[Senate Hearing 113-]
[From the U.S. Government Publishing Office]



 
   AGRICULTURE, RURAL DEVELOPMENT, FOOD AND DRUG ADMINISTRATION, AND 
          RELATED AGENCIES APPROPRIATIONS FOR FISCAL YEAR 2014

                              ----------                              


                         THURSDAY, MAY 9, 2013

                                       U.S. Senate,
           Subcommittee of the Committee on Appropriations,
                                                    Washington, DC.
    The subcommittee met at 10:40 a.m., in room SD-124, Dirksen 
Senate Office Building, Hon. Mark L. Pryor (chairman) 
presiding.
    Present: Senators Pryor, Johnson, Tester, Udall, Merkley, 
Blunt, Cochran, Moran, and Hoeven.

                       DEPARTMENT OF AGRICULTURE

                        Office of the Secretary

STATEMENT OF HON. THOMAS J. VILSACK, SECRETARY
ACCOMPANIED BY MICHAEL YOUNG, BUDGET OFFICER

               OPENING STATEMENT OF SENATOR MARK L. PRYOR

    Senator Pryor. We'll go ahead and call this hearing to 
order. I want to thank everyone for coming and being here 
today.
    We have two panels today. The first will be Secretary Tom 
Vilsack, who will be accompanied by Mike Young, the Chief 
Budget Officer. I'd like to welcome you both and say thank you 
for being here, and we appreciate hearing from you today.
    Secretary Vilsack, we've visited many times and a few times 
even since I have become the chairman of the subcommittee. And 
I think that we've been able to accomplish some really good 
things together. And I look forward to continue working with 
you on all manner of things that relate to your Department and 
very important policies that you have to deal with in these 
very challenging times. So I look forward to doing that with 
you and thank you again for being here.
    And on the second panel, we'll hear from the USDA Inspector 
General Phyllis Fong. We appreciate her being here, and we look 
forward to hearing from her as well.
    And there's an old saying that a person with food has many 
problems, but a person with no food has only one problem. I 
think that that really sums up the importance of USDA and 
highlights the reason it's referred to as the people's 
Department.
    American farmers not only feed this country but they feed 
people around the world. The challenges facing America's 
farmers, however, are rapidly growing and changing. When USDA 
was established by President Lincoln in 1862, almost one-half 
of the U.S. population lived on farms. Today, it's about 2 
percent. Yet, the world's demand for food and feed and fiber 
continues to increase, and it is expected to double by the year 
2050.
    Our population at that point supposedly is going to be 
about 9 billion people. So the farmers have to produce more and 
do more with less. They're going to have less land. There's 
going to be greater competition for bioenergy and other uses of 
agricultural products. There's going to be a laser-focus on 
stewardship of the land and, unfortunately, increasingly 
unpredictable weather patterns.
    And I have no doubt that America's producers will rise to 
the occasion. They're working harder and smarter than ever 
before. There's a reason why Thomas Jefferson called 
agriculture science of the very highest order.
    And I know in a few moments, Secretary Vilsack is going to 
want to talk to some about research and innovation and the 
science involved in what he does. And at this moment in time, 
America's investment in agriculture is clearly paying off.
    Adjusted for inflation, 2013 net farm income is expected to 
be the highest since 1973. The United States has exported $478 
billion worth of agricultural products over the last 4 years.
    In Arkansas, for example, agriculture is our number one 
industry. It's going to be either number one or, in some 
States, number two, but always in the top three in every single 
State of the most important industries in that State.
    Our farmers produce more than 50 percent of U.S. rice. 
We're also number two in poultry and eggs. We have over 49,000 
farms. We have a big timber presence. We have a very diverse 
portfolio in Arkansas, as most members here on the subcommittee 
do.
    And so agriculture is a big deal in our States, and it's 
something that we want to do well. But the challenges remain. 
The USDA must do everything it can to continue to support 
farmers and rural America, because their hard work supports all 
of us.
    So let's take a look at USDA budget for 2014. Overall, the 
funding is less than that of 1 year ago. And within that total, 
there's a $100 million increase for Rural Development, Rental 
Assistance Grant. There's an increase for Farm Service 
agencies. There's an increase for competitive research and the 
Women, Infants, and Children (WIC) program.
    However, the downside would be that we're seeing some 
decreases in water and waste grants. There's approximately $500 
million less to make loans for single-family homes. The Public 
Law 480 program, which has fed more than 3 billion people in a 
150 countries since its inception in 1954 is dismantled in this 
budget.
    There's, obviously, much more in the budget than these few 
points I mentioned, and I look forward to hearing from the 
Secretary and all of the Senators and others about what we're 
going to go into here in this hearing.
    So I hope that we'll discuss the impact of the sequester. I 
know that's something that the Secretary is vitally interested 
in. And I share the view that I think most do, that the 
sequester is a very imprecise, not very smart way to do this. 
We need to be more targeted and smarter about how we do our 
cuts. But nonetheless, that's where we are today.
    So we have a lot to cover, and I want to cut my comments 
short here and go ahead and recognize Senator Blunt for his 
great work and recognize him for his opening statement.

                     STATEMENT OF SENATOR ROY BLUNT

    Senator Blunt. Thank you, Chairman. I'm very pleased to be 
on this subcommittee and pleased to be serving with you, 
looking forward to your leadership of the subcommittee.
    This is, actually, the second hearing we've done since 
Chairman Pryor took over the chief responsibility for this 
subcommittee, and we have worked together on other things 
before. And I look forward, certainly, to working with him and 
the other members of the subcommittee to do what needs to be 
done and to do our best to get what needs to get done 
accomplished in the right way.
    Secretary Vilsack, Mr. Young, we're certainly glad that 
you're here today. I might have a couple of other comments 
before we get to the second panel. But I think I'll just 
restrict my comments right now to the overall view of what I 
think we need to be thinking about.
    Certainly, as the chairman has already said, agriculture 
plays a critical role in our country. It's been an unbelievably 
competitive industry in exports as well as feeding the American 
people.
    In Missouri, agriculture is always considered the number 
one driver of our economy. And in every State, agriculture is 
high on the list of things that make the economies of those 
States work.
    Challenges are out there. Last year, about 80 percent of 
agricultural land across America experienced drought. It was 
the most extensive drought since the 1950s. All 114 Missouri 
counties were declared a disaster area because of that drought, 
and many of them with such dry conditions that they ranked 
among the worst in the country.
    The effects of the drought had been far-reaching, 
particularly on the livestock industry, which is important in 
all of our States. And there's not the kind of robust risk 
management program in livestock like there is in crop 
insurance, particularly with the expiration of the livestock 
disaster program in 2011. These producers really haven't had a 
safety net to rely on for almost 2 years.
    As a result, there has been a lot of liquidation of herds 
resulting in the lowest number of U.S. cattle since 1952. 
Missouri's cattle herd declined by 300,000 last year. And of 
course, that has lots of far-reaching consequences whenever 
young cows are sold off and don't become part of the 
replenishing crop of cattle and livestock.
    I've introduced legislation that would extend the livestock 
disaster programs so that these producers receive some 
assistance. I hope we're able to discuss that today and after 
today.
    We all know the size of Government has grown beyond its 
means, which is why we have to prioritize what we do. The 
President actually proposed a budget that is lower than the 
fiscal year 2013 funding levels for the U.S. Department of 
Agriculture. Most of this reduction, however, was a result of 
the administration's proposal to shift about $1.5 billion in 
funding for the Food for Peace Program to the accounts that 
would be administered differently than Food for Peace under 
State and Foreign Ops.
    I actually think Food for Peace has been a cornerstone of 
America's humanitarian assistance since the mid-1950s. It plays 
a vital role in linking the American farmer with the developing 
world, and it's the largest and most consistently supported 
food and agriculture development assistance program we provide. 
I think the polling would indicate it's the most popular of all 
the foreign assistance programs.
    I have what I believe to be a legitimate concern that the 
proposed changes are shortsighted. I hope we continue with Food 
for Peace and a more traditional view of Food for Peace. And 
I'm sure we can talk about that today, as well.
    If you actually put Food for Peace back in the USDA budget, 
it's a little higher. There's a net increase over last year, 
and I would think that would be the right thing to see happen 
here.
    So I'm looking forward to your testimony. We look forward 
to the chance to ask questions and work with the Department, 
both in research and management. The fact that USDA has been 
able to work with the line-by-line budget changes without 
having to furlough employees says a lot about your management, 
Mr. Secretary. And, again, I'm glad you're here and grateful to 
the chairman for leading this discussion in this hearing today.
    Senator Pryor. Thank you, Senator Blunt.
    And would anybody else would like make an opening 
statement?

                    STATEMENT OF SENATOR TIM JOHNSON

    Senator Johnson. Mr. Chairman, I'm pleased to join you in 
welcoming the distinguished Secretary to our hearing, and I ask 
unanimous consent the balance of my remarks be printed in the 
record.
    [The referenced statement was not available at press time.]
    Senator Pryor. Without objection. Thank you.
    Thank you all for being here, and we'll put everyone's 
statements in the record.
    Secretary Vilsack, welcome to the subcommittee. We're glad 
to have you here and look forward to hearing from your 
testimony.

              SUMMARY STATEMENT OF HON. THOMAS J. VILSACK

    Secretary Vilsack. Mr. Chairman, thank you very much. And I 
appreciate your comments, as well as Senator Blunt's comments.
    I appreciate the opportunity to be here this morning. And 
first of all, I probably should thank you and Senator Blunt and 
the members of this subcommittee for your assistance and help 
on the food inspection issue, which was critically of concern 
to us. And you all helped us get through that process, and I 
want to thank you for that.
    Budgets are very difficult and challenging work, especially 
in this environment. You're balancing the need to expand 
economic opportunity and to help America's farmers and ranchers 
at the same time we're dealing with constrained budgets.
    I'd like to talk to you for just a few minutes about this 
budget and then be happy to answer questions.
    Let me point out that, currently, we are working with a 
budget in 2013, and this would also be true if our budget were 
passed in 2014, that will be below the discretionary budget 
authority that I had when I became Secretary in 2009.
    Currently, we're dealing with a budget that is about $1 
billion below where it was in 2009 in terms of our 
discretionary authority. We're also taking a look at a reduced 
workforce, roughly 8,000 fewer workers at USDA than when I 
became Secretary.
    But the level of service that's being provided by those at 
USDA continues to be at record levels. In fact, you can take a 
look at agricultural exports, you can look at conservation, you 
can look at the Farm Service loan portfolio, or Rural 
Development's loan portfolio, and what you will see is at or 
near or exceeding record levels of activity.
    So, essentially, what we're proposing is a continuation of 
our effort to try to rebuild the rural economy and to continue 
to provide assistance and help to the greatest farmers, 
ranchers, and producers in the world.
    Let me specifically tell you what this budget does. It 
continues to allow the extension of credit to 134,000 producers 
in this country with a focus on beginning farmers and ranchers. 
It makes a strong commitment to a strong safety net, $9.6 
billion in crop insurance assistance. And, as Senator Blunt has 
suggested, it also provides for a reinstatement of the Disaster 
Assistance Programs that were discontinued in 2011 that are so 
vital to our livestock and dairy industry.
    It aggressively continues our effort to promote trade. 
Mention was made of the fact that we're now at historic levels 
in terms of agricultural trade. We want to continue to promote 
trade around the world, and we want to continue to reduce 
sanitary and phytosanitary barriers that are being constructed 
that are not science-based and not rules-based.
    This budget supports a fair and transparent market system. 
It continues our efforts to protect our crops and plants and 
animals from deadly pests and diseases and, specifically, 
proposes a $20 million initiative reducing feral swine.
    It modernizes our research facilities, especially a poultry 
facility, which we are suggesting needs to be modernized and 
built in Georgia.
    It significantly increases our commitment to agricultural 
innovation. The reality is that we have flat-lined research for 
far too long in this country in terms of agriculture. And if we 
continue along that trend, we'll see a decline in productivity 
at a time when we need to continue to increase agricultural 
productivity.
    This budget simplifies our conservation programs but will 
add 26.3 million acres to our record number of acres enrolled 
in conservation, and will help 80,000 farmers and producers do 
a better job of conserving the land and the water.
    It will continue to support all levels and all types of 
agricultural production, including organic production, a 
rapidly growing and expanding area of agriculture. And it will 
continue our commitment to improving technology in our Farm 
Service Agency offices through the MIDAS program. We anticipate 
and expect this year we'll begin to see significant positive 
movement in MIDAS with a completion in 2014.
    For those who are looking to expand economic opportunity in 
rural America, this budget commits nearly $1 billion to support 
small-business development and expansion, with particular 
emphasis on clean and renewable energy opportunities, bio-based 
manufacturing, and local and regional food systems.
    It commits nearly $7 billion to improving utility services, 
providing cleaner water, expanding renewable energy 
opportunities, as well as broadband, the basic infrastructure 
for rural America. It will support 1,700 community facility 
improvements and will make homeownership a possibility for 
174,000 rural families.
    This budget also focuses on our efforts to renew our 
forests and provide our working lands with a greater resilience 
to a changing climate. It protects our families through 
improved food safety. It supports our efforts to provide 
nutritious food to all Americans, particularly those in need 
and particularly our children. It focuses and proposes a 
significant opportunity to extend dietary guidelines for 
children 0-2. And it increases and improves significantly our 
SNAP integrity efforts.
    Finally, I would say that we're also cognizant of the need 
for us to contribute to deficit reduction. This budget 
basically identifies $39 billion over a 10-year period in 
deficit reduction. There are issues relating to crop insurance 
and conservation at water projects that this subcommittee may 
want to talk about. But I'd like to specifically talk about two 
briefly.
    One is that we are not providing additional funding for 
payments to Brazil, the cotton dispute that emanated from a WTO 
ruling. We've been paying about $140 million a year for the 
last several years. It is important and, I think, necessary 
that we get a 5-year farm program to solve this Brazilian 
cotton problem, so that we stop paying the Brazilians.
    Mention has been made of the food aid issue. I'm sure that 
we'll talk about that further, but I do need to point out that 
what is being proposed will allow us to feed 4 million more 
people, probably shaves somewhere between 11 and 14 weeks off 
getting aid to folks but still provide opportunities for the 
purchase and utilization of American agriculture. At least 55 
percent of the money will be spent with American agriculture.
    So I look forward to the opportunities. I'll just leave you 
with two interesting statistics that I think speak to the 
challenge that we face in rural America. Thirty-two thousand 
farm families--32,000 farm families--are responsible for 50 
percent of the agricultural production in this country. And 
that suggests and speaks that there's just been extraordinary 
increases in productivity and efficiency.
    The problem with that, obviously, is that we, obviously, 
have fewer farmers today than we've had in some time. And that 
has reflected itself in a statistic that, for the first time, 
we've actually had a decline in rural population.
    So I think the challenge for all of us in this area is to 
continue to figure out ways in which we can complement American 
agriculture and productivity to be able to provide 
opportunities for young people to live, work, and raise their 
families in rural communities.

                           PREPARED STATEMENT

    I believe this budget basically lays a strong foundation 
for doing that, and I look forward to answering the questions 
the subcommittee has.
    Thank you, Mr. Chairman.
    [The statement follows:]

