for use in southern California only. The Military 
Construction and Emergency Hurricane Supplemental Appropriations Act of 
2005, Public Law 108-324, provided $150 million for ECP--$100 million 
in direct appropriation and $50 million transferred from CCC. These 
funds are available until expended and will be used to provide 
emergency cost-share assistance to producers who suffered losses due to 
natural disasters such as droughts; Hurricanes Charley, Frances, Ivan, 
and Jeanne; and tornadoes. As of April 5, $153.8 million has been 
allocated to 45 States. The fiscal year 2006 budget proposes no funding 
for this program.

Dairy Indemnity Program
    The Dairy Indemnity Program (DIP) compensates dairy farmers and 
manufacturers who, through no fault of their own, suffer income losses 
on milk or milk products removed from commercial markets due to 
residues of certain chemicals or other toxic substances. Payees are 
required to reimburse the Government if they recover their losses 
through other sources, such as litigation. As of April 5, we have paid 
fiscal year 2005 DIP claims totaling $35,089 in four States.
    The fiscal year 2006 appropriation request of $100,000, together 
with unobligated carryover funds expected to be available at the end of 
fiscal year 2005, would cover a higher than normal, but not 
catastrophic, level of claims. Extended through 2007 by the 2002 Farm 
Bill, DIP is a potentially important element in the financial safety 
net for dairy producers in the event of a serious contamination 
incident.

                         ADMINISTRATIVE SUPPORT

    The costs of administering all FSA activities are funded by a 
consolidated Salaries and Expenses account. The account comprises 
direct appropriations, transfers from loan programs under credit reform 
procedures, user fees, and advances and reimbursements from various 
sources.
    The fiscal year 2006 Budget requests $1.37 billion from 
appropriated sources including credit reform transfers, for a net 
increase of about $70 million over the fiscal year 2005 level. The 
request reflects increases in pay-related costs to sustain essential 
program delivery and increases in information technology investments to 
continue and enhance the modernization of FSA program and 
administrative systems. These increases are offset by decreases in both 
Federal and non-Federal county office staff years and operating 
expenses.
    The fiscal year 2006 request reflects a ceiling of 5,474 Federal 
staff years and 10,284 non-Federal staff years. Temporary non-Federal 
county staff years will be reduced to 1,000 from the fiscal year 2005 
level of 1,250 due to completion of disaster activities. Permanent non-
Federal county staff years are estimated to remain at the 2005 level.
    Federal staff years have a net decrease of 24 staff years. FSA has 
taken aggressive actions since fiscal year 2004 to reduce discretionary 
spending in order to live within available funding. In fiscal year 2005 
these measures were supplemented by a reduction in the hiring ceiling 
which will culminate in a reduction of 39 staff years in fiscal year 
2006. This reduction is offset by an increase of 15 staff years which 
will be devoted to outreach activities aimed at increasing program 
participation of underserved customers, with special emphasis on 
socially disadvantaged and/or limited resource farmers, women, and 
members of minority groups such as African Americans, Asian-Pacific 
Americans, Hispanics, and Native Americans.
    Before closing I would like to note that support of FSA's 
modernization effort is also provided through the Department's Common 
Computing Environment account. Funding made available to FSA under this 
account will provide needed telecommunications improvements and permit 
us to continue implementation of GIS, which is so crucial to rapid and 
accurate program delivery.
    Mr. Chairman, this concludes my statement. I will be happy to 
answer your questions and those of the other Subcommittee Members.
                                 ______
                                 

    Prepared Statement of A. Ellen Terpstra, Administrator, Foreign 
                          Agricultural Service

    Mr. Chairman, members of the Subcommittee, I appreciate the 
opportunity to review the work of the Foreign Agricultural Service 
(FAS) and to present the President's budget request for FAS programs 
for fiscal year 2006.
    To help position our agency to meet the challenges of the future, 
we are going through an intensive self-assessment. Many factors have 
driven our review. For example, the outbreaks of bovine spongiform 
encephalopathy (BSE) and, to a lesser extent, avian influenza (AI) have 
made us keenly aware of the changing nature of the trade issues that we 
confront on a daily basis. Since the Uruguay Round Agreement on 
Agriculture, trade disruptions have shifted from tariffs and quotas to 
a host of more complex issues requiring scientific expertise along with 
diplomacy. Issues surrounding biotechnology have underscored the need 
for different skills in order to be effective in negotiating and 
maintaining market access for our products.
    The Administration's strategy of competition for trade 
liberalization has also greatly affected our work. Last summer, the 
Doha Development Agenda talks got back on track. We now have a 
blueprint for completing a final agreement on agriculture that lays out 
strong principles for liberalizing trade. Putting details to this 
blueprint is not easy. There will be several critical negotiating 
sessions in 2005, with a goal to achieve consensus on as many areas as 
possible by July. We recognize that we have a lot of ground to cover in 
the negotiations, but we are determined to take advantage of this once-
in-a-generation opportunity for fundamental trade reform.
    In addition to multilateral negotiations in the World Trade 
Organization, we are also negotiating several important regional and 
bilateral agreements. Last year alone, agreements were concluded with 
Australia, Morocco, Bahrain, five Central American countries and the 
Dominican Republic. We continue negotiations with Panama, Thailand, 
three Andean countries, the five members of the Southern African 
Customs Union, the United Arab Emirates, Oman, and the 33 countries 
that will be part of the Free Trade Area of the Americas.
    We are also working to incorporate the principles of the 
President's Management Agenda into our strategic and operational plans 
with the goal of making FAS more results oriented. We are reviewing how 
we manage our workforce, what we can do to make our programs more 
accessible electronically, and how we can improve our financial 
management and performance at all levels of the agency.
    Finally, fiscal realities have dictated that we conduct a top-to-
bottom organizational review. The combination of rising expenses for 
our overseas offices as a result of the declining value of the dollar, 
increased Capital Security Cost Sharing assessments imposed by the 
Department of State (DOS), and the need to absorb rising salary costs 
has left us with a significant budget shortfall in fiscal year 2005.
    To address this shortfall, we requested and received authority from 
the Office of Personnel Management for early-outs and buy-outs to 
reduce staff levels in headquarters. With this action, we have been 
able to reduce headquarters civil service staff levels by 6 percent. We 
have also imposed a 50-percent reduction in travel and sharply reduced 
our promotional activities conducted by FAS overseas staff and other 
international programs.
    Thus, a combination of factors has created an opportunity to take a 
serious and extensive look at the work of our agency and how we can 
best meet the needs of our customers. We have consulted with Congress, 
our stakeholders, other government agencies, and our employees to set a 
new vision for the agency. We know that FAS needs to change to remain 
relevant in a dynamic global environment.
    As part of our ongoing assessment, we are charting a course for FAS 
for the next 5 years. If we are successful, we envision that in 2010 
FAS will be a leader in developing market priorities and strategies for 
our most important markets, both from a competitive perspective and 
from a market potential perspective.
    Given our resource constraints we need to define what the agency 
will look like. We know that the agency's most distinct asset continues 
to be our overseas presence. Our overseas staff provides invaluable 
service through their in-depth knowledge of the country, its 
government, the market for our products, and the competition. As 
government officials, we have the unique capability to gain access to 
foreign officials on behalf of American agriculture.
    But by 2010, FAS will be a smaller agency, sharply focused on 
market access and market intelligence. Our offices overseas will be 
smaller and may be in different locations. Even more than is the case 
now, offices will cover more than one country, and we will make better 
use of technology to improve our responsiveness and communications. 
Market access will be even more technical and scientific in nature than 
it is today, and market intelligence will be more targeted and forward 
looking.
    FAS will continue to be USDA's lead agency for agricultural trade 
negotiations. We will focus on non-tariff trade barriers and continue 
to monitor other countries' compliance with international agreements. 
To build on our market intelligence and development strengths, we will 
position our resources strategically to support U.S. trade interests. 
Our trade capacity building activities will be targeted not only to 
facilitating trade and economic development, but also to promoting 
agricultural and food security worldwide.
    In keeping with the President's Management Agenda, we are assessing 
our activities, both overseas and at headquarters, to determine which 
are inherently governmental and provide the maximum value to our 
customers. Our country-by-country review has a goal of prioritizing 
markets and activities and identifying where we can absorb reductions 
with the least impact. We are looking at market potential, market 
competition, the ease of doing business, the cost of each office, and 
appropriate staff levels. It is essential that we continue to work in 
areas where it is most difficult for our private sector to do business. 
We expect to announce the results of this review shortly. We are 
confident that the end result of our organizational review will be 
better, more effective service to U.S. constituents, our agricultural 
industry and producers.

Budget Request
    Mr. Chairman, as I indicated earlier, FAS continues to experience 
significant fiscal pressures resulting from the declining value of the 
dollar abroad and rising staff costs.
    However, the levels proposed in the President's budget will allow 
FAS to maintain current service levels and move toward our 2010 vision 
without degradation of service provided to our customers.
    Our fiscal year 2006 budget proposes a funding level of $152.4 
million for FAS and 982 staff years. This is an increase of $11.2 
million above the fiscal year 2005 level and represents the funds 
needed to ensure the agency's continued ability to conduct its 
activities and provide services to U.S. agriculture.
    The budget proposes an increase of $8.8 million for support of FAS 
overseas offices. The FAS network of 78 overseas offices covering over 
130 countries is vulnerable to the vagaries of macro-economic events 
that are beyond the agency's control. The significantly weakened U.S. 
dollar and higher International Cooperative Administrative Support 
Services (ICASS) payments to DOS have caused base costs to increase 
sharply. Since 2002, the dollar has fallen 9 percent against currencies 
of our major markets.
    Specifically, this increase includes:
  --$5.4 million to maintain current services at the 78 FAS offices 
        around the world, including $2.4 million for wage increases for 
        locally employed staff; $900,000 for higher rents; and $900,000 
        for increases in all other in-country expenses including 
        security, repairs, travel, and supplies. Additionally, an 
        increase of $1.2 million will be required to meet higher ICASS 
        payments to DOS.
  --$2.7 million for the fiscal year 2006 Capital Security Cost Sharing 
        Program assessment. In fiscal year 2005, DOS implemented a 
        program through which all agencies with an overseas presence in 
        U.S. diplomatic facilities will pay a proportionate share for 
        accelerated construction of new secure, safe, and functional 
        diplomatic facilities. These costs will be allocated annually 
        based on the number of authorized personnel positions. This 
        plan is designed to generate a total of $17.5 billion to fund 
        150 new facilities over a 14-year period. The FAS assessment is 
        estimated to increase annually in roughly $3 million increments 
        until fiscal year 2009, at which time the annual assessed level 
        will total an estimated $12 million. This level is assumed to 
        remain constant at that point for the following 9 years.
  --$650,000 to support the FAS presence in the soon-to-be constructed 
        embassy in Baghdad, Iraq, after an absence of nearly 20 years. 
        FAS will have the lead on all USDA activities and projects in 
        support of Iraq and its agricultural development. This will 
        entail the entire range of market development, market access, 
        and market intelligence tools available to FAS and its industry 
        partners.
    The budget also includes an increase of $2.4 million to cover 
higher personnel compensation costs associated with the anticipated 
fiscal year 2006 pay raise. Pay cost increases are non-discretionary 
and must be funded. Absorption of these costs in fiscal year 2006 would 
primarily come from reductions in agency personnel levels that would 
significantly affect FAS's ability to contribute to USDA's strategic 
goal of enhancing economic opportunities for agricultural producers.

Export Programs
    Mr. Chairman, the fiscal year 2006 budget proposes $6.1 billion for 
programs designed to promote U.S. agricultural exports, develop long-
term markets overseas, and foster economic growth in developing 
countries.

Export Credit Guarantee Programs
    The budget includes a projected overall program level of $4.4 
billion for export credit guarantees in fiscal year 2006.
    Under these programs, which are administered by FAS in conjunction 
with FSA, the Commodity Credit Corporation (CCC) provides payment 
guarantees for the commercial financing of U.S. agricultural exports. 
As in previous years, the budget estimates reflect actual levels of 
sales expected to be registered under the programs and include:
  --$3.4 billion for the GSM-102 program;
  --$5.0 million for the GSM-103 program;
  --$1.0 billion for Supplier Credit guarantees; and
  --$20.0 million for Facility Financing guarantees.

Market Development Programs
    Funded by CCC, FAS administers a number of programs to promote the 
development, maintenance, and expansion of commercial export markets 
for U.S. agricultural commodities and products. For fiscal year 2006, 
the CCC estimates include a total of $173.0 million for the market 
development programs, $15 million below fiscal year 2005 levels and 
includes:
  --$125.0 million for the Market Access Program;
  --$34.5 million for the Foreign Market Development (Cooperator) 
        Program;
  --$10.0 million for the Emerging Markets Program;
  --$2.5 million for the Quality Samples Program; and
  --$2.0 million for the Technical Assistance for Specialty Crops 
        Program.

International Food Assistance
    The fiscal year 2006 budget continues the worldwide leadership of 
the United States in providing international food aid. In this regard, 
the fiscal year 2006 President's budget includes $1.8 billion for U.S. 
foreign food aid programs, including $300 million requested in the 
Foreign Operations Appropriations Bill. Programs funded through the 
Department of Agriculture include:
  --$1.1 billion for Public Law 480 which is expected to support 
        approximately 2.2 million metric tons of commodity assistance. 
        For Title I, the budget supports a program level of $145.0 
        million, which includes $80 million in new appropriations. The 
        balance will be provided through unobligated carryover balances 
        and projected Maritime Administration reimbursements. The total 
        program level will support approximately 540,000 metric tons of 
        commodity assistance based on current price projections. For 
        Title II donations, the budget provides for a program level of 
        $964 million, which is expected to support 1.7 million metric 
        tons of commodity donations. This includes an appropriation 
        request of $885 million and $79 million in projected Maritime 
        Administration reimbursements. While the fiscal year 2006 
        appropriation request has been reduced by $300 million from 
        last year's request, an equivalent funding level has been 
        included in the U.S. Agency for International Development's 
        (USAID) disaster assistance account to support emergency food 
        assistance activities. This change will allow food aid 
        commodities to be purchased locally which will allow for a more 
        flexible and timelier response to emergencies. Further, the 
        resultant savings in ocean freight and distribution costs is 
        expected to increase the total amount of commodities that can 
        be procured.
  --$137.0 million for CCC-funded Food for Progress. Funding at the 
        proposed level is expected to support 300,000 metric tons of 
        commodity assistance.
  --$151.0 million for donations of CCC-owned nonfat dry milk under 
        Section 416(b) authority. Under this authority, surplus 
        commodities that are acquired by CCC in the normal course of 
        its domestic support operations are available for donation 
        through agreements with foreign governments, private voluntary 
        organizations and cooperatives, and the World Food program. For 
        fiscal year 2006, current CCC baseline estimates project a 
        limited supply of surplus nonfat dry milk that could be made 
        available for programming, and the budget assumes that 75,000 
        metric tons will be programmed.
  --$106.0 million for the McGovern-Dole International Food for 
        Education and Child Nutrition Program. This represents an 
        increase of $15 million over the fiscal year 2005 current 
        estimate and includes $100 million in new appropriations and an 
        estimated $6 million in projected reimbursements from the 
        Maritime Administration. Funding at this program level will 
        assist an estimated 2.6 million women and children.

Export Subsidy Programs
    FAS administers two export subsidy programs through which payments 
are made to exporters of U.S. agricultural commodities to enable them 
to be price competitive in overseas markets where competitor countries 
are subsidizing sales. The budget includes:
  --$28.0 million for the Export Enhancement Program (EEP). World 
        supply and demand conditions have limited EEP programming in 
        recent years, and as such, the fiscal year 2006 budget assumes 
        a continuation of EEP at the fiscal year 2005 level. The 2002 
        Farm Bill does include the maximum annual EEP program level of 
        $478.0 million allowable under Uruguay Round commitments, which 
        could be utilized should market conditions warrant.
  --$52.0 million for the Dairy Export Incentive Program (DEIP), $46.0 
        million above the fiscal year 2005 estimate of $6.0 million. 
        This estimate reflects the level of subsidy currently required 
        to facilitate export sales consistent with projected United 
        States and world market conditions and can change during the 
        programming year as market conditions warrant.

Trade Adjustment Assistance for Farmers
    Authorized by the Trade Act of 2002, the Trade Adjustment 
Assistance for Farmers program authorizes USDA to make payments up to 
$90.0 million annually to eligible producer groups when the current 
year's price of an eligible agricultural commodity is less than 80 
percent of the national average price for the 5 marketing years 
preceding the most recent marketing year, and the Secretary determines 
that imports have contributed importantly to the decline in price.
    This concludes my statement, Mr. Chairman. I will be glad to answer 
any questions.
                                 ______
                                 

   Prepared Statement of Ross J. Davidson, Jr., Administrator, Risk 
                           Management Agency

    Mr. Chairman and members of the Subcommittee, I am pleased to 
present the fiscal year 2006 budget for the Risk Management Agency 
(RMA). The Federal Crop Insurance Program plays an important role in 
assisting farmers to manage financial risks associated with yield and 
revenue shortfalls due to bad weather or other natural disasters. RMA 
continues to evaluate and provide new products and to promote the 
adoption of crop insurance as a risk management tool so that the 
Government can further reduce the need for ad-hoc disaster payments to 
the agriculture community. In 2006, current projections are that the 
program is expected to provide producers with more than $41 billion in 
protection on approximately 220 million acres through about 1.2 million 
policies.
    The growth and effectiveness of the Crop Insurance Program is 
dependent on a reliable delivery system, insurance products that meet 
the needs of producers, investment in information technology to ensure 
the delivery system is timely, accurate and dependable, and adequate 
funding to support compliance and program integrity, product 
evaluation, maintenance and administration, and new product 
development.
    To meet Crop Insurance Program requirements in fiscal year 2006, 
RMA has requested a budget that will provide the necessary funding to 
continue the growth of the program and ensure its effectiveness to meet 
the agricultural community crop insurance requirements and assure 
fiscal responsibility in the application of taxpayer's dollars. RMA's 
total fiscal year 2006 budget request is $3.3 billion. The funding 
level proposed for the Federal Crop Insurance Corporation (FCIC) Fund 
is $3,162,979,000 and for the Administrative and Operating Expenses, 
the request is $87,806,000.

FCIC Fund
    The fiscal year 2006 budget proposes that ``such sums as may be 
necessary'' be appropriated to the FCIC Fund. This ensures the program 
is fully funded to meet the contractual obligation to pay claims, to 
reimburse the private sector for expenses incurred in delivering 
insurance to farmers and ranchers, to provide premium subsidies to make 
crop insurance affordable, and to encourage the purchase of higher 
levels of protection. Of the total amount requested for fiscal year 
2006, 67 percent is slated for premium subsidies. The current estimate 
of funding requirements is based on USDA's latest projections of 
planted acreage and expected market prices. The budget request includes 
$2.2 billion for Premium Subsidy, $781.4 million for Delivery Expenses, 
$137.5 million for estimated excess losses based on an overall 
projected loss ratio of 1.075, and $78.1 million for Agricultural Risk 
Protection Act of 2000 (ARPA) activities which includes $3.6 million to 
continue funding of Program Integrity initiatives under a General 
Provision in the 2006 Budget. ARPA provided RMA with mandatory funding 
to implement data mining and data warehousing to improve compliance and 
integrity in the crop insurance program. We estimate, in the first year 
of operation, data mining helped prevent nearly $94 million in improper 
payments and helped recover approximately $35 million in improper 
indemnities. The authority to use mandatory funds for data mining 
expires in fiscal year 2005. Therefore, the 2006 Budget includes 
language to provide $3.6 million to continue data mining and data 
warehousing activities.
    To strengthen crop insurance, promote program expansion, and limit 
ad-hoc disaster payments, the 2006 Budget includes a proposal for 
legislation to take effect in 2007 that requires those that receive 
direct farm payments to purchase crop insurance. The proposal requires 
farmers growing program crops who receive farm program benefits to 
purchase insurance protection at a 50 percent, or higher additional 
coverage level, of their expected market value, or lose their farm 
program benefits. This change ensures a farmer's loss in a disaster 
will not be greater than 50 percent. This proposal will further reduce 
premium subsidies to crop insurance policyholders, as well as subsidies 
in total to the participating insurance companies. These changes will 
encourage greater personal responsibility of those who buy crop 
insurance to pay for their risk management tools and will encourage the 
companies to deliver crop insurance more efficiently. This Budget 
proposal is estimated to realize $140 million in savings to the crop 
insurance program beginning in 2007. The increased self-reliance 
encouraged by this proposal and the linkage of the availability of crop 
insurance to farm program payments are intended to enhance the 
operating efficiency of the program and reduce the need for ad-hoc 
disaster payments.
    This proposal is expected to be submitted along with the other 
mandatory proposals for farm programs that support the President's 
Budget.

Administrative and Operating Expenses (A&O)
    RMA's fiscal year 2006 request of $87.8 million for Administrative 
and Operating Expenses represents an increase of about $16.3 million 
from fiscal year 2005. This budget supports an increase for information 
technology (IT) initiatives of $12.2 million.
    RMA's corporate IT systems need updating and other enhancements to 
take advantage of the latest technology and to ensure the IT component 
of the delivery system is reliable, accurate, and accessible. Billions 
of dollars in indemnity payments, premium subsidy, producer-paid 
premiums, and administrative reimbursement payments pass through this 
antiquated IT system each year. Therefore, I am duty-bound to continue 
to request increases in IT funding because the current IT 
infrastructure is long past its life cycle and is increasingly costly 
to run, cumbersome to maintain; and makes it difficult to ensure the 
security mandated by Federal law. The Agency's IT infrastructure 
supports the crop insurance program's business operations at the 
national and local levels, provides risk management products to 
producers nationwide and is the basis for validating, receiving and 
remitting reinsurance subsidy and other payments to private companies 
reinsured by the FCIC. RMA is using system and database designs 
originally developed in 1994. There have been few hardware and software 
upgrades since then, but the program has grown and evolved dramatically 
in the timeframe, and business process analysis and re-engineering of 
the entire business delivery system are needed to support current and 
future program growth. As stated in previous testimonies, without 
adequate funding of the IT requirements, the Agency cannot safely 
sustain additional IT changes required by new product development or 
changes in existing products. Future program expansion will increase 
the risk of system failure and possible inability to handle day-to-day 
processing of applications and indemnity payments.
    Also included in the 2006 Budget is $1.0 million to expand the 
monitoring and evaluation of reinsured companies. RMA is, again, 
requesting funds to establish a systematic process of monitoring, 
evaluating, and auditing, on an annual basis, the performance of the 
product delivery system. These funds will be used to support insurance 
company expense audits, performance management audits and reinsurance 
portfolio evaluations to ensure effective internal and management 
controls are in place and operating for each reinsured company's 
business operations.
    The 2006 Budget requests $1.8 million to support an increase of 17 
staff years. This will raise RMA's employment ceiling from 568 to 585. 
A requested increase of 15 staff years is included to support the 
increased workload for the Compliance function. The additional staff 
years will provide the Compliance function the necessary support to 
address outstanding OIG and GAO recommendations to improve oversight 
and internal controls over insurance providers. In response to several 
OIG audit reports, RMA needs to establish a systematic process of 
auditing insurance providers to detect and correct vulnerabilities to 
proactively prevent improper payment of indemnities. RMA's studies 
suggest that additional resources in this area would provide a minimum 
of $4 dollars in reduced fraud cost for every dollar spent. The 
additional staffing will provide the necessary oversight to ensure 
taxpayers' funds are expended as intended.
    In addition, 2 staff years are requested for the Office of 
Insurance Services to support good farming practice determinations and 
to support the process of evaluating claims resulting from questionable 
farming practices. ARPA requires RMA to establish a process to 
reconsider determinations of good farming practices. The Regional 
Offices of RMA's Insurance Services Division are in a unique position 
by virtue of their background in production agriculture, agronomy and 
related fields, and knowledge of local crops and growing conditions to 
effectively carry out the important function of managing the process by 
which good farming practices determinations are made. RMA data indicate 
assessments are infrequently made for uninsured causes of loss against 
a producer for failure to follow good farming practices. With approved 
insurance providers operating in an environment of risk sharing, there 
is a tremendous need for support and incentives for increased quality 
of loss adjustment, particularly in the good farming practices area to 
ensure that payments for losses are consistent with the requirements of 
Federal Crop Insurance Act. Again, it is expected the additional 
staffing in this area will be more than paid for by ensuring that loss 
payments are made in accordance with the requirement that good farming 
practices be used.
    Lastly, an increase of $1.3 million is requested for pay costs. 
These funds are necessary to maintain required staffing to carry out 
RMA's mission and mandated requirements.

                           PROGRAM MANAGEMENT

    Now, I would like to provide an update on some of our key 
initiatives and products:
  --FCIC Board Activities
  --Standard Reinsurance Agreement
  --Pilot Programs
  --Product Development and Non-Insurance Risk Management Tools
  --Education and Outreach Program
  --Agricultural Management Assistance
  --Comprehensive Information Management System
  --Program Integrity
  --Other Initiatives
    Under the direction of the FCIC Board of Directors (Board), RMA 
continues to promote an agenda to bring new and innovative insurance 
products to the agricultural community, to validate the utility of 
current insurance products, to ensure outreach to small and limited 
resource farmers, to promote equity in risk sharing, and to guard 
against waste, fraud and abuse within the program.
    Through the private sector delivery system in crop year 2004, RMA 
provided approximately $46.7 billion of protection to farmers, and 
expects indemnity payments for crop year losses of approximately $3.1 
billion. The participation rate for major program crops was 
approximately 83 percent. RMA continues to improve and update the terms 
and conditions of all crop insurance policies to better clarify and 
define insurance protection and the duties and responsibilities of the 
policyholder and insurance providers. The Board actions to accomplish 
program expansion have been somewhat restricted by budget constraints 
affecting available IT resources and additional staffing required to 
meet new administrative and program requirements brought on by ARPA. 
Given this constraint, within the funding appropriated for fiscal year 
2004, the Board considered 44 action items during nine (9) meetings. 
There were six (6) new program submissions and 19 program modifications 
to existing insurance products. For example, the Board authorized the 
expansion of the Adjusted Gross Revenue--Lite (AGR-Lite) plan of 
insurance to all counties in Alaska, Idaho, Oregon, Washington State 
and North Carolina beginning with the 2005 crop year. Also, the Board 
approved the implementation of the Silage Sorghum Pilot and the Sugar 
Beet Stage Removal Option Pilot.

Standard Reinsurance Agreement (SRA)
    The new SRA has been put in place, effective for the 2005 crop 
year. Key changes included a lowering of the A&O expense reimbursement, 
which will be implemented over the 2005 and 2006 reinsurance years. In 
addition, RMA has tightened the monitoring of SRA holders with respect 
to financial solvency and is strengthening ties with state regulators 
and the National Association of Insurance Commissioners (NAIC).
    It should also be noted that, for reinsurance year 2005, RMA 
approved three new SRA holders, bringing the current number of 
reinsured companies to 16. Thus, 2005 has seen an increase in the 
insurance writing capacity of the Federal crop insurance program.

Pilot Programs
    For crop year 2005, RMA has 36 pilot programs being offered. A list 
of those pilots programs is attached to my testimony (Exhibit 1). As 
these programs gain experience, RMA conducts evaluations to determine 
whether they may be converted to permanent programs and offered in 
counties where the crop is routinely grown. During 2004, RMA completed 
evaluations on seven (7) pilot programs including: cabbage, crambe, 
cultivated wild rice, mint, mustard, Group Risk Plan (GRP), rangeland 
and sweet potatoes. After consideration by the FCIC Board, cabbage, 
cultivated wild rice, mint and mustard pilots were approved for 
conversion to permanent programs. The Board directed RMA to revise the 
GRP, rangeland and sweet potato programs, which has been done, and both 
were approved as new pilot programs for the 2005 crop year. In 
addition, RMA currently is contracting for an evaluation of the 
Adjusted Gross Revenue pilot program.