              Prepared Statement of Hon. Thomas J. Vilsack

    Mr. Chairman and distinguished members of this subcommittee, I 
appreciate the opportunity to appear before you to discuss the 
administration's priorities for the Department of Agriculture (USDA) 
and provide you an overview of the President's 2014 budget. I am joined 
today by Joseph Glauber, USDA's Chief Economist, and Michael Young, 
USDA's Budget Officer.
    The USDA under President Obama's leadership has taken significant 
steps to strengthen the rural economy and provide a foundation for 
continued growth and prosperity. These efforts have had a significant 
impact in rural America, where the seasonally adjusted unemployment 
rate fell to 7.7 percent for the third quarter of fiscal year 2012--
down from a peak of 9.5 percent in late 2009. In particular, 
agriculture remains a bright spot in our economy. The resilience of 
American farmers and ranchers has helped to support 1-in-12 U.S. jobs. 
Net farm income remains strong, and the farm debt-to-asset ratio is at 
a record low today. Fueled by new trade agreements with Panama, 
Colombia, and South Korea, American agricultural exports are surging--
with more than $478 billion in exports over the last 4 years. Our 
farmers and ranchers achieved these results even in the face of the 
worst drought in generations, and the uncertainty posed by the lack of 
a comprehensive, multi-year food, farm and jobs bill. Challenges still 
remain for agriculture--especially for America's livestock and dairy 
producers, who continue to struggle today with low margins and high 
input costs.
    With the passage of the Consolidated and Further Continuing 
Appropriations Act, 2013, we appreciate that Congress provided the 
funding necessary to avoid a costly and disruptive nationwide shutdown 
of meat and poultry plants. Congress also enabled USDA to continue 
providing nutrition assistance, education and other services to improve 
the nutritional status and health of the total 8.9 million low-income 
women and children estimated to participate in the Special Supplemental 
Nutrition Program for Women, Infants, and Children (WIC). However, the 
act not only continued the across-the-board reduction for most programs 
as required by sequestration, it added on two separate across-the-board 
rescissions for agriculture programs. As a result of these actions, the 
Department's total discretionary operating budget for 2013 has been 
reduced by over $570 million below the 2012 enacted level and over $1 
billion below fiscal year 2009.
    These reductions in USDA's operating budget come at a time when our 
staff are doing more work than ever before. Over the past decade, 
USDA's agencies have leveraged efficiencies to manage a workload that 
has increased due to a greater number and complexity of programs and 
higher participation levels, while staff resources to manage that 
increased program activity have declined by over 12 percent. For 
example, the Risk Management Agency (RMA), Food and Nutrition Service 
(FNS), Rural Development (RD), and Farm Service Agency (FSA) have all 
seen increases in workload, while staffing has decreased in all of 
these agencies during that time. The scope and complexity of USDA 
programs reflects the challenge we face to manage taxpayer dollars 
effectively and deliver record levels of service.
    I am proud of USDA staff for stepping up and getting the job done. 
Over the past 4 years, USDA has achieved record results on behalf of 
rural Americans, creating thousands of jobs in the process. We provided 
a strong safety net for agricultural producers. We expanded trade 
agreements around the world, while breaking down unfair trade barriers 
to level the playing field for U.S. producers. USDA enrolled a record 
number of acres in conservation programs, while modernizing the ways in 
which we manage forest lands. We provided record amounts of credit in 
rural America--from farm loans to assistance for rural businesses and 
families. USDA strengthened food safety testing to protect Americans 
from foodborne illness. We led the way to create a generational change 
to improve child nutrition, while helping millions of families put food 
on the table. USDA research continues to help feed a growing 
population, while generating $20 in economic benefits for every $1 
invested.
    Meanwhile, USDA has made a comprehensive effort to achieve 
targeted, common-sense efficiencies. Under the Blueprint for Stronger 
Service, USDA agencies cut costs and modernized operations to become 
more efficient. In the past year, agencies have carried out workforce 
reductions, closed offices and laboratories, implemented modern cloud 
computing efforts and taken other actions to continue to lower costs. 
We have disposed of excess and underutilized property. Agencies reduced 
expenses for travel, printing, supplies, and advisory contracts. USDA 
has reduced travel spending by more than 42 percent over 2010 levels. 
In total, all of those efforts saved taxpayers more than $700 million.
    Despite our best efforts to prepare for additional funding 
reductions through prudent practices, such as hiring freezes and 
limiting operating costs, we cannot forestall the negative impact of 
reduced funding in every area. Our ability to provide oversight and 
servicing is likely to be impacted by cuts and we will work hard to 
minimize the impact to the extent possible on farmers, ranchers, and 
growers while protecting the integrity of the programs.
    While we have achieved significant savings, the reductions 
contained within the 2013 full-year continuing resolution will result 
in a reduction of some program services. For example, the reduced level 
of program funding will mean that rental assistance will not be 
available for more than 15,000 very low-income rural residents, 
generally elderly, disabled, and single female heads of households, who 
live in multi-family housing in rural areas. Our conservation efforts 
will suffer as the Natural Resources Conservation Service (NRCS) will 
not be able to assist over 3,500 farmers and ranchers in developing 
conservation plans, which position them for participating NRCS 
conservation programs. Further, conservation benefits will be lost with 
fewer conservation plans being implemented as well as fewer 
conservation practices being implemented with the assistance of 
mandatory programs affected by across-the-board sequester cuts, such as 
the Environmental Quality Incentives Program (EQIP). Our State partners 
will see a reduction in assistance for pest and disease prevention, 
surveillance, and response, potentially leading to more extensive 
outbreaks and economic losses to farmers and ranchers. Reductions to 
Agriculture and Food Research Initiative (AFRI) and mandatory funded 
research programs will result in 200 fewer grants for agricultural 
research conducted by both university scientists and private partners 
in areas such as bioenergy, organic production, specialty crops, and 
beginning farmer and rancher development.
    As outlined above, we have taken steps to deeply reduce USDA's 
operating expenses over the past 2 years. The spending cuts enacted for 
2013, however, severely limit our ability to deliver critical programs 
for the American people. The President's 2014 budget request would put 
us back on track to continue the revitalization of rural America, while 
achieving targeted reductions.
    In total, the 2014 budget we are proposing before this subcommittee 
is $139 billion, of which $121 billion is mandatory funding. The budget 
provides mandatory funds to fully support estimated participation 
levels for SNAP and Child Nutrition.
    It is my hope that Congress will continue to support our efforts to 
strengthen rural America and provide more certainty for American 
agriculture by enacting a comprehensive, multi-year food, farm and jobs 
bill. The farm bill provides for delivery of critical programs by USDA, 
including programs for farm commodity and price support, conservation, 
research, nutrition, food safety, and agricultural trade. The next 5-
year farm bill should promote Rural Development, preserve a farm safety 
net, enhance conservation, honor our World Trade Organization 
commitments, maintain strong nutrition programs, and advance 
agricultural research. In light of the Nation's long-term fiscal 
challenge, the legislation should also contribute meaningfully to 
deficit reduction.
    The 2014 President's budget includes a number of legislative 
proposals that produce savings to reduce the deficit, while maintaining 
a strong safety net for American agriculture. The proposed legislation 
would reduce the deficit by $38 billion over 10 years compared to 
current baseline spending. The savings would result from eliminating 
direct farm payments, decreasing crop insurance subsidies, and better 
targeting conservation funding to high-priority areas. The legislation 
also proposes to extend some disaster assistance programs, including 
the Livestock Forage Program (LFP), Livestock Indemnity Program (LIP), 
for the 2014 through the 2018 crops and provides additional support to 
dairy farmers through expansion of the dairy gross margin insurance 
program. The administration remains strongly committed to programs that 
create jobs, expand markets for existing products, and help develop the 
next generation of farmers and ranchers. To accomplish those goals the 
budget proposes an additional $1.3 billion in mandatory funding to 
strengthen renewable energy capacity in rural America, continue to 
create new markets and opportunity for organic agriculture, further 
promote specialty crops, and train the next generation of beginning 
farmers and ranchers.
    The administration also continues to support SNAP, a cornerstone of 
our Nation's food assistance safety net. As the Nation continues to 
recover from the worst economic crisis since the Great Depression, SNAP 
has provided critical temporary assistance to help families get through 
these tough times and back on their feet as soon as possible. While 
participation has increased, the rate of this increase has been 
declining since January 2010. Both the administration and CBO project 
that SNAP participation will peak this year and then begin to fall--
consistent with past economic downturns. Even as the economy recovers, 
SNAP will remain a critical support for children, the elderly, and 
minimum wage workers, who struggle to afford to put food on the table. 
Program benefits are modest--averaging only $134 a month--and are 
scheduled to be cut this fall. A temporary increase enacted around the 
start of the recession will expire on November 1, leading to an average 
cut of approximately $20 per family. The budget once again proposes to 
extend the availability of enhanced SNAP benefits through March 31, 
2014.
    Although SNAP operates with a high degree of program integrity, any 
waste, fraud, or abuse in a program of its size is important to 
eliminate. As part of our aggressive actions to ensure integrity, last 
year USDA took action to impose sanctions on 692 stores found violating 
program rules and to permanently disqualify 1,387 stores for 
trafficking in SNAP benefits. SNAP payment accuracy rate is at a record 
high of 96.21 percent, and the 2014 budget includes funds to expand 
existing SNAP integrity efforts to further reduce payment error, 
trafficking and other recipient and retailer concerns. We also propose 
funding to enhance integrity efforts in the other major nutrition 
assistance programs.
    For discretionary programs of interest to this subcommittee, our 
budget proposes $18 billion, approximately $109 million below the 2013 
enacted level. That level fully funds expected WIC participation. It 
provides the funding needed to meet our responsibility for providing 
inspection services to the Nation's meat and poultry establishments. 
The budget also includes over $1 billion to renew all outstanding 
contracts for rental assistance. It meets the growing demand for farm 
credit with sufficient funding to serve over 34,000 producers in 2014 
seeking to finance operating expenses, to acquire a farm, or keep an 
existing one.
    As I previously mentioned, agricultural research is a proven 
investment. It is important to increase our investment in research and 
education, which has proven to be a powerful strategy to boost farm 
productivity, and has contributed to creation of jobs and enhancing 
rural economies. As farmers and ranchers face challenges from more 
frequent and more intense extreme weather conditions, we are focused on 
providing best practices and workable strategies to adapt to the 
changes and mitigate the impact. The budget makes a significant 
investment in the AFRI and our laboratory infrastructure. The budget 
also requests funding to design and construct facilities to replace the 
severely outmoded Southeast Poultry Research Laboratory (SEPRL) in 
Athens, Georgia. SEPRL has facilities that were constructed in 1964 and 
1976, and whose limitations now prevent critical, cutting edge research 
from being conducted. Construction of a new facility will enable ARS 
scientists to more adequately address emerging or exotic poultry 
diseases that threaten not only the Nation's poultry industry but also 
the health of Americans.
    The budget places an emphasis on creating new market opportunities 
presented by emerging markets for biofuels and clean energy and the 
development of local and regional food systems. The 2014 budget also 
replaces a number of existing programs with a new economic development 
grant program designed to target small and emerging private businesses 
and cooperatives in rural areas with populations of 50,000 or less. The 
Rural Business and Cooperative Grants Program will improve the agency's 
grant allocation process and will leverage resources to create greater 
opportunities to improve regional economies. We will work to expand our 
efforts to assist the Nation's farmers and ranchers in taking advantage 
of increased consumer demand for locally and regionally produced foods 
through on-farm research, support for value-added production, farm-to-
school efforts, and other venues. We will continue our market 
development programs and expand foreign market access for U.S. 
agricultural exports, including USDA efforts in the Trans-Pacific 
Partnership and the newly announced Transatlantic Trade and Investment 
Partnership with the European Union. As organic food production 
increases and becomes a more critical part of the agriculture balance 
sheet, we will expand our efforts to protect the integrity of the 
organic label and expand organic opportunities with our trading 
partners.
    The budget supports our continuing efforts to help all Americans, 
and particularly school children, make the healthy choice the easy 
choice. As part of our ongoing efforts to implement the Healthy, 
Hunger-Free Kids Act, USDA remains strongly committed to helping States 
and local schools as they successfully adapt to new, science-based 
nutrition standards in the National School Lunch and School Breakfast 
programs, which serve roughly 32 million American children each school 
day. Our focus on healthy eating also extends to the American 
population as a whole, where we continue to promote the Dietary 
Guidelines and MyPlate. Our budget includes additional funding to 
support the Department's work to expand the Dietary Guidelines to 
include the 0-2 population.
    The President's budget proposal makes tough choices to meet tight 
discretionary caps. Our funding request reflects efforts to reduce 
administrative costs and streamline operations and proposes to 
strengthen program integrity efforts. Funding for selected programs is 
reduced or terminated and resources are reallocated to targeted 
investments in priority programs and infrastructure to support 
sustainable economic growth. Further, discretionary spending is 
partially offset through about $1.4 billion of proposed limits on 
selected mandatory programs and other adjustments.
    In addition, the budget proposes to replace $1.5 billion in funding 
for Public Law 480 title II international food assistance with an 
equivalent amount in the U.S. Agency for International Development 
assistance accounts, including International Disaster Assistance (IDA). 
The proposed reform replaces title II funding with robust levels of 
flexible emergency food aid and related development funding that gives 
the United States far greater ability to provide aid when, where, and 
in the form that it can be most effective. Provided that all the 
proposed food aid reforms are enacted, at least 55 percent of the 
requested IDA emergency food aid funding will be used for the purchase 
and transport of U.S. agricultural commodities.
    Major IT investments will increase program efficiency of our 
Service Center Agencies. The 2014 budget provides funding for FSA, 
NRCS, and RD to continue the development and operation of improved IT 
systems that will allow them to devote more time to working with 
customers and reducing paperwork.
    In conclusion, our budget requests the level of funding we need to 
provide essential Government services, to build on the progress we have 
made over the last 4 years to build a stronger America, and to support 
robust farm income and good jobs in rural communities. It provides the 
resources we need to effectively deliver the service that Americans 
deserve from USDA. Any further reduction in funding for administering 
programs would significantly impair our ability to deliver critical 
services and would imperil our efforts to manage an increasingly 
complex workload with fewer workers.
    Over the course of 2013, I look forward to working with 
congressional leaders to ensure we have the resources we need to meet 
the demands placed upon us as well as achieve passage of a food, farm 
and jobs bill that will allow USDA to continue to provide a strong 
safety net, combat poverty, and create even more good jobs in rural 
America.
    At this time, I will be glad to answer questions you may have on 
our budget proposals.

                         AGRICULTURAL RESEARCH

    Senator Pryor. Thank you, Mr. Secretary. And let me just 
start with one of the things I know you're very passionate 
about, and that's agricultural research. I know that it's a 
priority of yours, and I'd like for you just to talk to the 
subcommittee for a moment about why you think that's so 
important and how you've prioritized it.
    Secretary Vilsack. I was in Wisconsin 2 days ago at the 
Dairy Forage Center. We were talking about dairy cows and 
forage.
    In 1950, when I was born, an average dairy cow produced 
about 5,500 pounds of milk. Today, the average is 22,000 pounds 
of milk. And I was told that there's at least one cow that 
produced 72,000 pounds of milk. That is a result directly of 
agricultural research and the increased productivity.
    The challenge for us, both in America and across the globe, 
is to increase agricultural production over the next 40 years 
by the same amount that we have increased it over the preceding 
10,000 years in order to be able to meet growing populations.
    The only way we're going to do that is by embracing science 
and investing in science. And unfortunately, for far too long, 
the agricultural research aspect of our science portfolio 
nationally has not received the attention that it deserves. So 
this budget does propose an increase in the external 
competitive funding.
    We're seeing amazing collaborations between universities, 
land-grant universities, historically Black colleges, Hispanic-
serving institutions, and Native American tribal colleges, 
extraordinary opportunity for us to expand our knowledge and 
coordinate and leverage those resources with the private 
sector's investment.
    I'm confident that, if given the tools, American 
agriculture will continue to meet the demand. Internally within 
our ARS system, we have done a very extensive capital 
improvement review in order to prioritize the research and the 
facilities. There are, obviously, difficult decisions that will 
have to be made concerning some of those facilities. But to the 
extent that we can improve facilities, build new facilities, 
modernize facilities, we can also enhance internally what we do 
with research.
    I think it's unlimited, Mr. Chairman, in terms of what we 
can do. When you see forest products, woody biomass, wood 
waste, being turned into armor that is stronger and lighter 
than Kevlar; when you see corncobs being converted into plastic 
bottles for major soft-drink companies; when you see grasses 
producing materials that one day will be used for the body of 
our automobiles, which is lighter and stronger than fiberglass, 
you realize the unlimited potential of American agriculture to 
re-create an economy.
    So I would hope that this subcommittee would give serious 
consideration to that part of the budget.

                         INTERNATIONAL FOOD AID

    Senator Pryor. Thank you. Let me talk about another change 
that the administration is proposing, and that's the Public Law 
480 program. I know that Senator Blunt mentioned it in his 
opening statement, and I'm sure he'll have a question or 
comment about it in addition to that. But the budget proposes 
to dismantle the Public Law 480 Food Aid program and move to 
the funding directly to the U.S. Agency for International 
Development (USAID).
    From a historical perspective, this program was created in 
1954. The purpose of the legislation, President Eisenhower 
said, was to, ``lay the basis for a permanent expansion of our 
exports of agricultural products with lasting benefits to 
ourselves and peoples of other lands.''
    I still believe this to be an important goal. I oppose the 
move that the administration is proposing. And I will tell you 
this, Mr. Secretary, I'm open to sitting down with you and 
others, and talking about ways that we can reform it, maybe 
make it more efficient if there are problems in it. I'm 
certainly open to talking about that.
    But I think that it's very important for soft diplomacy 
that we continue to keep this program here. And just as one 
example, here's one of the sacks that is used by the USDA and 
USAID, and you can see several things about it. One is it has a 
nice American flag on it. They know this is an American product 
in this bag.
    Also, it says, ``from the American people,'' which is I 
think important that they know that these are American products 
from the American people.
    But also, the thing that I like about the program is these 
folks who need this aid the most, they're getting the highest 
quality, best food in the world, grown in this country at USDA 
standards. They know what they're getting.
    They're getting a gold standard of a product, and I think 
it's very important that we keep that.
    In addition, the fact is that these are American taxpayer 
dollars, and I think these dollars ought to be spent in America 
on American products. But again, I'm certainly open to working 
with you on any changes you might suggest.
    I know, officially, the position is that the program should 
go to the State Department, but I just disagree with that. And 
if you have any comment on that, I'll be glad to hear your 
comments on it.
    Secretary Vilsack. Well, Mr. Chairman, I would say that 
when the program was started, American agriculture and its 
relationship to the rest of the world was a little bit 
different than it is today. Obviously, we were just recovering 
from a devastating world war, and much of agriculture globally 
was impacted by that war. We were faced with serious and 
significant surpluses that would jeopardize and reduce and 
depress prices.
    American agriculture today is faced with the opportunity 
not just to meet our own personal needs here in the United 
States but a robust export opportunity, which we are, 
obviously, involved in.
    I think the key here is there are competing interests. One 
is the issue of budget. Obviously, what is being proposed by 
the administration will save $500 million over 10 years.
    Second, it's about time. When you're faced with a disaster 
to the extent that you have to wait 11 to 14 weeks to get the 
aid that you need, it may be the difference between life and 
death for some people. So this proposal will cut the amount of 
time it takes to get disaster assistance to people by 11 to 14 
weeks.
    And it will also allow us to serve more people.
    Still, you're still going to have those bags; you're still 
going to have that American flag; you're still going to be able 
to convey that message, because at least 55 percent of what we 
will, in fact, utilize will be American product.
    Obviously, there are competing concerns about this, but 
when you're looking at 4 million more people, 11 to 14 weeks 
quicker, and $500 million in savings, I think it's something 
that is worthy of discussion and debate.
    Senator Pryor. We'll continue to have that discussion. 
Thank you for that.
    I'm going to go to Senator Blunt next and then Senator 
Johnson.
    Senator Blunt.
    Senator Blunt. Thank you, Chairman.

                         AGRICULTURAL RESEARCH

    Just to try to cover as much as we can here, certainly, 
your emphasis on research is one that I am fully supportive of. 
I think it's one of the reasons the Department was created, one 
of the reasons the land-grant college system was created. The 
1862 Congress did a lot of things for agriculture that we need 
to keep improving.
    On the research front, you gave statistic that, in the next 
40 years, we need--would you give me that statistic again?
    Secretary Vilsack. Sure. When you take a look at the need 
for increasing agricultural production, we need to do what 
we've done in the preceding 10,000 years, in terms of 
advancements, in the next 40 years. In other words, we have to 
take the advancements in agriculture that occurred over the 
preceding 10,000 years, all of those advancements, we need to 
essentially do that again, but we have to do it in a 40-year 
period not a 10,000-year period.
    And the reason we have to do that, obviously, is because we 
have increased global population. We have the same amount or, 
actually, reduced amount of land available. And you've got 
varying climates, which is going to make it more difficult, in 
some cases, to produce what we've been producing in the past, 
short of coming up with new strategies for adapting and 
mitigating the climate.
    Senator Blunt. And that would indicate that world food 
demand in the next 40 years would do what, double?
    Secretary Vilsack. Well, at least double. I think some 
studies I've seen, Senator, suggest it is as much as a 70-
percent increase. But it's, obviously, a significant percentage 
increase.
    We can do this, but we can't do it without a robust 
commitment to research.

                   FURLOUGH OF FOOD SAFETY INSPECTORS

    Senator Blunt. Well, that shows we have our work cut out 
for us then, Mr. Secretary. That's for sure.
    On management, I do appreciate the fact that you've done 
some things that have allowed you not to furlough employees. 
I'm glad that Senator Pryor and I could work together on the 
one column, one account, that was so specific that you, 
frankly, couldn't manage around it, and try to help resolve 
that situation where if the Federal USDA food safety inspector 
didn't show up, 500,000 people in the country are dependent on 
the food safety--the work at these facilities are dependent on 
the food safety inspector being there just so they can work 
that day. And that's lots of income to families who really are 
part of a very hardworking part of our population.
    So thanks for your comments on that and for seeing that 
this has gotten done in the right way.

                                 MIDAS

    On general management, MIDAS, you want to talk a little 
about what you're hoping to accomplish there and how that helps 
with the local offices, the FSA offices.
    Secretary Vilsack. Senator, I was in New Orleans last week 
looking at the National Finance Center, which basically is 
overviewing and reviewing the implementation of MIDAS. Roughly 
7,000 of the 10,000 servers that we need for MIDAS to be fully 
implemented are online.
    We are now putting global information system data into that 
system. We're putting farm records into that system. We're 
putting acreage information into that system.
    We expect and anticipate by the end of this calendar year, 
roughly 80 percent of MIDAS will be essentially implemented and 
in the system. Over the course of the next 2 years, all of it 
will be implemented.
    And the view is that basically, at that point, many farmers 
in this country will be able to communicate with FSA online. 
They'll be able to fill out the application. They'll be able to 
track the status of their account online, so that they won't 
have to be any more inconvenienced in terms of coming to an 
office and spending time at an office. They could do this at 
their leisure and convenience.
    This has been a long haul. This Congress and previous 
Congresses made commitments to MIDAS. We appreciate that. I 
think we're finally going to see the results of MIDAS.
    Senator Blunt. And my understanding is, whenever you became 
Secretary, the offices couldn't even communicate, in most 
cases, with each other let alone communicate with their 
customers.
    Secretary Vilsack. Senator, when I became Secretary, I 
asked if I could send an e-mail to all of our employees. I was 
told I couldn't do that. I couldn't send a single e-mail to all 
our employees. I had to send 11 different e-mails, because we 
had 11 different e-mail systems.
    We now have one system. We've also saved millions of 
dollars by having that one system. It's one of the advantages 
and one of the steps that our team is taking to save $828 
million through our administrative services project, our 
Blueprint for Stronger Service.
    And it's the way in which we've been able to manage and 
avoid some of the more significant reductions in workforce that 
sequester may cause in other Departments.

                             RURAL HOUSING

    Senator Blunt. On rural housing, there's a $40 million 
reduction in this proposed budget on rural housing. That's, 
certainly, not because you haven't been able to use the money 
you've had.
    Secretary Vilsack. No, that's true. I think what we're 
seeing is a conversion. We're the only agency that provides 
direct loans, and I think you're seeing a conversion from 
direct loans and guaranteed loans primarily to more guaranteed 
loan activity.
    As I said earlier, we're still going to be able to do 
174,000 loans, but this is a situation where we're faced with, 
and you all are faced with, a defined and finite amount of 
money. You've got to make choices, and we're moving to a 
guaranteed program as opposed to putting a lot of resources in 
the direct program.

                         SCHOOL LUNCH STANDARDS

    Senator Blunt. The only other question I've got for this 
round is on school meal regulations. I think schools tell me 
they had a hard time complying with the regulations on protein 
and grain. And I think those had been waived for some time now. 
Are you considering permanently, looking at some more permanent 
solution than waiving the regulation?
    Secretary Vilsack. As you say, we've created flexibility. 
And I would anticipate and expect that flexibility or something 
akin to that will be a permanent feature of that program.
    Senator Blunt. And that decision will be made?
    Secretary Vilsack. Yes, I think it either has been made 
this year or is about to be made.
    Senator Blunt. All right.
    Thank you, Chairman.
    Senator Pryor. Thank you, Senator Blunt.
    Next, we'll have Senator Johnson, then Senator Cochran.
    Senator Johnson.

                   COUNTRY OF ORIGIN LABELING PROGRAM

    Senator Johnson. Mr. Secretary, thank you for being here. 
And let me first thank you for your efforts with revising our 
Country of Origin Labeling (COOL) program to better meet our 
WTO commitments. I hope that you will maintain a strong and 
accurate labeling regime as you move forward with the 
rulemaking process.

                    BIOENERGY RESEARCH AND EDUCATION

    There are also a couple of other issues I would like to 
discuss with you.
    I commend the regional approach that USDA has adopted for 
supporting bioenergy research and education. In fact, this 
approach was championed early on by land-grant universities 
through the grant initiative, which has been a collaborative 
effort through several Federal agencies and the national 
laboratories.
    I'm disappointed that the administration is once again 
proposing to cut funding for this important initiative. Can you 
tell me if you and the Department are supportive of the 
initiative's use of regionally based competitive grants?
    Additionally, given the administration emphasis on the 
importance of the development of renewable energy, why does the 
administration propose zero funding for this nationally 
authorized program?
    Secretary Vilsack. Senator, let me briefly comment on both 
of those issues that you've raised. By May 23, we will actually 
finalize the COOL regulation, which we think will respond to 
the concerns raised by the WTO case. And we've already given 
folks an indication of what that's going to look like. But we 
will finalize that by the May 23 deadline.
    As it relates to bioenergy, we are definitely committed to 
a regional approach. In fact, we have established five regional 
hubs throughout the United States. And we're using our AFRI 
resources to help fund those regional locations. And we've 
substantially increased our commitment in this area.
    These regional hubs are taking a look at feedstock 
development. They're taking a look at the supply chain 
alternatives to food feedstocks, alternative nonfood 
feedstocks, the supply chain and additional research in terms 
of the efficiency of certain production processes.
    So that is underway. And as a result, it would have been 
duplicative to have been involved in the Sun Grant system. We 
sort of expanded that, if you will, to all parts of the 
country. We want this initiative to have access and connection 
to all parts of the country, to use feedstocks that are most 
readily available in all parts of the country.
    So for example, just as an example, we've invested $80 
million in the University of Washington and the Washington 
State University to look at aviation fuel, the drop in aviation 
fuel. We've invested the resources in a hub that involves Penn 
State, for example, in the supply chain issue.
    So this is incorporating what the Sun Grant was doing, and 
it basically expands on it.

                      RURAL POPULATION DEFINITION

    Senator Johnson. USDA has proposed a new definition of 
rural that would set the population cap for a number of Rural 
Development (RD) programs at 50,000 people. The water and 
wastewater programs have historically been limited to 
communities of less than 10,000 people. The options for these 
communities are extremely limited, and that's precisely where 
the RD program should be targeted.
    I would also note that the administration budget request 
would cut this program from $560 million in fiscal year 2013 to 
just $304 million in your fiscal year 2014 request.
    Do we have an estimate of how the demand in water programs 
would grow if the population threshold is raised to 50,000 
people? Additionally, how do you square proposing a 40 percent 
cut to the program while at the same time dramatically 
increasing the number of eligible applicants?
    Secretary Vilsack. Senator, the issue of the rural 
definition is the fact that we're dealing with 11 different 
definitions in statute today. And it's quite confusing.
    You've got a situation now where I believe 500 communities 
no longer qualify because we now are using the 2010 census 
data, because of the increase in populations in some 
communities for water. And I think 900 communities will lose 
housing assistance as a result of that definition because of 
the census information.
    My view of this is that we need a consistent definition. 
And I think it's also important--and I hope the subcommittee 
thinks about this. It is important, I think, for this country 
to have a different definition and understanding of what 
constitutes rural. Because at this point in time, based on the 
traditional definitions, we have fewer people living in rural 
America as a percentage of our population in the history of our 
country.
    And the concern I have is if that population and that 
percentage continues to shrink, it will become increasingly 
more difficult to have the resources for any of these programs 
we're going to talk about today. So I think it is important to 
have a uniform definition.
    The fact that you have a uniform definition doesn't mean 
that you cannot continue to focus the need where the need is 
greatest. You can create point systems and scoring systems that 
basically assure those communities that are most in need will 
get the time and the attention and assistance.
    In fact, we have a thing called StrikeForce, which we just 
instituted in South Dakota, and we now have it in 15 States. 
It's really focused on the 90 percent of our persistently poor 
counties that happened to be in rural America. And this 
StrikeForce Initiative is really designed to really hone down 
and to try to provide greater assistance to those counties. So 
I think there are mechanisms to deal with this.
    As it relates to the amount of money in the system, this is 
only in the grant portion of the system. And the reason for 
that is the interest rates on our loan program are so low that 
our view is that we're in a position now with the $1.5 billion 
of loan money to be able to begin the process of meeting the 
need that's out there.
    The last comment that I would make is, in this new age that 
we live in of constrained resources, it is challenging us to be 
creative and innovative at USDA to find other investors who 
might also be interested in these water projects. It doesn't 
necessarily always have to be our money that basically builds 
these facilities.
    What we're finding in talking to investment bankers and to 
other folks who we've communicated to, there's a lack of 
understanding and appreciation about the deals that are out 
there in rural America. We just haven't marketed these deals 
very well.
    Just very quickly, one major corporation has, as its social 
responsibility and business initiative, to reclaim water. They 
use water in a product that they make. They want to reclaim 
every ounce of water that they use. They're interested in 
potentially investing in these kinds of water projects. The 
investment return may not be as much as they would get 
someplace else, but it fulfills a business responsibility.
    We need to be more aggressive in educating people about 
where these projects are. It doesn't always necessarily have to 
be Government money.
    Senator Johnson. Thank you.
    Senator Pryor. Thank you, Senator Johnson.
    Next, we have Senator Cochran and then the list says we go 
to Senator Tester.
    Do we have to do Senator Tester next?
    Senator Cochran, thank you.

                           CATFISH INSPECTION

    Senator Cochran. Mr. Secretary, thank you very much for 
your cooperation with our subcommittee.
    One of the things that we did in a previous farm bill was 
to provide authority for the Department to inspect imported 
fish that was coming into the country, particularly from 
southeast Asia. The concern was that some marketing firms and 
stores were advertising as farm-raised catfish, and a lot of 
our aquaculture producers in my State and elsewhere around the 
country feel that this law has not been aggressively 
implemented.
    What is your plan, if you have a plan, to try to put action 
behind the words that are contained in our farm bill?
    Secretary Vilsack. Senator, I certainly understand the 
frustration of your farmers who have raised this issue with 
you. And I think, frankly, we continue to grapple with 
precisely what the definition of catfish is.
    I assumed I knew what that definition was when I took this 
job. I now find out there are 39 different varieties. And we're 
still trying to work our way through that definition, and it's 
not as simple as it would at first blush appear.
    We're obviously working on this. In the meantime, 
obviously, fish are being inspected by FDA, but I'm going to 
commit to you that we're going to continue to work on this. And 
we understand the frustration. But it is complex, from a 
scientific standpoint. And it, obviously, has significant 
implications domestically and from a trade perspective.

                        SCHOOL KITCHEN EQUIPMENT

    Senator Cochran. One initiative that the administration has 
pursued to help reduce the cost of school lunch programs is to 
modernize the kitchen and cafeteria equipment. And there's been 
a Federal grant that our Governor has used to replace deep fat 
fryers with some combination oven steamers and other ways of 
getting to the children more nutritious and better prepared 
school lunch meals.
    Is your administration aware of this initiative? And could 
it be replicated so that it becomes a nationwide program to try 
to improve the quality and nutritional value of the foods that 
our children are having at school?
    Secretary Vilsack. Senator, absolutely. This budget that 
we're proposing suggests a $35 million commitment to upgrading 
school equipment for that very purpose.
    We had a $35 million appropriation this year, but it was 
reduced during the sequester discussions. And it's now down to 
$10 million. But we are absolutely committed to this.
    Frankly, what we're seeing is that food producers are 
reformulating their food. Again, I was at a food company the 
other day. It makes extraordinarily tasty food that is in a 
pouch that you just put in boiling water. And it's fresh, and 
it's spectacular.
    So we want to, obviously, encourage more of that. And we 
want to get away from just centralizing production and then 
having it bused or shipped from a central kitchen to a variety 
of schools. We'd like to be able to give those schools the 
capacity to prepare food on site.
    This would also I think help us extend our summer feeding 
program. We feed about 2.5 to 3 million kids in our summer 
feeding programs across the country. But we feed 21 million 
free and reduced lunch kids during the school year, so there's 
issue there during the summer months. And we're trying to 
figure out strategies to provide those youngsters nutritious 
meals during the summer as well.
    Senator Cochran. Thank you for your leadership on that.
    Senator Pryor. Thank you.
    Senator Tester.

                          AMERICAN AGRICULTURE

    Senator Tester. Thank you, Mr. Chairman.
    And I want to thank the Secretary for being here today. 
With some of the questions you have already answered, I 
appreciate the work that you've done on COOL, and I would tell 
you that I am personally excited about the online capabilities, 
potential online capabilities. I've been able to connect with 
the FSA office, and I would hope, even though I love every one 
of the staff that happens to be in Chouteau County, I would 
hope that it wouldn't create a workforce increase but actually 
more efficient once it gets implemented. So thank you for that.
    You know it was about 40 years ago, when you and I were 
much younger, much better looking, there was a Secretary of 
Agriculture that made the statement, get big or get out. I have 
listened to your testimony this morning, and I don't think you 
have that same vision for agriculture.
    You've talked about opportunities for young people. You've 
talked about how we've become fewer as a percentage of the 
general population. And if that continues to shrink, that's a 
bad thing.
    My question is, is this budget put forward--and by the way, 
I've got to tell you I've vacillated on this. The farm bill has 
done some good things and it's done some things that I've 
questioned over the years. And I have vacillated back and forth 
whether it's been a net positive or a net negative, depending 
on whether we're in drought or not.
    But the question really becomes, this budget that you put 
forward, has it done anything different than previous budgets 
as far as enhancing opportunity for young people to get into 
agriculture in one fashion or another, whether it's production 
agriculture or adding value or whatever?
    Secretary Vilsack. I think it does, Senator. I think it 
does in a variety of different ways.
    First of all, it increases the commitment to the Beginning 
Farmer and Rancher Development Programs. Second, I think it 
understands the necessity of us expanding market opportunities. 
Production agriculture is an extraordinary story, and the 
export is an extraordinary opportunity. But we need to branch 
beyond that if smaller producers are going to have a shot. 
That's why we commit ourselves to an expansion of local and 
regional food systems, why we increase farm-to-school programs. 
It's why we have our specialty crop block grant to create 
opportunities for smaller producers to get in business. It's 
why we continue to expand access to farmers markets through the 
SNAP program and through the WIC program. That's an additional 
market opportunity for smaller producers.
    It also makes a significant commitment to bioenergy and the 
bio-based economy. The reality is there are 3,100 companies 
today that are manufacturing something that's bio-based. We 
need to extend that. We need to expand it. If we do, we create 
market opportunities for plant material, crop material, 
livestock waste. That creates additional markets.
    So this budget does indeed support all of that.
    Senator Tester. Well, I just want to say I appreciate that 
perspective. And I hope every day when you come to work, you 
keep that perspective in mind as we go forth, because with 
rural America drying up, I don't think it's a net positive for 
this country.
    And I always use the example, when I graduated my school in 
1974, I'm getting old, had 165 kids. That same high school 
today has less than 60. And that's not something that's 
particular to north central Montana. I think you could say the 
same thing for many of the schools in Iowa, certainly can for 
all the schools in Montana that are small.
    Secretary Vilsack. I think that the key here is for us to 
understand that it's not about tax-supported institutions that 
we need to keep in those communities. It's about taxpaying 
institutions.
    Senator Tester. That's correct.
    Secretary Vilsack. Because if we have those, then we're 
going to have the tax-supported institutions.
    And that's why this four-cornerstone philosophy that I have 
of rebuilding the rural economy is important: production 
agriculture and exports, local and regional food systems, 
conservation and outdoor recreation, and the bio-based economy. 
Those are the lynchpins, I think, to rebuilding a rural economy 
that will support communities.