Product Development and Non-Insurance Risk Management Tools
    During fiscal year 2004, RMA awarded over $12 million in contracts 
to further program goals of expanding the number of crop insurance 
tools available to growers in the United States. Many of these 
contracts are directed at specialty crops which supports one of RMA's 
top priorities to develop effective risk management products for 
pasture, rangeland, and forage. In January 2004, RMA released a 
contract for research and development for pasture, rangeland, and 
forge, with the aim of serving the vital needs of livestock producers. 
RMA awarded four contracts to develop new approaches in various areas 
of the country to address this potential market.
    The contracts encourage use of new and innovative technology, 
including a satellite based vegetative index; a satellite-based remote 
sensing imagery that will describe the seasonal growth dynamics of 
vegetation; and the use of a seasonal growth constrained rainfall index 
based on a combination of a weighted warm-season/cool-season indexing 
periods and the National Oceanic and Atmospheric Administration 
rainfall data system. These programs are targeted for Board 
consideration in 2005 and 2006, and potential availability for the 2006 
and 2007 crop years.
    Also, RMA has several active contracts underway which are focused 
on providing new crop insurance programs for some of the most 
significant non-insured specialty crops. Some of these include a new 
program for Florida Fruit Trees; a Christmas tree program feasibility 
study; development for fresh vegetables including asparagus, broccoli, 
carrots, cauliflower, celery, garlic, artichoke, lettuce-head, lettuce-
leaf, lettuce-romaine, and spinach; Hawaii Tropical Fruits and Trees 
development is currently under consideration by the FCIC Board; 
feasibility of a revenue maple syrup program; a study by USDA's 
Economic Research Service evaluating the unique risks of the organic 
industry; research to determine the potential for development of a risk 
management tool for producers of crops subject to quarantine 
restrictions by a state or Federal agency; and research into the 
feasibility of developing a crop insurance program for Small Value 
Crops with an annual value of less than $50 million.
    These are just a few of the product development initiatives 
underway to expand and improve the risk management tools for American 
agricultural producers.

Education and Outreach Program
    For our educational efforts in 2004, a total of $4.5 million in 
cooperative agreements were established with state departments of 
agriculture, universities and non-profit organizations to benefit 
states that have been historically underserved in the Crop Insurance 
Program. Crop insurance education will be delivered to producers in 
Connecticut, Delaware, Maine, Pennsylvania, Rhode Island, Maryland, 
Massachusetts, Nevada, New Hampshire, New Jersey, New York, Utah, 
Vermont, West Virginia, and Wyoming. These cooperative agreements will 
expand available risk management information; promote risk management 
education opportunities, inform agribusiness leaders; increase emphasis 
on risk management; and deliver training on risk management to 
producers with emphasis on reaching small farms.
    Additional education efforts were dedicated to reaching producers 
of specialty crops. A total of 41 partnership agreements were 
established at a cost of $5.3 million in 2004. These agreements will 
provide outreach to specialty crop producers to broaden their risk 
management education.
    Also, outreach efforts were directed to providing risk management 
technical assistance to women, small and limited resource farmers, and 
ranchers. A total of 60 projects were funded in 2004 at a cost of $5.2 
million.

Agricultural Management Assistance
    In 2004, RMA provided $4.2 million in financial assistance to 
producers purchasing spring buy-up crop insurance policies in 15 
targeted States. The primary goal of the program was to encourage 
producers to purchase higher levels of coverage, and to provide an 
incentive for new producers to insure. In 2004, RMA paid up to 15 
percent of producers' out-of-pocket premium costs to encourage 
increased participation.
    Overall, in the targeted States RMA has seen an increase in 
policies earning premium of about 7 percent. In addition, RMA estimates 
that the average coverage level elected by most targeted States is 70 
percent, in contrast to 65 percent, for those states without a 
financial assistance program.

Comprehensive Information Management System
    RMA is actively working on a project to implement Section 10706 of 
the 2002 Farm Bill to assist with the development of a Comprehensive 
Information Management System (CIMS) which will simplify and improve 
the storage and access to data on programs administrated by RMA and the 
Farm Service Agency (FSA). This project will provide a management 
information system that allows RMA, FSA and other USDA entities and 
insurance providers to process, share and report on approved common 
information.
    The CIMS will be designed to: improve access by agricultural 
producers to RMA and FSA programs; improve and protect the integrity of 
the information collected; meet the needs of the agencies that require 
the data in the administration of their programs; improve the 
timeliness of the collection of the information; contribute to the 
elimination of duplication of information collection; lower the overall 
cost to the Department of Agriculture for information collection; and 
achieve such other goals as the Secretary considers appropriate for the 
Agriculture community.
    A contract has been issued for the system development; 
identification of business processes and data elements of RMA and FSA 
is in the final stage. The next phase involve the design and 
implementation the information system for storing, maintaining, 
accessing, and retrieving approved information by RMA, FSA, and USDA. 
The design will leverage and comply with USDA's enterprise architecture 
and common infrastructure.

Program Integrity
    Risk Compliance managers have been concentrating on the mission-
critical tasks of evaluating and improving new processes to prevent and 
deter waste, fraud, and abuse in the crop insurance program. 
Significant effort is dedicated to building and adapting, reporting and 
tracking feedback systems to complement and integrate the oversight 
mandates established by ARPA. During 2004, Risk Compliance initiated 
operation reviews of insurance providers to capture a program error 
rate and to assess reinsured company activities under the Standard 
Reinsurance Agreement. The Office of Management and Budget and the 
USDA, Office of Chief Financial Officer are in agreement that a 
quantifiable program error rate is a key measure in assessing program 
compliance/integrity.
    Additional efforts have been dedicated to integrating data mining 
projects; exploring avenues to expedite the increase in sanction 
requests; and continuing to improve the Compliance case management and 
tracking system. These areas of responsibility have created a challenge 
for Compliance to accomplish current activities along with new 
requirements mandated by ARPA without the benefit of additional 
resources. Therefore, the fiscal year 2006 Budget includes 15 
additional staff years for Risk Compliance to strengthen the front-end 
oversight of approved insurance providers and to address outstanding 
Office of Inspector General recommendations to improve oversight and 
internal controls over insurance providers. Also, included in this 
budget is a request for $1 million to establish a systematic process of 
auditing insurance providers to detect and correct program 
vulnerabilities to preclude the payment of improper indemnities.
    In addition, given the success of the data mining and data 
warehousing activities to date, a provision is included in the 2006 
Budget for $3.6 million to continue funding of data mining and 
warehousing activities. Under current ARPA legislation, funding 
provided to develop the data mining and warehousing systems expires in 
2005. The 2006 Budget includes a General Provision to authorize funding 
under the FCIC Fund to support annual maintenance costs and upgrades in 
fiscal year 2006. As previously stated, approximately $94 million in 
improper payments were determined and $35 million in improper 
indemnities were received with the assistance of data mining and data 
warehousing capabilities.

Other Initiatives
    Some of the other initiatives RMA began or accomplished in 2004 
are: completion of the Basic Provisions; development of the Written 
Agreement Handbook; implementation of changes to Livestock Risk 
Protection for feeder cattle, fed cattle, and swine; and development of 
a handbook for Good Farming Practices.

                               CONCLUSION

    RMA continues to make crop insurance protection useful to 
producers, research way to address multi-year losses, expand risk 
management education opportunities, provide outreach to limited 
resource farmers, stimulate development of insurance products and 
improve program integrity. Crop Insurance is a primary system of 
support to producers when natural disasters strike. This was made very 
evident when Florida experienced four hurricanes. In response to this 
situation, FCIC-approved insurance providers mobilized immediately to 
ensure timely payments of claims.
    I urge you to approve this budget as submitted to allow RMA to 
continue to improve a Crop Insurance Program that is actuarially sound, 
meets producers' risk management needs at a cost which is fair to 
taxpayers, affordable to farmers and sufficient for delivery of the 
program through the private sector as established by Congress.
    Mr. Chairman, this concludes my statement. I would be happy to 
respond to any questions.

                                  EXHIBIT 1.--FCIC: CROP YEAR 2005 PILOT CROPS
----------------------------------------------------------------------------------------------------------------
                         CROPS                                       PLAN
---------------------------------------------------------------------------------------          Comment
                        Name                 Code            Name            Code
----------------------------------------------------------------------------------------------------------------
    Alfalfa Seed                                0107             APH              90  Also identified as:
                                                                                       Forage seed
    All Other Citrus Trees                      0211             TDO              40  Florida
    Avocado                                     0019             ARC              46  California
    Avocado                                     0019             APH              90  Florida
    Avocado Trees                               0212             TDO              40  Florida
    Barley                                      0091              IP              42
    Cabbage                                     0072             APH              90
    Carambola Trees                             0213             TDO              40  Florida
    Cherry                                      0057              FD              51
    Chili Pepper                                0045              FD              51
    Clams                                       0116           AQDOL              43
    Corn                                        0041              IP              42
    Corn                                        0041             IIP              45
    Cotton                                      0021              IP              42
    Cultivated Wild Rice                        0055             APH              90
    Fresh Market Beans                          0105              DO              50
    Grain Sorghum                               0051              IP              42
    Grapefruit Trees                            0208             TDO              40  Florida
    GRP Rangeland                               0148             GRP              12  New crop code in 2005
    Lemon Trees                                 0209             TDO              40  Florida
    Lime Trees                                  0210             TDO              40  Florida
    Mango Trees                                 0214             TDO              40  Florida
    Mint                                        0074             APH              90
    Multiple Crops                    ..............             AGR              63  But not AGR-Lite
    Mustard                                     0069             APH              90
    Navel Oranges                               0215              FD              51  California
    Orange Trees                                0207             TDO              40  Florida
    Processing Cucumber                         0106              FD              51
    Raspberry and Blackberry                    0108              FD              51  Several other berries
                                                                                       are `types' in this
                                                                                       policy
    Silage Sorghum                              0059            IAPH              96
    Soybean                                     0081              IP              42
    Soybean                                     0081             IIP              45
    Strawberries                                0110              FD              51
    Sweet Potatoes                              0185             APH              90  New crop code in 2005
    Wheat                                       0011              IP              42
    Winter Squash                               0065              DO              50
----------------------------------------------------------------------------------------------------------------
    Notes:
    1. RMA will revise this list to reflect new or discontinued pilot programs.
    2. Crop policies originally approved via the 508(h) mechanism are not considered pilots. Thus, CRC, RA, and
      GRIP are not considered pilots.

                          AGRICULTURAL ECONOMY

    Senator Bennett. Sounds pretty good, Dr. Collins. Does that 
mean that the Federal Government can spend less money?
    Dr. Collins. Unfortunately, it does not, Mr. Chairman. Part 
of the reason it sounds pretty good is a very large increase in 
Government payments is built into this assessment of the farm 
economy.
    Last calendar year, we spent about $14 billion in direct 
payments to farmers. This calendar year, we expect about $24 
billion. So Government spending is up. That is helping the 
prosperity.
    Senator Bennett. Ten billion dollars?
    Dr. Collins. About $10 billion, yes, sir. Likewise, we see 
that in our estimates of the Commodity Credit Corporation 
budget, which you have. Last year, the CCC budget was about 
$10.5 billion. This fiscal year, the CCC budget will be about 
$24 billion. So that is up roughly $14 billion.
    And that simply reflects the fact that our farm programs 
generally are price sensitive. Counter cyclical payments, 
marketing assistance loans depend on price levels. Price levels 
are down from last year's fairly high levels, and much of the 
increase is in marketing assistance loan spending.
    I might add one final point to that----
    Senator Bennett. I won't take the time to get into that.
    Dr. Collins. The numbers I have just given you for the CCC 
are in the President's budget. I might say that since the 
President's budget was developed, price prospects do look 
better for American agriculture. And I think we are running on 
a track to spend less on marketing assistance loans and counter 
cyclical payments than we had projected several months ago.

                                 CAFTA

    Senator Bennett. Okay. Dr. Penn, CAFTA has stirred up a lot 
of passion. Do you want to make any comments about CAFTA and 
its benefits to U.S. agriculture? How would you address 
specifically the concerns raised by the sugar producers?
    Dr. Penn. Thank you, Mr. Chairman, Senator Kohl. It is a 
pleasure to be with you again this year.
    I appreciate the opportunity to say a couple of words about 
CAFTA because it is a trade agreement is very important in and 
of itself, and it is also very important for the long-term 
prosperity of U.S. agriculture. Should we fail to approve this 
agreement, it will cast a long shadow over our opportunities to 
expand market access through other trade agreements in the 
future.
    This is one of those rare trade agreements where virtually 
every sector of agriculture stands to benefit. In essence, this 
agreement is leveling the playing field. As has been pointed 
out over and over, our markets are already open to the Central 
American countries and the Dominican Republic. Ninety-nine 
percent of all of their food and agricultural products already 
enter our market duty free.
    So this agreement says that we are going to greatly reduce 
and eventually eliminate the tariffs on our products as they 
move into those markets. And, the benefits are widespread--
across the grains, the oil seeds, the livestock sectors, 
virtually every segment of agriculture stands to benefit.
    Now, concern has been expressed by our friends in the sugar 
industry, and they have made allegations that including sugar 
in this agreement would threaten the operation of the domestic 
sugar program. And, we just simply disagree with that. We think 
that is not the case.
    We are, in this agreement, allowing a very small amount of 
additional sugar to enter the United States, 110,000 tons in 
the first year. That is about 1 percent of the total United 
States consumption of sugar. We consume something on the order 
of 10 million tons. That would let in 110,000 tons. And, that 
in no way jeopardizes the operation of the premium market that 
we have for our own growers in the United States.
    The world price of sugar today is well under 10 cents a 
pound. The market in the United States is anywhere from 18 to 
22 cents a pound. And admitting this additional sugar would not 
cause any decrease in the price, nor would it otherwise 
jeopardize the operation of the program.
    So we think the concerns by the sugar industry are 
overblown, that this is a good agreement for agriculture. It is 
a good agreement for our country because it does provide 
opportunities for economic growth and development in some 
fledgling democracies right here in our hemisphere. We think 
that that is very important for our national security.
    So we believe it is a good agreement overall, and it is one 
that I think you will see that most of the agriculture sectors 
support very broadly. Some 60 groups are actively supporting 
the passage of this agreement.

                         USDA PRESENCE IN IRAQ

    Senator Bennett. Okay. It is a very small item in the 
overall budget, but you have got $650,000 to establish a 
presence in Iraq. It has been 20 years since the USDA was in 
Iraq. What will the role be, just out of curiosity? I think 
that is an item that will attract some attention.
    Dr. Penn. As you know, the U.S. Government is establishing 
a new embassy in Baghdad. And given the current situation 
there, this will be the largest embassy that the United States 
has in the world, given the nature of the security situation 
and the economic situation.
    Senator Bennett. We keep getting reminded of that when we 
look at the number.
    Dr. Penn. Iraq was once a very attractive market for U.S. 
agriculture. In the late 1980s, before the earlier war in the 
Gulf region, we were exporting something approaching a billion 
dollars worth of food and agricultural products to Iraq. This 
included grains, oil seeds, poultry products, vegetable oils, 
dry beans.
    We are slowly regaining some of that market. We have 
exported something on the order of 350,000 tons of wheat since 
hostilities ended the second time. And just this week, we 
announced that we have had reported to us the sale of 65,000 
tons of rice. So we are very slowly making inroads into that 
market again, and we hope that those sales will continue.
    The money that you note specifically is to establish a 
presence for the Foreign Agricultural Service in this new 
embassy in Baghdad. Under the new rules by the State 
Department, all agencies that have a presence in the embassy 
have to pay part of the capital cost----
    Senator Bennett. I see.
    Dr. Penn [continuing]. Part of the operating cost, and this 
would support two or three Americans and the foreign nationals 
that round out the complement.

                        CONSERVATION ASSISTANCE

    Senator Bennett. I see.
    Secretary Rey, first, I want to thank you on behalf of the 
people of Utah for the work that you have done with respect to 
the flood recovery in Washington County. We are facing another 
round of that. The normal flow-off is about 66,000 acre feet, 
and there are 240,000 acre feet in storage that could come down 
in the next 2 weeks. So----
    Mr. Rey. Almost makes you wish for fire season.
    Senator Bennett. Yes. Well, unfortunately, we had a fire, 
which denuded the watershed just before we had all of the rain. 
So we are grateful. And we thank you also for your efforts on 
the threatened and endangered species issues that we have to 
deal with out in the West. And you have been responsive, and I 
want the record to show that.
    Now the President's budget requests a $37 million increase 
to help farmers and ranchers address regulatory burdens, 
primarily coming from EPA. And you and the NRCS has been in the 
position of being the main agency that confronts this. Should 
EPA bear some of these costs? Should we try to find a way to 
shift budget a little on this one?
    Mr. Rey. I think our joint recommendation--that is, both 
NRCS's and EPA's--would be that the NRCS staff has the 
technical capability and the better grassroots delivery system 
to assist farmers and ranchers to do this work. And whoever 
ends up bearing the cost of the work, the most effective way to 
deliver the services or the most cost-effective way to deliver 
the services is, I think, through NRCS's delivery system.

                            INVASIVE SPECIES

    Senator Bennett. Okay. Tell me about invasive species.
    Mr. Rey. The Administration's budget request includes a $10 
million increase to use specifically for invasive species work. 
The Western States are a focus of that work, although it is not 
going to be exclusively in the West. And there are a couple of 
key species, like star thistle and salt cedar, where the focus 
that has been developed in coordination with all of the other 
agencies in the Interagency Invasive Species Working Group have 
agreed to.
    Senator Bennett. Are we winning that fight?
    Mr. Rey. I think on some species we are, and others we are 
not. I think the investment that we are proposing to you for 
2006 will help materially on the species that we have selected 
for priority. But there are other concerns out there as well.

                         RESEARCH COORDINATION

    Senator Bennett. Okay. Dr. Jen--ARS, one of the most 
popular and attractive programs that USDA oversees. So you get 
to be the one everybody likes. They have got 22 national 
programs, some 1,200 research projects in this country and 
overseas. The research is related not only to USDA programs, 
although there are some that is exclusively there. But some to 
activities in the other parts of the Federal Government, such 
as food safety and nutrition and climate change and 
environmental programs.
    Tell us about what you are doing to make sure there is not 
duplication between what you do and other university research 
activities and research in the other Federal agencies.
    Dr. Jen. Mr. Chairman and Senator Kohl, thank you for the 
opportunity to be here.
    In terms of trying not to have duplication of research 
effort, we operate under the National Science and Technology 
Council, which has a committee of science, committee of 
technology, and interagency work groups that coordinate the 
various type of Federal research among the department. So we 
participate in most of those activities and discussions that 
promote interagency cooperation.
    More specifically, we cooperate with the National Science 
Foundation, NIH, and NASA, for example, to address various 
issues of common interest.
    Within USDA, we have program areas in CSREES and ARS that 
are planning together, so that the ARS research activity and 
the university grants from CSREES are complimentary.

                       RURAL HOUSING PREPAYMENTS

    Senator Bennett. Thank you.
    Secretary Gonzalez, I think you will probably hear from 
Senator Kohl about some of the rental assistance and activities 
in the rural areas. He has a great interest in that. So I will 
pass over it fairly quickly.
    But I want to focus on one aspect. The recent report to the 
administration on the condition of Section 515 housing 
indicates that most of the units are not in danger of 
prepayment, but they do need repair and renovation. And the 
total, according to the report, is $2.6 billion.
    Do you anticipate that any of the funds sought for vouchers 
will be used for future renovations of these projects? If not, 
why not?
    Mr. Gonzalez. Thank you, Chairman Bennett, and thank you, 
Senator Kohl.
    There are two new developments in our multi-family program 
from the time we met last year. First the courts have made a 
determination that the owners have a right to prepay. 
Fortunately, Rural Development took the initiative by 
initiating the comprehensive property assessment, which we have 
shared with the committee on both the House and the Senate 
side.
    Essentially what the study did was look inside the multi-
family portfolio and specifically look at a sample of the 
17,000 properties that are out there, and determined that about 
10 percent of those properties could potentially prepay.
    In addition to that, we looked at market conditions and 
property conditions. We did look at capitalization requirements 
in the future. We looked at the propensity to prepay. But 
specifically what we are focused in on right now in the 2006 
budget is the $214 million, which is to establish a new tenant 
protection voucher for the tenants.
    If you take that 1,700 properties that could prepay, you 
are talking about 50,000 families that essentially could be 
displaced from the properties as a result of market increases 
in rent. And so, the voucher program is designed specifically 
to protect the tenant either in the existing property if the 
owner prepays or at another property that is in our portfolio.
    So the $214 million is designed specifically to meet what 
we estimate are one third of the 50,000 units, in 2006, that we 
expect to prepay. Those families potentially could be subject 
to market rent increases and, as a result, could be out on the 
street without housing.
    Senator Bennett. So you are not anticipating the money 
going for renovations?
    Mr. Gonzalez. No, sir.
    Senator Bennett. I see. Senator Kohl.

                       RENTAL ASSISTANCE PROGRAM

    Senator Kohl. Thank you, Senator Bennett.
    Mr. Gonzalez, I would like to talk a little bit more about 
the subject raised by Senator Bennett. I believe the landscape 
seems to be shifting here, and I am very troubled by what I 
believe I see happening.
    First, as you know, developers have gone to court and won 
the right to prepay loans and convert low-income rental housing 
to market prices, which will effectively force rural poor, the 
people who are barely getting by as it is, out into a market 
where their housing costs will go up. And now USDA comes 
forward with a voucher program.
    If we approve your voucher plan--and I don't think we 
will--USDA will, in effect, be giving a green light to those 
developers who want to hand tenants a voucher, tell them to 
find another place to live, and kick them out of their present 
housing. I understand that well enough. I don't intend to let 
that happen.
    In 2003, I requested a GAO report about your rental 
assistance program, which found lots of problems, and we have 
been working together to fix that. And now you are going to 
turn into an uncharted area, where the rural housing service 
has no experience. I have to tell you I don't think this 
committee has enough confidence at this time to start off in a 
new direction, especially one about which I am concerned as 
much as I am about this program.
    Furthermore, from what I have learned from you so far--and 
I have tried to get information about this without a great deal 
of success--it doesn't seem that you have much idea how this 
voucher program is going to work. It is not authorized. There 
is no detailed plan, and it looks like a $215 million carrot to 
shove low-income people into the street and let their homes go 
to more affluent families that can afford to pay market prices.
    What is more, it appears that this proposal would let these 
vouchers be used anywhere. A person in rural Wisconsin, for 
example, could be given one of these vouchers, move to New York 
City, which isn't exactly a rural area, and use this voucher, 
funded through USDA's rural development programs. At least I 
see nothing that proves otherwise.
    I always thought that USDA was there to help poor families 
in rural areas instead of working against them. So could you 
explain a little bit more what this program is, why it is being 
implemented, and what you are trying to do?
    Mr. Gonzalez. Yes, Senator. I will share with you the two 
new developments that I shared with Chairman Bennett. The 
courts have determined the owners have a right to prepay. The 
comprehensive property assessment did look inside the portfolio 
of the 17,000 properties to examine market conditions, property 
conditions, capitalization requirements for the future, and 
also the propensity to prepay.
    Earlier, GAO had come out with a report indicating that 
closer to 25 percent of those properties could prepay. Our 
number, based on a sample of 333 properties, is lower at 10 
percent. So you are looking at 1,700 properties versus the 
4,000 properties GAO estimated potentially could prepay. Our 
number is rather conservative in terms of that. GAO has agreed 
on our number.
    Our primary concern is protecting those tenants from being 
displaced by an increase in market rents. There is no program 
that has been established like this within Rural Development to 
protect tenants from and absorb that type of market rent 
increase.
    Regarding rental assistance we have brought a forecasting 
tool online at the agency to greatly improve the accuracy of 
our forecasting. Those numbers are a lot more reliable, a lot 
more accurate. I would be glad to demonstrate the tool to staff 
and to you, Senator, and to the committee.
    We do have a tool that is online now that improves the 
accuracy of the rental assistance forecasting.
    Senator Kohl. But I don't see you disagreeing with the 
assertion that these properties are going to be converted into 
market price rental properties and that, as a result, those 
tenants are going to be forced out. I mean, that is a statement 
of fact, isn't it?
    Mr. Gonzalez. Well, based on the study, 10 percent of those 
properties are commercially viable and at least 50,000 families 
could be subject to being displaced.
    Senator Kohl. Well, how is that a good thing?
    Mr. Gonzalez. It is not a good thing, but the voucher is 
designed specifically, to protect those tenants from being 
subject to that risk.
    Senator Kohl. So they get a voucher, and they have to go 
and find housing elsewhere?
    Mr. Gonzalez. The voucher can be used in that property that 
was prepaid, or it can be used in another property within our 
portfolio.
    Senator Kohl. What is the size of the voucher?
    Mr. Gonzalez. I believe I would have to get you the details 
on the size of the voucher. But I believe it is about $12,000 
to $13,000.
    Senator Kohl. Well, if you are not able to testify on the 
size of the voucher and its adequacy, then how could we discuss 
this program in light of these families that are going to be 
displaced and their ability or inability to find satisfactory 
housing?
    Mr. Gonzalez. Our primary focus is the accuracy of the 
study. We brought in an outside consulting group to look inside 
this portfolio. They determined that at least 10 percent is 
commercially viable and that could prepay, subjecting to 50,000 
families to being put out in the street. That is a concern for 
this agency, and it is a concern for this Administration to 
protect those tenants.

                 HOUSING REVITALIZATION BUDGET REQUEST

    Senator Kohl. Now I understand there is some kind of a 
consulting fee, $10 million in consulting fees that you are 
going to be spending. Please can explain to us what those fees 
are for, to sell what I regard as a bad idea. How do you intend 
to spend every penny of the $214 million that we are talking 
about?
    Mr. Gonzalez. Up to $10 million can be used to establish 
the Office for Revitalization and provide administrative 
support. That is up to $10 million. The balance of the $214 
million will be spent on vouchers to protect the tenants.
    Senator Kohl. And what is the $10 million going to be spent 
on?
    Mr. Gonzalez. To establish the Office of Revitalization for 
this multi-family portfolio and for administrative support.
    Senator Kohl. Well, as you can tell from my comments, we 
are going to need to talk about this program in much greater 
detail before the 2006 mark-up, and I will look forward to 
working with you on ways in which we can at least satisfy my 
office and Senator Bennett's that we are heading off into a 
direction which is satisfactory. And I look forward to working 
with you on it.
    Mr. Gonzalez. Thank you, Senator.

                              MILK PRICES

    Senator Kohl. Dr. Collins, when the Congressional Budget 
Office prepared its January baseline, it assumed $13.90, as you 
know, as the average all-milk price for 2005. On that basis, 
CBO estimated that the MILC program would cost $606 million in 
fiscal year 2005. The administration came up with an estimate 
of about $500 million. More recent data leads me to believe 
that those numbers are overstated. In your testimony, you 
predict an all-milk price of $15 rather than the $13.90.
    We only have 5 months left in our fiscal year, and it seems 
very likely that the cost of milk will be much lower than 
either the CBO or OMB predictions. So what was the all-milk 
price assumption that resulted in the administration's January 
price estimate of $500 million for milk, and what market 
fundamentals have changed since that time?
    Dr. Collins. That is a very good question, Mr. Kohl. Those 
estimates were based on November supply and demand conditions. 
I cannot remember the exact milk price that was back in the 
November forecasts of the department. But I think you are 
accurate in suggesting that the market has gotten a little 
tighter since then, and milk price prospects look better.
    You indicated a CBO price forecast in a $13 per 
hundredweight range, and our forecast for 2005 is now up to $15 
per hundredweight, which would make it the third- or fourth-
highest price in history. Unfortunately, when we score budget 
proposals, we score them off the President's budget, just as 
CBO scores budget proposals off its March baseline. We always 
pick a point in time and stick with that throughout the entire 
reconciliation process.
    So even though I think that markets look a little better 
than they did back in November of 2004, we will continue to 
score the MILC program extension off the President's February 
budget baseline.

                          VALUE-ADDED PROGRAMS

    Senator Kohl. All right. For anybody and all on the panel, 
in spite of the trend toward market dominance by a handful of 
companies, a growing number of small, independent farmers are 
turning to the historic role of farmers as business men and 
women who are finding value-added niche markets, producing 
specifically to those markets, and finding it is not so much 
the size of the operation as it is the quality of the 
operation.
    Does your department recognize that these opportunities for 
farmers exist? And if so, what are the farm credit, rural 
development, and research and extension agencies doing to 
support these niche developments and operations?
    Dr. Penn. I can offer the perspective of our program area, 
Senator Kohl, in the Farm Service Agency. As you know, we have 
a very extensive farm loan operation, and there is a portion of 
the loan funds that is set aside by statute for small and 
disadvantaged farmers, for beginning farmers, and for minority 
farmers.
    This is a program that is especially well suited to 
operations of the kind that you describe, those that have found 
a niche in the marketplace and realize that they can fill that 
niche without having to grow as large or operate like the 
commercial mainstream field crop or livestock operations. So 
those programs are almost ideally suited to the kinds of 
operations that you are describing.
    Mr. Gonzalez. Rural Development has for the last 3 years, 
as a result of the Farm Bill, a value-added producer grant 
program that essentially is creating new market opportunities 
for farmers and ranchers in terms of taking those raw 
commodities and adding value and, at the same time, increasing 
the bottom line, creating jobs, and helping diversify rural 
economies.