                              TIMBER SALES

    Senator Tester. I want to go a little bit off this 
subcommittee but I know the chairman will let me do this--a 
different subcommittee, but your agency, and that's the Forest 
Service.
    In this budget, it effectively cuts about 15 percent out of 
timber sales targets, which is true. And you've been in 
Montana, and I appreciate you coming there. And I think at this 
point in time, we're seeing a forest that is in crisis. And 
there are trees that need to be cut, need to be cut right, 
sustainably and all that. And we can do that. That's not a 
problem.
    I think we need to increase timber harvest to meet the 
hazardous fuels out there, not reduce them. I know you're in a 
tough fiscal climate, but are there ways to boost timber supply 
in a way that keeps our infrastructure going, and we manage our 
forest in a proper way as we move into this 21st century when 
you see the beetle kill and climate change and all that stuff 
going on?
    Secretary Vilsack. Senator, I want to make sure, the 15 
percent number that you're referring to is actually in this 
existing budget as a result of the sequester, and as a result 
of the additional 2.5 percent cut that you all put on top of 
the sequester for this agency.
    So we had to----
    Senator Tester. We'll take the rap.
    Secretary Vilsack. Okay.
    Senator Tester. We should take the rap. The question is, 
how do we fix that? Do you have any----
    Secretary Vilsack. The reason I say that is because we were 
on track to actually increase timber sales. We have announced a 
desire to go from 2.4 billion board feet being treated to 3 
billion board feet being treated. We were on track to get 
there, to treat more. But now we take a step back. But we're 
going to continue to take a step forward.
    In response to your question, the Forest Service is 
investing in wood energy opportunities. The Forest Service has 
its wood products lab in Wisconsin that's creating new 
opportunities.
    I think there's an extraordinary chance here for us to deal 
with this. And let me tell you precisely what we're doing, and 
this is very, very important. We're trying to link up 
universities that talk about clean energy with the opportunity 
to have cogeneration facilities that are wood burning. You 
combine that with long-term stewardship contracting. You 
essentially have a ready supply of wood. The university gets a 
cheaper cost of heat and electricity as a result.
    And we're trying to create those kinds of partnerships at 
USDA through the Forest Service.
    We also are working with utility companies to recognize 
that they have a vested interest in helping us clear out those 
forests, because they have a multimillion dollar investment. 
Transmission lines are at risk. They have a multibillion-dollar 
potential liability if fire is a result of one of those 
transmission lines.
    And we're working with corporate America that has a variety 
of interests in maintaining more resilient forests.
    So we are involved in all of that. The fact that we have 
less money in a particular line item doesn't mean that we're 
not going to get more work done.
    Senator Tester. I appreciate that. We'll work to give you 
the tools so you can do your job.
    Thank you, Mr. Secretary.
    Thank you, Mr. Chairman.
    Senator Pryor. Thank you, Senator Tester.
    Next, we have Senators Merkley, Udall, and Moran.
    Senator Merkley.

                     GENETICALLY MODIFIED ORGANISMS

    Senator Merkley. Thank you very much, Mr. Chair.
    And thank you, Mr. Secretary. And I wanted to mention I 
appreciated so much your help when the Klamath Basin enduring a 
terrible drought several years ago, 2010. And both you and 
Secretary Salazar were quick to be of assistance.
    The bad news that I have to report today is that they have 
yet a worse drought, the worst ever to this point in time in 
this season. And so I may be carrying on the conversation with 
you and your team again.
    I wanted to specifically ask about the Monsanto Protection 
Act, the rider that was included, the authority to overwrite a 
judicial ruling regarding the planting of genetically modified 
organisms (GMOs). In my town halls, people have come to every 
single town hall saying we do specialty crops here in Oregon, 
specialty seeds, we're worried about cross-contamination--for 
example, from GMO canola to broccoli or rutabaga seed.
    And the concept behind this rider, is that something the 
Department of Agriculture endorses?
    Secretary Vilsack. We didn't ask for the rider. And we have 
questions and concerns about the legality of it, as it relates 
to temporary injunctions and things of that nature.
    But let me answer your questions more fully. The USDA 
position on this is we believe strongly in coexistence. And we 
have created a program we call AC21 where we put organic 
producers and GM producers in a room, and we basically said, 
what will it take for you all to get along better than you do 
today?
    They came out with a series of recommendations. Those 
recommendations range from making sure that we continue to have 
a solid germplasm bank to ensure that we always have the 
capacity to restore something that could potentially have been 
impacted, a potential compensation arrangement or process for 
those that do suffer from cross-contamination, more research on 
precisely gene flow. This is all going on at the present time 
within USDA in an effort to try to create a world in which, if 
you want to be an organic producer, you can do so; if you want 
GM opportunities, you should do so; and an understanding that 
good stewardship can make good neighbors.
    So we're looking at ways in which we can promote 
coexistence.
    Senator Merkley. I think that's exactly the right approach. 
And there are complicated issues that are raised, that get 
struggled with--how far does pollen travel, what is the risk of 
cross-contamination, and so on and so forth. But I think the 
concept behind this rider, which basically said, it can be 
planted regardless of concerns in the normal process, 
interrupts that strategy of cooperation and working out the 
coexistence.
    And I look forward to continuing this conversation. This 
rider is going to expire later this year. There's going to be a 
conversation about whether it goes forward further. And it's 
just huge concern by our Oregon seed producers of the impact on 
their markets and organic growers.

                         ELECTRIC LOAN PROGRAM

    I wanted to turn to the Rural Utilities Service (RUS) 
Electric Loan Program. This program, as I understand it, the 
Department is planning to create a version through regulation 
that does low-cost loans for energy saving renovations. This is 
very consistent with what the U.S. Senate endorsed by passing 
the Rural Energy Savings Program in the farm bill that went 
through the Senate. And so, I applaud that, encourage that.
    I did want to express a concern about the overall, the 
larger, Electric Loan Program, which helps fund transmission 
lines, capital infrastructure, and so forth. There's concern on 
some of my electrical co-ops that with the reduction in the 
size of the program, I believe it's going from $7 billion to $4 
billion for direct loans, that three-fourths of the lower 
number, of the $4 billion, are set aside for renewables. Of 
course, I'm a big supporter of renewables.
    But I want to make sure, on behalf of electric co-ops, that 
there's still the ability to invest in the transmission lines 
as well. Is this an issue that has been brought to your 
attention? And any concerns about the support for our rural 
electric co-ops being able to build their infrastructure?
    Secretary Vilsack. It has been brought to my attention and, 
honestly, Senator, we honestly believe that there's a good 
balance here. And we'll try to strike that balance.
    The reality is, if we're concerned about the impact of 
varying climates on production, and we're convinced that that 
is related to greenhouse gas emissions, and I think there's 
pretty good science to suggest that it is, part of the strategy 
and challenge will be for us to reduce those emissions. And one 
way to do that is by making sure that we invest in renewable 
energy resources.
    It also creates enormous new opportunities, particularly in 
agriculture and in forestry for bioenergy opportunities. So for 
that reason, we're focused on trying to encourage folks to 
think differently and to think creatively about the 
opportunities in renewable energy.
    Senator Merkley. And I completely salute that. But as 
electrical co-ops invest in transmission lines, if the loan 
program runs out of funds, if you will, to help support that, 
is there a way to come back and try to expand the size of that 
program to help support the transmission capabilities?
    Secretary Vilsack. I mean, obviously, there are ways for 
the--you all can make decisions about that. But I would say 
that it goes back to the point that I made earlier which is, in 
this constrained resource environment, it's challenging us to 
think differently and to think creatively about partnerships 
and others who might be interested and able to invest in these 
projects that we've never thought of before.
    And I think that there's a lot of opportunity out there. In 
talking to folks, investment bankers in particular, they had no 
idea about these program. They had no idea about the 
opportunities in utilities, for example. And they're 
interested, and so we're going to try to, literally, to the 
extent we've got a waiting list or to the extent we have a need 
that we're not able to meet, we're going to try to shop and 
facilitate that need being met by a private sector or nonprofit 
sector partner.

                    FEDERAL RESEARCH GRANT PROGRAMS

    Senator Merkley. Thank you. And in my final minute, I 
wanted to mention how important the Federal grants have been 
for the Northwest Center for Small Fruits Research. They are 
one of those regional research centers that really focus on the 
particular challenges in the Northwest.
    And they are finding that the current format of the Federal 
research grant programs, such as the format of the Agriculture 
and Food Research Initiative and Specialty Crop Research 
Initiative, seemed to have been adjusted in ways that only 
allow access by very large-scale research institutes that don't 
necessarily have that regional focus.
    And so, that's a real concern on their part. And I wanted 
to raise it, put it on your radar as a concern for our smaller, 
regionally focused research centers.
    Secretary Vilsack. Senator, I appreciate you bringing that 
to our attention. That's surprising, because what we're 
actually trying to do with this program is to create more 
opportunities for collaboration in which smaller facilities are 
able to align themselves with other universities to do 
cooperative and collaborative research.
    We'll be happy to take a look at that particular issue as 
it relates to your area and take that concern back to the 
office.
    Senator Merkley. Thank you very much. I look forward to 
following up on it with you. Thank you.
    Senator Pryor. Thank you.
    Senator Udall, then Senator Moran.
    Senator Udall. Thank you, Mr. Chairman.

                      FARM SERVICE AGENCY PAYMENTS

    And, Secretary Vilsack, let me just thank you for being so 
on top of the forest fire situation. You visited my State of 
New Mexico when we were right in the middle of the Little Bear 
fire right down near Ruidoso. That was a fire that destroyed 
254 structures in the summer 2012, 245,000 acres.
    And I think you saw the remarkable thing was how dedicated 
your people are all the way from the incident commanders down 
to the people that are fighting fires. And we're facing 
another, because of the drought, a very severe fire season.
    As your map shows here, New Mexico is right at the center 
of the target in terms of the drought. And so we know that 
you're going to stay on top of that and make sure that the 
personnel and that the airtankers and all of that are in place.
    I wanted to ask about the FSA payments. And I wanted to 
thank you for getting the Farm Service Agency payments back 
online this week. The last several years have been very 
difficult for producers in New Mexico. So the payments have 
been vital to keeping producers afloat.
    The freeze in payments this spring has been hard on many 
people in New Mexico, especially the freeze on the Noninsured 
Crop Disaster Assistance Program (NAP) payments. This is 
another example of the terrible toll that sequestration is 
taking on our country.
    Because of the time it took to get these payments back 
online, I know many of my constituents are not confident that 
the payment is actually coming. Will you confirm for me and my 
constituents that the FSA payments are indeed back online, 
particularly the NAP payments?
    In short, Mr. Secretary, is the check in the mail?
    Secretary Vilsack. Effective today, it's online, Senator. 
And the reason, frankly, that it was because we were uncertain 
about the impacts and consequences of sequester, and didn't 
want to create more of a situation where payments went out the 
door only to have folks having to refund or return them.
    And so, beginning today, we're back online and payments 
will be made in short order.

                       LIVESTOCK DISASTER PROGRAM

    Senator Udall. Thank you very much.
    Over the last 3 years of drought in New Mexico, there's 
been a 50 to 60 percent decline in the cattle population in my 
State. The impact of this ongoing drought, it obviously has 
been very terrible in New Mexico.
    And as you know, several Senators have been working for 
months to try to get livestock disaster programs that expired 
in 2011 renewed and retroactive. And I'm pleased to see that 
the President's fiscal year 2014 budget includes a proposal for 
renewal of the livestock forage program and the livestock 
indemnity program for 2014 through 2018.
    We expect the farm bill to come to the floor for a vote in 
the coming weeks. If we are able to renew these programs with 
retroactive authority, would the USDA be able to carry out back 
payments? What would this mean for producers in New Mexico and 
other States who've had several years of drought and loss? And 
what do you expect the need is nationwide for these programs?
    Secretary Vilsack. Well, I think the need is reflected in 
the budget request, Senator. This is something that I think 
needs to be done.
    It's unfortunate the disaster assistance was not fully 
funded in the previous farm bill, and that it was allowed to 
extinguish. We're very supportive of continuing this.
    What it means to producers is, obviously, resources, and 
what it means is reassuring that banker that there's a safety 
net in place that will make it a little bit easier for that 
producer to get the credit that he or she needs to be able to 
continue or expand their operation.

                        WATER AND WASTE PROGRAM

    Senator Udall. Thank you. Mr. Secretary, coming from a 
State where water infrastructure is a priority need in almost 
every community, it's unsettling to see the proposed cuts in 
the President's fiscal year 2014 budget. And I'm especially 
concerned about the cuts of almost 50 percent to grants and 
loans for water and wastewater infrastructure for tribal 
communities and colonias. Even the basic need for running water 
is not being filled in many of these communities in New Mexico.
    I'm also concerned about the cuts to the Circuit Rider 
Program for rural water systems and the wastewater and waste 
disposal loans and grants in the RUS.
    Could you explain the logic behind these seemingly 
disproportionately high cuts to water infrastructure? What kind 
of impact do you expect these cuts would have on rural 
communities, including tribes and colonias? And has there been 
any decline in the need for this kind of water infrastructure 
funding?
    Secretary Vilsack. Senator, you all will be faced with the 
same set of decisions that we made and had to make in terms of 
the budget. You're given a number, and you've got to fit all of 
the competing needs and interests within that number.
    In a perfect world, we'd have more money to spend. We're 
not living in a perfect world. We're living in a very imperfect 
world. So obviously, choices have to be made.
    Our view is that the loan interest rate on the loan portion 
of the water program does provide us the capacity and, for many 
communities, the opportunity to improve their water systems.
    The need is significant. There's no question about that. 
That's why we have to look at ways in which we can extend and 
leverage our resources effectively. I've said earlier about our 
efforts to reach out to other investors who may potentially be 
able to provide opportunities to these communities.
    You mentioned the colonias, in particular. I will tell you 
that our StrikeForce Initiative is focused directly on that 
area and has also been extended to New Mexico. So many of the 
most impoverished areas are getting more attention and more 
assistance than ever before.
    We're just dealing with a very difficult budget. Do you 
take money from housing to put in water? Do you take money from 
farm programs to put in water? Do you take money from nutrition 
to put in water? Do you take money from Rural Development and 
business growth? It's hard.
    And so my view of this is, you're not going to be able to 
meet all the needs to the extent that they need to be met, so 
we've got to think creatively. And one way we're going to think 
creatively is going to nonprofit foundations and saying, you 
invest a lot of grant money in communities, what about your 
investment portfolio? Where are you putting your business 
investments to generate the income that you grant? Can you 
consider putting it in rural America? Investment banks, are you 
aware of these utility opportunities in rural areas? 
Corporations, are you aware of the opportunity for you to meet 
a social responsibility requirement by investing in rural 
areas?
    I think we have to think broadly about where resources can 
come from. You're going to face the same difficult decisions 
we've faced, and we'll see how you all do.
    Senator Udall. Thank you very much. And I know you come 
from a rural State and you feel these issues a lot, and I know 
you're working hard on them. Thank you very much.
    Thank you, Mr. Chairman.
    Senator Pryor. Thank you, Senator Udall.
    Senator Moran.

                            RISK MANAGEMENT

    Senator Moran. Mr. Chairman, thank you.
    Mr. Secretary, thank you for being here. The last time we 
had this hearing, nearly 1 year ago, you were leaving for 
Manhattan, Kansas, to speak at the Landon Lecture at Kansas 
State University. I was not there, but thank you for speaking. 
And the reports were that you were well-received, and I hoped 
that you experienced Kansas hospitality in your visit to our 
State.
    I want to express my appreciation to you in your work on 
the Pryor-Blunt amendment in regard to meat inspection, 
something critically important to our country, to its 
consumers, but, certainly, important to Kansas and livestock 
producers and the meatpacking industry that is so prevalent in 
our State.
    And I know a number of questions and comments have been 
made in regard to agricultural research. I would like to 
emphasize to you its value and its importance, its long-term 
benefits to agriculture and to rural communities. And 
especially, I believe I said this last year, to make certain 
that, sometimes the research that gets a lot of attention is a 
bit more exotic, but to remind you or to request you to always 
keep in mind the importance of agricultural research related to 
productivity and yields in crops that we currently grow, the 
value of making certain that we know how to curtail the damage 
that occurs with insect and disease, drought.
    We've had a lot of conversation and just the recent few 
questions about the circumstances we find ourselves in because 
of weather. And there is a Pryor-Moran caucus in regard to 
water. Senator Udall and I have been involved, since our days 
in the House, in regard to the Ogallala Aquifer.
    Water is, in so many ways, front and center to the future 
of rural America, and I would encourage you to, both on the 
agricultural research side, but on the water resources aspect 
of the Department of Agriculture, continue to provide the 
necessary infrastructure and support.
    In regard to that drought, it's dramatic and the 
consequences are tremendous. It's long-running in Kansas. And, 
in particular, I mean, I'd be glad to hear any thoughts you 
have about efforts at RMA to improve the crop insurance product 
for the cultivation side of agriculture.
    But we are, certainly, failing our livestock producers. 
And, certainly, I know that the issue of ad hoc disaster is 
something that we can pursue. But I've always believed, going 
back to my days in the House and chairing the Subcommittee on 
Risk Management, that a better product within the crop 
insurance delivery system for all crops, but also on the 
livestock sector, is something that needs to be actively 
pursued. And I'd be glad to hear your thoughts and your 
assurances that that's the case at USDA today.
    Secretary Vilsack. Senator, we are, obviously, in the 
business of continuing to expand crop insurance offerings in a 
variety of areas of agriculture. And we're trying to do it in a 
way that is thoughtful and consistent with good fiscal 
decisionmaking.
    In the meantime, we are obviously faced with a specific 
challenge today from our livestock industry and from our dairy 
producers. And so that's why we are proposing and suggesting a 
continuation of the Disaster Assistance Programs that were 
established in 2008 farm bill. And our hope is that that gets 
done either in the context of this budget and or a 5-year farm 
program.
    We are proud of the fact that we have expanded the number 
of crop insurance offerings. And we're going to continue to 
look for creative ways to address all of the challenges that 
our producers face.
    Senator Moran. Crop insurance is particularly important to 
farmers on the high plains. Agriculture is clearly the 
significant component of our economy, but the weather is often 
not our friend.
    And I've visited with many producers across the country 
where crop insurance is less of a viable option for them. And 
it seems to me that the goal of making certain the crop 
insurance is an important tool available for farmers 
geographically and commodity-wise is important. It is one of 
the things that makes it more difficult to garner the support 
across the wide array of agricultural interests here in 
Congress. It's that crop insurance product is not as useful in 
some places in the country and for some crops.
    And while you would expect me to advocate on behalf of a 
crop insurance program that works for Kansans, I also recognize 
its value in bringing all of agriculture together to support a 
program that benefits the entire agricultural economy across 
our Nation. And I look forward to having conversations with the 
administrator of RMA as we have had over the years.
    Let me switch topics, and let me also say that I hope to be 
helpful to you and be helpful in the cause of the livestock 
disaster programs inside the farm bill, outside the farm bill, 
if necessary. I'm hopeful that we are able to accomplish what 
we didn't accomplish last year with the passage of a long-term 
5-year farm bill, and I hope we do it sooner rather than later.
    And I can't imagine there's any disagreement from the 
Secretary.
    Secretary Vilsack. Amen, Senator.

                           BROADBAND PROGRAM

    Senator Moran. Thank you.
    Let me change topics. In October 2011, the Federal 
Communications Commission (FCC) entered its order in regard to 
reforming the Universal Service Fund. I'm not here necessarily 
to debate the merits of their order. But there are tremendous 
consequences to that order in your world, at Rural Utilities 
Services.
    And you filed an ex parte with the FCC. And one of the 
things that caught my attention in reviewing that is the demand 
for RUS loan funds dropped to 37 percent of the total amount of 
loan funds appropriated by Congress in fiscal year 2012.
    What I think is happening, and I've been very concerned 
about this FCC order and its consequences upon the expansion of 
broadband available to areas that don't have broadband or 
options in regard to broadband, but also very important is the 
retroactivity of this order and its consequences upon 
companies, particularly small telephone companies, that 
deployed broadband but their revenue stream to finance the 
deployment and, in many instances, its ability to repay the 
Rural Utilities Services money that was loaned to them to 
accomplish this purpose is now greatly diminished.
    And I'm interested in that 37 percent number, but I would 
assume that--and I know this in part from conversations I had 
with those phone companies, is that, one, they're making the 
decision about we don't know how to pay for what we've already 
deployed, and how to repay loans that are already existing; and 
two, is this order going to be changed in a way that we can 
continue to deploy broadband in places that we don't have 
broadband in the future.
    So if you would capsulize for me or explain to me where you 
are in your--you've had conversations now with the FCC, with 
Chairman Genachowski. Have we got anything in the works, and 
again, I think I asked about this topic last year, has anything 
developed? Is anything developing that can give me some comfort 
that this effort that was started by the administration a 
number of years ago to deploy broadband is--that the harm that 
has come from the FCC order is being overcome?
    And second, where are you in the ability to see that your 
loans are going to be repaid to the Rural Utilities Services?
    Secretary Vilsack. I've, actually, kept my eye on the 
portfolio issue. Let me address that, first and foremost.
    And the good news is that we have not seen, at this point, 
a significant level of concern in terms of the ability to meet 
prior obligations, which is good.
    And in those cases where there has been an issue, we have 
been working with the FCC to create some kind of waiver that 
will allow the draconian impact on a particular company to be 
less draconian.
    So we have been engaged in those conversations, and the FCC 
has been willing, up to this point, to be granting waivers in 
those circumstances.
    We have had a conversation with the chairman, and 
obviously, he's no longer there. But we did express a concern 
for the need to amend the Connect program that they have, to 
create a bit more flexibility for rate of return folks to be 
able to participate in that.
    They put $300 million out. It wasn't fully utilized, and we 
think there's an opportunity there to potentially assist us in 
expanding.
    And we have engaged in a more meaningful conversation, as a 
result of my discussion with the chairman, about how we might 
be able to better focus our resources in areas that the FCC and 
the regional bells are probably not going to have much interest 
in.
    We're going to continue to invest in this. We're going to 
continue to figure out ways to expand it, because we realize, 
as you do, how critical this infrastructure is to the survival 
of businesses and communities in rural areas.
    And our hope is the FCC takes a bit more of a flexible 
position than they originally took.
    Senator Moran. I hope to be able to pursue this further at 
some point in time with you, Mr. Secretary. Thank you for 
answer.
    Your response to Senator Tester about needing to make 
certain we have people who are paying taxes, this is one of 
those issues that create the opportunities for us to create 
business and opportunities in which we have taxpayers 
supporting the services that are necessary in rural 
communities. In the absence of this, the absence of the small 
rural telephone companies' ability to provide these services, 
your goal and my goal of seeing a more prosperous rural America 
is significantly diminished.
    Thank you, Mr. Secretary.
    Thank you, Mr. Chairman.
    Secretary Vilsack. Senator, I would also say that we have 
also had conversations with the folks at AT&T and Verizon in 
terms of encouraging them to be more aggressive in their 
efforts in this area as well. And they've given me some 
assurance that they are focused on this and are going to try to 
take advantage of these programs to expand broadband.
    So we have, in a sense, lobbied, if you will, that 
opportunity as well.
    Senator Moran. Great to hear. Thank you.

                  RURAL BUSINESS PROGRAM CONSOLIDATION

    Senator Pryor. Thank you, Senator Moran.
    We have one Senator on the way who wants to ask questions. 
What we'll do is a very brief second round. Let's let all of us 
who want to ask questions, just ask one or two more.
    Actually, I have several questions for the record that are 
follow-ups from some of the questions that Senators asked. But 
as we're waiting on our colleague to arrive, let me go ahead 
and ask you, Mr. Secretary, about something I like in concept, 
which is the consolidation of grant programs.
    I think you're taking five grant programs and consolidating 
them into one. I love that concept, and I think we would all 
like to know more detail, why you're doing this and how much 
you think you can save and how that efficiency is going to 
help.
    Secretary Vilsack. We're taking five smaller Rural 
Development programs and combining it into one because we think 
by doing so we can create a greater accountability and 
establish a solid standard relating to jobs created and 
economic opportunity created by doing this.
    When you have five smaller programs, obviously, you get 
five different administrative responsibilities. And oftentimes, 
it becomes difficult to keep track of every loan.
    But this one program will allow us to set standards then 
hold grantees accountable to those standards. And we think, in 
the long run, it will encourage more regional thinking, and 
encourage and expand economic opportunity, and give us more 
flexibility.
    Senator Pryor. Great.
    Senator Hoeven, if you're ready, I'll go ahead and call on 
you and let you do your first round of questions. And we'll 
finish up with our second round.

                         CROP INSURANCE PROGRAM

    Senator Hoeven. Thank you, Mr. Chairman. I appreciate it 
very much.
    Mr. Secretary, good to see you again. The first question I 
have is crop insurance in the budget. You show a $12 million 
reduction in--excuse me, $12 billion reduction in crop 
insurance. And what my farmers are telling me, not just from 
North Dakota but from around the country, is that crop 
insurance is their absolute number one priority as we go into 
writing the new farm bill, which we hope to be in markup in our 
Agriculture Committee next week for the Senate.
    So crop insurance, number one priority for farmers. How 
come the $12 billion reduction in your budget submission?
    Secretary Vilsack. Well, we're, obviously, trying to deal 
within a constrained resource environment, and there are a 
couple of things that we are suggesting. We took a look at crop 
insurance and tried to determine what kind of rate of return 
insurance companies would need in order for this program to 
remain viable and fiscally sound. What we found was a 12-
percent return on investment was sufficient and adequate.
    Currently, producers and companies are receiving somewhere 
in the neighborhood 14 to 15 percent return on investment over 
the long haul. So we thought there could be a slight adjustment 
there.
    There are circumstances when the Government is subsidizing 
more than 50 percent of the premium, in some cases, more than 
60 percent of the premium. And we felt that there could be some 
slight adjustment in terms of that relationship between the 
taxpayer, the farmer, and the company.
    And we felt that there were some adjustments that could be 
made for products that are focused on price protection.
    So that's where the resource comes from. We don't think it 
jeopardizes the availability of the product or the need for the 
product. We think it's just a rebalancing of the relationship 
between the taxpayer, the farmer, and the company.
    Senator Hoeven. I'd point out that in the baseline, $64 
billion in direct payments is going away. So we'll be taking 
the direct payments out of the farm bill. The farm bill will be 
saving somewhere between $23 billion and $35 billion based on 
Senate versions and House versions that made it through the 
respective Agriculture committees last year.
    That's more than sequestration would call for. And so 
agriculture is stepping up and providing budgetary savings. 
It's going to be very important that crop insurance is there 
for them in a solid way going forward when we're making these 
other reductions.
    My next question is, I had Brandon Willis out in our State, 
and I appreciate very much him coming out.
    The issue we worked on is right now under prevented plant. 
You have to plant and harvest a crop 1 out of 4 years in order 
to be eligible for prevented plant under crop insurance. But 
there are other rules that make prevented plant very, very 
confusing.
    He's agreed to help us work through that, which we 
appreciate very much. We'd ask your thoughts and hopefully your 
commitment to help in that regard as well.
    Secretary Vilsack. Senator, we have a lot of confidence in 
Brandon to administer the RMA program in a way that reduces 
inconvenience or inefficiencies in the program. One of the 
reasons that I put Brandon in that position was because he 
understands the crop insurance program very well and is 
committed to making it work.
    And you have my commitment to assist him in any way I can 
to create a more efficient and more effective program. It goes 
back to Senator Moran's question and concern about the need for 
us to have an RMA Administrator that understands and 
appreciates the need to constantly look at ways to improve the 
product or to expand the product.

                         SCHOOL LUNCH STANDARDS

    Senator Hoeven. Well, Senator Moran is a very insightful 
Senator. And so, I think that's remarkably good advice. I know 
you do as well.
    The final question I have for you is, the school lunch 
program, the chairman of this subcommittee and myself have put 
forward legislation, which we think is helpful. It provides 
some more flexibility for the school lunch program.
    And it doesn't change the calorie limit because we all want 
to address childhood obesity, but it does provide some 
flexibility in terms of the amount of proteins and the cereal 
grains that students can receive, if they're older or taller, 
or just have different activity levels and physical needs.
    And so I think it provides real flexibility for what we're 
all trying to do, and I would ask for you help and support with 
that.
    I think we're putting it forward, and, certainly, the 
chairman can speak for himself, but it's very bipartisan. We're 
putting it forward with the idea of working with the Department 
to have the best possible product.
    We actually have the endorsement of the school 
nutritionists nationally. And so I just ask for your 
willingness to help us with that legislation.
    Secretary Vilsack. Senator, I think that what you and the 
chairman, and I suspect Senator Blunt in an earlier set of 
questions, I think you'll find that what you're proposing is 
pretty consistent with what we're currently doing and that we 
had discussion earlier about the need to make those kinds of 
flexibilities more permanent, which we agree with.
    Senator Hoeven. Yes. I thank you for the flexibility. You 
came out after we'd sent a letter and you responded. You were 
very responsive to it. Now we're just trying to make sure we've 
got a permanent solution in place, and we want to work with you 
on this.
    Secretary Vilsack. Fair enough.
    Senator Hoeven. Good. Thank you.
    Senator Pryor. Senator Blunt would like to ask a few more 
questions.
    Senator Blunt. Thank you, Chairman.
    We got a call this morning, Secretary, from one of our 
dairy farmers who has land in two adjoining counties. And they 
said they weren't able to receive their full NAP payment 
because FSA told them that you have to figure the loss in two 
different counties, and that isn't linked up yet.
    Is this a problem we can take care of? Or is it already 
taken care of? The back online problem should solve this?
    Secretary Vilsack. Clearly, the payments are back online. 
Whether or not it addresses your particular situation, I don't 
know, but we will find out today if it does.
    Senator Blunt. All right, thank you.
    Secretary Vilsack. If it doesn't, we'll try to get that 
result.

                     GENETICALLY MODIFIED ORGANISMS

    Senator Blunt. Well, that's in two counties and apparently 
that's the problem. At least that's why they were told that 
they weren't getting their full payment yet.
    I didn't intend to ask about this, but I want to be sure I 
understand it. Mr. Merkley brought up the GMO issue.
    And as I understand it, and of course, that was in the 
House bill and we accepted it in an earlier decision to put 
those two bills together some time last year. But as I 
understand what that bill does is it--or what that bill did, 
and as Mr. Merkley pointed out, it only goes through September 
30, it would give the Department the authority to do what 
essentially you did in 2010.
    What happened in 2010 was a court said that a crop that you 
had allowed to be planted, a deregulated crop, sugar beets at 
that time, which, certainly, Mr. Tester knows more about sugar 
beets than everybody else here put together. By the time we got 
to 2010, 95 percent of all the sugar beets in the country were 
this new strain of sugar beets.
    And a judge said in August 2010, much too late to do 
anything different than you've done that year, that USDA had 
made a mistake for environmental reasons, not for food safety 
reasons but environmental reasons, you hadn't check in that 
boxes, and this product couldn't be harvested or sold.
    As I understand this provision, it gives you the authority 
to figure out how to let that one crop, that annual crop, be 
harvested and sold unless you agree with the court. And if you 
agree with the court and aren't going to appeal, you don't have 
to do this at all.
    And by the way, by February 2011, a higher court had said 
that's nonsense and of course this crop can be harvested. But I 
think, by then, you had done some things that I'm told this 
provision just gave you the authority to do if it ever came up 
again.
    Would you want to respond to that?
    Secretary Vilsack. Sure. Your recitation of the rather 
complex situation with sugar beets is absolutely correct.
    I guess my attitude about this is that I don't think it was 
necessary. And this is a delicate conversation we're trying to 
have within agriculture between those who are strongly 
committed to new technologies and genetically modified efforts, 
and those who feel very, very strongly and passionately about 
organic or alternative or different ways of agricultural 
production.
    And I'm trying to create a conversation between these two 
ways of thinking, which is a very difficult conversation, 
because people think passionately about this.
    And to a certain extent, I think what happened when that 
amendment was passed or put in is it created a concern that 
people were trying to slip something through at the last minute 
without much debate. And it makes that conversation just a bit 
more difficult than it needs to be.
    And as you point out, it doesn't necessarily do anything I 
can't already do. So my view of this, why stir up the pot if 
you don't have to?
    We're going to make these decisions based on the science 
and based on the law, which is the way they ought to be made. 
And this creates, I think, some confusion, and I think makes it 
harder to have that conversation.
    Senator Blunt. I particularly agree in the short term where 
you're only doing something that lasts for 4 or 5 months 
anyway. I tend to think that was right, though not only did it 
allow you to do something that you already had the authority to 
do, it allowed you to do something you'd already done in this 
2010 case.
    So this thought that somehow this is some extraordinary--it 
made the Department do something the Department couldn't do. In 
fact, it specifically said, as I looked back at it after it got 
all these attention, that if you agreed with the court and you 
weren't going to appeal, you didn't have to do anything. You 
could tell all these farm families, you can't sell the crop 
that we told you last spring you could plant.
    But, of course, that had not been your position when this 
had come up before.
    Secretary Vilsack. And what you've just indicated is 
precisely the reason why I was concerned about this, is that it 
gets reinterpreted, misinterpreted, expanded, concerns are 
expressed about what the real intent of something is, while 
we're trying to have this delicate conversation.
    But, Senator, in the time that we've had this conversation, 
the good news is your NAP issue for you Missouri farmers has 
been resolved.
    Senator Blunt. It was a long enough question, Mr. Tester, 
that it actually can solve a problem while I was asking the 
next question.
    Now, this is a good response, Mr. Secretary. I'm glad to 
hear that.
    I had two or three others. I'll just submit those for the 
record. I don't want to take more of everybody else's time than 
we need, but I will submit some more, a couple of more, 
questions for the record.
    Senator Pryor. Thank you.
    Senator Cochran, do you have any questions?

                        BIO-BASED MARKET PROGRAM

    Senator Cochran. I have one, just as a matter of curiosity.
    And that is, is there any bias in the Department of 
preferring bio-based market program items for home construction 
over traditional forest products?
    Secretary Vilsack. No, I don't think that there's a bias, 
Senator. I think that we actually have a green building 
initiative at the Forest Service where we're trying to educate 
folks about the important component of wood in construction.
    I think it's a matter of education. I don't think it's a 
bias. I think there was an understanding of precisely what the 
laws and regulations require in that particular program. But I 
wouldn't suggest there is a bias.
    But if you have an indication there is, I'd be more than 
happy to visit with you about that.
    Senator Cochran. Well, it's just a matter of personal 
curiosity. My staff had written out a question suggesting that 
I ask you about the bio-based markets program. And I'm really 
not familiar with all of the details of how it works, and to 
what extent it is an effort to pressure through use of awards 
or rewards one type of building construction over another.
    Secretary Vilsack. I think the way it's structured, it's 
designed to promote new and innovative opportunities to support 
new and innovative opportunities, on the theory that matured 
industries don't necessarily need a leg up or assistance. So I 
think that's the strategy and what happens is it, obviously, 
works to the detriment of some particular materials that are 
more traditional.
    Senator Cochran. How can bamboo be more renewable than 
pine? They're both the same in terms of renewability, aren't 
they?
    Secretary Vilsack. It has to do with the newness of the 
technology and the utilization. I'm not disagreeing with you. 
We're trying to work through this. And one way we're trying to 
work through it is all of our Forest Service projects from now 
on have a preference for green for wood. And we've had several 
projects that have been built recently. And we're trying to 
encourage more of that understanding on some of the more 
traditional materials.
    Senator Cochran. Thank you very much.
    Thank you, Mr. Chairman.
    Senator Pryor. Thank you, Senator Cochran.
    Senator Tester.