                   DIRECT MARKETING OF FARM PRODUCTS

    Senator Kohl. All right. Gentlemen, I know that marketing 
falls under jurisdiction of Agricultural Marketing Service that 
will be represented here tomorrow. But for small farmers, 
especially those seeking these niche markets, marketing can 
make all the difference in the world in terms of success and 
failure.
    Do you think direct marketing of farm products is a viable 
way to diversify rural investment? What are the keys to success 
in this style of marketing?
    Dr. Collins. All right, Senator Kohl, I would be happy to 
take a shot at that.

                          VALUE-ADDED PROGRAMS

    First of all, let me say on this whole question of value 
added in niche markets, the Department did send up a report on 
its value-added programs to the Congress. It was required in 
last year's appropriations bill, and we sent it up, I believe, 
in January of 2005. And it profiles across the Department all 
the different value-added programs we have.
    If my recollection is correct, we have roughly $350 million 
a year in value-added programs, and we view value-added 
marketing just as you described it, from the research programs 
right through to the marketing programs of the Agricultural 
Marketing Service or the programs in Mr. Gonzalez's area.
    Also as part of value added, we include our bio-energy and 
our bio-product work, which is substantial. It is not fully 
included in that $350 million, but our bio-energy work and bio-
product work is running about $250 million, with Dr. Penn's 
area accounting for a big portion of that with the CCC bio-
energy program.

                   DIRECT MARKETING OF FARM PRODUCTS

    Specifically related to direct marketing--by ``direct 
marketing,'' I think you mean farmers markets and things like 
that--certainly we have seen an explosion in growth of farmers 
markets over the past decade. And it has represented an 
excellent opportunity for producers to go directly to the 
consumer and get that additional value that might otherwise go 
to a middleman or to a processor.
    And what we are seeing with the producers is quite a range 
of products that are being offered directly to the consumer. At 
USDA, we have a farmers market once a week in one of our 
parking lots, and we can see firsthand. We get farmers from 
Virginia and Maryland and surrounding areas that come in and 
directly market to USDA and other Federal employees where we 
are.
    I think the number of farmers markets is now in the range 
of 3,000 across the United States, and we have seen a 
tremendous growth in that. So it is an opportunity, 
particularly for producers who can provide unique services to 
consumers.
    I know I have met with farmers who have come in to USDA 
who, for example, have programs where they bring classrooms to 
their farms. And that acquaints students and students' parents 
with what they have on their farms, and then they market 
directly to the community, and that becomes a marketing vehicle 
for them.
    So we are seeing a lot of ingenuity on the part of small 
and medium-size farmers to extract a higher value. If you have 
a small acreage, the only way you can get more income is to 
increase the margin. One way to increase the margin is to 
increase the price relative to the cost of production. The way 
you increase the price is by you, as the farmer, adding value. 
And that is what direct marketing can do.

                           SPECIALTY PRODUCTS

    Senator Kohl. That is great. In Wisconsin, dairy farmers 
are forming, as you know, cooperatives to develop specialty 
cheese products. And this committee has provided funding to 
help these cooperatives establish marketing policies.
    Aside from programs like the value-added agricultural 
product market development grants program of which I believe 
the President proposes to cancel $120 million in this next 
fiscal year, how can the department work with farm groups to 
promote specialty products and create new markets for these 
products? Tell me some of your own thoughts and experiences 
here.
    Dr. Collins. Well, one thing I would offer is the efforts 
that the Department has made to promote the consumption of 
fresh fruits and vegetables. We have done that in a variety of 
ways. For example, through the school lunch program, we have 
had pilot fresh fruit and vegetable programs to increase the 
consumption of that.
    You are going to hear from Under Secretary Bost tomorrow, 
and I think he could give you a range of activities that he has 
been involved in to try and promote the consumption of fresh 
fruits and vegetables. Again, going back to USDA as a firsthand 
experience, in our own cafeteria, we have replaced most of the 
vending machines that used to sell highly processed products, 
and we now have fruit and vegetable available in vending 
machines and fruit juice vending machines and so on.
    So I think that there is--through our food assistance 
programs, we are making a substantial effort to try and promote 
increased consumption of such specialty products.

                     FARM PRODUCT EXPORTS TO CHINA

    Senator Kohl. Good. I thank you. Senator Bennett?
    Senator Bennett. Dr. Collins, talk to us about China. That 
is a topic on everybody's mind. Sometimes they get demonized. 
You mentioned that in fiscal 2004, it was a $6 billion market 
for U.S. farm products. Where do you see that going? And 
specifically, what farm products do we export to China?
    Dr. Collins. Well, specifically, we export a wide range of 
products. The biggest ones probably are soybeans and cotton. 
China has built a huge vegetable oil processing capacity over 
the last decade. They are now the world's largest soybean 
importer. This year, we estimate that they will import about 
22.5 million tons of soybeans. We will----
    Senator Bennett. Are they attempting to grow any 
themselves?
    Mr. Collins. They do grow soybeans. Their production has 
been increasing, but at a slow rate and cannot nearly keep up 
with their consumption, which is going to vegetable oil 
consumption and going to improving the feed rations of their 
livestock.
    We expect that this year, we will set a record in soybean 
exports to China, probably in the neighborhood of 12 million 
tons, which is half of their total imports. And they account 
for one third of the world's imports of soybeans.
    In addition to that, another issue that you mentioned, 
China being demonized, part of that has been related to the 
huge overall trade deficit we have with China. It is our 
largest single-country trade deficit. A part of that also 
relates to the huge increase we are seeing in imported textiles 
and apparel from China since January 1, when the Uruguay Round 
Agreement on textiles was fully implemented.
    But that gives us another opportunity. China is an enormous 
consumer of cotton. This year, we think that they will import 
about 8 million bales of cotton. Over the next several years, 
we expect that that might grow to 10 to 12 million bales of 
cotton. They are our largest market for cotton, which is a 
high-value commodity, and so that represents a tremendous 
opportunity for our producers as well.
    Yes, we are losing our domestic cotton consumption. Our 
textile mill capacity is slowly going overseas. But we are 
replacing that with increased exports of cotton.
    I remember years ago, I didn't think we would ever see 10 
million bales of cotton exported, and this year, I think we are 
going to do about 14 million bales. So it has been tremendous 
for the cotton industry to be able to capture that growing 
market in China.
    China also this year is the world's largest importer of 
wheat. This is a commodity that they didn't generally import. 
In China, wheat has become a staple in the northern part of 
China. Rice is really the staple food in the southern part of 
China. And yet we have seen them become the world's largest 
importer of wheat, and we are supplying some of that.
    Rice, as I said, is considered a staple in the southern 
half of China. That is a commodity they are probably most 
sensitive about preserving self-sufficiency in, and they have 
been right on the threshold of becoming a sizable importer of 
rice. They have had difficulty expanding their rice acreage. I 
don't foresee them becoming a big rice importer. It is possible 
on the margin they could increase their imports some, but I 
think you are going to see domestic efforts in China to 
increase their rice production.
    So we have a broad range of commodities. We are providing 
some horticultural commodities to China as well. So there is 
quite a range of things that we are providing.
    Dr. Penn reminds me that number-one item, hides and skins 
to China. So they are a market on the livestock side as well.

                        TEXTILE EXPORTS AND JOBS

    Senator Bennett. Okay. My own observation in another life 
here with the Joint Economic Committee, I think the textile 
manufacturers that we are going to lose have already been lost. 
And interestingly, what I think is happening is that China is 
taking jobs away from the Dominican Republic and Mexico and 
other places where they had taken these factories from us. And 
now the Chinese are undercutting them.
    Dr. Collins. This is exactly what we are hearing from 
Caribbean area countries, for example. They fear the impact of 
China on their exports to the United States. They have had 
trade preferences with us in textiles. And now with the 
elimination of all quotas, those preferences disappear. Country 
of origin rules disappear, and they are very worried that China 
is going to displace their textiles in the United States 
market.
    From a cotton point of view, China accounts for about 15 
percent of our cotton textile and apparel imports. So it is not 
a huge player right now, but it is going to grow fairly 
sizably, I believe, over the next couple of years. I agree with 
your point that much of what potentially could be lost has 
already been lost. We lost the apparel industry a long time 
ago, the high labor cost industry.
    Senator Bennett. Yes.
    Mr. Collins. And we do have a solid core of textile 
companies that produce very high-quality, high-value, 
technically advanced product. I can remember early in my career 
visiting a textile plant, and you could see the parking lot was 
full of cars. You go to a textile plant today, and there are 
three cars in the parking lot. You know, it is highly 
automated, and it has been able to improve its efficiency.
    So we are going to have some market for U.S. textiles, but 
there is no question that the Chinese market share in our 
market will grow. And it will largely come at the expense of 
other countries around the world. And this is an issue for 
putting safeguards on Chinese textiles as well. Because when 
you do that, we might reduce the imports of China, but they 
might find their way into the United States through other 
countries.
    Senator Bennett. Yes. Well, you raise an interesting 
question. If China is a major importer of cotton, as they begin 
to take some of this work away from the Caribbean, are we going 
to see drop-off in our cotton sales in the Caribbean?
    Mr. Collins. That is the worry, that we will see some 
decline in our exports of cotton.
    Senator Bennett. What is the net number? Is China going to 
import more than the Caribbean loses, or are we just going to 
shift?
    Dr. Collins. I think right now we are expecting our exports 
will continue to grow, and that is because world consumption of 
cotton textiles will continue to grow. The size of the pie is 
going to get bigger.

                      CONSERVATION RESERVE PROGRAM

    Senator Bennett. I see. Well, that is good.
    Dr. Penn, let us talk about CRP, and there are tens of 
millions of acres under the Conservation Reserve Program that 
have contracts that are set to expire in the next few years. 
What is FSA doing to make re-enrollment a smooth kind of 
process? Do you see any kind of bureaucratic bottlenecks or 
problems as those expirations come along?
    Dr. Penn. Well, the situation is exactly as you note. I 
can't remember the exact numbers, but there is a relatively 
small amount of CRP acreage that expires in fiscal year 2006. 
But then I believe in 2007 and 2008, over 22 million acres 
begin to expire, and that is out of something on the order of 
34 to 35 million that are enrolled now.
    We have been thinking about this very seriously, noting 
that this is both a challenge and an opportunity. We have such 
a large amount of acreage coming out of the CRP and then 
needing to re-enroll or extend acreage to continue the 39.4 
million acre mandate that was included in the 2002 farm bill. 
The question becomes do we want to change the profile, the 
character, or the nature of the land that is to be re-enrolled 
into this program?
    We had a major conference last year in which a lot of these 
questions were raised. What is the objective of the CRP now in 
terms of its role in rural America, its role in protecting 
wildlife, its role in environmental enhancement? So there are a 
lot of objectives, and these continue to shift over time since 
the beginning of this program in 1985.
    There is to be another major conference later this year to 
further explore these questions, to give all of the 
stakeholders--the people who are concerned about soil erosion, 
water quality, wildlife habitat, and agricultural production--
an opportunity to state what their views are with respect to 
how to effectively manage this program. We have also put a 
notice in the Federal Register in asking for comments on 
options that we could consider as we begin to re-enroll this 
large acreage.
    The President has made a commitment to keep the CRP fully 
enrolled as the statute allows, and the question then becomes: 
exactly how you want to manage the program, what are the 
objectives of the program, and where the land will come from. 
So we are exploring all of these questions that you raise as we 
get closer to the date when this large amount of acreage will 
expire.

                       PLANNING RESEARCH PROGRAMS

    Senator Bennett. All right. I applaud you for that. 
Whatever we can do to make the re-enrollment as smooth and 
seamless as possible. And that sounds like you are of the same 
mind.
    Now, Dr. Jen, you may be the one to ask this question to, 
or others. The budget calls for a number of increases in areas 
of research and then eliminates $175 million in projects 
requested by Congress, many of which are research projects. In 
some places, the budget proposes increases in cuts to the same 
subject.
    I will give you some examples. A $2 million increase in bio 
energy research is offset in part by cuts in bio mass and 
ethanol research. You have a $4.7 million increase in genomics 
while cutting livestock and fish genome mapping and soybean and 
cotton genetics. $15.3 million in food safety while cutting 
projects that deal with salmonella, Listeria, and E. coli. $1.5 
million increase for obesity and healthier lifestyle, but $6.9 
million in cuts for research in those same areas regarding 
child and elderly nutrition.
    Share with us how you establish or how you set your 
priorities and why you had the particular set of winners and 
losers that you had. Was it just that if it came from the 
department, you like it, and if it came from Congress, you 
don't?
    Dr. Jen. Absolutely not, Mr. Chairman.
    Senator Bennett. Oh, okay. I wanted to get that on the 
record.
    Dr. Jen. Yes. We probably should get on the record that the 
department supports a portfolio of all types of research 
programs. Sometimes when you see the shifting from one area to 
another, it is somewhat misleading. We set our research agenda 
mainly on what is most important for the Nation.
    Often, the title of the project, including other research 
that you say is cut is moved into a different program or within 
that program. So it is really not as clear cut as it appear. 
For example, for genomics or obesity, the total budget request 
for both these areas has increased in the President's 2006 
budget.
    Genomics research and obesity research are increased in the 
national research initiative. So the budget did not show very 
clear-cut increases in those areas. In terms of priority 
setting, we have a tremendous number of stakeholder listening 
sessions and interactions with industry, with university 
community and with Congress, congressional staff, and all the 
other stakeholders to set our priorities.
    Senator Bennett. You will not be particularly surprised if 
the committee adds some congressional earmarks, will you?
    Dr. Jen. No, sir.
    Senator Bennett. Okay. All right. I will leave that.
    Senator Kohl, do you have any additional questions?
    Senator Kohl. Thank you very much.

                            BUDGET DECREASES

    Mr. Gonzalez, this year, as before, the President proposes 
to cut direct loans and grants, which, as you know, target low-
income communities, and increase guaranteed loan programs, 
which serve more moderate income communities. This proposal 
effectively cuts vital services to our country's poor citizens 
by reducing direct loans and grants for multi-family housing, 
water and waste, broadband grants, and other rural development 
programs.
    USDA justifies this shift through its budget by emphasizing 
lower interest rates and a resulting lower subsidy. On its 
face, this sounds like a good idea to keep costs down. But 
America's most needy rural communities are too poor and 
neglected to participate in guaranteed programs. Furthermore, 
the public policy underlying direct loans and grants is 
precisely to support the Nation's most vulnerable rural 
communities.
    Now with interest rates rising, will it not be more 
difficult for small rural communities to take on additional 
debt in lieu of grant funding? Did your proposal anticipate the 
possibility of higher interest rates? What effect does higher 
interest rates have on the ability to serve low-income families 
in the 502 guaranteed program?
    Mr. Gonzalez. Yes, Senator. I believe our direct program is 
down about $100 million. But our guaranteed program is up about 
$400 million. This demonstrates our commitment, the 
Administration's commitment to a home ownership society.
    We are qualifying more people from our direct program and 
also graduating people from our direct program into our 
guaranteed program in the case of single-family housing.
    In terms of our multi-family housing program, that number, 
in terms of direct loans, is down. We obviously are focusing 
right now on tenant protection. The other component on our 
guaranteed side is our 538 multi-family housing program has 
been doubled from $99 million to about $200 million. Combining 
that with tax credits, we feel we can still serve the low-
income market.
    Those are just examples of areas that even though there 
have been some reductions on the direct side, we still are 
adequately servicing residents in rural areas with our 
guaranteed programs.

               NUTRIENT MANAGEMENT LAB IN MARSHFIELD, WI

    Senator Kohl. All right. A question for Secretaries Jen and 
Rey. Along with volatile dairy prices, another major concern of 
dairy farmers is the cost of compliance with State and Federal 
environmental regulations. Two years ago, I helped bring 
together the ARS, NRCS, and the University of Wisconsin College 
of Agriculture and Life Sciences in a collaborative effort to 
meet this very challenge.
    As a result, this committee has provided funding to 
establish a nutrient management laboratory at Marshfield, 
Wisconsin. Part of the construction of this facility is 
complete, and I hope we can provide funding for the last 
construction phase this year.
    We have also encouraged the ARS Dairy Forage Laboratory and 
NRCS to work together as partners at the Marshfield facility to 
develop management practices and implement them at the farm 
level.
    Mr. Jen or Mr. Rey, can you provide an update on this 
partnership between these research and conservation agencies?
    Mr. Rey. We have just developed a cooperative agreement for 
fiscal year 2005, to develop the laboratory, and we can submit 
a copy of that for the subcommittee's hearing record. On the 
NRCS side, we will continue to provide resources to the effort 
out of our base 2005 budget, and we will spend at least a half 
a million dollars to support the continuation of the project 
this year.
    We will also provide staff support, with the aim of 
integrating animal diet and feed management technologies into 
overall conservation practices.
    Dr. Jen. In terms of the Dairy Forage Research Laboratory, 
we have completed feasibility studies for the renovation/
reconstruction of a new facility through the 2004 budget. We 
forwarded the report to the Congress.
    Senator Kohl. Gentlemen, I understand that a draft 
memorandum of understanding between ARS, NRCS, and the 
Wisconsin College of Agriculture and Life Sciences has been 
forwarded to Washington. Has either agency taken further action 
on approval of this memorandum of understanding? And will you 
please notify me when such action is taken?
    Mr. Rey. After we complete the work, we will notify you and 
bring a copy up.
    Senator Kohl. I would appreciate that very much. I thank 
you very much.
    Senator Bennett, I have no further questions.

               WATERSHED AND FLOOD PREVENTION OPERATIONS

    Senator Bennett. Okay. Secretary Rey, watershed and flood 
prevention operations zeroed out in the President's budget. You 
say in fiscal 2004, it provided nearly $1.5 billion in monetary 
benefits, created, enhanced, or restored 7 million acres of 
upland wildlife habitat, benefitted nearly 48 million people.
    Okay. I realize this is a program that gets heavily 
earmarked up here, and that does have an impact on NRCS's 
ability to make decisions. But why do you want to zero it out?
    Mr. Rey. I think calling this program heavily earmarked is 
a bit of an understatement. It ranged in the last couple of 
years between being 100 percent and more than 100 percent 
earmarked. In the latter case, through an arithmetical error 
that required us to distribute the earmarks on a discounted 
fashion.
    It is also a program that harkens back to the 1950s. A lot 
of watershed structures have been constructed during that 
period of time, and very little programmatic oversight has been 
provided to the program in perhaps the last 15 years. Running 
this program has become a considerable challenge to us. We 
don't always have the right staff with the right backgrounds 
and expertise in our State offices where the earmarked projects 
are provided.
    So we think this program has reached a point where stepping 
back and taking a broader programmatic look at it is long 
overdue. That is something we would like to work with the 
Congress about. But, you know, to continue to administer it in 
this fashion is perhaps not the best use of what is admittedly 
tight budgets in a very difficult budget environment.
    Senator Bennett. Will you be surprised if there are some 
earmarks in this year's----
    Mr. Rey. I would be surprised if there weren't.
    Senator Bennett. Okay.
    Mr. Rey. That having been said----
    Senator Bennett. Yes.
    Mr. Rey [continuing]. The point----
    Senator Bennett. Can we work together a little more I think 
is what you are saying.
    Mr. Rey. Right.
    Senator Bennett. So that the earmarks are tied more to a 
budget plan or management plan that you might have in mind. Is 
that what you----
    Mr. Rey. Yes, and a programmatic look at where these two 
programs should go in the future. I don't think that their past 
performance, in terms of the construction of structural 
watershed improvements, is necessarily where their future 
should go.
    Senator Bennett. All right. I think that kind of dialogue 
is useful, and we will keep that in mind as we go forward.
    Senator Kohl, you had one more question?
    Senator Kohl. I thank you very much, Senator Bennett.

                 TRANSFER TO THE DEPARTMENT OF COMMERCE

    Secretary Gonzalez, I see another part of the President's 
budget where you want to get rid of four Rural Development 
programs and send them over to the Department of Commerce. At 
Commerce, they will be lumped with 14 other programs from all 
over the Government, with one third less money than they now 
have. The Administration justifies this by saying the programs 
are duplicative, ineffective, and unaccountable.
    Secretary Gonzalez, I understand you have been working with 
these programs for a number of years. Do you think, for 
example, that the Rural Business Enterprise Grant Program under 
your management has been ineffective? Because, frankly, your 
own press releases on the successes of these programs, this 
particular program, leave quite a different impression.
    Mr. Gonzalez. Thank you, Senator Kohl.
    These programs obviously were ``PARTED'', were scored over 
the last year by OMB, and most of these four programs under 
Rural Development did not demonstrate results and, in some 
cases, were duplicative. I support the President's 
Strengthening America Communities Initiative in terms of 
consolidating the 18 programs administered by the five 
agencies. It makes a lot of sense, and it stands to benefit 
rural areas when you look at the larger pot of money that is 
being consolidated. Rural areas will have access to a 
substantial portion of a program level of $3.75 billion.
    We have been working with the Administration, the White 
House and Department of Commerce to ensure that rural areas do 
have greater access to a larger pool of money. And, we have 
established--at least Commerce has established an advisory 
committee, people working to flesh out the details to make sure 
rural areas are well served. We had been working closely on 
this initiative. I am confident and have been assured by the 
Administration that rural areas will have a greater access to a 
larger pool of funding--not just $75 million, but $3.75 
billion.
    Senator Kohl. Well, I will respond to that. I believe this 
is, to some considerable extent, a shell game. As I see it, you 
all think that while you are moving all these pieces around, 
hopefully, no one is going to see that they are being gutted, 
and their traditional constituencies are going to have to start 
fighting each other. It will be Rural Development against CDBG 
and on and on.
    Even if we let you merge these programs, a cut is a cut, no 
matter how deep, and someone is going to be a big loser. And as 
you know, these programs are quite important to poor rural 
communities. There seems to be a theme throughout the rural 
development budget that these type of communities are going to 
be singled out for continuing cuts. What is your response?
    Mr. Gonzalez. Sir, I can just assure you that we are, 
working with Commerce on this specific initiative, to ensure 
that rural areas are well served and they stand to benefit from 
this initiative. This is an opportunity for rural areas, as I 
see it. Rural Development being the advocate that it is, there 
is an opportunity here to provide the resources to rural areas.
    I have offered up and proposed to the Department of 
Commerce our delivery system. It is unmatched. When the 
question becomes what can Rural Development do in terms of its 
infrastructure and delivery system, we can help promote and 
deliver this initiative. We can help educate communities on 
this initiative and help communities, provide technical 
assistance to make sure they do have access to this larger pool 
of money.
    Senator Kohl. Well, if these programs are to be moved to 
Commerce, do you know for a fact that every single authorized 
activity at USDA will still be an authorized activity at 
Commerce? As you know, these are well-established programs at 
USDA, and how will you be able to know that they will continue 
to serve their traditional constituencies as they have in the 
past if, in fact, they are gone from your jurisdiction?
    Mr. Gonzalez. We are in the process of crafting legislation 
with Commerce and the Administration on this initiative. And we 
will be at the table with them to ensure that rural areas are 
addressed.

                     ADDITIONAL COMMITTEE QUESTIONS

    A template for urban isn't a template for rural 
communities, and that is why we are at the table in terms of 
making sure we address issues like business formation. If there 
is an educational aspect to it, like No Child Left Behind 
Initiative or broadband access, we are going to be there to 
make sure that the right criteria are being used for rural 
communities.
    Senator Kohl. I hope so.
    Thanks, Mr. Chairman.
    [The following questions were not asked at the hearing, but 
were submitted to the Department for response subsequent to the 
hearing:]

                    Questions Submitted to Mark Rey

            Questions Submitted by Senator Robert F. Bennett

                 watershed surveys and planning program
    Question. The President's Budget has proposed $5,141,000 for the 
Watershed Surveys and Planning program. What will that level of funding 
allow NRCS to do?
    Answer. This level of funding will allow NRCS to continue to fund 
the highest-priority ongoing studies and plans in each of the States. 
It will allow for completion of approximately 20 watershed studies and 
plans.
    Question. Will new projects be initiated?
    Answer. Initiation of new plans and studies will, at most, occur on 
a limited basis. If new plans or studies are initiated, they will be 
selected based on a ranking and funding process that evaluates the 
plans and studies according to their support of the NRCS Strategic 
Plan.
    Question. Will existing projects be completed at this level of 
funding?
    Answer. Again, this level of funding will allow NRCS to continue to 
fund the highest-priority ongoing studies and plans in each of the 
States. It will allow for completion of approximately 20 watershed 
studies and plans. There are over 130 studies and plans that have 
already been initiated.
    Question. What level of funding would be required to complete all 
initiated work?
    Answer. Planning costs can vary widely, depending on the complexity 
of the plan or study. It would require over $45 million to complete all 
studies and plans which have already been initiated.
    Question. How many fiscal year 2005 watershed funding requests did 
NRCS receive for projects that were ready to be installed (local 
sponsors had obtained land rights, permits, etc. and NRCS was prepared 
with designs and ready for construction)?
    Answer. In fiscal year 2005, NRCS received 278 funding requests 
from project sponsors totaling $201 million on projects ready for 
construction.
    Question. Please provide the Committee with a list of all the 
watershed projects that have been planned and authorized for 
implementation, along with the dollar amount needed to provide the 
Federal technical and financial share of the costs.
    Answer. The attached provides the requested funding total of $1.9 
billion to complete the currently authorized watershed projects.
    [The information follows:]