                     GENETICALLY MODIFIED ORGANISMS

    Senator Tester. Thank you, Mr. Chairman, and I want to 
thank the Secretary once again. And I do want to thank you for 
your realization about the delicateness of the whole GMO issue. 
I appreciate that a lot.
    We can debate this offline, but I mean, I think the 
interpretation is if you make a decision, this is where this is 
different, and the court makes another decision that says you 
did it improperly, you're required to stay with that original 
decision. That's what the GMO rider did, from my 
interpretation. I could be wrong. I don't want to go down this 
line right now, because I've got other questions I want to ask.

                             PLANT BREEDING

    Classical plant breeding, I'm actually very concerned we're 
not doing enough with our Federal dollars for research on 
publicly available, locally adapted seeds. And I think that 
they're critically important. A diverse seed supply is 
important. I think you alluded to that previously.
    I guess Congress has highlighted the issue through report 
language, urging conventional and animal breeding and public 
cultivar development to be a priority for your Department. The 
question is, I guess it's fair to say there are concerns out 
there that it's not a priority. And I just want to get your 
perspective on those things.
    They're critically important, as we see our climate 
changing all the time. And given the challenges of food 
security, diversity, farmer viability, where is the Department 
on this or you personally?
    Secretary Vilsack. Senator, I think you're going to see 
additional investments in this area as a result of the concerns 
that have been expressed by folks.
    Let me just simply say that as part of the AC21 effort, and 
as part of our concern about climate and adaptation and 
mitigation strategies, there is an emphasis on this. We put 
together a team in USDA to take a look at climate adaptation 
and mitigation. Part of that team is looking at the whole issue 
of seed and germplasm, and what do we have, what don't we have, 
what are the risks, and so forth.
    So I wouldn't say that there is a lack of concern about 
this at all the Department. There's an understanding of the 
need for it.
    Senator Tester. I think it's good. And I think in a time 
where farmers are tending to lose control of the seed that they 
plant, in other words, somebody else owns it, I think these 
public cultivars are very, very important. Just wanted to pass 
that along.

                          CONSERVATION FUNDING

    Conservation funding. This budget proposes critical 
conservation programs significantly below level established in 
the farm bill. Look, from a Montana perspective, from a country 
perspective, this is a huge industry, this outdoor industry, 
which the conservation helps promote.
    The question is, we're in this game, whether it's politics 
or agriculture, to be able to pass the land on, and pass the 
country on to the kids in better shape that we got it.
    So in this particular area, I'm not sure that the budget 
helps us do that, and I was wondering why conservation programs 
were targeted in this way.
    Secretary Vilsack. Well, Senator, I respectfully suggest 
that we are committed to conservation. We're adding 26.3 
million acres to our conservation programs, and it will mean 
that there will be another 80,000 producers assisted. It will 
mean that we'll continue to increase the record and historic 
amount of acres enrolled in conservation programs.
    When the 2008 farm bill was passed, you were in a much 
different fiscal circumstance than you find yourself today. So 
this is about challenges and strategies.
    So back to my point about being creative, there are two 
additional strategies that you weren't using in 2008 that we 
are currently using, which we think will expand and continue a 
commitment to conservation.
    First is this issue of regulatory certainty. We did not 
have the relationship we have with the Department of the 
Interior in 2008 on the Endangered Species Act where we're now 
being able to grant producers 30 years of regulatory certainty 
on the Endangered Species Act if they engage in certain 
conservation practices.
    We did not have the relationship we are currently having 
with States like Minnesota, States like Maryland and Virginia 
who are in water certifications programs, where, using our 
conservation programs, they get deemed in compliance with their 
certification State requirements.
    So this regulatory certainty creates an additional 
incentive and opportunity to expand conservation.
    Second, that notion of ecosystem markets, we are focused 
very heavily on trying to measure and quantify the results of 
conservation. We believe strongly that if you can measure and 
quantify the results, then you can get private sector 
investment in conservation in order to sustain and comply with 
the regulatory responsibility that a utility or another 
industry may have that they can more easily and more 
inexpensively meet by conservation on a farm than building a 
water treatment facility on their grounds.

                     GENETICALLY MODIFIED ORGANISMS

    Senator Tester. You've got it. Okay.
    One last thing, if I might, Mr. Chairman. You talked about 
the AC21 committee. I want to talk about the AC21 committee on 
biotech really quick.
    You talked about the ability to coexist with organic 
sector, with purebred seed folks. And I think that there's 
going to be other issues that come down the line.
    Let me give you an example. You can have a biotech crop 
like corn that's being used in a corn chip somewhere. And you 
can have another biotech corn plant that has an ingredient 
called amylase, which is good for making biofuels, but really 
destroys the chip market if it's commingled.
    I guess, as that committee came out with its 
recommendations--and the commingling issue is not going to 
away. I think it's going to become more and more of a problem 
as we move forward. Do you have any suggestions or did they 
give you any suggestions on how you can move forward in a way 
that's sustainable financially and really deal with the 
coexistence issue?
    Secretary Vilsack. I'm not sure that we specifically 
addressed the commingling issue as it relates to your 
particular example. But the way to answer your question, I 
think, is to say that there were three main focuses of this 
effort.
    One was identifying stewardship responsibilities that 
producers of GM products will have, and understanding what's 
being raised around them, and timing and types of planning 
decisions that could minimize or reduce the risk of 
commingling.
    And then, second, creating some kind of financial 
mechanism, maybe it's insurance, maybe it's something different 
than that, that would cover the risk of commingling when 
someone is financially devastated as a result.
    And third is continuing to do significant research so that 
we understand better what's actually happening out there, 
because there's a lot of talk about what's happening, but 
there's not a whole lot of data about what's happening.
    So collecting information and analyzing it and researching 
it will allow us to do a better job with the stewardship and 
the risk management piece of this.
    Senator Tester. I appreciate that. And I would hope that 
research would happen even before it's released into the 
ecosystem to find out what the potential of it happening out 
there is.
    I mean, Mother Nature is a very simply but yet very complex 
beast, let's just put it that way. And I think that the tools 
are out there, and the potential tools for genetically modified 
plants makes a person very hopeful. But we need to make sure 
we're not getting more than what we bargain for. After it's 
into the ecosystem, you can't pull it out.
    So thank you, Mr. Secretary. I just want to say thank you 
very much for the job you've done in the Department. I very 
much appreciate it, as somebody that's involved in production 
agriculture, the work that you've done and your commitment to 
rural America. Thank you very much.

                         AGRICULTURAL RESEARCH

    Senator Pryor. Thank you, Senator Tester.
    Mr. Secretary, I want to thank you for being here. I do 
have some questions for the record. We need to move on to the 
second panel at this point, but I do have some questions about 
the Dale Bumpers Small Farms Center. I do not support the 
closing of that center.
    And also some of the unique funding challenges for the 
Arkansas Children's Nutritional Center, but I want to follow up 
on that with you offline and talk through that and walk you 
through that and you can walk us through that, and hopefully 
come to some sort of agreement.
    And then I just want to end where we started. I asked you 
about agricultural research in the beginning. I think it's 
critically important. And again, we'll follow up on this and 
talk about this in a separate setting. But you focused on 
competitive research, and I think that the capacity funding for 
our land grant universities is also important and let's just 
continue to have that conversation as we go.
    And I want to thank you and your team for being here today. 
We look forward to continue working with you.
    And, as you know, we always have an open line of 
communication, and we'd love to hear from you, love to continue 
to work with you.
    Secretary Vilsack. Thank you, Mr. Chairman.
    Senator Pryor. Thank you. Thank you very much.

                      Office of Inspector General

STATEMENT OF HON. PHYLLIS K. FONG, INSPECTOR GENERAL
ACCOMPANIED BY:
        GIL HARDEN, ASSISTANT INSPECTOR GENERAL FOR AUDIT
        KAREN ELLIS, ASSISTANT INSPECTOR GENERAL FOR INVESTIGATIONS
    Senator Pryor. I'm now going to introduce our second panel. 
And, as our staff clears the table and resets it, I'll just go 
ahead and just say very briefly, our second panel today is the 
Honorable Phyllis Fong. She's the inspector general of the U.S. 
Department of Agriculture.
    And my understanding is, Ms. Fong, this is your first time 
to be before this subcommittee. We welcome you here. We thank 
you for your work. And I know that we have questions for you 
about some of the efforts you've done at the Department of 
Agriculture.
    I know you have Karen Ellis and Gil Harden here, and we 
want to welcome all of you to this.
    So if you would go ahead and start with your opening 
statement, we'll limit that to 5 minutes. Thank you.
    Ms. Fong. Well, thank you, Mr. Chairman, and Ranking Member 
Blunt. It's really a pleasure to be here this morning. And as 
you point out, it is our first time. So we're looking forward 
to a good exchange of views.
    We appreciate the support that this subcommittee has shown 
for the Office of Inspector General and our work. And, as 
always, we welcome the chance to address your concerns.
    You have my full written statement, so I won't go into 
great detail. Let me just very quickly summarize that our 
mission at the Office of Inspector General is to support the 
Department and to help the Department deliver its activities as 
effectively as it can.
    And so we do spend quite a bit of time on very high-
priority issues involving the safety of the food supply, 
involving the Department's biggest programs, the Supplemental 
Nutrition Assistance Program (SNAP), as well as the various 
management activities of the Department including financial 
management, improper payments, information technology (IT) 
security, and the full range of Department activities.

                           PREPARED STATEMENT

    And, as you know, we had a very successful year. Last year, 
we reported outstanding productivity. And so, we would just 
summarize by asking your support for our budget request for 
fiscal year 2014.
    And with that, we're ready to address your questions.
    [The statement follows:]

               Prepared Statement of Hon. Phyllis K. Fong

    Good morning, Chairman Pryor, Ranking Member Blunt, and members of 
the subcommittee. Thank you for the opportunity to testify concerning 
the oversight the Office of Inspector General (OIG) provides to 
Department of Agriculture (USDA) programs and operations. As you know, 
OIG's mission is to promote economy, efficiency, effectiveness, and 
integrity in the delivery of USDA's programs.
    OIG conducts audits designed to ascertain if a program is 
functioning as intended, if program payments are reaching intended 
recipients, and if funds are achieving their intended purpose. Our 
audits make recommendations we believe will help USDA better accomplish 
its mission. We do not have programmatic or operating authority over 
agencies or programs; instead, agencies are responsible for 
implementing our recommended corrective actions. We also conduct 
investigations of individuals and entities suspected of abusing USDA 
programs--these investigations can result in fines and imprisonment for 
those convicted of wrongdoing, disqualification from USDA programs, and 
agency disciplinary actions for USDA employees found to have engaged in 
misconduct.
    In fiscal year 2012, OIG's activities resulted in potential 
monetary results totaling over $1.5 billion. We issued 76 audit reports 
intended to strengthen USDA programs and operations, which produced 
about $1.4 billion in potential results. OIG investigations led to 538 
convictions with potential results totaling over $106 million.
    Today I will discuss our most significant recent audits and 
investigations under our major strategic goals, which provide a 
framework for prioritizing OIG's continually changing portfolio of 
oversight work. We will summarize our remaining work overseeing the 
Department's administration of American Recovery and Reinvestment Act 
of 2009 (Recovery Act) funds.\1\ Finally, we will conclude with a 
description of the cost-saving actions that OIG is taking in fiscal 
year 2013 to live within its budget constraints, as well as a summary 
of the President's fiscal year 2014 budget request for OIG.
---------------------------------------------------------------------------
    \1\ Public Law 111-5, 123 Stat. 115 (2009).
---------------------------------------------------------------------------
 OIG GOAL 1: STRENGTHEN USDA'S SAFETY AND SECURITY MEASURES FOR PUBLIC 
                                 HEALTH

    To support USDA's mission to ensure the wholesomeness of the U.S. 
food supply, OIG conducts audits and investigations intended to ensure 
that U.S. consumers purchase safe, high quality products.

The Animal and Plant Health Inspection Service (APHIS) and Smuggling 
        Interdiction
    APHIS' Smuggling, Interdiction and Trade Compliance (SITC) unit 
prevents the unlawful entry and distribution of prohibited agricultural 
products that may harbor plant and animal pests, diseases, or invasive 
species. These prohibited products and pests cause billions of dollars 
in lost revenue and millions in cleanup costs. We found that SITC's 
control environment did not include a system of management 
accountability that would foster efficiency, adequacy, or accuracy in 
achieving its core mission and reporting its results. For example, 90 
percent of SITC's market surveys (intended to seize prohibited products 
and investigate their origins) were not successful at either seizing a 
prohibited product or in generating a trace back to identify the 
importer of a prohibited product. For the surveys that were successful 
in these two areas, SITC did not take further action to stop future 
shipments for 96 percent of the higher risk imported prohibited 
products it seized. We recommended that APHIS assess the effectiveness 
of SITC's mission, and the agency agreed.

The Food Safety and Inspection Service (FSIS) and Meat Inspection
    OIG has also published several recent audits intended to help 
improve the quality of inspections FSIS performs at meat processing 
plants around the country. One audit set out to determine if FSIS has 
sufficient inspection personnel to adequately monitor establishments 
that process meat and poultry products.\2\ Although FSIS requires 
inspectors to visit slaughter establishments at least once per day, and 
at least once per operating shift, we noted that inspectors did not 
always comply due to events such as inclement weather, traffic delays, 
inspector delays at prior establishments, and unscheduled leave by 
inspectors. When such unexpected events occurred, FSIS had not 
established mitigating procedures for inspectors to use during the next 
scheduled visit to ensure that meat and poultry products were processed 
on the missed date in a safe and sanitary manner. We recommended that 
FSIS develop mitigating procedures for inspectors to perform when they 
miss scheduled inspections at processing establishments and require 
supervisors to analyze data from followup visits. FSIS generally agreed 
with our recommendations.
---------------------------------------------------------------------------
    \2\ Because FSIS did not track whether establishments missed 
scheduled procedures due to unavailable inspectors, we were unable to 
reach a conclusion on the sufficiency of FSIS' inspection staff level.
---------------------------------------------------------------------------
    OIG also reviewed how effectively FSIS tests boxed beef items that 
downstream processors used for ground beef production and found that 
the agency needs to re-evaluate its E. coli testing methodology as it 
relates to the downstream processing of boxed beef products. While FSIS 
tests product designated as ground beef or likely to become ground 
beef, it does not sample all boxed beef product. Some downstream 
processors grind such boxes of cuts of beef without sampling it for E. 
coli prior to grinding. Similarly, ``retail exempt establishments''--
such as grocery stores, restaurants, hotels, butcher shops--often grind 
their own ground beef; but unlike federally inspected plants, FSIS does 
not sample and test bench trim at these establishments for E. coli. We 
recommended that FSIS take additional steps to ensure that beef to be 
ground throughout the production process--from federally inspected 
slaughter establishments to local grocery stores--be subject to FSIS 
sampling and testing for E. coli, and the agency agreed.
    Several recent OIG investigations have also highlighted the need 
for continued vigilance in the area of food safety. In May 2012, a 
Kansas food company was convicted and sentenced to pay $480,282 in 
restitution to the U.S. Bureau of Prisons for selling misbranded meat 
products. From August 2006 through July 2007, the manufacturer caused 
more than 1 million pounds of beef trim to become adulterated and 
misbranded; it then sold, transported, and delivered this beef to 
Federal correction institutions located in several States.
    Other investigations have helped protect the USDA organic label 
from individuals who would abuse it. In April 2012, an Oregon man who 
sold 4.2 million pounds of conventionally grown corn falsely labeled as 
USDA-certified organic corn was sentenced to 27 months in prison and 36 
months of supervised release for wire fraud. This corn had been fed to 
cattle, and the resulting beef and dairy products were sold to 
consumers as USDA-certified organic. Similarly, in November 2012, the 
owner of a large volume organic products company was sentenced in 
California to 78 months in Federal prison for selling fertilizer 
falsely represented as organic. He was also ordered to pay $9 million 
in restitution.

   OIG GOAL 2: STRENGTHENING PROGRAM INTEGRITY AND IMPROVING BENEFIT 
                                DELIVERY

    One of OIG's most important goals is helping usda safeguard its 
programs and ensuring that benefits are reaching those they are 
intended to reach. Given the size of the Food and Nutrition Service's 
(FNS) Supplemental Nutrition Assistance Program (SNAP)--$82 billion in 
fiscal year 2012--OIG has made a concerted effort to oversee compliance 
within that program.
    OIG continues to direct a large percentage of its investigative 
resources to combating the trafficking of SNAP benefits.\3\ In fiscal 
year 2012, OIG devoted about 52 percent of its investigative resources 
to SNAP-related criminal investigations, which resulted in 342 
convictions and monetary results totaling $57.7 million. In a recent 
example, a north Texas grocery store owner pled guilty to SNAP 
trafficking, wire fraud, and running an illegal money transmitting 
business. The store owner was sentenced in January 2013 to 57 months of 
imprisonment and ordered to pay restitution of $1.4 million. During the 
investigation, SNAP recipients admitted to exchanging SNAP benefits for 
cash and to using SNAP benefits to wire money to friends and family 
members in North Africa.
---------------------------------------------------------------------------
    \3\ Trafficking is the illegal exchange of SNAP benefits for cash 
or other ineligible items. See 7 U.S.C. section 2024(b) and 7 C.F.R. 
section 271.2.
---------------------------------------------------------------------------
    We also continue to work closely with State and local law 
enforcement agencies to prosecute SNAP recipients who abuse benefits. 
For instance, in March 2012, when a Texas store owner was convicted of 
trafficking $1.3 million in SNAP benefits in his convenience store, OIG 
worked with local authorities to pursue the recipients as well. These 
individuals used their benefits to buy various ineligible items 
including gasoline, tobacco products, and alcohol, and also to play 
video poker at the store. To date, the local district attorney has 
accepted referrals of over 100 SNAP recipients for prosecution by the 
State of Texas.
    OIG audits have shown that FNS can improve its controls over SNAP. 
One audit analyzed SNAP-related databases at Federal and State levels 
to identify anomalies that may result in ineligible individuals 
receiving SNAP benefits. We found that, while FNS and States do have 
tools for ensuring applicant eligibility and detecting fraud, States 
either do not make full use of the tools, or cannot rely on the data 
provided by the tools to take actions related to benefits. While our 
data mining reviews found a relatively low percentage of potentially 
ineligible recipients receiving SNAP benefits (just 0.20 percent), that 
percentage represents large sums in a program of SNAP's size--about 
$3.7 million per month. OIG recommended that FNS make full use of the 
fraud detection tools it already has, as well as strengthen its fraud 
reduction efforts. FNS agreed to our recommendations.