----------------------------------------------------------------------------------------------------------------
                                                                                                    Requested
                 State                             Program             Watershed project name        funding
----------------------------------------------------------------------------------------------------------------
Alabama................................  Public Law 566............  Pine Barren Creek.........       $2,000,000
Alabama................................  Public Law 566............  Powell Creek..............          500,000
Alabama................................  Public Law 566............  Big Nance Creek...........        2,000,000
Alabama................................  Public Law 566............  Choccolocco Creek.........        3,765,000
Alabama................................  Public Law 566............  Wilkerson Creek...........          312,000
Alabama................................  Public Law 566............  Kelly-Preston Mill Creek..           20,000
Alabama................................  Public Law 566............  Harrison Mill-Panther               200,000
                                                                      Creeks.
Alabama................................  Public Law 566............  Camp Branch...............          300,000
Alabama................................  Public Law 566............  Dry Creek.................          400,000
Alabama................................  Public Law 566............  Pates Creek...............          180,000
Alabama................................  Public Law 566............  Whitewater Creek..........          100,000
Alabama................................  Public Law 566............  Short-Scarham Creeks......          212,000
Alabama................................  Public Law 566............  Town Creek-Dekalb.........          185,000
Alabama................................  Public Law 566............  South Sauty Creek.........          100,000
Alabama................................  Public Law 566............  Northeast Yellow River....        1,000,000
                                                                                                ----------------
      Total............................  ..........................  ..........................       11,274,000
                                                                                                ================
Alaska.................................  Public Law 566............  Delta Clearwater..........        5,951,600
                                                                                                ================
Arizona................................  Public Law 566............  Buckhorn-Mesa.............        2,560,100
Arizona................................  Public Law 566............  Apache Junction-Gilbert...        1,792,000
Arizona................................  Public Law 566............  Williams-Chandler.........        1,280,000
Arizona................................  Public Law 566............  White Tank Mountains......        1,681,700
Arizona................................  Public Law 566............  Eloy......................        2,630,409
Arizona................................  Public Law 566............  New Magma.................        2,078,981
Arizona................................  Public Law 566............  Hohokam...................        4,341,423
Arizona................................  Public Law 566............  West Maricopa.............          755,044
Arizona................................  Public Law 566............  Maricopa-Stanfield........        5,148,479
Arizona................................  Public Law 566............  San Carlos Watershed......        5,819,964
                                                                                                ----------------
      Total............................  ..........................  ..........................       28,088,100
                                                                                                ================
Arkansas...............................  Public Law 566............  Big Slough................       17,036,000
Arkansas...............................  Public Law 566............  North Fork Of Ozan Creek..        1,211,000
Arkansas...............................  Public Law 566............  Fourche Creek.............          841,000
Arkansas...............................  Public Law 566............  South Fourche.............        3,627,000
Arkansas...............................  Public Law 566............  Poinsett..................        2,919,000
Arkansas...............................  Public Law 566............  Upper Petit Jean..........       12,017,000
Arkansas...............................  Public Law 566............  Flat Rock Creek...........        1,779,000
Arkansas...............................  Public Law 566............  Ozan Creeks...............        6,563,000
Arkansas...............................  Public Law 566............  Little Red River..........          279,000
Arkansas...............................  Public Law 566............  Gould Portion Of Grady-           1,400,000
                                                                      Gould.
Arkansas...............................  Public Law 566............  Buffalo River Tributaries.        2,634,000
Arkansas...............................  Public Law 566............  Departee Creek............        2,060,000
                                                                                                ----------------
      Total............................  ..........................  ..........................       52,366,000
                                                                                                ================
California.............................  Public Law 566............  Central Sonoma............        3,700,000
California.............................  Public Law 566............  Marsh-Kellogg Creek.......        3,750,000
California.............................  Public Law 566............  Beardsley.................           50,000
California.............................  Public Law 566............  Lower Llagas Creek........        2,550,000
California.............................  Public Law 566............  Upper Llagas Creek........          150,000
California.............................  Public Law 566............  Carpinteria Valley........        1,000,000
California.............................  Public Law 566............  Lower Silver Creek........       16,300,000
California.............................  Public Law 566............  Upper Stony Creek.........          125,000
California.............................  Public Law 566............  Indian Creek..............           50,000
California.............................  Public Law 566............  Elkhorn Slough............          960,000
California.............................  Public Law 566............  Mccoy Wash................        6,800,000
                                                                                                ----------------
      Total............................  ..........................  ..........................       35,435,000
                                                                                                ================
Colorado...............................  Public Law 566............  Wolf Creek-Highlands......           20,000
Colorado...............................  Public Law 566............  Trinidad Lake North.......          240,000
Colorado...............................  Public Law 566............  Limestone-Graveyard Creeks          340,000
Colorado...............................  Public Law 566............  Highline Breaks...........        1,560,000
Colorado...............................  Public Law 566............  Holbrook Lake Ditch.......        1,440,000
Colorado...............................  Public Law 566............  Six Mile-St. Charles              2,640,000
                                                                      Watershed.
                                                                                                ----------------
      Total............................  ..........................  ..........................        6,240,000
                                                                                                ================
Connecticut............................  Public Law 566............  South Branch Park River...           75,000
Connecticut............................  Public Law 566............  Norwalk River.............       11,567,800
Connecticut............................  Public Law 566............  Mill-Horse Brook..........        6,760,000
Connecticut............................  Public Law 566............  Yantic River..............        4,526,200
                                                                                                ----------------
      Total............................  ..........................  ..........................       22,929,000
                                                                                                ================
Delaware...............................  Public Law 566............  Upper Nanticoke River.....           25,000
                                                                                                ================
Florida................................  Public Law 566............  N. East Middle Suwannee             309,680
                                                                      River.
Florida................................  Public Law 566............  S. West Middle Suwannee             309,680
                                                                      River.
Florida................................  Public Law 566............  N. West Middle Suwannee             309,680
                                                                      River.
Florida................................  Public Law 566............  S. East Middle Suwannee             309,680
                                                                      River.
                                                                                                ----------------
      Total............................  ..........................  ..........................        1,238,720
                                                                                                ================
Georgia................................  Public Law 566............  Tobesofkee Creek..........        1,985,424
Georgia................................  Public Law 566............  Lower Little Tallapoosa             350,562
                                                                      River.
Georgia................................  Public Law 566............  Piscola Creek.............          822,794
Georgia................................  Public Law 566............  Five Points Area..........          982,517
Georgia................................  Public Law 566............  South Chickamauga Creek...        1,068,475
                                                                                                ----------------
      Total............................  ..........................  ..........................        5,209,772
                                                                                                ================
Hawaii.................................  Public Law 566............  Wailuku-Alenaio...........        2,000,000
Hawaii.................................  Public Law 566............  Waimanalo.................        1,750,000
Hawaii.................................  Public Law 566............  Waimea-Paauilo............        9,232,000
Hawaii.................................  Public Law 566............  Lahaina...................        7,500,000
Hawaii.................................  Public Law 566............  Upcountry Maui............        5,500,000
Hawaii.................................  Public Law 566............  Lower Hamakua Ditch.......        4,500,000
                                                                                                ----------------
      Total............................  ..........................  ..........................       30,482,000
                                                                                                ================
Idaho..................................  Public Law 566............  Tammany Creek.............        3,673,495
Idaho..................................  Public Law 566............  Mission-Lapwai Creek......        3,676,044
Idaho..................................  Public Law 566............  Bedrock Creek.............          432,550
Idaho..................................  Public Law 566............  Scott's Pond..............        4,804,166
                                                                                                ----------------
      Total............................  ..........................  ..........................       12,586,255
                                                                                                ================
Illinois...............................  Public Law 566............  Little Calumet River......       52,400,000
Illinois...............................  Public Law 566............  Lower Des Plaines                30,300,000
                                                                      Tributaries.
Illinois...............................  Public Law 566............  Lake Bloomington..........        3,880,000
Illinois...............................  Public Law 566............  Lake Carlinville..........          825,000
                                                                                                ----------------
      Total............................  ..........................  ..........................       87,405,000
                                                                                                ================
Indiana................................  Public Law 566............  Muddy Fork Of Silver Creek        2,279,000
Indiana................................  Public Law 566............  Mariah Creek..............          168,650
Indiana................................  Public Law 566............  Pigeon Creek..............          160,590
Indiana................................  Public Law 566............  Honey Creek...............        5,400,000
                                                                                                ----------------
      Total............................  ..........................  ..........................        8,008,240
                                                                                                ================
Iowa...................................  Public Law 566............  Little Paint Creek........          700,000
Iowa...................................  Public Law 566............  Bear Creek................        3,300,500
Iowa...................................  Public Law 566............  East Fork Of Big Creek....          200,000
Iowa...................................  Public Law 566............  West Fork Of Big Creek....        2,300,000
Iowa...................................  Public Law 566............  Upper Locust Creek........        2,900,000
Iowa...................................  Public Law 566............  East Fork Of The Grand           14,800,000
                                                                      River.
Iowa...................................  Public Law 566............  Mill-Picayune Creek.......        3,300,000
Iowa...................................  Public Law 566............  Turkey Creek..............        3,700,000
Iowa...................................  Public Law 566............  Mosquito Of Harrison......        2,800,000
Iowa...................................  Public Law 566............  Waubonsie Creek...........          250,000
Iowa...................................  Public Law 566............  Simon Run.................          640,000
Iowa...................................  Public Law 566............  Troublesome Creek.........        4,000,000
Iowa...................................  Public Law 566............  Twelve Mile Creek.........        1,050,000
Iowa...................................  Public Law 566............  Little River..............          500,000
Iowa...................................  Public Law 566............  A&T Long Branch...........          500,000
Iowa...................................  Public Law 566............  Long Branch...............          500,000
Iowa...................................  Public Law 566............  Soap Creek................        5,500,000
                                                                                                ----------------
      Public Law 566 Total.............  ..........................  ..........................       47,440,500
                                                                                                ================
Iowa...................................  Public Law 534............  Ltl. Sioux--Barber Hollow.          150,000
Iowa...................................  Public Law 534............  Ltl. Sioux--Big Coon Creek          300,000
Iowa...................................  Public Law 534............  Ltl. Sioux--West Wolf               150,000
                                                                      Creek.
Iowa...................................  Public Law 534............  Ltl. Sioux--Westside......          450,000
Iowa...................................  Public Law 534............  Ltl. Sioux--Bitter Creek..        1,050,000
Iowa...................................  Public Law 534............  Ltl. Sioux--Crawford Ck...          150,000
Iowa...................................  Public Law 534............  Ltl. Sioux--Leech Hollow..          300,000
Iowa...................................  Public Law 534............  Ltl. Sioux--Little Whiskey          450,000
                                                                                                ----------------
      Public Law 534 Total.............  ..........................  ..........................        3,000,000
                                                                                                ================
      Iowa Total.......................  ..........................  ..........................       50,440,500
                                                                                                ================
Kansas.................................  Public Law 566............  North Black Vermillion....        6,901,200
Kansas.................................  Public Law 566............  Upper Black Vermillion....        1,925,000
Kansas.................................  Public Law 566............  Lower Elk River...........          843,000
Kansas.................................  Public Law 566............  Lyons Creek...............        1,274,800
Kansas.................................  Public Law 566............  West Sector Whitewater              540,000
                                                                      River.
Kansas.................................  Public Law 566............  East Sector Whitewater              990,000
                                                                      River.
Kansas.................................  Public Law 566............  North Sector Upper Walnut.        1,156,250
Kansas.................................  Public Law 566............  Wet Walnut No. 2..........        1,035,375
Kansas.................................  Public Law 566............  Wet Walnut No. 3..........        2,910,000
Kansas.................................  Public Law 566............  Grasshopper-Coal Creek....        3,097,900
Kansas.................................  Public Law 566............  Diamond Creek.............        5,400,000
Kansas.................................  Public Law 566............  Middle Creek (Morris).....          881,250
Kansas.................................  Public Law 566............  Elk Creek.................        9,652,500
Kansas.................................  Public Law 566............  South Fork................          978,000
Kansas.................................  Public Law 566............  North-Middle Forks Wolf...        4,758,750
Kansas.................................  Public Law 566............  South Fork Wolf...........        2,567,000
Kansas.................................  Public Law 566............  Squaw Creek Lower Wolf....        9,230,400
Kansas.................................  Public Law 566............  Doyle Creek...............        2,430,000
Kansas.................................  Public Law 566............  Upper Delaware And               12,460,000
                                                                      Tributaries.
                                                                                                ----------------
      Total............................  ..........................  ..........................       69,031,425
                                                                                                ================
Kentucky...............................  Public Law 566............  Obion Creek...............        4,000,000
Kentucky...............................  Public Law 566............  Big Muddy Creek...........          750,000
Kentucky...............................  Public Law 566............  Upper Tradewater River....           10,000
Kentucky...............................  Public Law 566............  West Fork Of Mayfield             1,200,000
                                                                      Creek.
Kentucky...............................  Public Law 566............  Red Lick Creek............          900,000
Kentucky...............................  Public Law 566............  Banklick Creek............        4,000,000
Kentucky...............................  Public Law 566............  North Fork Nolin River....          900,000
Kentucky...............................  Public Law 566............  Pigeon Roost Creek........        1,120,000
Kentucky...............................  Public Law 566............  Highland Creek............        1,324,000
Kentucky...............................  Public Law 566............  Brashear's Creek..........          620,000
Kentucky...............................  Public Law 566............  Boone Fork................        5,720,000
                                                                                                ----------------
      Total............................  ..........................  ..........................       20,544,000
                                                                                                ================
Louisiana..............................  Public Law 566............  Cypress-Black Bayou.......        2,000,000
Louisiana..............................  Public Law 566............  Middle Tangipahoa.........           10,000
Louisiana..............................  Public Law 566............  Central Richland..........        1,500,000
Louisiana..............................  Public Law 566............  Bayou Bourbeux............          200,000
Louisiana..............................  Public Law 566............  Bayou Duralde-Lower               5,000,000
                                                                      Nezpique.
                                                                                                ----------------
      Total............................  ..........................  ..........................        8,710,000
                                                                                                ================
Maine..................................  Public Law 566............  Kenduskeag Stream.........        1,000,000
Maine..................................  Public Law 566............  Meduxnekeag River.........           50,000
                                                                                                ----------------
      Total............................  ..........................  ..........................        1,050,000
                                                                                                ================
Maryland...............................  Public Law 566............  Linganore Creek...........          100,000
Maryland...............................  Public Law 566............  Dry Run...................          350,000
                                                                                                ----------------
      Total............................  ..........................  ..........................          450,000
                                                                                                ================
Massachusetts..........................  Public Law 566............  Baiting Brook.............          475,300
Massachusetts..........................  Public Law 566............  Clam River................  ...............
                                                                                                ----------------
      Total............................  ..........................  ..........................          475,300
                                                                                                ================
Michigan...............................  Public Law 566............  Elk River.................           50,000
Michigan...............................  Public Law 566............  South Branch Kawkawlin               60,000
                                                                      River.
Michigan...............................  Public Law 566............  Mud Creek.................          150,000
Michigan...............................  Public Law 566............  Swan Creek................          450,000
Michigan...............................  Public Law 566............  Stony Creek...............        1,165,375
                                                                                                ----------------
      Total............................  ..........................  ..........................        1,875,375
                                                                                                ================
Minnesota..............................  Public Law 566............  Kanaranzi-Little Rock.....          780,000
Minnesota..............................  Public Law 566............  Whitewater River..........        1,197,400
Minnesota..............................  Public Law 566............  Snake River...............          600,000
Minnesota..............................  Public Law 566............  Bear Creed................          240,000
                                                                                                ----------------
      Total............................  ..........................  ..........................        2,817,400
                                                                                                ================
Mississippi............................  Public Law 566............  Chiwapa Creek.............          561,900
Mississippi............................  Public Law 566............  Town Creek................        7,000,000
Mississippi............................  Public Law 566............  Tuscumbia River...........        1,622,500
Mississippi............................  Public Law 566............  Tallahaga Creek...........        2,100,000
Mississippi............................  Public Law 566............  South Delta...............        1,588,000
Mississippi............................  Public Law 566............  Long Beach................        4,375,000
                                                                                                ----------------
      Public Law 566 Total.............  ..........................  ..........................       17,247,400
                                                                                                ================
Mississippi............................  Public Law 534............  Ltl. Talla--Cane Creek....        1,062,500
Mississippi............................  Public Law 534............  Ltl. Talla--Cypress & Puss        5,160,000
                                                                      Cuss.
Mississippi............................  Public Law 534............  Ltl. Talla--Upper                 1,250,000
                                                                      Tallahatchie.
Mississippi............................  Public Law 534............  Ltl. Talla--Ayers Cree....        2,600,000
Mississippi............................  Public Law 534............  Ltl. Talla--Duncan-Cane           2,125,000
                                                                      Creeks.
Mississippi............................  Public Law 534............  Ltl. Talla--Greasy Creek..          750,000
Mississippi............................  Public Law 534............  Ltl. Talla--Hell Creek....          875,000
Mississippi............................  Public Law 534............  Ltl. Talla--Locks Creek...          250,000
Mississippi............................  Public Law 534............  Ltl. Talla--Lower Tippah         15,210,000
                                                                      River.
Mississippi............................  Public Law 534............  Ltl. Talla--Ltl. Spring-            625,000
                                                                      Ochewalla Creeks.
Mississippi............................  Public Law 534............  Ltl. Talla--Mill Creek....        3,746,000
Mississippi............................  Public Law 534............  Ltl. Talla--Mud Creek.....          375,000
Mississippi............................  Public Law 534............  Ltl. Talla--North Tippah          2,431,000
                                                                      Creek.
Mississippi............................  Public Law 534............  Ltl. Talla--Oaklimeter           11,263,000
                                                                      Creek.
Mississippi............................  Public Law 534............  Ltl. Talla--Okonatie Creek          250,000
Mississippi............................  Public Law 534............  Ltl. Talla--Upper Tippah          6,625,000
                                                                      River.
Mississippi............................  Public Law 534............  Yazoo--Abiaca Creek.......       10,553,750
Mississippi............................  Public Law 534............  Yazoo--Askalmore Creek....        2,594,000
Mississippi............................  Public Law 534............  Yazoo--Batupan Bogue......        1,250,000
Mississippi............................  Public Law 534............  Yazoo--Big Sand Creek.....        7,678,700
Mississippi............................  Public Law 534............  Yazoo--Black Creek........        5,000,000
Mississippi............................  Public Law 534............  Yazoo--Black Creek (Delta)        7,500,000
Mississippi............................  Public Law 534............  Yazoo--Buntyn Creek.......          910,000
Mississippi............................  Public Law 534............  Yazoo--Burney Branch......        5,260,000
Mississippi............................  Public Law 534............  Yazoo--Bynum Creek........        1,208,000
Mississippi............................  Public Law 534............  Yazoo--Cane-Mussacuna Cks.        1,591,000
Mississippi............................  Public Law 534............  Yazoo--Coldwater River....       10,740,000
Mississippi............................  Public Law 534............  Yazoo--Cypress Creek......        3,012,500
Mississippi............................  Public Law 534............  Yazoo--Davis Splinter             1,935,000
                                                                      Creek.
Mississippi............................  Public Law 534............  Yazoo--Eden Creek.........           63,000
Mississippi............................  Public Law 534............  Yazoo--Fighting Bayou.....          531,300
Mississippi............................  Public Law 534............  Yazoo--Hickahala Creek....        1,188,000
Mississippi............................  Public Law 534............  Yazoo--Hoffa Creek........        3,412,500
Mississippi............................  Public Law 534............  Yazoo--Hotophia Creek.....          500,000
Mississippi............................  Public Law 534............  Yazoo--Hurricane-Wolf             5,324,000
                                                                      Creek.
Mississippi............................  Public Law 534............  Yazoo--Indian Creek-Bobo          1,250,000
                                                                      Bayou.
Mississippi............................  Public Law 534............  Yazoo--Johnson And Fair           1,720,000
                                                                      Cks.
Mississippi............................  Public Law 534............  Yazoo--Riverdale Creek....          695,000
Mississippi............................  Public Law 534............  Yazoo--Senatobia Creek....          510,000
Mississippi............................  Public Law 534............  Yazoo--Short Fork Creek...        3,940,000
Mississippi............................  Public Law 534............  Yazoo--Skuna River........        5,818,800
Mississippi............................  Public Law 534............  Yazoo--Strayhorn Creek....        6,375,000
Mississippi............................  Public Law 534............  Yazoo--Sledge Bayou.......           25,000
Mississippi............................  Public Law 534............  Yazoo--Tillatoba Creek....       19,885,000
Mississippi............................  Public Law 534............  Yazoo--Toposhaw...........        3,125,000
Mississippi............................  Public Law 534............  Yazoo--Upper Skuna River..        6,820,000
Mississippi............................  Public Law 534............  Yazoo--Yalobusha River....          625,000
Mississippi............................  Public Law 534............  Yazoo--Northern Drainage          1,000,000
                                                                      District.
Mississippi............................  Public Law 534............  Yazoo--North Tillatoha-           1,875,000
                                                                      Hunter.
Mississippi............................  Public Law 534............  Yazoo--Long Creek.........        1,250,000
Mississippi............................  Public Law 534............  Yazoo--Otoucalofa Creek...        2,806,000
Mississippi............................  Public Law 534............  Yazoo--Pelucia Creek......        4,535,000
Mississippi............................  Public Law 534............  Yazoo--Perry Creek........        2,231,000
Mississippi............................  Public Law 534............  Yazoo--Persimmon Creek I..        5,000,000
Mississippi............................  Public Law 534............  Yazoo--Pigeon Roost Creek.       12,578,700
Mississippi............................  Public Law 534............  Yazoo--Piney Creek........       16,250,000
Mississippi............................  Public Law 534............  Yazoo--Potacocawa Creek...        1,837,500
Mississippi............................  Public Law 534............  Yazoo--Arkabutla Creek....        3,512,300
                                                                                                ----------------
      Public Law 534 Total.............  ..........................  ..........................      228,513,550
                                                                                                ================
      Mississippi Total................  ..........................  ..........................      245,760,950
                                                                                                ================
Missouri...............................  Public Law 566............  East Fork Of Big Creek....        2,400,000
Missouri...............................  Public Law 566............  Upper Little Black........          750,000
Missouri...............................  Public Law 566............  Lower Little Black........        4,500,000
Missouri...............................  Public Law 566............  Mozingo Creek.............           70,000
Missouri...............................  Public Law 566............  Troublesome Creek.........        5,200,000
Missouri...............................  Public Law 566............  Grassy Creek..............        2,900,000
Missouri...............................  Public Law 566............  Big Creek-Hurricane Creek.       16,100,000
Missouri...............................  Public Law 566............  West Fork Of Big Creek....       17,400,000
Missouri...............................  Public Law 566............  East Locust Creek.........        5,000,000
Missouri...............................  Public Law 566............  Upper Locust Creek........       26,400,000
Missouri...............................  Public Law 566............  Town Branch...............        2,090,000
Missouri...............................  Public Law 566............  East Yellow Creek.........       10,000,000
Missouri...............................  Public Law 566............  Moniteau Creek............        3,120,000
Missouri...............................  Public Law 566............  Marthasville Town Branch..          750,000
Missouri...............................  Public Law 566............  Hickory Creek.............        3,000,000
Missouri...............................  Public Law 566............  East Fork Of The Grand            2,600,000
                                                                      River.
                                                                                                ----------------
      Missouri Total...................  ..........................  ..........................      102,280,000
                                                                                                ================
Montana................................  Public Law 566............  Lower Birch Creek.........        3,279,000
Montana................................  Public Law 566............  Mill Creek................          175,000
Montana................................  Public Law 566............  Buffalo Rapids............        8,806,000
                                                                                                ----------------
      Total............................  ..........................  ..........................       12,260,000
                                                                                                ================
Nebraska...............................  Public Law 566............  Gering Valley.............          767,000
Nebraska...............................  Public Law 566............  Papillion Creek...........        2,665,300
Nebraska...............................  Public Law 566............  Aowa Creek................            6,700
Nebraska...............................  Public Law 566............  Tekamah-Mud Creek.........            6,700
Nebraska...............................  Public Law 566............  Middle Fork Maple Creek...            6,700
Nebraska...............................  Public Law 566............  Bone Creek................            6,700
Nebraska...............................  Public Law 566............  Stevens-Callahan (Camp                6,700
                                                                      Creek).
Nebraska...............................  Public Law 566............  Balls Branch..............            6,700
Nebraska...............................  Public Law 566............  Swan Creek................            6,700
Nebraska...............................  Public Law 566............  Wolf-Wildcat Creek........            6,700
Nebraska...............................  Public Law 566............  East-West-Dry Maple Creeks           10,000
Nebraska...............................  Public Law 566............  Middle Big Nemaha.........           40,000
                                                                                                ----------------
      Total............................  ..........................  ..........................        3,535,900
                                                                                                ================
New Mexico.............................  Public Law 566............  Prop Canyon & Tributaries.          740,000
New Mexico.............................  Public Law 566............  T Or C Williamsburg               7,189,500
                                                                      Arroyos.
New Mexico.............................  Public Law 566............  Cottonwood-Walnut Creek...       19,125,000
New Mexico.............................  Public Law 566............  Zuni Pueblo...............       16,487,500
New Mexico.............................  Public Law 566............  Espanola-Rio Chama........       33,920,000
                                                                                                ----------------
      Total............................  ..........................  ..........................       77,462,000
                                                                                                ================
New York...............................  Public Law 566............  Mill Brook................        2,050,000
New York...............................  Public Law 566............  Nyc Ws (Ashokan)..........           96,100
New York...............................  Public Law 566............  Nyc Ws (Upper                     1,189,522
                                                                      Cannonsville).
New York...............................  Public Law 566............  Nyc Ws (Lower                     1,204,339
                                                                      Cannonsville).
New York...............................  Public Law 566............  Nyc Ws (Pepacton).........          642,748
New York...............................  Public Law 566............  Nyc Ws (Neversink)........           44,339
New York...............................  Public Law 566............  Nyc Ws (Rondout)..........           66,452
New York...............................  Public Law 566............  Nyc Ws (Schoharie)........          362,009
                                                                                                ----------------
      Total............................  ..........................  ..........................        5,655,509
                                                                                                ================
North Carolina.........................  Public Law 566............  Deep Creek (Yadkin).......        6,000,000
North Carolina.........................  Public Law 566............  Crabtree Creek............        2,000,000
North Carolina.........................  Public Law 566............  Swan Quarter..............        5,280,000
North Carolina.........................  Public Law 566............  Meadow Branch.............          787,830
North Carolina.........................  Public Law 566............  Upper French Broad River..          617,840
North Carolina.........................  Public Law 566............  Newfound & Sandymush Creek        1,989,168
                                                                                                ----------------
      Total............................  ..........................  ..........................       16,674,838
                                                                                                ================
North Dakota...........................  Public Law 566............  Square Butte Creek........        7,400,000
North Dakota...........................  Public Law 566............  Upper Turtle River........          470,000
North Dakota...........................  Public Law 566............  Taylor....................           40,000
North Dakota...........................  Public Law 566............  Belfield..................        4,650,000
North Dakota...........................  Public Law 566............  Colfax....................        1,573,000
                                                                                                ----------------
      Total............................  ..........................  ..........................       14,133,000
                                                                                                ================
Ohio...................................  Public Law 566............  Rush Creek................        1,185,000
Ohio...................................  Public Law 566............  Short Creek...............        6,275,000
Ohio...................................  Public Law 566............  North Hocking River.......        1,872,000
Ohio...................................  Public Law 566............  South Fork Licking River..        6,820,000
Ohio...................................  Public Law 566............  Wills Creek...............          657,000
Ohio...................................  Public Law 566............  Four Mile Creek...........        3,915,000
Ohio...................................  Public Law 566............  Upper Blanchard River.....        1,050,000
Ohio...................................  Public Law 566............  Lower Stillwater River....          120,000
Ohio...................................  Public Law 566............  Upper Stillwater River....          120,000
                                                                                                ----------------
      Total............................  ..........................  ..........................       22,014,000
                                                                                                ================
Oklahoma...............................  Public Law 566............  Sandy Creek...............        1,330,000
Oklahoma...............................  Public Law 566............  Leader-Middle Clear Boggy         6,650,000
                                                                      Creek.
Oklahoma...............................  Public Law 566............  Upper Black Bear Creek....        2,660,000
Oklahoma...............................  Public Law 566............  Upper Red Rock Creek......        8,645,000
Oklahoma...............................  Public Law 566............  Upper Blue River..........       35,910,000
Oklahoma...............................  Public Law 566............  Tri-County Turkey Creek...        1,330,000
Oklahoma...............................  Public Law 566............  Stillwater Creek..........       11,970,000
Oklahoma...............................  Public Law 566............  Lower Clear Boggy Creek...        7,315,000
Oklahoma...............................  Public Law 566............  Salt-Camp Creek...........        9,310,000
Oklahoma...............................  Public Law 566............  Upper Bayou...............        8,645,000
Oklahoma...............................  Public Law 566............  Lower Bayou...............        2,660,000
Oklahoma...............................  Public Law 566............  Upper Elk Creek...........        8,645,000
Oklahoma...............................  Public Law 566............  Cotton-Coon-Mission Creek.        4,655,000
Oklahoma...............................  Public Law 566............  Jack Creek................        1,330,000
Oklahoma...............................  Public Law 566............  Lower Black Bear Creek....        4,655,000
Oklahoma...............................  Public Law 566............  Lower Red Rock Creek......       12,635,000
Oklahoma...............................  Public Law 566............  Okfuskee Tributaries......        3,325,000
Oklahoma...............................  Public Law 566............  Brushy-Peaceable Creek....       18,620,000
Oklahoma...............................  Public Law 566............  Lost-Duck Creeks..........        2,660,000
Oklahoma...............................  Public Law 566............  Cow Creek.................        7,980,000
Oklahoma...............................  Public Law 566............  Upper Muddy Boggy Creek...        7,980,000
Oklahoma...............................  Public Law 566............  Kickapoo Nations..........        9,975,000
Oklahoma...............................  Public Law 566............  Robinson Creek............        3,990,000
Oklahoma...............................  Public Law 566............  Hoyle Creek...............          665,000
Oklahoma...............................  Public Law 566............  Turkey Creek..............        6,650,000
Oklahoma...............................  Public Law 566............  Cambell Creek.............        1,995,000
Oklahoma...............................  Public Law 566............  Deer Creek................        1,540,000
Oklahoma...............................  Public Law 566............  Dry Creek.................        8,645,000
Oklahoma...............................  Public Law 566............  Lugert-Altus..............        2,520,000
Oklahoma...............................  Public Law 566............  Little Beaver Creek.......        7,980,000
Oklahoma...............................  Public Law 566............  Wild Horse Creek..........        1,610,000
Oklahoma...............................  Public Law 566............  Middle Deep Red Run Creek.        5,985,000
                                                                                                ----------------
      Public Law 566 Total.............  ..........................  ..........................      220,465,000
                                                                                                ================
Oklahoma...............................  Public Law 534............  Washita--Bitter Creek.....        1,330,000
Oklahoma...............................  Public Law 534............  Washita--Bear Creek.......          665,000
Oklahoma...............................  Public Law 534............  Washita--Tonkawa Ck-              4,788,000
                                                                      Delaware Cks.
Oklahoma...............................  Public Law 534............  Washita--Rush Creek.......          665,000
Oklahoma...............................  Public Law 534............  Washita--Sugar Creek......          665,000
Oklahoma...............................  Public Law 534............  Washita--Spring Creek.....        2,394,000
Oklahoma...............................  Public Law 534............  Washita--Wildhorse Ck (Up           665,000
                                                                      & Lwr).
Oklahoma...............................  Public Law 534............  Washita--Ionine Creek.....        3,325,000
Oklahoma...............................  Public Law 534............  Washita--Little Washita...          665,000
Oklahoma...............................  Public Law 534............  Washita--Maysville                1,995,000
                                                                      Laterals.
                                                                                                ----------------
      Public Law 534 Total.............  ..........................  ..........................       17,157,000
                                                                                                ================
      Oklahoma Total...................  ..........................  ..........................      237,622,000
                                                                                                ================
Oregon.................................  Public Law 566............  Lower Tillamook Bay.......        6,388,796
Oregon.................................  Public Law 566............  McKenzie Canyon Irrigation        2,325,000
                                                                      Project.
                                                                                                ----------------
      Total............................  ..........................  ..........................        8,713,796
                                                                                                ================
Pennsylvania...........................  Public Law 566............  Brandywine Creek..........        1,541,000
Pennsylvania...........................  Public Law 566............  Little Shenango River.....        1,172,500
Pennsylvania...........................  Public Law 566............  Neshaminy Creek...........        9,160,000
Pennsylvania...........................  Public Law 566............  Cross Creek...............        2,496,000
Pennsylvania...........................  Public Law 566............  Yellow Creek..............           60,000
Pennsylvania...........................  Public Law 566............  Oven Run..................          230,000
Pennsylvania...........................  Public Law 566............  Monastery Run.............          475,000
Pennsylvania...........................  Public Law 566............  Red-White Clay Creeks.....        2,122,000
Pennsylvania...........................  Public Law 566............  Glenwhite Run.............          290,000
Pennsylvania...........................  Public Law 566............  Tulpehocken Creek.........        2,840,000
Pennsylvania...........................  Public Law 566............  Little Toby Creek.........          587,000
Pennsylvania...........................  Public Law 566............  Mill Creek (Clarion/              3,465,000
                                                                      Jefferson).
Pennsylvania...........................  Public Law 566............  Indian Creek..............        2,960,000
Pennsylvania...........................  Public Law 566............  Wheeling Creek............          150,000
                                                                                                ----------------
      Total............................  ..........................  ..........................       27,548,500
                                                                                                ================
South Carolina.........................  Public Law 566............  Thompson-Westfield Creek..            2,000
South Carolina.........................  Public Law 566............  North Fork Edisto.........            5,000
South Carolina.........................  Public Law 566............  Pickens-Anderson..........            4,000
South Carolina.........................  Public Law 566............  South Edisto..............           11,000
South Carolina.........................  Public Law 566............  Holly Hill................        1,000,000
                                                                                                ----------------
      Total............................  ..........................  ..........................        1,022,000
                                                                                                ================
South Dakota...........................  Public Law 566............  Lower Little Mn River-Big            50,000
                                                                      Stone Lake.
Tennessee..............................  Public Law 566............  Reelfoot-Indian Creek.....        4,021,317
Tennessee..............................  Public Law 566............  Cane Creek................        8,371,486
Tennessee..............................  Public Law 566............  Hurricane Creek...........        2,008,193
Tennessee..............................  Public Law 566............  Mcnairy-Cypress Creek.....        4,282,632
Tennessee..............................  Public Law 566............  North Fork-Forked Deer            6,615,153
                                                                      River.
Tennessee..............................  Public Law 566............  Sulphur Fork Creek........          307,236
Tennessee..............................  Public Law 566............  Big Limestone Creek.......          543,478
Tennessee..............................  Public Law 566............  Lick Creek (1995).........          684,501
Tennessee..............................  Public Law 566............  Bear Creek (Scott)........        1,635,494
Tennessee..............................  Public Law 566............  Hickory Creek.............        2,669,595
Tennessee..............................  Public Law 566............  East Prong Little Pigeon          2,120,945
                                                                      River.
                                                                                                ----------------
      Total............................  ..........................  ..........................       33,260,030
                                                                                                ================
Texas..................................  Public Law 566............  Caney Creek...............        5,400,000
Texas..................................  Public Law 566............  Salado Creek..............           45,000
Texas..................................  Public Law 566............  Pine Creek................        2,400,000
Texas..................................  Public Law 566............  Attoyac Bayou.............        1,681,000
Texas..................................  Public Law 566............  Donahoe Creek.............        3,600,000
Texas..................................  Public Law 566............  Choctaw Creek.............       24,000,000
Texas..................................  Public Law 566............  Aquilla-Hackberry Creek...        3,600,000
Texas..................................  Public Law 566............  Ecleto Creek..............        9,600,000
Texas..................................  Public Law 566............  Leona River...............        3,600,000
Texas..................................  Public Law 566............  Paluxy River..............       14,400,000
Texas..................................  Public Law 566............  Red Deer Creek............       19,200,000
Texas..................................  Public Law 566............  Elm Creek (Cen-Tex).......       33,600,000
Texas..................................  Public Law 566............  Elm Creek (1250)..........        9,600,000
Texas..................................  Public Law 566............  Los Olmos Creek...........       12,000,000
Texas..................................  Public Law 566............  Big Creek(Tri-County).....       27,600,000
Texas..................................  Public Law 566............  Upper North Bosque River..           90,000
Texas..................................  Public Law 566............  Bexar-Medina-Atascosa               475,000
                                                                      Counties Water
                                                                      Conservation.
                                                                                                ----------------
      Public Law 566 Total.............  ..........................  ..........................      170,891,000
                                                                                                ================
Texas..................................  Public Law 534............  Trinity--Pilot Grove......       32,400,000
Texas..................................  Public Law 534............  Trinity--Richland Creek...       36,000,000
Texas..................................  Public Law 534............  Trinity--Salt Creek &             6,000,000
                                                                      Laterals.
Texas..................................  Public Law 534............  Trinity--Village & Walker        13,200,000
                                                                      Creeks.
Texas..................................  Public Law 534............  Trinity--Cedar Creek......       54,000,000
Texas..................................  Public Law 534............  Trinity--Chambers Creek...       42,355,000
Texas..................................  Public Law 534............  Trinity--Denton Creek.....        1,800,000
Texas..................................  Public Law 534............  Trinity--East Fork Above          9,600,000
                                                                      Lavon.
Texas..................................  Public Law 534............  Trinity--Hickory Creek....        7,200,000
Texas..................................  Public Law 534............  Trinity--Little Elm &             8,400,000
                                                                      Laterals.
Texas..................................  Public Law 534............  Trinity--Lower E. Fork            1,200,000
                                                                      Laterals.
Texas..................................  Public Law 534............  Trinity--Elm Fork.........        1,715,000
Texas..................................  Public Law 534............  Trinity--Big Sandy Creek..       48,000,000
Texas..................................  Public Law 534............  Mdl Colorado--Upper Pecan         3,600,000
                                                                      Bayou.
Texas..................................  Public Law 534............  Mdl Colorado--Southwest           1,800,000
                                                                      Laterals.
Texas..................................  Public Law 534............  Mdl Colorado--Northwest           1,800,000
                                                                      Laterals.
                                                                                                ----------------
      Public Law 534 Total.............  ..........................  ..........................      269,070,000
                                                                                                ================
      Texas Total......................  ..........................  ..........................      439,961,000
                                                                                                ================
Utah...................................  Public Law 566............  Ferron....................          384,500
Utah...................................  Public Law 566............  Muddy Creek-Orderville....            3,000
Utah...................................  Public Law 566............  Tri-Valley................            3,360
                                                                                                ----------------
      Total............................  ..........................  ..........................          390,860
                                                                                                ================
Vermont................................  Public Law 566............  Black River...............          563,000
Vermont................................  Public Law 566............  Lemon Fair River..........          534,000
Vermont................................  Public Law 566............  Lower Winooski River......          500,000
Vermont................................  Public Law 566............  Barton And Clyde Rivers...        1,820,000
Vermont................................  Public Law 566............  Lower Lake Champlain......        1,100,000
Vermont................................  Public Law 566............  Lower Lamoille River......        1,500,000
                                                                                                ----------------
      Total............................  ..........................  ..........................        6,017,000
                                                                                                ================
Virginia...............................  Public Law 566............  Bush River................           10,000
Virginia...............................  Public Law 566............  Cedar Run.................       22,313,939
Virginia...............................  Public Law 566............  Copper Creek..............           75,000
Virginia...............................  Public Law 566............  Cripple Creek.............          150,000
Virginia...............................  Public Law 566............  Hays Creek................          150,000
Virginia...............................  Public Law 566............  Watkins Branch............        4,083,622
Virginia...............................  Public Law 566............  Three Creek...............          250,000
Virginia...............................  Public Law 566............  Sandy Creek...............          100,000
Virginia...............................  Public Law 566............  Lick Creek................        7,479,384
Virginia...............................  Public Law 566............  Ararat River..............       17,757,182
Virginia...............................  Public Law 566............  Chestnut Creek............          800,000
Virginia...............................  Public Law 566............  Little Reed Island Creek..          800,000
Virginia...............................  Public Law 566............  Buena Vista...............        7,975,146
                                                                                                ----------------
      Public Law 566 Total.............  ..........................  ..........................       61,944,273
                                                                                                ================
Virginia...............................  Public Law 534............  Potomac--South River......        2,140,196
Virginia...............................  Public Law 534............  Potomac--Linville Creek...          200,000
Virginia...............................  Public Law 534............  Potomac--Lower North River       14,296,437
                                                                                                ----------------
      Public Law 534 Total.............  ..........................  ..........................       16,636,633
                                                                                                ================
      Virginia Total...................  ..........................  ..........................       78,580,906
                                                                                                ================
Washington.............................  Public Law 566............  East Side Green River.....        1,900,000
Washington.............................  Public Law 566............  Omak Creek................        1,000,000
                                                                                                ----------------
      Total............................  ..........................  ..........................        2,900,000
                                                                                                ================
West Virginia..........................  Public Law 566............  Elk Two Mile Creek........        8,956,000
West Virginia..........................  Public Law 566............  Mill Creek................        5,432,000
West Virginia..........................  Public Law 566............  Upper Deckers Creek.......        3,000,000
West Virginia..........................  Public Law 566............  Little Whitestick-                1,000,000
                                                                      Cranberry Creeks.
West Virginia..........................  Public Law 566............  Upper Tygarts.............        3,000,000
                                                                                                ----------------
      Public Law 566 Total.............  ..........................  ..........................       21,388,000
                                                                                                ================
West Virginia..........................  Public Law 534............  Potomac--Lost River.......       29,866,000
West Virginia..........................  Public Law 534............  Potomac--Lunice Creek.....        9,069,000
West Virginia..........................  Public Law 534............  Potomac--Patterson Creek..        2,898,000
West Virginia..........................  Public Law 534............  Potomac--New Creek-Whites         2,821,000
                                                                      Run.
West Virginia..........................  Public Law 534............  Potomac--No. & So. Mill           8,170,000
                                                                      Creek.
West Virginia..........................  Public Law 534............  Potomac--South Fork River.        1,752,000
                                                                                                ----------------
      Public Law 534 Total.............  ..........................  ..........................       54,576,000
                                                                                                ================
      West Virginia Total..............  ..........................  ..........................       75,964,000
                                                                                                ================
Wyoming................................  Public Law 566............  Allison Draw..............        2,084,000
Wyoming................................  Public Law 566............  Lingle Fort Laramie.......        5,436,955
                                                                                                ----------------
      Total............................  ..........................  ..........................        7,520,955
                                                                                                ================
Pacific Basin..........................  Public Law 566............  Kagman....................        6,000,000
Pacific Basin..........................  Public Law 566............  Aui.......................           13,000
                                                                                                ----------------
      Pacific Basin Total..............  ..........................  ..........................        6,013,000
                                                                                                ================
      National Total...................  ..........................  ..........................    1,887,972,931
----------------------------------------------------------------------------------------------------------------

    Question. What is the number of watershed projects that are planned 
and authorized for implementation but cannot proceed because the 
Federal funding share is not available? How are you working at reducing 
the list of projects awaiting the Federal share of funding? What is the 
total dollar amount of unfunded Federal commitment in authorized, 
unfinished watershed projects?
    Answer. There are 442 authorized watershed projects that have 
requested $1.9 billion. NRCS assists sponsors on an annual basis to 
evaluate the status of project implementation and determine the amount 
of funds needed to construct the conservation measures described in all 
authorized watershed projects. In fiscal year 2005, 92 watershed 
projects received fiscal year 2005 funds.
    Question. How much did NRCS request during the fiscal year 2006 
budget preparation?
    Answer. NRCS' materials used in developing the fiscal year 2006 
President's Budget are considered ``pre-decisional'' materials and, 
therefore, remain a matter of internal record.
    Question. How much did USDA request during the fiscal year 2006 
budget preparation?
    Answer. USDA's budget materials used in developing the fiscal year 
2006 President's Budget are considered ``pre-decisional'' materials 
and, therefore, remain a matter of internal record.

                TECHNICAL AND FINANCIAL ASSISTANCE FUNDS

    Question. If the Administration's budget is enacted, NRCS will have 
not technical or financial assistance funds on October 1, 2005. What is 
your plan to terminate/shut-down on all of the contractual obligations?
    Answer. NRCS has about 2,000 contracts and agreements with sponsors 
and landowners to install project measures.
    NRCS would not have funds available in fiscal year 2006 to provide 
technical services for construction inspection or contract management. 
These contracts can be terminated for the convenience of the Government 
under the contract terms. Terminating those contracts could result in 
the need to restore the site to pre-construction conditions. The 
termination costs plus the restoration effort may actually cost more 
than the completion of the project. In addition, it might take several 
months for the restoration effort to be completed for very large 
projects in which case the restoration work may actually impact on the 
next fiscal year with attendant needs for technical assistance funds 
and perhaps additional financial assistance funds to properly close out 
the projects. The true impact for many of the larger contracts will 
need to be determined on a case by case basis.
    Long Term Contracts.--The Government does not have the unilateral 
right to terminate these land treatment agreements with individual 
landowners in accordance with the terms of the agreement. If NRCS does 
not have technical assistance funds to properly administer the 
agreements, we may have to make payments under the agreements for 
practices completed by the participants. If watershed funds are not 
available for NRCS technical assistance, other funds would need to be 
reprogrammed to administer the agreements and continue to make payments 
for completed practices until the existing agreements are completed.
    According to statute, the Secretary may terminate any agreements 
with a landowner by mutual agreement if the Secretary determines that 
such termination would be in the public interest. However, many 
landowners may not mutually agree to terminate the agreements.
    Question. What are the human safety risks, risks to the environment 
and infrastructure if you halt construction on a half-constructed or 
half rehabilitated dam or flood mitigation measure?
    Answer. Human safety risks due to partial flood retention and more 
probable dam failure, and environmental damage risks due to erosion and 
sedimentation, will vary with the particular site situation and the 
degree on completion. A partially completed dam is clearly a higher 
risk to the public and the environment than a completed one.
    Question. What is the Administration's plan to deal with projects 
that are partially complete or dams that are half constructed on 
September 30, 2005?
    Answer. Dams that are partially completed when construction 
activities are terminated can either be completed by others, modified 
to protect the general public and the partially completed work, or 
decommissioned and the area stabilized. Many embankment dams are 
constructed over a period of several years; other dams have 
construction interrupted by contractor default. NRCS has also 
constructed many dams in planned phases with separate contracts for 
each phase. Engineering solutions unique to each particular site will 
be needed to mitigate long term risks to the Federal investment and the 
general public. Unaddressed long term risks will likely be mitigated by 
most State Dam Safety Agencies at the dam owner's expense.
    Question. How many current contractual obligations do you have? 
What is the monetary value associated with these obligations?
    Answer. NRCS has about 2,000 contracts and agreements to install 
conservation measures, including floodwater retarding structures and 
Long Term Agreements with sponsors and landowners. These contracts and 
agreements total about $167 million of obligated, yet undisbursed, 
funds.
    Question. What is the Administration's dollar estimate of claims, 
attorney's fees, and litigation costs for addressing all of the 
contractual obligations you propose to terminate?
    Answer. The termination costs, including claims, attorney's fees, 
and litigation costs, plus the cost to restore sites to original 
condition have not been determined. These costs will need to be 
determined on a case by case basis.
    Question. What guidance are you providing to your sponsors (local 
communities) who are anticipating Federal cost-share dollars and are 
proceeding with land rights acquisition, engineering, design, and 
Federal/State permits?
    Answer. We have not provided any guidance to project sponsors.
    Question. How much funding is needed to complete the on-going 
watershed rehabilitation projects that have been initiated with prior 
year appropriations?
    Answer. The unfunded Federal commitment for projects authorized and 
currently underway is $30 million.
    Question. How many USDA assisted watershed dams have already 
reached the end of their design life?
    Answer. By the end of fiscal year 2005, 457 dams will have reached 
the end of their design life.
    Question. With the Administration's fiscal year 2006 budget 
including a significant reduction in funding for watershed 
rehabilitation, it seems like very few of the risks to loss of life and 
property associated with these dams will be able to be addressed; is 
that correct?
    Answer. We project that of the currently authorized project work 
that includes 68 dams, rehabilitation work could likely proceed on 7 
dams.
    Question. What are the anticipated rehabilitation needs for aging 
watershed dams in the next 5 years?
    Answer. In the next 5 years, 1,808 dams will reach the end of their 
design life. By fiscal year 2009, $565 million (current dollars) is 
required to rehabilitate these dams. The owners of these facilities 
should also seek State and local government, as well as private, 
sources of funding for their rehabilitation needs.
    Question. At the rate of the administrations request for funding 
for watershed rehabilitation, how long will it take to address: (1) the 
on-going rehabilitation projects? (2) The existing known rehabilitation 
needs?
    Answer. With funding at $15 million per year, it would take 
approximately 5 years to address ongoing projects. It would take 
approximately 37 years to address the existing known rehabilitation 
needs at this level of funding.
    Question. How can the agency meet these critical public safety 
needs with the Administration's budget proposal?
    Answer. At the proposed funding level, watershed rehabilitation 
needs and requests will be prioritized to address needs with the 
greatest potential for loss of life.
    Question. If funding was available, what is a realistic estimate of 
the actual rehabilitation work that NRCS and local project sponsors can 
accomplish in fiscal year 2006? How about the next 5 years?
    Answer. The funding levels stipulated in statute are consistent 
with the watershed rehabilitation needs to protect life and property.
    Question. Is there an opportunity for communities to provide new 
benefits, such as adding municipal water supply, recreation, and 
wetland and wildlife enhancements when these dams are rehabilitated? Is 
decommissioning (removal of dams) a viable alternative to consider for 
rehabilitation of watershed dams?
    Answer. Yes, local communities and project sponsors can add 
additional purposes or beneficiaries to existing dams.
    Question. How will appropriated funds be allocated to specific 
watershed rehabilitation projects?
    Answer. The statute directed USDA to assist sponsors with 
rehabilitation of their aging dams and required establishment of a 
priority ranking system. The priority ranking process has been 
invaluable to provide a consistent method for evaluation of dams and 
allocation of funds.
    All viable applications received from project sponsors are ranked. 
The priority ranking system includes the following major components: 
Potential for failure of the dam; Consequences of failure of the dam--
based on existing conditions and design features of the dam; Input from 
State Dam Safety Agency; Rapid implementation--to assure unsafe dams 
are rehabilitated as quickly as possible. Highest priorities are 
assigned to those dams with the greatest rehabilitation needs with the 
potential for loss of life or significant environmental damage, should 
the dam fail.
    Question. Does NRCS have the technical capacity needed to assist 
project sponsors with all of their requests for Federal assistance in 
watershed rehabilitation?
    Answer. While NRCS technical capacity in the area of planning, 
design, and construction of water resource projects has decreased 
significantly over the past several years the statute does not require 
all technical assistance to come from NRCS. NRCS may elect to use 
private technical sources to provide assistance in planning, design, 
and construction oversight. Also, project sponsors may elect to 
complete project planning and design using their own staff or the 
hiring consultants to complete this work that would then be reviewed 
and concurred on by NRCS.
    Question. In fiscal year 2005, how many requests and how much money 
was requested for rehabilitation assistance?
    Answer. In fiscal year 2005, local communities requested 123 
projects in 21 States totaling $43 million.
    Question. How many projects were funded in fiscal year 2005? How 
many projects were not funded?
    Answer. The fiscal year 2005 appropriations provided for 87 
projects in 21 States. 36 requests for watershed rehabilitation 
projects were not funded.
    Question. How much did each State receive for watershed 
rehabilitation in fiscal year 2005?
    [The information follows:]

                FISCAL YEAR 2005 WATERSHED REHABILITATION
------------------------------------------------------------------------
                          State                                Total
------------------------------------------------------------------------
Alabama.................................................        $170,000
Alaska..................................................  ..............
Arizona.................................................       3,797,000
Arkansas................................................         431,000
California..............................................          25,000
Colorado................................................         195,000
Connecticut.............................................  ..............
Delaware................................................  ..............
Florida.................................................  ..............
Georgia.................................................       2,800,000
Hawaii..................................................  ..............
Idaho...................................................  ..............
Illinois................................................          40,000
Indiana.................................................         100,000
Iowa....................................................         122,000
Kansas..................................................         140,000
Kentucky................................................         430,000
Louisiana...............................................          25,000
Maine...................................................          30,000
Maryland................................................  ..............
Massachusetts...........................................         115,000
Michigan................................................          10,000
Minnesota...............................................          40,000
Mississippi.............................................       1,360,000
Missouri................................................         300,000
Montana.................................................         225,000
Nebraska................................................       1,122,000
Nevada..................................................  ..............
New Hampshire...........................................         110,000
New Jersey..............................................          45,000
New Mexico..............................................         662,000
New York................................................         295,000
North Carolina..........................................  ..............
North Dakota............................................         611,000
Ohio....................................................         170,000
Oklahoma................................................       5,470,000
Oregon..................................................  ..............
Pennsylvania............................................          90,000
Rhode Island............................................  ..............
South Carolina..........................................         102,000
South Dakota............................................          20,000
Tennessee...............................................          14,000
Texas...................................................       5,035,000
Utah....................................................         159,000
Vermont.................................................  ..............
Virginia................................................         610,000
Washington..............................................  ..............
West Virginia...........................................         190,000
Wisconsin...............................................         181,000
Wyoming.................................................         105,000
Pacific Basin...........................................  ..............
Puerto Rico.............................................          30,000
                                                         ---------------
      State Totals......................................      25,376,000
------------------------------------------------------------------------

                                 ______
                                 

                Questions Submitted by Senator Herb Kohl

                         DUTIES OF AGENCY STAFF

    Question. We are receiving reports that the Department is altering 
the traditional agency assignments of certain field office staff. As we 
understand it, where the CRP and EQIP programs are concerned, the Farm 
Service Agency historically has assisted landowners with sign-up and 
financial matters, while the NRCS has assisted with technical 
assistance for these programs. Apparently, this is in line with long 
standing expertise of these respective agencies. Information is now 
coming forward that managers at the Department level are directing 
agency staff to handle matters contrary to this historical pattern with 
possible negative consequences. Please explain to the committee what is 
taking place in this regard.
    Answer. In a jointly signed memorandum dated July 19, 2004, Farm 
Service Agency (FSA) Administrator James Little and Natural Resources 
Conservation Service (NRCS) Chief Bruce Knight announced the migration 
of Environmental Quality Incentives Program (EQIP) administrative 
responsibilities from FSA to NRCS. There are many reasons for this 
change, but the overall result will be a streamlining of services to 
participants and more efficient use of Government resources. 
Duplication of efforts, which were necessary when both agencies were 
involved in EQIP, has been eliminated. Effective October 1, 2004, NRCS 
is the point-of-contact for all administrative and technical services 
provided through EQIP.
    Although NRCS is recommending streamlining CRP to reduce the 
administrative activities that are now required of NRCS, NRCS and FSA 
have issued a ``workload agreement letter'' which basically states that 
NRCS will provide CRP technical assistance for both the General CRP 
Sign Up and the Continuous CRP.
    In addition, TSPs have traditionally been hired either by the 
landowner or by NRCS. TSPs have been available to conduct technical 
assistance for CRP since fiscal year 2003.
    NRCS at the State level can determine that they will contract out 
the CRP technical assistance for conservation planning or conservation 
application. NRCS may also decide that they will contract out different 
phases of planning or application (conducting status reviews, practice 
design or certification, etc.)
    Question. What exact directives are being issued, and with what 
degree of formality or permanence?
    Answer. Jointly signed national directives from the Administrator 
and Chief were issued to all FSA and NRCS employees on July 19, and 
December 21, 2004. These directives supported an orderly transition to 
new EQIP administrative procedures. A jointly signed letter was also 
mailed to all active EQIP participants during August of 2004. The 
permanent transfer of all contract files and related administrative 
records occurred during October and financial reconciliation tasks were 
finished during December. Since assuming administrative 
responsibilities, NRCS has made over 32,000 EQIP payments totaling 
about $175 million.
    For fiscal year 2005, NRCS and FSA are operating under a ``Workload 
Agreement'' which delineates the responsibility of CCC, FSA, and NRCS 
with respect to CRP technical assistance, based on the 1986 Memorandum 
of Understanding (MOU) establishing a cooperative working relationship 
among the agencies involved in carrying out the CRP.
    Question. What cost reimbursement arrangements are involved?
    Answer. Since passage of the 2002 Farm Bill, NRCS has reimbursed 
FSA annually for administrative services related to handling EQIP 
applications and contracts. During fiscal year 2004, over $13 million 
was transferred to FSA for this purpose. In 2005, NRCS has retained 
these funds to enhance its administrative capability to support EQIP. 
Much of this investment has been in software development, training, and 
some additional administrative specialists to process payment 
applications. No EQIP reimbursable agreements are planned with FSA this 
year.
    Utilizing the CRP agreement, NRCS will provide technical assistance 
both directly or through NRCS approved Technical Service Providers and 
assure all technical work done will meet NRCS technical requirements. 
NRCS will also submit to FSA billings for direct charge from NRCS time 
and accounting system information for full reimbursement of actual cost 
of technical assistance provided by NRCS. These costs are based on NRCS 
Cost of Programs Model.
    Question. What complaints or inefficiencies are you aware of, and 
what remedial steps will you take?
    Answer. The transfer of more than 160,000 EQIP contracts has 
neither been easy nor without some controversy. The migration and 
reconciliation process took 5 months to complete. About 20 percent of 
the participant payments were delayed beyond 30 days as NRCS 
implemented new business processes for EQIP. We have given priority to 
software support and training activities that enabled NRCS to eliminate 
this problem. By the end of fiscal year 2005, NRCS expects to implement 
additional streamlining activities to achieve more administrative and 
technical efficiency.
    In fiscal year 2007, 16.1 million acres of CRP land will expire and 
will be available for planting to an agricultural commodity. This would 
increase the soil erosion rate on cropland, and it would also place a 
strain on the delivery of CRP technical assistance by NRCS at a time 
when USDA's workforce is declining. FSA has requested comments on how 
USDA should handle the expiration of the 16.1 million acres of CRP in 
fiscal year 2007 and beyond.
    NRCS is recommending streamlining CRP to reduce the administrative 
activities that are now required of NRCS, e.g., land ownership changes, 
obtaining landowner signatures on conservation plans, plan revision for 
non-technical reasons, re-planning and certifying food plots every year 
for the life of the contract, when the food plot seeding and/or 
planting are the same year after year.