Other Food Assistance Programs
    Of course, SNAP is not the only food assistance program that can 
benefit from improved oversight. The National School Lunch Program 
contracts with food service management companies to serve 31 million 
children lunch each day, with total disbursements of approximately $11 
billion. Our review of 18 school food authorities showed that 11 did 
not exercise sufficient management oversight to ensure they received 
the full benefits of purchase discounts and rebates and the value of 
USDA-donated foods. As a result, we questioned almost $1.7 million in 
unallowable costs and USDA-donated foods that could not be accounted 
for. We recommended that FNS improve its controls over these contracts 
and agency officials generally agreed.
    An OIG investigation revealed that an organized group of 
individuals opened 13 storefront operations in Georgia to defraud SNAP 
and the Special Supplemental Nutrition Program for Women, Infants, and 
Children (WIC). From February 2009 to June 2011, this group illegally 
exchanged over $5 million in benefits for cash. To date, 16 individuals 
have been charged with conspiracy or theft of Government funds. In 
fiscal year 2012, 13 individuals were sentenced to incarceration 
periods ranging from 9 to 63 months and were ordered to pay a total of 
$6.3 million in restitution. Three individuals are scheduled for trial 
in June 2013.
    An OIG audit of FNS' controls over vendor management and 
participant eligibility in WIC found that the agency's management 
evaluations did not identify and correct significant issues in the 
vendor management processes at two State agencies operating WIC. State 
agencies in Illinois and Florida lacked sufficient controls to track 
vendor violations for 42 vendors, and ensure timely and appropriate 
sanctions. As a result, these vendors were not disqualified as required 
by FNS regulations, and could redeem an estimated $6.6 million in WIC 
benefits during their required periods of disqualification. We 
recommended that FNS improve its controls over WIC, and the agency 
generally agreed.

Farm Programs
    OIG also works to help ensure the integrity of USDA farm programs. 
A recent audit reviewed how the Farm Service Agency (FSA) determines 
the soil rental rates used for payments in its Conservation Reserve 
Program (CRP)--a program that provides annual payments to producers who 
agree to maintain conservation practices such as establishing grass 
cover on farms to prevent soil erosion and reduce chemical runoff. We 
found that FSA did not use the National Resources Conservation 
Service's (NRCS) most up-to-date measure of soil productivity, which 
uses scientific data relating directly to the ability of soils, 
landscapes, and climates to foster crop productivity on non-irrigated 
soil. Additionally, FSA did not use the National Agricultural 
Statistics Service's (NASS) statistically valid survey of county 
average rental rates for cropland and pastureland, and instead allowed 
States and counties to submit alternate rates, which were not always 
supported. OIG questioned these rates and determined that FSA's rates 
exceeded NASS' by about $127 million over the 10-year life of the CRP 
contracts. We recommended that FSA improve how it determines these 
rates, and the agency generally agreed.

The Risk Management Agency (RMA) and Crop Insurance
    OIG has recently completed work on how RMA operates the crop 
insurance programs that U.S. farmers and ranchers rely on. One of our 
audits reviewed how RMA reinsures private insurance companies (known as 
approved insurance providers (AIP)) when they insure new producers. 
Such ``new producers''--defined as those who have no more than 2 years 
of history farming a specific crop--are considered higher risk and RMA 
therefore reinsures the AIPs at a higher rate. We determined that 154 
of 176 new producer-designated crop insurance policies in our sample 
were sold to insured producers who were not eligible for new producer 
status--57 of these policies resulted in indemnities totaling $2.4 
million and $910,000 in associated costs. We recommended that RMA 
improve how AIPs determine if a producer should be considered new or 
not, and the agency generally agreed with our recommendations.
    Our review of how RMA is overseeing Federal crop insurance coverage 
for organically produced crops found that transitional yields offered 
to organic producers overstated actual production capabilities of 
farmers producing crops using organic farming practices. We determined 
that this error resulted in excessive insurance coverage and higher 
indemnity payments for 35 of 48 crop policies with losses. Because the 
policies guaranteed excessive yields, at least $952,000 of the $2.56 
million that RMA paid in indemnities were excessive. We recommended 
that RMA reduce transitional yields for crops produced using organic 
farming practices, and the agency agreed.
    Several recent OIG investigations have also involved farm programs. 
In one case, RMA and OIG worked together to determine that a farmer in 
Illinois underreported his crop production in 2009 and 2010, thereby 
defrauding the Government of more than $500,000. The farmer pled guilty 
to money laundering and bankruptcy fraud, and was sentenced to 51 
months of imprisonment and restitution totaling $1.8 million.
    I would also like to draw the Committee's attention to a 
particularly noteworthy investigation involving widespread crop 
insurance fraud for tobacco in North Carolina, which has resulted in 
several cases. In one case an insurance agent was sentenced to 108 
months of imprisonment and $8.3 million in restitution. In a second 
case a crop adjuster was sentenced to 48 months imprisonment and $21 
million in restitution jointly and severally with the other subjects of 
the investigation. OIG's ongoing investigation of this conspiracy has 
resulted in a total of 40 convictions, 28 years' prison time, and $55 
million in restitution, to date.\4\
---------------------------------------------------------------------------
    \4\ These results include both cases.
---------------------------------------------------------------------------
       OIG GOAL 3: OIG WORK IN SUPPORT OF MANAGEMENT INITIATIVES

    OIG is also working to aid the Department in improving the 
processes and systems it needs to function effectively. Bringing its 
information technology (IT) systems into line with Federal standards 
has been a significant challenge for USDA. Over the last 4 years, OIG 
has made 49 recommendations in our fiscal year 2009-2012 Federal 
Information Security Management Act (FISMA) audits to improve the 
overall security of USDA's systems.\5\ The Office of the Chief 
Information Officer (OCIO) has completed action to resolve 14, and USDA 
is taking steps to resolve the remaining recommendations.
---------------------------------------------------------------------------
    \5\ 44 U.S.C. sections 3541 et seq.
---------------------------------------------------------------------------
    In fiscal years 2010 and 2011, OCIO received about $66 million to 
fund additional IT security projects to address some of these system 
weaknesses. OIG reviewed the use of these funds and found that the 
office did not prioritize its efforts to mitigate IT security 
weaknesses and accomplish a manageable number of the highest priority 
projects before proceeding to the next set of priorities. Instead, we 
found that several of OCIO's projects did not meet the purposes 
outlined in the congressional request for funding or address the 
Department's most critical IT security concerns. For example, OCIO 
exceeded proposed budgets for projects, did not allot sufficient 
funding to key security areas, and did not completely implement the 
projects it started. We recommended that OCIO document the 
prioritization of projects Departmentwide, and the agency agreed to 
take the appropriate action.

Reducing Improper Payments at USDA
    The Improper Payments Elimination and Recovery Act of 2010 (IPERA) 
requires OIG to determine whether USDA complies with IPERA annually.\6\ 
For fiscal year 2012, OIG determined that USDA did not comply with 
IPERA for a second consecutive year. USDA made progress in improving 
its processes to substantially comply with IPERA, but the Department 
was not compliant with three of the seven IPERA requirements, including 
reporting sufficient estimates for high-risk programs, reporting error 
rates below specific thresholds, and meeting annual reduction targets. 
By meeting reduction targets, USDA could have avoided making 
approximately $74 million in improper payments. As required, OIG must 
report to Congress that USDA did not comply with IPERA. For those 
programs that did not comply for 2 consecutive fiscal years, USDA must 
consult with the Office of Management and Budget to discuss further 
actions. We briefed USDA officials on our results, and they generally 
concurred with our findings and recommendations.
---------------------------------------------------------------------------
    \6\ Public Law 111-204, 124 Stat. 2224 (2010).
---------------------------------------------------------------------------
    As part of the effort to eliminate payment error, waste, fraud, and 
abuse in Federal programs, OIG reviewed USDA's compliance with the 
executive order on improper payments and found that USDA has made 
significant improvements in identifying high-dollar overpayments within 
its 16 high-risk programs.\7\ However, we noted that the component 
agencies' submissions to the Department did not always completely and 
accurately account for high-dollar overpayments and corrective actions, 
and that the Department did not submit these reports until 23 to 99 
days after the required due date. We recommended that OCFO improve its 
oversight of this process, and the agency agreed.
---------------------------------------------------------------------------
    \7\ Executive Order No. 13,520, 74 Fed. Reg. 62,201 (Nov. 25, 
2009).
---------------------------------------------------------------------------
    At NRCS, OIG reviewed the steps the agency has taken to ensure that 
its conservation programs are reaching the intended participants and 
achieving their intended results. We found that NRCS has not 
implemented a comprehensive, integrated compliance strategy designed to 
verify that its $3.6 billion in conservation programs are being used as 
intended. Over the past decade, a number of OIG audits have 
demonstrated that NRCS has longstanding problems with verifying the 
eligibility of participants, participant compliance with conservation 
agreements, and the valuation of easements. We recommended that NRCS 
perform a risk assessment of its vulnerabilities and focus its 
compliance activities on areas of program weaknesses, such as 
eligibility. Agency officials generally agreed.

Investigations of Wrongdoing by USDA Employees
    When a USDA employee is accused of criminal activity, OIG is 
responsible for performing investigations of any wrongdoing. An OIG 
investigation found that a former FSA county committee member and her 
husband conspired to defraud USDA by stealing the identities of 
unsuspecting parties and submitting false and fraudulent claims. 
Ultimately, they caused FSA to make approximately $1 million in 
fraudulent payments. In August 2012, the former FSA county committee 
member and her husband were sentenced to 52 and 57 months in prison, 
respectively. In addition, they were jointly ordered to pay $802,490 in 
restitution.

     OIG GOAL 4: IMPROVING USDA'S STEWARDSHIP OF NATURAL RESOURCES

    Since USDA is entrusted with hundreds of billions of dollars in 
fixed public assets, such as 193 million acres of national forests and 
grasslands, OIG performs reviews to ensure that the Department is 
acting as an effective steward of these natural resources. One review 
found that the Forest Service (FS) allocated Recovery Act grants for 
wildland fire management (WFM) activities--such as hazardous fuels 
reduction, forest health, and ecosystem improvements--without the 
necessary controls to ensure that the grant funds were both properly 
accounted for and used for their intended purpose. These findings apply 
not just to Recovery Act grants, but to the entire FS WFM grant 
program. We also found that FS did not enhance its existing controls, 
despite the Recovery Act's requirements for greater transparency and 
accountability. As a result, grant recipients charged a total of $92 
million in unallowable and questionable costs to both Recovery Act and 
non-Recovery Act grants. Additionally, FS staff did not take necessary 
steps to ensure that the agency met the Recovery Act's overall 
objective of maximizing job creation and retention in the most cost-
effective manner possible. FS generally concurred with all of our audit 
recommendations.

                OIG'S OVERSIGHT OF RECOVERY ACT PROGRAMS

    We are working to finish our remaining oversight work directed 
towards ensuring that the $28 billion in funds USDA received from the 
Recovery Act served their intended purposes. Because many of our 
recommendations concerning Recovery Act funds also apply to regular 
USDA programs, our work will have lasting importance long after 
Recovery Act funding has been expended.

RD's Single Family Housing (SFH) Guaranteed Loan Program
    In order to provide low- and moderate-income people who live in 
rural areas with an opportunity to own homes, the Federal Government 
guarantees loans and reimburses up to 90 percent of the original loan 
amount if a borrower defaults on a loan. Given increases in such loss 
claims--from $103 million in fiscal year 2008 to $295 million in fiscal 
year 2011--OIG reviewed the program and determined that RD needs to 
better identify loans with questionable eligibility prior to paying 
loss claims, reduce loss claims when lenders improperly serviced loans, 
and pay lenders only for eligible expenses. We estimate that the agency 
paid about $87 million in loss claims that were at risk of improper 
payments due to questionable loan eligibility, and paid about $254 
million in loss claims for loans that were at risk of improper payments 
due to questionable lender servicing. We recommended that RD improve 
its loss claims process to address these circumstances, and the agency 
generally agreed with our recommendations.
    Most of our remaining Recovery Act projects involve assessing 
agency determinations of program effectiveness through analysis of 
Recovery Act performance measures.

                 OIG'S FISCAL YEAR 2014 BUDGET REQUEST

    OIG continues to offer Congress an excellent return on its 
oversight investment, per $1 spent. From fiscal year 2007 to fiscal 
year 2012, the potential dollar impact of OIG audits and investigations 
has been $6.9 billion, while our appropriations have been $508 million. 
For every $1 invested, we realized potential cost-savings and 
recoveries of about $13.66. This calculation does not include the value 
of our food safety work and program improvement recommendations, which 
are extremely important to USDA's mission and the welfare of the 
general public, but are not easily quantified.
    We have also streamlined our operations in an effort to work as 
efficiently as possible. For example, in fiscal year 2012, OIG 
conducted a functional analysis to ensure that we, as an agency, are 
tying our resources to what is most critical to meeting our mission and 
are positioned to operate as efficiently and effectively as possible. 
Based on this analysis, we are taking the following steps to build a 
leaner and more effective agency:
  --offering Voluntary Early Retirement Authority and Voluntary 
        Separation Incentive Payments (39 employees separated pursuant 
        to these authorities);
  --increasing the use of video and teleconferencing to reduce travel 
        costs;
  --reviewing leases and office structure, resulting in savings from 
        steps such as office consolidation;
  --allowing employees to fill GS-14 and GS-15 positions without 
        moving, which has reduced relocation costs; and
  --shifting Investigations and Audit employees away from headquarters 
        and to the field, which puts more resources into activities 
        that directly accomplish our mission.
    Although these steps have enabled OIG to continue performing its 
oversight role despite a restricted budget, we note that OIG is 
presently functioning at its lowest level of authorized staffing since 
1963. The availability of staff and travel resources has become a key 
consideration in determining which audit and investigative matters OIG 
can undertake.
    We ask that you support the President's fiscal year 2014 budget 
request of $89.9 million for OIG, which would enable us to provide 
effective oversight of USDA programs and help ensure that tax dollars 
are being well spent. The President's budget includes modest increases 
in areas where we should be able to produce a high-value return for a 
relatively small investment:
  --$785,000 to support statistical sampling that would accurately 
        project the extent of improper payments in audits of USDA 
        benefit programs. This multiplies our work's range and 
        effectiveness, especially for very large programs like SNAP.
  --$620,000 to fund enhanced audit and investigations oversight of 
        USDA's international programs.
  --$1,217,000 for investigative initiatives to address SNAP fraud on 
        the part of both retailers and recipients involved in benefit 
        trafficking.
  --$468,000 for the Council of the Inspectors General on Integrity and 
        Efficiency by funding Government-wide activities to identify 
        vulnerabilities in Federal programs.
  --$667,000 for increased pay costs to support and maintain current 
        staffing levels to meet the demands and statutory requirements 
        of OIG. Approximately 86 percent of OIG's budget supports 
        personnel compensation.
    This concludes my testimony. Thank you for the opportunity to 
testify, and I would be pleased to address any questions you may have.

    Senator Pryor. Great, thank you.

               SUPPLEMENTAL NUTRITION ASSISTANCE PROGRAM

    Let me start with the SNAP program. Obviously, SNAP is 
nearly an $80 billion program, which is the largest single USDA 
program. Can you just give us a brief summary of the work 
you've been doing to combat fraud and abuse in SNAP, and the 
recommendations that you've worked on, on SNAP.
    Ms. Fong. Well, thank you. That is definitely a focus for 
our office. It is the biggest program. And what we have tried 
to do over the last 5 or 6 years is really pinpoint the areas 
in the program where there is potential for vulnerability and 
fraud. And so, we're looking, for example, at the Department 
level, how the Food and Nutrition Service (FNS) manages the 
program. We're looking at the interaction between retailers and 
beneficiaries. And we're looking at how the States make the 
determinations on eligibility for recipients.
    We have issued numerous audit reports and investigation 
reports with a lot of recommendations to the Department. And 
FNS, I'm happy to say, is working with us very collaboratively 
on trying to address these issues.
    Senator Pryor. That's good news.

                     NATIONAL SCHOOL LUNCH PROGRAM

    Let me also ask a similar question about the National 
School Lunch Program. I know you've been doing audits there, 
and can you give us just a brief update on the National School 
Lunch Program and your findings there?
    Ms. Fong. You're correct that that is an area of focus for 
us as well. We are, right now, looking at the improper payment 
issues in that program. The rate of improper payments tends to 
be very high as estimated by the program.
    We have done some work recently involving the food service 
management companies, and whether or not the rebates that those 
companies receive are passed along appropriately. And we will 
continue to work in that program.
    Senator Pryor. Okay.
    Senator Blunt.
    Senator Blunt. Thank you, Chairman.