                 RESOURCE CONSERVATION AND DEVELOPMENT

    Question. The President's budget includes substantial cuts in the 
RC&D program and these cuts are arbitrarily based on the period of time 
the associated districts have been authorized. Have you found that the 
period of time a district has been authorized has any relation to the 
effectiveness and success of the district?
    Answer. We have found a variety of capacity situations in regards 
to the length of time a RC&D Area has been designated. The President's 
budget is not proposing to eliminate any RC&D councils. After more than 
20 years of receiving technical assistance in the form of a full-time 
coordinator and administrative support, the proposal reflects the 
belief that these councils should have the capacity to supplant Federal 
funds. The National Association of RC&D Councils recently provided 
information showing that 24 percent of the councils have 2-5 employees 
and 4 percent have 6 or more employees. Asking high-performing councils 
to address these needs themselves should be feasible, and expecting 
low-performing councils to improve their performance or risk being 
terminated from assistance should also be reasonable.
    Question. Should funding decisions be based on the most effective 
use of Federal funds or arbitrary decisions?
    Answer. We concur that funding decisions should be based on the 
most effective use of Federal funds and believe that the President's 
budget proposal reflects that decision.
    Question. If effective districts will lose Federal funds under your 
proposal, what assurances do you have that State, local or other funds 
will replace them?
    Answer. We are confident that high-performing councils will 
demonstrate local leadership abilities to leverage funds from other 
sources to supplant the incubator funds they have received from NRCS in 
the past. This confidence is based on information they have provided in 
the past regarding the high level of leveraged funds they are able to 
achieve, an average of 5 to 1 dollar of RC&D appropriated funds for the 
past 3 years, and the variety of funding sources they utilize in 
carrying out their area plans each year.
                                 ______
                                 

               Questions Submitted by Senator Tom Harkin

                     CONSERVATION SECURITY PROGRAM

    Question. Participation in the first CSP sign-up was much lower 
than NRCS expected, but the agency spent $40 million in 18 watersheds. 
This year expenditures are capped at $202 million, some of which will 
cover last year's contracts. With the sign-up in 220 watersheds this 
year, there will be much less money per watershed for new contracts 
this year.
    The President's budget proposes capping CSP at $274 million next 
year. If CSP is capped at $274 million, how much money will be 
available for new contracts in fiscal year 2006?
    Answer. With CSP capped at $274 million for 2006, NRCS expects to 
have $110 million available for new contracts. The President's budget 
provides for $273.9 million in available funding for CSP in 2006. Of 
that amount, $123.2 is needed to fund prior year financial assistance 
obligations. In addition, $41.4 million is used for technical 
assistance by NRCS.
    Question. I am concerned that the Conservation Security Program is 
being eroded by restrictive rules and limited funds. If we follow the 
President's budget recommendation, next year there will be less money 
available for new contracts. If we continue decreasing the money 
available for new contracts, then producers will not have the 
opportunity to enroll in CSP once every 8 years, it will be more like 
once in a lifetime.
    We designed a program that was intended to be attractive to 
producers and that would generate significant and lasting conservation 
benefits from widespread participation.
    I would like your commitment that USDA will help achieve the 
original program objectives. Will you give me that assurance?
    Answer. USDA is firmly committed to a CSP program that rewards 
producers for their stewardship, promotes improved environmental 
performance, and responsibly stays within the available funding 
limitations.
    NRCS is working hard to ensure development of the program in a 
manner that is both farmer-friendly and responsive to the conservation 
needs of the Nation. The watershed-based implementation is being used 
to operate CSP and stay within the available budget. In 2004, CSP was 
offered to producers in 18 selected watersheds and resulted in about 
2,200 contracts with the $41 million of available funding. Currently, 
sign-up for fiscal year 2005 CSP enrollment is well underway in 220 
selected watersheds that reach all 50 States and the Caribbean. There 
are 2,119 watersheds nationwide at the eight-digit hydrologic unit code 
(HUC) level.
    USDA is committed to the vision of CSP as a nationwide conservation 
program. Other watersheds will be selected each year until landowners 
in every watershed have had a chance to participate.
                                 ______
                                 

               Questions Submitted to Gilbert G. Gonzalez

            Questions Submitted by Senator Robert F. Bennett

                        RURAL RENTAL ASSISTANCE

    Question. The budget requests $650 million for rural rental 
assistance.
    How will those funds be allocated?
    Answer. [The information follows:]

                   FISCAL YEAR 2006 RENTAL ASSISTANCE
------------------------------------------------------------------------

------------------------------------------------------------------------
Renewals................................................    $639,126,000
Debt Forgiveness........................................       5,900,000
Farm Labor Housing New Construction.....................       5,000,000
------------------------------------------------------------------------

    Question. Will rental assistance be available for new construction 
and substantial rehabilitation for farm labor housing projects?
    Answer. Five million dollars will be available for Farm Labor 
Housing new construction.
    Question. Will that amount be adequate for all farm labor units 
expecting to receive financing?
    Answer. The amount is consistent with what has been provided in 
recent years to support equivalent Farm Labor Housing New Construction 
funding levels. Farm Labor Housing rental assistance costs 
approximately $10,500 per unit; so this level will fund just under 500 
units which should be sufficient to support the requested funding 
levels for the program.

                     GUARANTEED MULTIFAMILY HOUSING

    Question. The budget includes an increase for Section 538 
guaranteed loans for rural rental housing.
    What is the average income for families living in Section 538 
developments and how does that compare to Section 515 developments?
    Answer. The average income for families living in section 538 
developments varies from project to project; however, section 538 
projects have approximately 55 percent of the units rented to families 
with very low income and approximately 40 percent are rented to low-
income families. The average income for families living in section 515 
developments vary by project as well; however, approximately 95 percent 
of section 515 units are rented to very low-income families and 
approximately 4 percent are rented to low-income families.
    Question. What is the average size of the communities in which 
Section 538 developments are located?
    Answer. The average size of the communities in which section 538 
developments are located is approximately 8,790 people. The program can 
assist communities up to 20,000 in population.
    Question. What is the record of Section 538 developments in serving 
low income households and more remote rural communities?
    Answer. More than 90 percent of the units are rented to either very 
low- or low-income families. One of the driving forces before renting 
to very low- or low-income families is the tax credit requirements on 
these projects. Eighty percent of section 538 properties are financed 
with tax credit equities, which means that between 40 to 60 percent of 
the units must serve families making less than 60 percent of median 
income.
    Section 538 is solely a guarantee program.
    Question. What subsidy sources are available to make Section 538 
units affordable for low income families?
    Answer. The law governing the program requires that at least 20 
percent of the loans made each year receive an interest credit subsidy, 
which is a buy down from the lender's note rate to the Applicable 
Federal Rate. So that this subsidy may reach the neediest of projects, 
scoring and selection criteria are published each year in a Notice of 
Funds Availability (NOFA), and the project must score a minimum number 
of points, set in the NOFA, to receive interest credit. Because the law 
sets a threshold for how many loans must receive interest credit, but 
does set a limit on how many loans may receive it, the program's 
subsidy rate has been calculated on the program's historic average of 
interest credit subsidy granted. Each year, since program inception, 
approximately 50 percent of the loans have received interest credit.
    Rental Assistance is not available for section 538 projects; 
however, other subsidies are permitted in these projects. HUD vouchers 
are permitted, and State funded rental assistance is also permitted. 
More than 80 percent of the section 538 projects have tax credit 
equities, which adds an additional source of funding for the 
construction. The tax credit agencies require large percentages of 
units to be rented to families making less than 60 percent of area 
median income.
    Question. Does RHS have any information on the availability of such 
sources and the likelihood that Section 538 projects will secure such 
subsidies?
    Answer. Currently, about 50 percent of section 538 properties 
received an interest rate buy down, called interest credit. In order to 
``stretch'' its interest credit and provide assistance to more 
projects, while keeping the subsidy rate under control, the agency 
currently limits the amount that any one property can receive to $1.5 
million.
    Additionally, 5-10 percent of the section 538 tenants have HUD 
section 8 vouchers. As mentioned above, more than 80 percent of the 
section 538 projects have applied for tax credits and received them. 
These tax credits generate funds used in the construction of these 
projects. As a condition of using tax credits, many of the units in 
these projects are rented to very low-income families at affordable 
rents without rent subsidies.
                                 ______
                                 

                Questions Submitted by Senator Herb Kohl

                       RURAL DEVELOPMENT PROGRAMS

    Question. The President's budget request eliminates four rural 
economic development programs at USDA which are targeted to low-income 
small rural communities and replaces these and 14 others into a smaller 
substitute grant program the legislation for which has not even been 
drafted. The Administration justifies this change by describing many of 
these programs as duplicative, ineffective, and unaccountable with 
results not demonstrated. Nevertheless, recent press releases cite the 
successes and benefits the Bush administration has brought to rural 
America through these very same programs the Administration seeks to 
eliminate.
    The entire proposal appears to have been developed and driven by 
OMB with little or no input from the various affected Federal agencies.
    What studies were conducted by either USDA or the Department of 
Commerce to determine the impact this transfer will have on America's 
rural communities? Isn't this just a shell game to reduce and/or 
eliminate many of these programs and have their traditional 
constituencies fighting over less funding? If this new smaller 
substitute grant program was to be created in the Department of 
Commerce, does the Department know for a fact what eligible activities 
that are currently authorized under the four rural development programs 
would be eligible under this new program? What transfer of staff from 
USDA to the Department of Commerce is contemplated?
    Answer. The President's proposed Strengthening America's 
Communities Initiative is designed to streamline a number of Federal 
programs that provide assistance to communities and will include 
eligibility criteria that will ensure funds are directed to those 
communities most in need of development assistance. While Rural 
Development has not conducted any studies regarding this initiative, we 
feel confident that rural communities will fare well when these 
criteria are used, as the proposal includes broad purposes that will 
allow rural communities to obtain funds for purposes currently being 
met through the Rural Development programs included in the President's 
proposal. USDA Rural Development has offered our expertise, assistance, 
and experience in program delivery in rural areas through our 800 local 
offices. We will continue to work with the Department of Commerce on 
the technical details of the delivery of this program, particularly as 
it affects rural areas. The Administration will craft the legislation 
as a part of a collaborative effort with Congress and stakeholder 
groups. A Secretarial Advisory Committee has been created at the 
Department of Commerce to help address some of the most complex issues, 
including eligibility of rural communities. The legislation that is 
ultimately submitted will be the result of an open dialogue with 
stakeholders and members of Congress. The impact of this initiative on 
Rural Development staff will be minimal, and no staff will be 
transferred to the Department of Commerce.

            RD GENERAL REDUCTIONS IN DIRECT LOANS AND GRANTS

    Question. It seems that Rural America, as presented in this case 
and generally across the entire budget request for the Department of 
Agriculture, is the loser once again. These are well established 
programs at USDA, serving the poorest rural communities and I have no 
intention of allowing this proposal to move forward until the 
Department can provide detailed answers prior to the Committee's Mark-
up in the very near future. In fact, I request receipt of these answers 
this month to adequately prepare to draft a workable bill and not leave 
out our poor communities.
    This year, as before, the President proposes to cut direct loans 
and grants (which target low-income communities), and increase 
guaranteed loan programs (that serve more moderate-income communities). 
This proposal effectively cuts vital services to America's poorest 
citizens by reducing direct loans and grants for multifamily housing, 
water and waste, broadband grants, and other rural development 
programs. USDA justifies this shift throughout its budget by 
emphasizing a lower interest rate environment, and the lower subsidy 
and program costs that would result. On its face, this sounds good to 
keep costs down. But, America's most needy rural communities are too 
poor and neglected to participate in guaranteed programs. Furthermore, 
the public policy underlying direct loans and grants is precisely to 
support the Nation's most vulnerable rural communities.
    What impact studies did the Department undertake prior to proposing 
this shift? If none, why not? If studied, what results? When can the 
Committee receive the results? What steps is the Department prepared to 
take to protect the needy communities and individuals who will not be 
able to participate in or benefit from guaranteed programs, and will no 
longer have direct loans and grants available?
    Answer. The Administration remains steadfast in its commitment to 
rural America, including the neediest communities, and Rural 
Development's $12.8 billion program budget request reflects that 
commitment. This program level will be achieved with $1.775 billion in 
budget authority. Budget authority supporting grants plus direct loans 
accounts for 94.5 percent of the program total. Budget authority for 
guaranteed loans accounts for only 5.5 percent of the program request. 
It is also noted that guaranteed loans do, in fact, benefit the very-
low income rural population directly by providing housing and jobs, and 
indirectly by providing infrastructure and essential community 
facilities. Furthermore, in this continuing low interest rate 
environment, individuals and communities are better able to bear some 
debt, which allows scarce resources to be stretched further and allows 
more communities and very-low income residents to benefit.

          RD TAX EXEMPT FINANCING FOR LOAN GUARANTEE PROGRAMS

    Question. USDA provides loan guarantees for essential community 
projects under the Rural Development Loan Guarantee program. Struggling 
rural communities are critically dependent on these loan guarantees to 
meet environmental standards for water and waste water in a cost 
effective manner. When it comes to financing public investments for 
these issues, rural communities are forced by existing regulation to 
choose between USDA loan guarantees or tax exempt financing. Financing 
costs would likely decrease if communities could combine tax exempt 
financing with Federal guarantees.
    Does USDA utilize the full program level available for loan 
guarantees of this nature?
    Answer. No, we are not able to utilize the full guaranteed water 
and environment program funds available. In the last 3 fiscal years, 
$75 million has been authorized in each year. However, only 6 loans for 
$2.3 million were made in fiscal year 2002; 4 loans for $3.6 million in 
fiscal year 2003; and 2 loans for $41.2 million in fiscal year 2004. 
That is an average of four loans per year for $16 million. In the past 
3 fiscal years, only 21 percent of the guaranteed authority was used. 
The vast majority of applicants for loans for water and waste disposal 
projects are from municipal or tax exempt entities. Even though this 
money is available for loan guarantees, RD is not able to use it to 
address the current backlog program in the water and waste disposal 
program.
    Question. Explain how a provision in the tax code allowing rural 
communities to combine tax exempt financing with loan guarantees would 
increase rural community utilization of these guarantees?
    Answer. Changing the tax code to allow tax exempt financing with an 
agency guarantee would allow public bodies to borrow funds from 
commercial lenders at an interest rate comparable with the agency's 
direct market rate loans. In fiscal year 2004, $291 million in loans 
were made to 278 public body borrowers at the agency's market rate 
interest rate. That represents over 30 percent of the agency's fiscal 
year 2004 lending total. Over one third, 100 public body borrowers in 
2004, did not receive grant funds and borrowed $134 million in market 
rate loans. Most of these borrowers could obtain financing from private 
lenders at a cost comparable to direct loans if they could receive both 
a tax exemption and a guarantee on the financing.

                          RD BUSINESS PROGRAMS

    Question. The Business and Industry Guaranteed program has received 
a substantial increase in the Department's budget request for 2006.
    Are you still pursuing other fees through Congress to reduce the 
subsidy costs for this program, and if so, what is the Administration's 
formal position?
    Answer. The Administration is currently assessing its options 
including consideration for assessing an annual fee for reducing the 
subsidy costs of the program. It is the Administration's goal to find 
ways of reducing the cost of the program in order to assure that 
adequate funding is provided to accommodate the demand of this program 
in fiscal year 2006 and beyond.

                          RHS NEW CONSTRUCTION

    Question. The President's 2006 budget estimates indicate no rental 
assistance for new construction for multi-family rental and farm labor 
housing programs. In 2004, GAO reviewed this program, which is the 
largest line item account in the Rural Development Mission area. Upon 
GAO's finding of gross mismanagement of this program, the committee 
changed the term of the contracts to capture over inflated contracts.
    Is it true that you have now changed this position to allow rental 
assistance for new construction in the farm labor housing program?
    Answer. The fiscal year 2006 budget has $5 million in rental 
assistance for Farm Labor Housing new construction.
    [The information follows:]

                   FISCAL YEAR 2006 RENTAL ASSISTANCE
------------------------------------------------------------------------

------------------------------------------------------------------------
Renewals................................................    $639,126,000
Debt Forgiveness........................................       5,900,000
Farm Labor Housing New Construction.....................       5,000,000
------------------------------------------------------------------------

    Question. What led to this change?
    Answer. Fiscal year 2006 budget had all 521 assistance listed on a 
single line item as if for renewal only. The intention to provide $5 
million in assistance for 514/516 was erroneously omitted in the 
accompanying notes. It was the Administration's intent that support for 
farm labor housing new construction be included and was part of the 
$650 million requested.
    Question. Does this indicate that you over-compensated for 
renewals?
    Answer. No, the chart did not reflect the intention of the 
Administration, and the note in the budget should have said ``including 
$5 million of funding for RA for Farm Labor Housing'' instead of ``does 
not include''. The RA on the chart erroneously appeared as if it was 
only for renewal use. It was overlooked in the review process, and 
corrected later. We apologize for this error and appreciate the 
opportunity to clarify.
    Question. Why is the Administration allowing new construction for 
the 514/516 program and not the 515 program when they are very similar 
in program activities and structure?
    Answer. The Department has studied the 515 program and now has 
definitive knowledge of the need to focus on revitalization of existing 
portfolio. The 514/516 program, though similar, has not benefited from 
the same level of study yet. It would be premature to assume the same 
approach is needed in both programs. Further review may indicate what 
specific directional changes should be made in this program.
    Question. Considering that the very low-income elderly compose 
almost half of the population making use of the 515 program, is it not 
of vital interest to meet those needs?
    Answer. Currently approximately 57 percent of the units in the 515 
programs are rented to elderly tenants. The Administration believes 
that protection of these tenants through availability of new tools such 
as vouchers, and emphasis on revitalizing the portfolio is the best way 
to serve the rural elderly population with the limited resources 
available.

                      RHS EQUAL ACCESS TO HOUSING

    Question. ``Equal access to housing is especially important in 
rural America. RHS is continuing to show the way in making decent 
affordable housing available to low- and moderate-income rural people 
regardless of color, disability, gender or belief.''
    The above comments by former Rural Housing Service (RHS) 
Administrator Art Garcia were made on April 26, 2002. I am not sure, 
however, how faithful RHS remains to these ideas today.
    In 2001, Rural Development issued a Request for Proposal (RFP) 
(solicitation #RP-31ME-1-1001) to conduct fair housing paired testing. 
The RFP stated that the testing was to be: ``. . . on a nationwide 
basis in Rural Development's Rural Rental Housing Section 515 and 
Section 538 complexes that were financed by USDA.''
    Apparently, the testing was to determine whether discrimination 
occurs in rental housing supported by RHS. Although the RFP was issued 
nearly 4 years ago, we have heard no mention of the results.
    Where are the testing results?
    Answer. The study has been reviewed with RHS officials, and 
training for Headquarters staff is scheduled by the Fair Housing 
Alliance for May 24th and 25th regarding the findings. The recent 
policy meeting held in Portland, Oregon, introduced the existence of 
the study to the field and a session on accessibility and fair housing 
was offered as a mandatory part of the training track for Multi-Family 
Housing staff and architects. Additionally, discussions have been held 
with Council for Affordable and Rural Housing and National Affordable 
Housing Management Association groups about training of resident 
managers to be more aware of their responsibilities, which was the 
primary focus of the study. Both groups are currently offering such 
training to industry managers.
    Question. Why has there been no discussion of the findings?
    Answer. The findings are being reviewed and policy formulated to 
address the findings. The official training by the Fair Housing 
Alliance is scheduled for May 24th and 25th.
    Question. Did the tests find any violations? How many? In what 
areas of the country were the tests conducted?
    Answer. The tests found violations, but frequency of violations 
were found at a rate of one third that normally found in similar HUD 
reviews. The study conducted tests in a geographically dispersed 
manner, not focusing on any one part of the United States.
    Question. What corrective actions has the Department taken to 
remedy any discriminatory practices?
    Answer. While individual property by property results are not 
provided in the study, the contractor has agreed to deliver to RHS a 
list of any specific properties where violations were serious enough to 
need immediate attention. These cases will be individually evaluated 
and corrective action initiated by Rural Development State Offices.

                         RHS RENTAL ASSISTANCE

    Question. In the President's budget request for Section 521 Rental 
Assistance:
    Does the total rental assistance number include transferred rental 
assistance for projects that prepay?
    Answer. The budget request does not include transferred rental 
assistance for projects that prepay because we do not know at this time 
which projects will prepay or what the balance of those rental 
assistance contracts will be when the borrower actually prepays his 
mortgage. The President's budget request of $650 million is for renewal 
of contracts expected to exhaust funds in fiscal year 2006 renewals 
($639 million), rental assistance for Farm Labor Housing new 
construction ($5 million) and preservation (debt forgiveness) ($5.9 
million).
    Question. If so, what is the number?
    Answer. The budget request does not include transferred rental 
assistance.
    Question. How many projects (and the associated rental assistance 
for projects that prepay) do you anticipate will prepay in fiscal year 
2006?
    Answer. Unless litigation or legislation lifts restrictions 
currently in place, we anticipate that approximately 100 properties 
will prepay, based upon past trends. We cannot estimate the balance of 
these rental assistance contracts.

                    RHS SINGLE FAMILY RURAL HOUSING

    Question. What is the status of the Rural Home Loan Partnership in 
the Section 502 direct loan program?
    Answer. The agency continues to participate in the Rural Home Loan 
Partnership (RHLP) for fiscal year 2005. The partnership provides 
significant benefits for the agency and its partners as well as our 
customers by bringing our mutual resources together to assist low- and 
very low-income rural residents in becoming successful homeowners.
    Question. Do you plan to continue this partnership effort?
    Answer. Yes. Our customers benefit from the homeowner education and 
affordable housing products that many of our RHLP partners provide. We 
look forward to working with our partners to make this initiative even 
more mutually beneficial.
    Question. What is the cost to the government of this partnership 
effort compared with what the cost would be if the Department provided 
the entire loan through the 502 direct loan program?
    Answer. Rural Development has not performed a specific cost-benefit 
analysis. The RHLP is a unique partnership involving a local nonprofit, 
local lender and Rural Development all working together to build a 
better rural community. The nonprofit organization provides credit 
counseling, homeownership education, and other affordable housing 
products. The local lender is able to participate in helping lower 
income families within their community to achieve homeownership. Rural 
Development benefits by helping more families to become successful 
homeowners.

                        RHS MULTI-FAMILY HOUSING

    Question. In the Administration's new voucher program, what are the 
annual cost, number and term for these vouchers?
    Answer. While the legislative language currently being developed 
through the Department will determine the final form of these vouchers, 
we currently anticipate through the budgeting process that the rental 
assistance assisted tenants will be provided a 5-year term and cost 
approximately $13,000-$14,000 per voucher. Our calculations assumed 
that Non RA assisted tenants would be covered for a shorter term, so 
those vouchers would be less expensive. The 2006 Budget estimate is 
based upon issuing 15,000-17,000 vouchers, which would cover about one-
third of the total expected in the prepayment estimation of the 
Comprehensive Property Assessment (CPA). The CPA estimated the primary 
need for vouchers would be in years 2006-2009.
    Question. Who will administer this program, for example HUD Public 
Housing Authorities?
    Answer. We could use a delivery strategy similar to that used by 
HUD, which includes public housing authorities as part of the process.
    Question. If an entity outside of USDA administers this program, 
what type of administrative agreement are you exploring and what is the 
cost?
    Answer. A delivery network similar to HUD could be operated under 
an interagency agreement.
    Question. Provide a detailed breakdown of the $214 million voucher 
funding request. For example, will consulting costs be included and for 
what amount?
    Answer. Of the $214 million requested during fiscal year 2006 for a 
Rural Development voucher program, $204 million would go for the cost 
of vouchers and $10 million would go for administrative expenses, 
including contracts for industry experts.
    Question. Will these vouchers be project-based or tied to an 
individual?
    Answer. The vouchers are to be tenant based.
    Question. Will they be portable and allowed to transfer outside of 
the community? Can they be transferred to any community in the United 
States? If so, how will you control the costs?
    Answer. Details of the voucher program are still being developed. 
They will include portability since it is understood that tenants 
prefer to have choices.
    Question. Can they be transferred to major urban communities? If 
so, how will you avoid confusion or conflicts with the HUD voucher 
program?
    Answer. While they could be transferred to another geographical 
area, the cost is determined by the market conditions in the area where 
prepayment occurred. Therefore, moving to a very high cost of living 
area from somewhere less expensive might not provide enough financial 
assistance to fill the gap for the tenant between their income and the 
urban rent.
    Question. For several years the Administration has indicated that 
they would move back to a low-income production program after a 
comprehensive review was completed. When will this take place?
    Answer. For fiscal year 2006, the production program will continue, 
but will largely take the form of the section 538 program. The use of 
tax credit equity, other subsidy, and interest credit have allowed this 
program to serve low- and very low-income tenants. While not the same 
as the section 515 program, it serves similar sized communities, and a 
large number of low- and very low-income residents.
    Question. How will the 538 program be an effective tool to 
rehabilitate the 515 portfolio? Please explain the process for how this 
will work? Would these transactions require the 9 percent tax credits 
in order to succeed?
    Answer. We are exploring how the section 538 program may be used to 
rehabilitate existing section 515 projects. For example; the section 
538 guarantee can be used for acquisition of the section 515 project if 
coupled with extensive rehabilitation of $6,500 or more per unit. The 
legislation and regulations permit the use of section 538 guarantees on 
projects when they are acquired and repaired. The current regulations 
require that the repairs be substantial, at least $6,500 per unit to 
qualify for use with section 515 project acquisition. The economics of 
each project would be different; however, the 9 percent tax credits 
would not always be necessary for these projects to succeed. The longer 
40-year amortization of the section 538 loan, plus the program's 
interest credit buy down to the Applicable Federal Rate (AFR), should 
help the project to succeed. Some regulation and handbook changes will 
be needed to make the program more effective in partnership with 
section 515 financing already in place on properties in need of 
rehabilitation, and for stay-in owners. We intend to work on these 
changes in 2006.
    Question. How will you overcome potential barriers to the success 
of your proposal, such as state ceilings on the 9 percent tax credits 
and program competition?
    Answer. In 2004 approximately 80 percent (35 out of 44) of the 
projects awarded funds in section 538 had tax credits in the deals. 
Similar leveraging occurred with section 515, but with mostly lower 
valued 4 percent credits. While tax credits are added financial 
benefits to project owners, these tax credits are not indicative of the 
success or failure of a project. The projects have competed very well 
for 9 percent credits.
    The 538 program is currently prohibited from providing assistance 
for projects with section 521 rental assistance and/or HUD section 8.
    Question. Does this mean your proposal to use the 538 program to 
rehabilitate the 515 program will be limited only to projects that have 
no rental subsidy, and therefore, not reaching the very-low income 
projects?
    Answer. While the section 538 projects are not eligible for new 
rental assistance, many projects do have HUD section 8 vouchers. As we 
explore how a section 538 loan can be used with a section 515 project 
rehabilitation, the section 515 project may have existing rental 
assistance. Therefore it is possible that some rehabilitated section 
515 projects with section 538 loans may have rental assistance. We will 
need to explore possible regulation or handbook changes to be able to 
successfully couple the two programs in a revitalization scenario, but 
believe this is clearly the right direction.
    Question. Will you use the 538 program to essentially refinance the 
515 projects?
    Answer. The section 538 program is a new construction program and a 
mechanism to rehabilitate section 515 projects. In addition, to section 
515 repair and rehabilitation authority in 2005 of $53 million, and 
$8.8 million in section 533 (Housing Preservation Grants), applicants 
who desire to purchase section 515 projects and repair them may apply 
for section 538 funds. Because of rental assistance and other 
considerations, refinancing is not always in the best interest of the 
borrower or tenants. We do not expect to see wholesale use of section 
538 for refinancing under current circumstances.
    Question. If so, how will this affect the low and very low-income 
residents and the project rent structure?
    Answer. Full refinancing is not anticipated as a likely scenario.
    Question. What can you realistically accomplish with the 538 
program with the 9 percent tax credit for the rehabilitation of the 515 
program in fiscal year 2006?
    Answer. The Multifamily Revitalization Initiative anticipates that 
revitalization will occur over an 8-10 year schedule, with the majority 
of major renovations occurring after 2008. Rehabilitation funding with 
the section 538 program will be developed as an option in the meantime.
    Question. What percentage of 538 loans approved to date have 
received a 9 percent tax credit?
    Answer. Approximately 80 percent of the section 538 projects have 
received 9 percent tax credits.
    Question. Do you believe the 515 and 538 programs serve the same 
income groups?
    Answer. While the section 515 projects have a higher percentage of 
very low-income tenants, they also use rental assistance. The section 
538 projects have very low-income tenants also, just not to the same 
percentage of tenants as the section 515 projects. A primary reason for 
this is that the section 538 projects are prohibited from having rental 
assistance; therefore, the section 538 projects in order to survive 
must attract low-income tenants as well. Additionally, because many 
section 538 projects have tax credits, those tax credits require that a 
high percent of the units be rented to very low-income tenants, thus 
requiring the owners to address the housing needs of the very low 
income families.
    Question. Please provide a side-by-side comparison of some 
hypothetical 538 and 515 projects residing in the same communities 
serving the same very-low-income residents. In doing so, provide the 
rent structure, required reserve accounts, management and operational 
expenses, and all Federal, State and other subsidies and/or grant money 
including tax credits.
    Answer. These are two properties that were developed at the same 
time on a 4 acre tract in Arkansas. Driveways and property entrances 
are shared. Both were constructed in 2003. The rent is higher in the 
section 515 project prior to application of rental assistance, and this 
is primarily a factor of 9 percent tax credits providing equity in the 
section 538 product.
    [The information follows:]
    Section 538 property (Lowell); 40-unit complex garden; style units 
24-1BR, 16-2BR.
    Bank Loan 7.69 percent, 40 year; section 538 quarantee with Int.; 
Credit Rate 5.19 percent; 9 percent LIHTC funds 40 year; and rate 5.19 
percent.
    Section 515 property (Robinson); 24-unit 2 story with elevator; 24-
1BR with community room & 2 project rooms.
    RD loan 1 percent 50 year amort/30yr bal.; HOME Loan, 1 percent, 50 
year amort/20 year bal.; Loan from applicant 1 percent 50 year amort 
LIHTc (4 Percent).
    Rent Structure $331-1BR, $437-2BR--$440/unit 1-BR (All with R/A) 
$218/unit Average R/A.

------------------------------------------------------------------------

------------------------------------------------------------------------
Debt Service....................  $54,460 annually..  $35,857 annually
Reserve Require.................  8,000.............  16,346 annually
Operating Exp...................  9/unit/month......  16/unit/month
Utilities.......................  19/unit/month.....  36/unit/month
Admin...........................  44/unit/month.....  59/unit/month
Taxes & Ins.....................  31/unit/month \1\.  11/unit/month \1\
                                 ---------------------------------------
      Total Exp.................  103/unit/month....  121/unit/month
                                 ---------------------------------------
Construction Costs..............  2,752,028.........  1,908,000
Cost per unit...................  68,800............  79,500
------------------------------------------------------------------------
\1\ Taxes based on land only.

               RCBS RURAL COOPERATIVE DEVELOPMENT GRANTS

    Question. The Rural Cooperative Development Grants program has 
proven to be very effective in funding co-op development centers that 
provide critical technical assistance to co-ops that are revitalizing 
rural communities across the Nation.
    Given the fact that this program has leveraged millions of dollars 
for rural cooperative development, created hundreds of new jobs and new 
businesses from health care to meat processing plans, has been an 
effective use of Federal money, and is providing grants to far fewer 
centers than are seeking funding, why does the Administration propose a 
17 percent program cut from $6 million to $5 million? Is it not correct 
that the Department is providing grants to far fewer centers than the 
number of centers that seek funding? What steps can USDA take to ensure 
the unique structural and economic advantages of member-owned and 
controlled cooperatives will continue to be supported by USDA and its 
programs? The Administration has reviewed the programs and services 
provided by Cooperative Services at the Rural Business Cooperative 
Services agency. What are the results of the review? Please provide any 
documentation for these results.
    Answer. The $5 million proposal is consistent with the 
Administration's 2005 budget request. While we agree that the program 
has been successful in developing new business enterprises and creating 
jobs in rural America, the success of the program is intricately tied 
to the success of the individual centers themselves. Since this is a 
competitive grant program, a truly successful center leverages Rural 
Development funding with funding from a variety of other sources and 
must be able to sustain itself during years when it does not 
successfully compete in this program. Several of the centers funded in 
the past were not able to remain viable when funding for even a single 
year was lost. Therefore, we believe that the $5 million appropriation 
requested provides sufficient leveraging and encourages centers to seek 
alternative funding sources that will only serve to enhance their 
continued sustainability.
    In 2003, the Rural Community Development Grants program received 44 
applications requesting $12.7 million. Twenty-one applications were 
funded for a total of $6.3 million. In 2004, 54 applications requested 
$13.7 million. Twenty-four applications were funded for a total of $6.5 
million.
    Rural Development offers many loan and grant programs for which 
cooperatives are eligible. Examples include the Business and Industry 
Guaranteed Loan program, the rural Electric and Telecommunications 
programs, the Broadband Loan program, the Community Connect Broadband 
program, the Distance Learning and Telemedicine program, and the Value-
Added Producer Grant program. Cooperatives are also eligible to receive 
technical assistance from recipients of Rural Development programs such 
as the Rural Cooperative Development Program and the Rural Business 
Enterprise Grant Program. Rural Development staff is also available in 
the national office and in state offices to provide technical 
assistance such as conducting feasibility studies, developing business 
plans, and providing education to groups wishing to form cooperatives 
as well as existing cooperatives. Finally, the Cooperative Services 
program area of Rural Development conducts research into cooperative 
issues and publishes its findings, which are available to the public 
free of charge.
    The Administration contracted for an outside program review of 
Cooperative Services. The review was to identify improvements or 
changes in the Cooperative Services programs to better assist today's 
rural cooperatives, opportunities for leveraging the present CS 
programs and capacity to support a broader range of cooperative 
strategies and approaches to building economic vitality in rural areas, 
and new ways of generating capital for cooperative organizations. Rural 
Development just received the independent contractor's report and the 
recommendations and conclusions are under initial review and analysis.

                       RUS GUARANTEED UNDEWRITING

    Question. The Farm Security and Rural Investment Act of 2002 
included a new program--Guarantees for Bonds and Notes Issued for Rural 
Electrification or Telephone Purposes--to provide private sector 
funding for the Department's Rural Economic Development Loan and Grant 
(REDLG) program.
    The REDLG program provides zero-interest loans and grants for 
projects such as business expansion and start-up, community facilities, 
schools and hospitals, emergency vehicles and essential community 
infrastructure projects in some of the most rural communities in 
America. According to USDA statistics, in Wisconsin alone, REDLG has 
invested over $13 million in 60 projects while leveraging an additional 
$63 million in private capital and creating nearly 2,000 jobs.
    At the direction of this Committee, the Department issued a final 
regulation for this REDLG enhancement in October of 2004--nearly 2 and 
a half years after the program was signed into law by the President. 
While this is a step in the right direction, it did not happen in time 
for USDA to utilize the $1 billion program level that this Committee 
provided in the fiscal year 2004 bill. This was the second year in a 
row that USDA failed to utilize the program authority provided by 
Congress.
    Apparently, USDA still has not provided a single guarantee to date 
under this new program. Due to this lack of implementation, no private 
funding has flowed into REDLG activities. This represents a substantial 
loss of investment in rural communities over the past 2 years.
    Funds for rural development activities are becoming increasingly 
scarce.
    In view of current budget constraints, why has USDA not moved in a 
more expeditious manner to implement a program that actually provides 
private funding for Federal rural development efforts--at no cost to 
the taxpayers?
    Answer. There is approximately $100 million in the Rural Economic 
Development Loan and Grant (REDLG) program account presently to fund 
these economic and community projects. This section of the Farm Bill of 
2002 is a very complex financial transaction and it has taken longer 
than anticipated to implement. The main reason has been due to our 
desire to protect the interest of the taxpayers while simultaneously 
ensuring that the maximum amount of funds will be available for the 
REDLG program. The Rural Utilities Service, the Federal Financing Bank 
and a potential borrower have been negotiating the details of a 
guarantee under this program. Last year only $4 million was used from 
the REDLG account.
    Question. It is very important to this Committee that this program 
not only be implemented, but that implementation occurs in an 
expeditious manner to ensure that the fiscal year 2005 program levels 
are not lost in the same manner as occurred with the fiscal year 2004 
and fiscal year 2003 appropriations.
    Is it the intention of this Administration to follow the law as set 
forth in the 2002 Farm Bill?
    Answer. Yes, it is the intention of this Administration to follow 
the law as set forth in the 2002 Farm Bill.
    Question. Does USDA expect to utilize the funds that were 
appropriated by the Committee in the fiscal year 2005 bill?
    Answer. USDA expects to utilize the funds that were appropriated in 
fiscal year 2005.
    Question. When exactly can we expect this program to be fully 
implemented?
    Answer. The details have been agreed to and implementation is 
expected to begin in June 2005.

                RURAL UTILITIES SERVICE BROADBAND LOANS

    Question. Rural Development and the Rural Utility Service suggest 
that the broadband loan program is best utilized for ``residential 
service.'' Congress, nevertheless, views this program not only as a 
means to provide residential service, but as a tool for economic 
development, stating in Senate Report 107-117, ``The availability of 
this [broadband] service is crucial for both economic development and 
to provide a service that a growing number of Americans are starting to 
view as essential.''
    Are you approving broadband loans outside residential services to 
include economic development activity?
    Answer. When a broadband loan is approved it covers the entire 
proposed service territory including all residents and businesses in 
that service territory. We strongly encourage that the broadband 
service be made available to everyone in the area recognizing that any 
economic development in the proposed service territory can actually 
increase the feasibility of the project and create new customers for 
the business plan. We see broadband as a tremendous economic growth 
tool for rural America that can create new jobs in today's economy.
    Broadband loans are limited by the following requirement: ``RUS 
will not make a broadband loan under this part to provide broadband 
service in an area receiving local exchange telephone service from an 
RUS telecommunications borrower to any other entity other than the 
incumbent telecommunications borrower. . . .''
    Question. While I realize your concern about creating competition 
between potential RUS loan recipients serving one area, can you see a 
situation where you have a current broadband borrower that does not 
want to expand and provide service for business purposes in their 
current service area while another entity wants to provide this service 
using a separate customer base, a separate business objective, and a 
separate economic objective?
    Answer. If a company is currently borrowing funds from RUS and has 
no plans to provide broadband service in a specific area, then RUS will 
consider making a loan to another entity to provide the broadband 
service. Although RUS has not approved a loan of this nature to date, 
we are constantly fielding questions about going into an existing 
borrower's service territory. We request that a short explanation of 
the proposal be prepared for our consideration before an application is 
prepared. With the goal to get broadband everywhere, it is highly 
likely that RUS will eventually approve loans for the same area to 
different entities. Entity ``A'' may only be providing voice service 
and the loan to Entity ``B'' could be to provide the broadband service.
                                 ______
                                 

               Questions Submitted by Senator Tom Harkin

                 RENEWABLE ENERGY OF THE 2002 FARM BILL

    Question. My first question about Section 9006, Renewable Energy 
Projects and Energy Efficiency Improvements, concerns the timing of the 
fiscal year 2005 program implementation. On March 28, 2005, the 
Department announced the availability of $11.4 million in grants under 
the Section 9006 program, with an application deadline of June 28. The 
Department reserved the balance of the Section 9006 funding for a not-
yet-announced loan guarantee program. The Department committed to 
releasing the loan guarantee rules later this spring. According to the 
Department, any funds for loan guarantees not used by August 31, 2005, 
will be made available for grants.
    I am concerned that the Department, having reserved 50 percent of 
the nearly $23 million in funding for an as-yet-announced loan 
guarantee program, will not have sufficient time to make the unused 
loan guarantee money available for grants this year. Last year's 
grants-only program was well-oversubscribed, and I expect the program 
to be even more popular this year.
    Will you commit to me that the Department will make all of the 
unused loan guarantee money available for additional grants this year, 
and obligate those additional grants by September 30, 2005? Otherwise, 
the Department risks leaving millions of dollars of unused money on the 
table that could have gone for worthwhile projects in Iowa and around 
the country.
    Answer. The agency anticipates publishing a final rule for the 
section 9006 program in late June or early July of 2005. The rule will 
implement the guaranteed loan program authorized by the 2002 Farm Bill.
    The agency plans to provide both grants and loan guarantees during 
fiscal year 2005. In order for the public to be able to take advantage 
of guaranteed loans in 2005, it was necessary to announce the 
availability of the set aside funds in the March 28, 2005, grant 
program Notice of Funds Availability (NOFA).
    USDA will evaluate all grant applications received by the deadline 
published in the NOFA. Grants will be awarded to all qualified 
applicants, or until the initial phase of funding is exhausted, 
whichever occurs first. Guaranteed loan applications received by the 
deadline for that part of the section 9006 program will be evaluated 
and guarantees will be provided for all qualified applicants, or until 
funds are exhausted, whichever occurs first. As the NOFA indicates, any 
guaranteed loan funds not obligated by August 31, 2005, will be pooled 
and made available to fund any remaining qualified grant applications.
    We fully expect to complete loan and grant awards to qualified 
applicants by September 30, 2005.
    My second question involves the scope of the final rules for the 
Section 9006 program. Section 9006 requires the Department to offer 
grants, loan guarantees, and direct loans to eligible applicants. 
Unlike loan guarantees, direct loans are a dedicated source of capital 
for clean energy projects, and they are less cumbersome for applicants 
to obtain. Direct loans also are often more attractive for smaller but 
equally deserving clean energy projects, since banks are unlikely to 
issue loan guarantees for these small projects.
    Question. Considering the clear statutory requirement for direct 
loans, and their multiple benefits, will the Department include a 
direct loan component in the final section 9006 program rules that you 
have said will be issued later this summer? If not, why not?
    Answer. The final rule must be within the scope of the proposed 
rule that USDA published last year, which did not contain detailed 
provisions for a direct loan program. Moreover, the Notice of Funding 
Availability (NOFA) that USDA published earlier this year does not 
provide for direct loans in fiscal year 2005. However, if USDA 
determines that funds are available for direct loans in future years, 
it can implement a direct loan program by including such provisions in 
a future NOFA or by issuing regulations.

                   RURAL BUSINESS COOPERATIVE SERVICE

    Question. It is my understanding that an advisory committee was 
formed with outside experts to make recommendations on the mission of 
the Rural Business Cooperative Service and specifically regarding 
cooperative models and activities. I am concerned whether this advisory 
committee operated in an open fashion in order to allow interested 
groups and individuals to participate or even to have knowledge of any 
proposed changes to existing cooperative models and activities.
    Under what authority was the advisory committee constituted? Were 
these meetings advertised in a public manner in accordance with the 
Federal Advisory Committee Act? What were the findings, conclusions and 
recommendations of the advisory committee? Are the advisory committee's 
findings, conclusions and recommendations contained in a document? Is 
that document public? Please promptly provide the document to the 
committee. Who at the Department initiated and administered this 
advisory committee process, and who were the actual members of this 
advisory committee? What is the current status of the advisory 
committee?
    Answer. Rural Development contracted for an outside program review 
of Cooperative Services. An advisory committee was not formed. The 
review was to identify improvements or changes in the Cooperative 
Services programs to better assist today's rural cooperatives, 
opportunities for leveraging the present Cooperative Services programs 
and capacity to support a broader range of cooperative strategies and 
approaches to building economic vitality in rural areas, and new ways 
of generating capital for cooperative organizations. Rural Development 
just received the independent contractor's report and the 
recommendations and conclusions are under initial review and analysis.
                                 ______
                                 

                  Questions Submitted to Joseph J. Jen

            Questions Submitted by Senator Robert F. Bennett

                       BASIC SCIENTIFIC RESEARCH

    Question. What do you believe the appropriate role of USDA is in 
supporting basic scientific research at the land grant colleges and 
universities?
    Answer. USDA, through CSREES, is now and should support land-grant 
university efforts in all aspects of research relevant to the 
advancement of the food and agricultural sciences. New knowledge and 
the technological advancements to which it contributes will always be 
necessary to maintain an economically viable and environmentally sound 
food and fiber industry for the United States.
    Question. Do you believe that basic scientific research will be 
able to receive funding through competitive awards?
    Answer. The highly productive basic scientific enterprise that has 
developed in the United States in the years following World War II has 
been built on sound systems of competitive awards by agencies of the 
United States government. The USDA/CSREES, through its competitively 
awarded grants programs such as the National Research Initiative, has 
been the major supporter of basic scientific research in fields 
relevant to food and agriculture. The success of this program and its 
promise for the future are the reasons for its strong support by 
Congress, the Administration, and the scientific community.

                             FORMULA FUNDS

    Question. The land grant colleges and universities are not 
supportive of the proposed cuts to the formula funds.
  --Other than preferring more competitively awarded research, what 
        does USDA believe is wrong with the current funding mechanisms?
    Answer. The commitment to improving the overall quality of Federal 
research led to the fiscal year 2006 budget redirection of funds from 
formula research programs to competitive programs. Moving from formula-
based to competitive funding changes only the mechanism by which 
science is supported, not the goals or objectives of the work. The 
emphasis on competitive programs in the President's budget is 
consistent with views held beyond the Administration. Within the last 
few years Congress has directed USDA to support studies looking at its 
research programs. The reports from these studies recommend increasing 
the relative, as well as absolute, level of funding to support 
competitive research. In addition, the State Agricultural Experiment 
Station Competitive Grants Program proposed in the President's budget 
will provide a source of funding for functions currently supported by 
formula funds.

                           MISCONDUCT POLICY

    Question. In a recent report, the USDA Inspector General says that 
the Cooperative State Research, Education, and Extension Service does 
not have a Federal Research Misconduct Policy, which is required of 
Federal agencies, and that the Agricultural Research Service has such a 
policy but it is not in compliance with Federal standards.
    What are your plans to bring the agency in compliance?
    Answer. The Office of the Undersecretary for Research, Education, 
and Economics will serve as the centralized body for research 
misconduct on behalf of the Department. By June 30, 2005 a Federal 
Register notice will be published announcing the mission area's 
research misconduct role and accepting the Office of Science and 
Technology Policy (OSTP) definition of research misconduct as the USDA 
definition. The Cooperative State Research, Education, and Extension 
Service (CSREES) will take the lead on preparation and publication of 
the Federal Register notice. Each USDA agency will be required to 
develop policies and procedures compliant with the OSTP Federal 
Research Misconduct Guidelines, or if more appropriate, to execute a 
Memorandum of Understanding with another Departmental agency to act on 
their behalf with respect to research misconduct. Agency policies are 
to be completed no later than 9 months following publication of the 
Federal Register notice noted above. CSREES will refine and document 
its research misconduct policy. This will be reviewed by the Office of 
General Counsel for OSTP compliance and subsequently published in the 
Federal Register and on the agency's website.
    The Agricultural Research Service is working with Department 
officials to bring its Federal Research Misconduct Policy into 
compliance.

                 STATE AGRICULTURAL EXPERIMENT STATION

    Question. How will the proposed State Agricultural Experiment 
Station competitive grants program work?
    Answer. A CSREES working group of national program leaders has been 
charged with the task of developing a preliminary design for the new 
competitive grants program for the State Agricultural Experiment 
Stations (SAES). Our initial planning for the SAES program emphasizes 
broad national issues which are manifested in a wide range of regional 
and local research problems, including regional pest management, 
marketing and other farm management and local economic issues; 
ecosystem management; and new uses and products. Grants may also 
emphasize multi-institutional planning and coordination to take 
advantage of system-wide capacity in areas such as plant and animal 
disease and international markets, and sustaining capacity to assure 
rapid response to problems in agrosecurity and food safety.
    Question. How will the funding be allocated?
    Answer. Funding for the SAES program will be competitively awarded.
    Question. Who will review the grant submissions?
    Answer. Proposals will be reviewed by ad-hoc reviewers (reviewers 
who do not meet in a formal panel setting) and/or peer panel reviewers.
    Question. Who will make the award decisions?
    Answer. The ad-hoc reviewers and/or peer panel reviewers will 
consist of experts in the food and agricultural sciences who will 
recommend to CSREES projects for award based upon established 
evaluation criteria.
                                 ______
                                 

               Question Submitted by Senator Conrad Burns

                       HATCH ACT/MCINTIRE-STENNIS

    Question. In Montana, our colleges and universities are engaged in 
important and high-quality research that yields significant benefits 
for Montana agriculture. Yet the President's budget proposes to slash 
Hatch Act and McIntire-Stennis funding. I appreciate the desire to 
shift funds into competitive grants, but our universities rely on this 
funding to sustain long-term research programs.
  --Competitive grants are important, but shouldn't they be part of a 
        balanced portfolio of Federal investment in agriculture and 
        forestry research?
    Answer. Moving from formula-based to competitive funding changes 
only the mechanism by which science is supported, not the goals or 
objectives of the work. Competitive programs can be designed to build 
and sustain research capacity; assure that research contributes to 
teaching and extension programs; link strengths and unique expertise 
across institutions; and address local and regional issues which 
collectively secure the national agricultural system. In addition, with 
full indirect cost recovery as part of competitive funding, 
institutions can maintain and continuously improve the infrastructure 
needed to support modern science, as well as support specialized 
undergraduate, graduate, and postgraduate training in the agricultural 
sciences. Also, the State Agricultural Experiment Station Competitive 
Grants Program proposed in the President's budget will provide a source 
of funding for functions currently supported by formula funds.
                                 ______
                                 

               Questions Submitted by Senator Larry Craig

    Question. The U.S. dry edible bean industry has been working with 
NASS to establish parameters so that a national dry bean stocks report 
can be implemented.
    Please describe how such a survey and reporting would be 
accomplished, including the details of the parameters of such 
reporting.
    Answer. The survey would be a census of all off-farm dry bean 
storage facilities in eighteen States. Approximately 3,200 storage 
facilities would be contacted during each survey period. The survey 
would be conducted in June and December. Reporting would be by mail, 
phone, and electronic data reporting. The initial survey would also 
include personal interviews to help answer any questions the respondent 
might have about the program.
    Question. What do you estimate the initial cost to establish, and 
the ongoing annual costs for, a national dry bean stocks report to be, 
assuming the parameters you outline in the response to the above 
question?
    Answer. NASS' cost estimate for the first year is $650,000. The 
projected cost for subsequent years is $550,000 per year.
    Question. Will USDA make establishing a national dry bean stocks 
report a priority and include its cost in the fiscal year 2007 budget 
request to the Congress?
    Answer. A proposal for instituting a national dry bean stocks 
report will be seriously evaluated by USDA during the budget process 
when establishing priorities among the many emerging needs requested of 
the Department.
    Question. If Congress provides sufficient funding to establish a 
national dry beans stocks report in the fiscal year 2006 USDA 
appropriation, when would NASS be able to start such reporting?
    Answer. NASS would be able to start reporting in June 2006. The 
following report would come out in January 2007.
                                 ______
                                 

                Questions Submitted by Senator Herb Kohl

                   ECONOMIC RESEARCH SERVICE REPORTS

    Question. Dr. Jen, I would like to compliment you and the employees 
of the Economic Research Service for the good work they do. From their 
Amber Waves magazine to other shorter reports that ERS publishes, this 
Agency provides very helpful and timely information in its 
publications.
    How are ERS publications made available, and how does USDA work to 
make sure the general public is aware of their existence?
    Answer. ERS develops and disseminates a broad range of economic, 
social scientific, and statistical information to the public. The 
agency publishes economic information and research results on the web 
and in a variety of agency-published research reports, market analyses 
and outlook reports, articles published in ERS periodicals and articles 
published in professional journals. Our research is available to the 
public in print (which may require a small fee) and online (without 
charge).
    ERS distributes this information through an array of academic, 
policy-, and public-oriented outlets. All ERS publications (including 
Amber Waves) are distributed to (and by) the Government Printing Office 
(GPO), the National Technical Information Center (NTIS), GPO Depository 
Libraries, and the 1890 Land Grant Universities. Commodity Outlook 
reports are also distributed to Cornell University's Mann Library 
(USDA's economics and statistics system). Many publications are 
provided to university Agricultural Economics departments, the Social 
Science Research Network (SSRN), and other targeted distributions.
    The ERS website (www.ers.usda.gov) provides instant access to ERS 
publications, economic and statistical indicators, and datasets. In 
fact, ERS' website includes an increasingly comprehensive body of 
materials, covering the equivalent of 6,000 200-page books covering:
  --Five research emphasis areas that reflect the agency's strategic 
        goals and research program
  --Over 90 briefing rooms offering in-depth syntheses of ERS research 
        on important economic issues
  --Twenty-two key topic areas populated with data, publications, and 
        other products
  --Access to around 9,000 datasets and a range of data products 
        available in different formats, including online databases, 
        spreadsheets, and interactive web files and mapping 
        applications
  --Over 1,400 publications, including commodity outlook newsletters
  --An ``About ERS'' section pointing to subject specialists, job 
        listings, and other services
  --A newsroom containing concise overviews of key issues, research 
        findings, and analysis
  --Amber Waves magazine, including web-exclusive feature articles, 
        covering the economics of food, farming, natural resources, and 
        rural America
  --A calendar of upcoming releases
  --A subscription-based electronic notification service that supplies 
        e-mail alerts on newly released or updated products, covering 
        50 different topic areas and going to 22,000 subscribers.
    In February of 2005, the website attracted over 320,000 visitors, 
and over the past 4 years site usage has increased 324 percent.
    When new research publications and products become available, we 
send e-mail notices, postcard notices, report summaries, and sometimes 
printed copies of new reports to customers who have expressed interest 
in specific ERS topics by registering via the Internet from a 
designated page on our website. About 22,000 ERS customers have signed 
up for e-mail notifications and about 2,500 have signed up for printed 
material. The overlap between the two lists is about 300.
    Oral briefings, written staff analyses, and congressionally 
mandated studies are delivered directly to executive branch 
policymakers and program administrators. We keep the media and 
Congressional staff informed of new ERS material via our monthly media 
newsletter, DatelinERS, which is a monthly two-page newsletter 
(available in both printed and electronic format) announcing recently 
released ERS publications, data products, and other web resources. We 
also keep our website homepage and newsroom up-to-date, featuring the 
latest research and analysis available. We help educate the media about 
what's available on our website each time they call us for information. 
They, in turn, write stories that the general public reads.
    We also exhibit at various conferences throughout the year, 
educating the researchers, industry professionals, and the general 
public about what we do. We bring publications and demonstrate the 
website at these events.

                            ARS TERMINATIONS

    Question. The President's budget proposes to eliminate more than 
$200 million in ARS research activities that Congress has determined to 
be of high priority. These proposed terminations include work that has 
been ongoing for 4 or 5 years.
    How does USDA expect Federal employee morale to remain high given 
these proposals?
    Answer. Research managers have to confront morale issue on a daily 
basis and from a variety of sources. While proposals to not continue 
funding for these projects have a negative impact on the employees 
affected, ARS must retain the flexibility to proposed reallocations of 
its resources to meet new challenges that affect the Nation.
    Question. What effect is it having on recruitment?
    Answer. We have advised all potential research candidates of the 
proposed terminations.
            csrees cuts in formula funded research programs
    Question. The President's budget proposes to cut in half or 
eliminate formula-based funding to land grant universities across the 
country for research related to general agriculture, forestry, and 
animal health. These funds have helped to develop, and continue to 
maintain, a strong cooperative relationship between USDA and the states 
to share in research challenges and outcomes. Such drastic cuts are 
very troubling and shake the foundation of that once-strong 
partnership.
    I strongly support competitive research, such as the National 
Research Initiative, but it is important to note that the formula-based 
funds help state universities, such as the University of Wisconsin, 
respond rapidly to sudden problems.
    A few years ago, the soybean aphid was discovered in Wisconsin, and 
was beginning to spread to neighboring states. Within 6 weeks, the 
University of Wisconsin, using formula-based Hatch Act funds, was able 
to set up a multi-state working group that was able to research the 
problem, determine methods of control, and get information to local 
farmers on what they could do to protect against losses. If those 
researchers had only competitive or special research grants for 
problems like this, the ability to respond rapidly would be lost. And 
that is just one example. Over the past few weeks, there have been 
reports of an invasive pest that has appeared in the Mid South that 
affects rice production. States in that region were able to respond 
with formula funds in much the same way we were able to deal with the 
soybean aphid. Soybean rust will be another example. To drastically cut 
or eliminate these funds is an indication the President does not 
realize the importance of these funds.
  --How do you propose to work with state research institutions on 
        problems that arise suddenly if you have greatly reduced or 
        eliminated the source of Federal funds they could use for that 
        purpose?
    Answer. The fiscal year 2006 budget proposes the new $75 million 
State Agricultural Experiment Stations Competitive Grants Program 
focused on regional, state and local research needs. Our initial 
planning for this program emphasizes broad national issues which are 
manifest in a wide range of regional and local research problems. 
Grants also may emphasize multi-institutional planning and coordination 
to take advantage of system-wide capacity in areas such as plant and 
animal diseases and international markets, and sustaining capacity to 
assure rapid response to problems in agrosecurity such as soybean rust. 
This program will provide a source of funding for functions currently 
supported by formula funds.
    Question. If you shift Federal resources from formula-based funds 
to competitive-based programs, how do you intend to help research 
institutions that still need to build their capabilities in order to 
fairly compete for Federal funding?
    Answer. Moving from formula-based to competitive funding changes 
only the mechanism by which science is supported, not the goals or 
objectives of the work. Competitive programs can be designed to build 
and sustain research capacity; assure that research contributes to 
teaching and extension programs; link strengths and unique or limited 
expertise across institutions; and address local and regional issues 
which collectively secure the national agricultural system. In 
addition, with full indirect cost recovery as part of competitive 
funding, institutions can maintain and continuously improve the 
infrastructure needed to support modern science, as well as support 
specialized undergraduate, graduate, and postgraduate training in the 
agricultural sciences.
    Question. Won't there be definite winners and losers in your plan?
    Answer. As in all plans that change the way in which funds are 
distributed, there will be winners and losers. Smaller institutions 
including those located in the territories will be impacted by the cut 
in formulas. Institutions who are currently eligible to receive 
McIntire-Stennis and Animal Health and Disease Research formula funds 
but who are not land grant institutions, will not be eligible to 
compete for funds under the new State Agricultural Experiment Stations 
Competitive Grants program. It is assumed that institutions who in the 
past have been successful in competing for competitive funds will 
continue to do so in the future. While the amount of formula funds 
available to institutions in fiscal year 2006 will be reduced or 
eliminated, it will ultimately be up to each institution to determine 
how to allocate funds available from Federal and non-Federal sources to 
continue research projects or support personnel.

                  CLASSICAL PLANT AND ANIMAL BREEDING

    Question. Dr. Jen, the Senate fiscal year 2005 report included 
language under CSREES encouraging the Department, especially in the 
establishment of priorities within the National Research Initiative, to 
give consideration to research needs related to classical plant and 
animal breeding.
    What, if any, steps have the Department taken in response to this 
language? Have any changes been made in the NRI priority process to 
reflect these concerns?
    Answer. For classical plant breeding, the NRI will be offering 
funding opportunities for research, education, and training in a number 
of plant programs for fiscal year 2006. In the current NRI plant 
programs, support is provided for the development of techniques and 
tools, such as marker-assisted selection and quantitative trait locus 
analysis, which can be used in plant breeding. In the current NRI 
animal programs, support is provided for research in areas such as 
genetic or breed comparisons, identification of genetic markers, 
including quantitative trait loci and economic trait loci, marker-
assisted selection, and chromosome identification, which can be used in 
classical animal breeding.
    The NRI sets program priorities based on input from stakeholder 
groups which include commodity groups, producers, the scientific 
community (including scientific societies) and other interested 
parties. The National Program Leaders have continuing, ongoing 
interactions and discussions with stakeholders through workshops and 
conferences, written input and reports from stakeholders, as well as 
input via telephone and e-mail. Stakeholder input is vital to setting 
the priorities and directions of the NRI programs.
                                 ______
                                 

               Questions Submitted by Senator Tom Harkin

              PRESIDENT'S FISCAL YEAR 2006 BUDGET PROPOSAL

    Question. The President's fiscal year 2006 budget proposes to move 
the competitive, integrated grants programs (Water Quality, Food 
Safety, several IPM-related programs, Methyl Bromide, and Organic 
Transitions) currently managed under Section 406 of the 1998 
Agriculture Research, Extension and Education Reform Act (AREERA) to 
the National Research Initiative.
    Does this proposal indicate a shift in research, education and 
extension priorities? If so, why are the priorities changing and which 
current Section 406 programs will see increases or decreases under the 
new proposal. If not, what are the specific, detailed plans for 
integrating the existing 406 programs within the NRI?
    Answer. With the consolidation of programs, CSREES does not plan to 
redirect priorities--all emphasis areas will remain in the portfolio of 
programs. The primary purpose for moving integrated program activities 
to the National Research Initiative Competitive Grants Program (NRI) 
and to the new state Agricultural Experiment Stations Competitive 
Grants Program (SAES) is to streamline the presentation of the budget, 
thus reducing the appearance of redundant programs.
    Question. Will each current 406 program be a separate NRI national 
program? Will their funding allocation be increased, decreased or 
remain the same compared to fiscal year 2005 Section 406 levels? Does 
the agency expect that participation of Extension in the integrated 
programs will increase, decrease, or remain unchanged if this proposal 
were to be approved?
    Answer. The fiscal year 2006 Budget proposes that Section 406 
activities will be funded at $41.9 million, but the grants will be 
administered through the NRI or the new SAES competitive grants 
program. This will allow greater flexibility and responsiveness to 
changing needs in these targeted areas. In addition, the fiscal year 
2006 Budget also proposes an increase from 20 percent to 30 percent of 
funds that may be used to support competitive integrated research, 
education, and extension programs.
    Question. With respect to the Organic Transitions program, would 
the proposal retain a specific organic national program within the NRI; 
and would the farm bill's Organic Farming REE program, currently 
jointly administered with Organic Transitions, be administered 
separately?
    Answer. In fiscal year 2006, it is proposed that research programs 
focused on activities such as organic transition could be supported not 
only with NRI funds but also in the new SAES program. As we move 
forward in planning for both the NRI and the new SAES competitive 
grants program, we will insure coordination with the Organic 
Agriculture Research and Education Initiative to maximize the 
effectiveness of the funds available for award.
    Question. Finally, please provide a detailed accounting of the 
number and type of stakeholder groups who were involved in the 
development of the proposal to transfer these programs from Section 406 
to the NRI, including specific meeting dates and participants.
    Answer. While we are prohibited from sharing budget details with 
outside groups during the budget development process prior to release 
of the President's budget proposal, we have and will continue to 
consult widely with universities, stakeholders, and customers to insure 
that CSREES research dollars are utilized in the most effective and 
efficient way to address critical research issues. In the last 6 weeks, 
the CSREES Administrator has met with over 1,000 direct clients and 
customers across the country to discuss the fiscal year 2006 budget and 
gain input from customers and stakeholders as we continue program 
planning. In addition, an agency team is developing a proposal for the 
proposed SAES program which will be available for public comment.
                                 ______
                                 

                    Questions Submitted to J.B. Penn

            Questions Submitted by Senator Robert F. Bennett

               FOREIGN AGRICULTURAL SERVICE (FAS) REVIEW

    Question. I understand FAS is currently undertaking an 
organizational review. What is the status of that review?
    Answer. FAS has made progress in its organizational review and is 
continuing to re-examine the agency's core mission, goals, and 
resources. Input from the private sector has re-affirmed support for 
FAS' network of overseas offices, specifically to resolve market access 
issues and provide market intelligence for U.S. agricultural producers 
and industry. Internal groups are currently reviewing crosscutting 
strategies and tactics, particularly in the context of FAS' market 
access mission. Ongoing discussions regarding both FAS' mission and 
budget concerns have resulted in some shifts in overseas resources such 
as downsizing in Europe along with limited expansion plans to cover 
developing markets.
    Question. When will final recommendations be released?
    Answer. Internal working groups have developed some initial 
recommendations and more comprehensive recommendations are being 
researched and evaluated. We anticipate this review process will 
culminate in final recommendations being presented to the FAS 
Administrator in the fall of 2005.

                    LIVESTOCK RISK PROGRAM FOR LAMB

    Question. What is the status of the sheep industry's proposed 
Livestock Risk Program for lamb?
    Answer. Unfortunately, details of the proposed Livestock Risk 
Protection (LPR) program for Lamb submission and discussions of the 
proposal with the submitters cannot be disclosed. Submissions under 
section 508(h) (4)(A) of the Federal Crop Insurance Act (Act) must be 
considered to be confidential commercial or financial information 
during the period preceding any decision by the Board.
    Applied Analytics Group (AAG) and the American Sheep Industry 
Association (ASIA) submitted a proposal to include lamb in the LPR 
program in accordance with Section 508(h) of the Act. On October 28, 
2004, the Federal Crop Insurance Corporation (FCIC) Board of Directors 
(Board) voted to send the proposed LRP Lamb Program for external review 
by a panel of five persons experienced as actuaries and in underwriting 
as required by the Act.
    On January 13, 2005, the Board considered the input it received 
from the external reviewers and the Risk Management Agency and 
discussed the responses to such by AAG and ASIA. Based on these 
discussions, the Board agreed to table the proposal for 45 days to 
provide AAG and ASIA time to provide modifications to their LRP lamb 
submission.
    AAG and ASIA met again with the Board on April 28, 2005, to discuss 
issues raised by the external reviewers and RMA and concerns of the 
Board.
    On April 28, 2005, the Board voted unanimously to give notice of 
intent to disapprove the LRP lamb submission.
    The Board is sympathetic to the needs of the sheep industry for a 
viable risk management tool; but, must also assure any proposed program 
complies with all applicable provisions of the Act, the interests of 
producers are adequately protected, premiums rates are actuarially 
appropriate, and that program integrity will be protected.

                             PUBLIC LAW 480

    Question. The fiscal year 2006 budget proposes transferring $300 
million from the Public Law 480 Title II account to USAID. What effect 
will this have on USDA's role in administering food aid?
    Answer. At this time it is not expected that USDA will have an in-
depth administrative role with regard to the $300 million; however, 
interagency coordination across all food aid programs will continue. 
USDA will continue to procure the food under Public Law 480 title II. 
USDA's role in procuring commodities funded through the $300 million 
allocated to USAID will depend on whether the commodities are purchased 
in the United States or outside of the United States. If the 
commodities are procured outside of the United States, USDA would not 
be expected to have a role in the procurement of these commodities. 
USAID will be responsible for the budget and the financial management 
of those resources.

                         WEB-BASED APPLICATIONS

    Question. FSA has put emphasis on web-based applications. What 
percentage of producers are utilizing this technology?
    Answer. According to the August 2003 Computer Usage and Ownership 
Report of the National Agricultural Statistics Service, a total of 48 
percent of U.S. farms have internet access. Of the 58 percent of farms 
that have access to a computer, 54 percent own or lease one. Thirty 
percent of farms use a computer for their farm business.
    Question. Do you have benchmarks to track your success?
    Answer. We are tracking internet usage daily for the web-based 
applications we have deployed. FSA is currently receiving approximately 
200,000 external web-site hits monthly. Over 45,000 customers have 
obtained eAuthentication credentials--i.e., electronic signature--to 
conduct business electronically with FSA.
    The major web-based applications that have been deployed include:
  --Web-based Forms.--Since the first forms became available in June 
        2002, FSA has been expanding this capability, specifically 
        targeting forms that our customers can electronically access, 
        sign, and submit on line. FSA has posted over 700 forms to our 
        eForms website, with over 100 in Spanish.
  --Electronic Loan Deficiency Payments (eLDP's).--Pre-approved 
        producers can access a web-based application and interactively 
        file applications for LDP's. The web-based applications will 
        accept the LDP transactions, calculate and issue electronic 
        payments, and issue electronic notification of the payments to 
        the participating producers. The eLDP project was deployed 
        nationwide in September 2004. Over $30 million has been 
        distributed, and 12,000 applications have processed. Over 7,000 
        customers have established eLDP profiles.
  --Electronic Direct and Counter Cyclical Payment Program (eDCP).--The 
        eDCP was deployed in October 2004 and enables producers to 
        enroll using web-based public access facilities in the new 
        system.
  --Electronic Representative (eRep).--Deployed in September 2004, this 
        application allows various entities such as partnerships, 
        corporations, trusts, and estates, to conduct business with FSA 
        electronically.
  --Customer Financial Inquiry Data Mart.--This application provides 
        FSA customers access to FSA/CCC payment, receipt, debt, and IRS 
        reporting information. Deployed March 2004 in conjunction with 
        the USDA Customer Statement.
  --USDA Common Customer Statement.--Deployed March 2004. With linkages 
        to FSA's Customer Financial Inquiry Data Mart and Farm Loan 
        Customer Status Web Service, allows producers to obtain 
        information such as payments and receipts.
  --Farm Business Plan Manager--Equity Manager.--This farm business 
        planning and financial/credit analysis tool is being used to 
        determine credit worthiness during the life of an FSA farm 
        loan. Initial deployment to FSA farm loan employees occurred in 
        2004. Access will be expanded to FSA guaranteed lenders in 
        2005.
    Question. How are you encouraging producers to take advantage of 
this technology?
    Answer. We are encouraging producers in a number of ways. At 
various farm trade shows we are displaying and demonstrating our new 
applications as well as providing printed brochures and posters. In our 
county offices the print material is also available, and FSA employees 
are promoting these new tools and providing our customers instruction 
on using them. FSA employees are also promoting these tools when 
speaking in different forums across the country. In addition, almost 
every press release, brochure, and poster that FSA produces contains a 
promotional web-site link.
                                 ______
                                 

              Questions Submitted by Senator Conrad Burns

                               BEEF TRADE

    Question. Resuming beef trade with major foreign markets is a 
priority for me, as it is for many Senators. I know USDA shares that 
priority. However, news reports from some of these countries, 
particularly Japan, indicate that consumer fears about U.S. beef safety 
still exist.
    In addition to your efforts to open the borders, what types of 
things is USDA doing to promote U.S. beef internationally, and reassure 
consumers in major markets that our beef is the safest in the world?
    Answer. The Japanese and Korean governments have specifically asked 
that USDA implement a risk communications plan to help sell any 
agreement between the United States and their respective countries on 
Bovine Spongiform Encephalopathy (BSE). In response, FAS and the U.S. 
Meat Export Federation (USMEF) have produced a joint pre- and post-
opening risk communications plan that focuses on consumer, media, and 
political beef trade concerns and misperceptions about BSE. Both USDA 
and USMEF have begun to implement and plan activities to communicate 
the proper messages such as editorials, journalist trips to the United 
States, BSE seminars, advertisements, and dissemination of technical 
materials.
    In addition, Dr. Charles Lambert, Deputy Under Secretary for 
Marketing and Regulatory programs, has led a U.S. delegation of experts 
to Tokyo for outreach activities and technical discussions with 
Japanese government officials. Outreach activities include press 
briefings and roundtables with the press, industry, and consumers to 
help convince Japanese that U.S. beef is safe.

                                 SUGAR

    Question. The 1.2 percent marketing assessment for sugar producers 
appears, at first glance, to be not much more than a tax on sugar. If I 
understand correctly, the revenues go directly into the General Fund, 
rather than to an agriculture-related purpose. Can you provide a little 
more background on the rationale for this assessment?
    Answer. The sugar marketing assessment is proposed as part of a 
package that spreads the deficit reduction burden across all farmers 
that benefit from Federal agricultural programs. The deficit reduction 
activities that will affect most agricultural program beneficiaries, 
i.e. reduction in marketing loan gains, tightening payment limitations, 
and the general 5 percent reduction in payments, will not affect sugar 
program beneficiaries because the sugar program does not improve sugar 
beet and sugarcane growers' income by direct payments from the Federal 
Government. The sugar program increases farm income by increasing the 
domestic sugar price by limiting supply through an import tariff-rate 
quota and a domestic marketing quota. There is a nonrecourse sugar loan 
available, but the sugar program is specifically required to manage 
supply to avoid the cost of sugar loan collateral forfeitures. A sugar 
marketing assessment, similar to the current proposal, was included in 
the Omnibus Budget Reconciliation Acts of 1990 and 1993 to spread the 
cost of deficit reduction among all Federal program beneficiaries.

                             CROP INSURANCE

    Question. Last year, RMA successfully negotiated a new Standard 
Reinsurance Agreement for crop insurance providers, which included some 
reductions in administrative & overhead costs, as well as underwriting 
gains. This year's budget includes further reductions in underwriting 
gains, as well as some modifications to premium subsidies. Crop 
insurance is a critical risk management tool for my producers in 
Montana, and I want to ensure that the program remains strong. Can you 
discuss the Administration's commitment to effective risk management 
tools, and how this year's proposals strengthen crop insurance 
delivery?
    Answer. One of the highlighted goals of the Administration's budget 
is strengthening crop insurance delivery to ensure that farmers have 
adequate yield and price protection. The value of crop insurance 
protection in 2006 will be about $41 billion, representing more than 80 
percent of the Nation's acres planted to principal crops. Despite the 
high level of participation, demand still exists for ad hoc disaster 
assistance due in part to reliance on catastrophic coverage which 
affords the producer only 27.5 percent protection in the event of a 
total loss.
    In continuing the Administration's efforts to more effectively 
budget for and administer disaster assistance programs, the 2006 budget 
includes a proposal to compel producers to purchase more adequate 
coverage by tying the receipt of direct payments or any other Federal 
payment for crops to the purchase of crop insurance.
    Other changes include modifications to the fee for catastrophic 
coverage that is intended to make the program more equitable in its 
treatment of both large and small farms, restructuring premium rates to 
better reflect historical losses, and reduction in delivery costs. The 
combination of changes is expected to save the government approximately 
$140 million per year, beginning in 2007.
                                 ______
                                 

                Questions Submitted by Senator Herb Kohl

                        FSA AGENCY LOAN OFFICERS

    Question. I understand a disproportionately large number of Farm 
Service Agency loan officers will be eligible to retire in the next 2-5 
years. Moreover, we are told it takes at least 2 years of on-the job-
training before a new loan officer can function at full competence. 
Considering the critical impact these employees have on America's 
farmers and ranchers, this raises some important questions. How many of 
your senior loan officers, in the national office and in the field, are 
eligible to retire?
    Answer. FSA's records indicate that 287, or 17 percent, of the 
agency's loan officers will be eligible to retire in fiscal year 2005.
    Question. How many will be eligible to retire in each of the next 1 
to 5 years?
    Answer. So far, the agency has analyzed the data for the next 3 
fiscal years. The information for those years is as follows:

------------------------------------------------------------------------
                                          Number of Loan
                                             Officers       Percent of
               Fiscal year                  Eligible to     Total Loan
                                              Retire         Officers
------------------------------------------------------------------------
2006....................................             345              21
2007....................................             408              25
2008....................................             492              30
------------------------------------------------------------------------

    Each year's retirement eligibility includes those eligible from the 
previous year, plus those becoming eligible to retire during that year.
    Question. How many do you think will actually leave in fiscal year 
2006?
    Answer. Because each individual's situation is different, it is 
difficult to predict the actual number of retirements in any given 
year. However, given the high workload, the high rate of change in 
program policies and information technology, and similar stress factors 
associated with the farm loan manager position, we expect that a 
substantial percentage of those employees eligible for retirement will 
actually retire.
    Question. What plans are you making in your 2006 budget request to 
prepare your staff to replace those positions?
    Answer. The President's fiscal year 2005 Budget included a request 
for 100 trainee positions to establish a ``pipeline'' of new loan 
officers in anticipation of coming retirements. However, because 
appropriated funds were below the President's request, the agency made 
the difficult decision to forgo filling those positions. Given the 
continued need for fiscal restraint, the fiscal year 2006 President's 
Budget did not include the 100 positions. As part of a comprehensive 
review of agency operations, FSA is studying the best approach to 
ensuring a sufficient, well-trained cadre of farm loan officers.
    Question. If you agree that having adequate and fully competent 
loan officers is necessary for the agency to fulfill its mission, why 
are you not requesting funds to maintain an adequate force of loan 
officers instead of asking for $3,300,000 for new outreach efforts?
    Answer. Adequate and fully competent loan officers are indeed 
necessary for the agency to fulfill its mission. Under an initiative 
known as ``FSA Tomorrow,'' the agency is performing a top-to-bottom 
review of its operations to determine whether its current structure 
best serves present and future requirements. The need to ensure 
adequate staffing of trained loan officers as well as employees in all 
mission-critical occupations will be addressed as part of that review.
    The stakeholder discussions that FSA held in developing its 
strategic plan revealed that outreach to ensure equitable access to 
programs by underserved populations is a critical issue. The agency 
believes that its goal of outstanding customer service cannot be 
realized if it fails to reach many of its potential customers. 
Therefore, even in view of the many difficult choices required in 
carrying out operations while constraining costs, FSA believes that an 
enhanced outreach program is a high priority.
    Question. Where and what population will you target in your 
requested outreach efforts?
    Answer. FSA's outreach efforts will address various populations 
throughout the country that are underserved, particularly in access to 
farm loan programs. As an example, one of FSA's outreach projects is a 
cooperative agreement with the National Tribal Development Association 
located in Montana. The National FSA American Indian Credit Outreach 
Initiative, which has been ongoing for 3 years, is designed to reach 
out to Native Americans on reservations to inform them about FSA farm 
loan programs and to assist them in applying for loans. FSA has other 
cooperative agreements to inform minority producers about FSA programs 
and to encourage their participation. FSA is also reaching out, in 
partnership with other Department of Agriculture agencies, to 
community-based organizations to encourage minority participation in 
FSA loan programs.
    The additional $3,300,000 requested in the President's fiscal year 
2006 Budget will be used to expand FSA's work with its partners and 
customers to increase program participation of underserved customers, 
with special emphasis on socially disadvantaged and/or limited resource 
farmers, women, and members of minority groups such as Native 
Americans, Hispanics, Asian-Pacific Americans, and African Americans.
    Without this requested funding increase, the resources required to 
perform this much-needed work must be taken from FSA's salaries and 
expenses budget, thus placing downward pressure on FSA's hiring 
ceilings.
    Question. Have you ever tested your employees, for example, by 
using third party entities, to see if your loan programs are being 
administered in compliance with Federal statutes including the Equal 
Credit Opportunity Act?
    Answer. To date, third party testers have not been used. The agency 
uses several different compliance review processes to ensure that all 
regulatory requirements are met. FSA program and civil rights staffs 
conduct routine reviews of office operations and loan processing and 
servicing activities. If at any time problems become evident, special 
targeted reviews are conducted as well. The agency maintains a special 
focus on monitoring the processing of loans from minority and female 
applicants; periodic reviews of denied applications must be performed 
by managers, and corrective action taken immediately upon detection of 
problems.
    Question. Would not such tests be an appropriate way to identify 
and address existing problems within your agency while conducting 
additional outreach efforts? Wouldn't this be a cost-effective way to 
deal with overall problems within the agency?
    Answer. Additional compliance testing will not completely solve 
several of FSA's problems with regard to underserved populations. In 
order to apply for farm loans, producers, especially women and 
minorities, must be made aware of the available loan programs. They 
must also, in some cases, be encouraged and assisted by community-based 
organizations and minority-serving educational institutions. Special 
efforts must also be made to communicate with minority producers who 
have special cultural and linguistic needs. While FSA agrees that 
customer service during the loan application and approval process is 
crucial, removing barriers to applying is also essential. FSA is 
currently focusing its outreach effort on overcoming these known 
barriers.

                      FAS FOREIGN OFFICE SECURITY

    Question. The President's budget includes within the FAS salaries 
and expenses account, nearly $3 million for capital security costs in 
overseas locations and an additional $650,000 contribution for the 
Baghdad Embassy. What assurances do you have that FAS location needs 
will be met as are now indicated by the contribution rates you have 
been assigned?
    Answer. The State Department has developed a capital construction 
program to provide adequate and secure space for all agencies overseas. 
The costs of the program are based on a worldwide headcount and not 
tied to specific facilities in specific locations. We will continue to 
work with the State Department to ensure that FAS will be provided with 
adequate space for the numbers of personnel for which it is being 
charged.
    Question. What input have you had with the State Department in 
development of the rates of contributions USDA has been assigned for 
this purpose?
    Answer. After announcing the program, the State Department accepted 
some feedback from other agencies regarding the provision of credit for 
rent currently being paid and charging different rates for different 
types of personnel. Other than making those two changes to the 
calculation of agency contributions, the State Department has not 
adopted any other suggestions. The overall level of the program was 
determined by State, as was the rate of contribution for each employee.
                                 ______
                                 

               Questions Submitted by Senator Tom Harkin

           WTO DECISION ON USDA COMMODITY AND TRADE PROGRAMS

    Question. In the course of crafting the 2002 farm bill, the House 
and Senate Agriculture Committees, with extensive advice from USDA, 
sought to keep the farm bill provisions consistent with our 
international trade obligations. Despite those efforts, last month a 
WTO appeals panel upheld the claims of the government of Brazil, which 
asserted that the U.S. cotton support program and certain other 
programs violate WTO rules. As a result, Congress faces a July 1, 2005 
deadline for modifying the export credit guarantee and Cotton Step 2 
programs in order to come into compliance with that WTO ruling. We will 
also have to address changes in the price-related farm programs by some 
later date. Congress needs the best advice of USDA regarding options 
for changes to the export credit guarantee and cotton step 2 programs 
that would be adequate to satisfy the requirements of the WTO appellate 
panel's decision. When will we receive this advice and guidance?
    Answer. USDA is consulting carefully and extensively with the U.S. 
Trade Representative, industry, and others to craft a response to the 
WTO Appellate Body's decision. We will fully comply with the WTO 
decision. USDA will provide advice and guidance to Congress when we 
have determined how best to comply, taking into account the security of 
our cotton producers, the stability of our farm program, and the 
commercial opportunities and obligations of all who rely on our export 
credit programs, as well as our ambitions in the ongoing Doha WTO 
negotiations.

                 FARM SERVICE AGENCY-STATE ALLOCATIONS

    Question. Earlier this year I received a letter from a constituent 
who was laid off from her temporary position with her county Farm 
Service Agency office. She was informed that because the State agency 
had not received its budget allocation for fiscal year 2005, there was 
not enough money to keep her on staff. Was there a particular problem 
with the State FSA budget allocations this year?
    Answer. FSA's fiscal year 2005 President's budget assumed an 
overall reduction in temporary staff years of 1,067 due to the 
completion of final Farm Bill implementation activities. Although FSA 
was operating under multiple continuing resolutions from October 1, 
2004 through December 8, 2004, temporary ceiling levels and allotments 
were made to all States. The total temporary employee ceiling level for 
Iowa is 70 staff years. The total temporary employee usage through the 
first half of the fiscal year was 36.72 staff years or 52 percent of 
the total ceiling level. FSA provided Iowa with full funding through 
the various continuing resolution periods, and subsequently for the 
full year, in order to ensure the ability of the State to manage its 
workforce in correlation with annual workload needs.
    Question. What actions will FSA take to avoid future problems?
    Answer. FSA complied fully with the requirements of the continuing 
resolutions and issued timely allotments to all States. FSA will 
continue to make every effort in the future to provide timely and 
accurate funding to all States.
    Question. Does the FSA have enough funds to adequately staff local 
offices?
    Answer. FSA completed a thorough review in order to ensure that 
critical mission goals are accomplished within the available resources, 
given that FSA's appropriation was $27.1 million below the requested 
amount.

                FARM SERVICE AGENCY--BENEFICIAL INTEREST

    Question. For most producers, claiming loan deficiency was a 
relatively routine procedure, but far too many producers encountered 
beneficial interest problems that blocked them from receiving payment. 
I encourage you to provide equitable relief where the loss of 
beneficial interest was inadvertent or unintentional. I also understand 
that FSA is working to combine forms to avoid some of the confusion 
next year and should simplify the process for both producers and FSA 
county office employees. What is the status of equitable relief for 
these producers?
    Answer. The beneficial interest requirement for loan deficiency 
payments is the same as that which exists for commodity loans. 
Beneficial interest is a statutory requirement. Misaction or 
misinformation is determined on a case-by-case basis.
    Question. What is the status of the form revision?
    Answer. FSA is in the process of drafting a new form and 
instructions. We hope to have it available in time for corn harvest.

               CONSERVATION RESERVE PROGRAM--SWITCHGRASS

    Question. As you mentioned in your comments--we have a challenge 
ahead of us as existing CRP contracts expire. Working with the Chariton 
Valley RC&D, we were able to combine CRP and energy production in an 
innovative project in southern Iowa. I am concerned that the CRP acres 
planted to switchgrass may not receive priority when the owners bid 
those acres for re-enrollment in the CRP. Will the administration 
support the concept of a CRP ``energy reserve'' so we can continue this 
innovative project?
    Answer. In August 2004, USDA asked for public comment on how to 
address the 28 million acres under CRP contracts that will expire 
between 2007 and 2010. USDA received about 5,200 comments, which we are 
reviewing and evaluating.
    As we develop our options on how to address extensions and 
reenrollments, we will take into consideration the role that CRP can 
play as a renewable fuel source. The pilot program in Iowa is a prime 
example of the benefit that CRP can provide to meet some of our energy 
needs in an environmentally sound manner.

                          SUBCOMMITTEE RECESS

    Senator Bennett. Thank you. We have managed to beat the 
clock by 5 minutes for which we are very grateful.
    As I said, all of the prepared material that you brought 
with you will be included in the record, and we will examine 
it. We thank you for your service and your attention to all 
these matters.
    The next hearing will be tomorrow afternoon. We will 
examine food, nutrition, and consumer services, marketing and 
regulatory programs, and food safety.
    Thank you again. The subcommittee is recessed.
    [Whereupon, at 1:43 p.m., Wednesday, April 13, the 
subcommittee was recessed, to reconvene at 2 p.m., Thursday, 
April 14.]
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