                              WIC PROGRAM

    Following up on the chairman's questions about SNAP, the 
WIC program, there appears to me to be, in the information 
we've had, a difference in the people who are taking advantage 
of the system and people who are violating the law.
    And as I understand it, in Georgia recently you found some 
real violations of law. In California, an issue that we've 
talked about at this same hearing with the Department, not 
necessarily with you, last year, it turns out that California's 
rules and regulations were so flexible that they let people do 
things that were clearly stressing the system in bad ways, but 
not necessarily illegal behavior.
    Would you talk a little about how both of those things are 
things that we need to try to do something about?
    Ms. Fong. Well, this is an area that we are finding that we 
need to spend more time on, the WIC program.
    As you point out, there has been quite a bit of fraud. And 
some of our cases in Georgia really point out the kinds of 
trafficking that we have seen, which is very similar to the 
trafficking that we find in the food stamp program.
    The other situation that you mention, we appreciate your 
bringing that to our attention. We have not, to date, done work 
on that particular issue, but we do have some ongoing audit 
work that we are starting now, focusing on the vendors in the 
WIC program and how the food prices can be worked with.
    I believe we'll be focusing on that in that audit, and we 
should have more to report on this next year.
    Senator Blunt. Okay. As I understand, as I recall this from 
last year, the California situation was a number of stores had 
been set up really focused as WIC or SNAP locations, but more 
WIC because you're buying product, as I understand it, and then 
they're getting reimbursed for what they charge for it.
    But the California rules appear to be rules that actually 
allow some of that behavior to happen, maybe not ethical, but 
legal where I think we need to--I'll look forward to your 
response to that as you have a chance to look at what if 
anything can be done so that you don't have locations just set 
up to game the system and do it within the rules of the system.
    Ms. Fong. I think one of the issues that we would want to 
look at is how this is being implemented nationwide, whether 
there is any variance between States. And there may be some 
issues that could be addressed at the national level on that.

                           IMPROPER PAYMENTS

    Senator Blunt. And for the second year in a row, OIG has 
found that USDA doesn't comply with the Improper Payments and 
Recovery Act, because of the complexity of these programs? 
What's your sense of why that is?
    Ms. Fong. Well, you're referring to the requirements that, 
every year, the Department has to identify its improper payment 
activity, it has to identify where the issues are that may 
result in improper payments, and then report on actions that it 
will take to address those issues.
    And under those statutes, we in the Office of Inspector 
General have to audit the Department's efforts. And as you 
point out, for the second year in a row--this is a fairly new 
requirement that we go in and audit these efforts. We have 
found the Department has made progress.
    Since last year, it's made progress. But there are still 
areas that need to be addressed. And we are seeing issues, both 
at the Department level, as well as at the individual agency 
level, as well as issues with improper payments in particular 
programs.
    Our written statement identifies a number of specific 
programs where we have found improper payment issues. So this 
will continue to be a high priority for us.
    Senator Blunt. Well, thank you.
    Mr. Chairman, I have some other questions I think I'll 
submit for the record. So that's all I have right now.
    Senator Pryor. Thank you, Senator Blunt.
    Let me go ahead and ask a couple of more before we break 
for the day here.

                         REDUCTION IN WORKFORCE

    I know that we're in a budget-declining and budget-
restricted time. And one of the results of that is going to be 
a fewer number of staff. And I think, in some ways, we should 
applaud that and encourage that and find those efficiencies. 
But I do have a concern about some agencies as they reduce 
staff, might the program integrity suffer, might it open the 
door for fraud and waste and mismanagement, because there's 
just not as many people there taking care of the Nation's 
business?
    So have you had that experience at USDA? Are you seeing any 
drop off with the number of employees going down?
    Ms. Fong. I think you put your finger on a very difficult 
issue. There's no question that many of the agencies are losing 
significant portions of their workforce, and they tend to lose 
the very experienced people who really know the programs inside 
out.
    And I think we have, as an office, seen that there are 
succession-planning challenges, there are challenges in 
continuing to deliver the programs with less staff.
    And I don't know what the solution to that is. As we do our 
work within the Department and identify areas that need work, 
we try to come up with solutions that are not staff-intensive, 
that make better use of IT, for example, that may be more 
efficient in terms of business process.
    But I think we will continue to see the Department 
challenged in this regard.
    Senator Pryor. And do you think you'll see the incidence of 
waste and maybe fraud go up as the staffing levels go down?
    Ms. Fong. I think it's hard to predict. Some of the 
recommendations that we do make to the agencies are that they 
come up with a baseline estimate on the level of fraud in their 
programs.
    And just for an example, within the SNAP program, the 
agency has identified a certain percentage of what it believes 
to be improper payments. But in our view, they don't have a 
good estimate on the level of fraud or trafficking. And so we 
have made recommendations to them that they actually engage in 
that analysis so that they have a benchmark and then can 
measure whether things get better or get worse over time.

                              CIVIL RIGHTS

    Senator Pryor. And for my last question, I want to have 
some questions for the record as well, but for my last 
question, I'd like to ask about a sensitive subject at USDA, 
because USDA has had some problems in this area of civil rights 
over the years.
    And there was recently a New York Times article that was 
critical of the processes that the Department utilized to 
settle four large civil rights cases. I don't know if you had a 
chance to read that or if you're familiar with it.
    But basically, the article points out that the 
administration at USDA made certain decisions that maybe 
maximized claimants chances of receiving a settlement and that 
there possibly was fraud and fraudulent tactics on the parts of 
the claimants.
    I don't know if you're familiar with that. That's a fairly 
serious charge, and I was wondering if you have any 
investigation along those lines, again, if you're familiar with 
that story and the circumstances around it.
    Ms. Fong. Thanks for that question.
    I believe the article is focused on the so-called Pigford 
II litigation situation. And as you know, that's been a 
longstanding challenge for the Department. We in the Office of 
Inspector General have been dealing with Pigford situation, 
both on the audit as well as investigative sides.
    On the investigation side, very simply, whenever there are 
allegations of fraud in that process, our agreement with the 
Department of Justice is to refer those allegations to the 
Federal Bureau of Investigation to look at. And we have done 
that for the past 10 years or so.
    One the audit side, because of a concern that payments may 
be made improperly to people who don't deserve the claims, as 
you probably know, Congress mandated that we do an audit, a 
performance audit of the Pigford claim process, prior to any 
payout of the claims.
    And so we are, right now, engaged in that audit. We have 
just about finished our fieldwork. And we should have a report 
out in the near future, which, I think, will help the process 
and help to ensure integrity in that payment process.

                     ADDITIONAL COMMITTEE QUESTIONS

    Senator Pryor. Great.
    Listen, I want to say thank you. We're going to have other 
questions for the record. And I know other subcommittee members 
will have those as well.
    So thank you for being here, and thank you for your 
preparation and for you appearance, and also, of course, to 
Secretary Vilsack.
    What we're going to do on the subcommittee is we're going 
to allow Senators 1 week to submit additional questions to the 
subcommittee staff, and that's a week from today, so that's 
Thursday, May 16. And then we'll send those over to USDA.
    We would appreciate you all having your answers back within 
4 weeks of that time.
    [The following questions were not asked at the hearing, but 
were submitted to the Department for response subsequent to the 
hearing:]

             Questions Submitted to Hon. Thomas J. Vilsack
              Questions Submitted by Senator Mark L. Pryor

                         STRIKEFORCE INITIATIVE

    Question. In 2010, the Department implemented the StrikeForce 
Initiative to increase participation in USDA programs in high poverty 
counties. Selected counties in Arkansas, Georgia, and Mississippi were 
included. Recently, USDA announced expansion of this initiative into 10 
additional States. NRCS, FSA, and RD are all involved in the 
StrikeForce Initiative.
    Can you please explain how the StrikeForce Initiative works?
    Answer. The USDA StrikeForce for Rural Growth and Opportunity was 
piloted in 2010 as a partnership with community-based organizations 
(congregations, volunteer organizations, nonprofits and others) to 
improve access to USDA programs in poverty-stricken rural areas with 
more than 20 percent poverty. NRCS, FSA, RD, and other USDA agencies 
work together to increase awareness and enrollment in programs.
    The overall goal for StrikeForce is to increase partnership with 
rural communities and leverage community resources to reduce poverty in 
targeted, persistent poverty counties. USDA aims to accomplish this by 
increased technical assistance through meetings and trainings; 
providing assistance to increase the number of applications for USDA 
program associated with the Socially Disadvantaged Groups; assessing 
the number of successful applications to USDA programs by Socially 
Disadvantaged Groups; and a 10-percent increase in funding from all 
USDA programs to StrikeForce target areas.
    StrikeForce is coordinated at USDA headquarters and managed by 
NRCS, as the current chair of the National Food and Agriculture 
Committee. State conservationists in each StrikeForce State lead the 
effort with RD, FSA, and regional representatives from AMS, FNS, and 
RMA. Each agency in the 16 StrikeForce States has a designated agency 
StrikeForce lead, usually the State Conservationist for NRCS, State 
Director for RD, or State Executive Director for FSA. Arkansas, 
Georgia, and Mississippi are the original States that were in the 2010 
pilot; Colorado, New Mexico, and Nevada were added to the Initiative in 
2011; and Alabama, Alaska, Arizona, North Carolina, North Dakota, South 
Carolina, South Dakota, Texas, Utah, and Virginia were added in 2013.
    Question. What successes have you seen to date, and how do you plan 
to measure success over the long term?
    Answer. NRCS has forged partnerships with key local nonprofit 
organizations to host hundreds of outreach meetings with historically 
underserved populations, and has allocated $35 million above normal 
program allocations in the Environmental Quality Incentives Program 
(EQIP) over the last 3 years. As of the second quarter of this fiscal 
year, a total of 1,295 contracts have been selected for funding, 
obligating over $22 million on more than 500,000 acres of eligible 
lands. NRCS will continue to evaluate funding applications through the 
end of the year to increase funding through the StrikeForce Initiative, 
which currently represents about 10 percent of EQIP second quarter 
national financial assistance obligations. In addition, NRCS is 
developing targets that will enable a better measure of success in 
reaching historically underserved and Socially Disadvantaged Groups in 
StrikeForce areas.
    RD obligated a total of $65 million in StrikeForce areas for the 
Rural Housing Community Facilities Program in 2012, which was a 112-
percent increase over 2011. USDA is increasing homeownership 
opportunities in New Mexico for families living in the Colonias 
communities of Luna, Hidalgo and Dona Ana Counties along the U.S.-
Mexican border. RD worked with the Southwest Regional Housing and 
Community Development Corporation and Tierra del Sol Housing to 
increase the number of USDA home loans from 22 in 2011 to 58 in 2012, 
and as of May 2013 has 36 loans completed.
    FSA has had a significant increase in direct farm loans during the 
last year in StrikeForce States even as the number of applications 
nationwide has decreased slightly. Second quarter FSA farm loan reports 
for 2013 show a total of 1,869 direct loans made in StrikeForce States, 
for over $150 million. In Arkansas the number of direct and guaranteed 
loans has increased each year, with 159 loans in 2010; 170 loans in 
2011; and 204 loans in 2012. As of April 2013, a total of 169 loans 
have been made.
    The new FSA Microloan Program should further assist the credit 
needs of minority, women, and beginning farmers, who typically have 
smaller farm operations, less farm equity, or lack a sufficient credit 
or production history. Between mid-January and mid-June, FSA is on 
track to obligate over 2,600 Microloans valued at more than $50 
million; and 85 percent of those loans are going to historically 
underserved groups. Additionally, 67 percent of Microloan borrowers are 
first-time farm loan participants, an indicator that the program is 
accomplishing a primary objective of removing barriers to USDA program 
participation in StrikeForce States.
    Question. A critical component of this program appears to be the 
leverage attained from increased cooperation across USDA agencies, 
coupled with improved reliance on local organizations and institutions.
    In this era of reduced resources, how does the Department have the 
funds to expand the initiative?
    Answer. There is no new funding and USDA agencies are using 
existing resources from congressionally approved and appropriated 
programs. We are working to improve program effectiveness by 
collaborating across agencies to reduce redundancies and by targeting 
our efforts to areas with the greatest need. Agencies will continue 
working together to leverage resources with private sector non-
governmental organizations, the philanthropic community, and others to 
educate and advise potential program participants who previously were 
unaware of their eligibility. In addition, participating agencies will 
take turns leading the initiative at national headquarters to share the 
responsibility of collaboration and coordination.
    Question. With local organizations and institutions also facing 
administrative cut-backs, is this model sustainable?
    Answer. We believe it is. The StrikeForce Initiative has been 
successful in large part because of our partnerships with local 
organizations. We understand those organizations may face funding 
pressure in the future. However, we will continue to work closely with 
local community-based organizations, colleges and universities, State 
and local governments, and other partners because we can accomplish 
much more by combining our financial resources and staff and being 
smarter about how we invest in rural America. Working together helps 
stretch limited funding, technical assistance and manpower.

               NATIONAL INSTITUTE ON FOOD AND AGRICULTURE

    Question. Secretary Vilsack, I was pleased to see the large funding 
increase requested for NIFA and AFRI. We're the world leader in 
agriculture production, and the demands on the industry are continuing 
to grow, but we're being far outspent by China, India, and Brazil when 
it comes to agricultural research. If we want to remain the world 
leader, we need to up our game.
    However, while competitive funding is an important tool, capacity 
funding at our land-grant universities is equally important. Unlike 
competitive research, it provides a steady stream of revenue to allow 
for a wide range of real time, real world research that can solve local 
and regional problems immediately, and that can be disseminated through 
our extension service to make sure the research is implemented. Our 
land-grant universities have provided the bedrock support that has made 
our agricultural research system the envy of the world and helped 
position the United States as the world's largest food exporter.
    These funds are highly leveraged, with State and local governments 
often providing 10 times as much in matching funds as the original 
Federal investment. It's a good use of taxpayer dollars.
    Why is the focus solely on competitive research, when there are so 
many benefits, both long and short-term, to capacity funding as well?
    Answer. The aim of the President's budget request for the National 
Institute of Food and Agriculture is to provide a balanced investment 
of resources to support research, education and extension programs in 
food, agricultural, natural resources, and human sciences. The budget 
proposes to support the capacity programs at the 2012 level. Restoring 
this funding level for 2014 will provide the land-grant institutions an 
8-percent increase above the final amounts available during 2013 and 
provide critical base support for research and extension capacity 
throughout the land-grant system. These funds, with support from State 
and local sources and in combination with competitive grants, will 
assure the continued preeminence of our Nation's food and agricultural 
research and extension enterprise.
    The 2014 budget supports the need to continue investing in growing 
capacity, including moving beyond the capacity support for 1890 
Institutions, to include continued support for other programs that 
support minority-serving institutions. About 55 percent of the NIFA 
budget supports capacity programs.

                 CONSOLIDATING BUSINESS PROGRAM GRANTS

    Question. Mr. Secretary, your budget proposes to create a new 
economic development grant program by consolidating five existing 
programs and increasing the total funding by $15 million to $55 
million. The programs to be consolidated include: Rural Business 
Enterprise Grants; Rural Business Opportunity Grants; Rural Community 
Development Initiative Grants; Grants to Assist Minority Producers; and 
Rural Cooperative Development Grants.
    These successful programs were designed to address different needs 
and to assist different constituents. For instance, the Rural Business 
Enterprise Grant program promotes the expansion of small and emerging 
rural businesses, while the Rural Cooperative Development Grant program 
supports centers for cooperative development.
    Why are you proposing to combine these different programs?
    Answer. The proposal to combine these programs is based on 
improving the efficiency of program delivery and making these programs 
more accessible to people in rural America. While these programs do 
address different needs and assist different constituencies, they all 
share a common objective of improving economic conditions in rural 
America. The consolidation of authorities under one umbrella will 
enable Rural Development to make awards based on economic development 
performance targets established to encourage rural private sector 
growth. Combining five programs into a single rural business and 
cooperative grant program will simplify the communication of program 
offerings and support a more streamlined application process. Lastly, 
the consolidation would provide greater flexibility to be more 
responsive to locally identified priorities. Regardless of the funding 
level, certain costs of administering a program are fixed and USDA must 
allocate resources accordingly. Consolidation into a single program 
will reduce the amount of resources needed for preparing programs and 
allow for greater attention to program delivery, administration and 
outreach.
    Question. How will you ensure that the disparate needs that are now 
addressed will continue to be addressed in the future? For instance, 
will current constituents of the Rural Cooperative Development Grant 
program be disadvantaged in the competition for funds under the new 
program?
    Answer. The new Rural Business and Cooperative grant program will 
continue to address the wide array of demands that the current array of 
business programs meets by being inclusive of the variety of applicants 
and the types of eligible projects. For example, the new program would 
continue to make grants available to public bodies, nonprofits, Native 
American tribes, cooperative development centers, and associations of 
cooperatives, among others. In addition, it would continue to fund 
technical assistance activities to promote the creation of jobs and the 
growth of rural business activity.
    By structuring the new program using metric-based parameters, all 
applicants will be able to compete for funding on an equal footing. The 
new program would have a strong emphasis on performance targets and 
evaluation, and make them evidence based, which would improve the 
efficiency and effectiveness of agency grant making. Rural Development 
(RD) would establish minimum community and economic development 
performance targets and award grants based on the extent to which the 
applicant can demonstrate the ability of the proposed project to exceed 
those performance targets on a competitive basis.
    Further, the broader consolidated program will benefit all 
constituents by leveraging more effectively the grants to provide 
greater assistance to rural communities and may be further beneficial 
to constituents by offering them access to project activities or 
purposes not currently covered in a program.
    Question. Since this is a new program, isn't that an authorizing 
issue that should better be addressed in the farm bill?
    Answer. In order to implement regulations for a combined grant 
program, RD would need to have statutory authority. USDA certainly 
hopes that such a combined program will be given serious consideration 
in future farm bill deliberations. In fact, the current Senate version 
of the farm bill includes a version of a combined grant program.
    USDA has chosen to go forward with this proposal at this time in an 
attempt to address unprecedented budget concerns. We are seeking ways 
to ensure the Agency is making the most efficient use of human and 
financial resources to deliver outcomes that are sustainable and 
measurable in terms of performance. Until such a program is authorized 
in a future farm bill and until such time as a regulation is in effect 
for the new program, USDA seeks to implement this program as a 
demonstration or pilot program through a Notice of Funds Availability.
    Question. In your justification you state that, ``This account is 
also available to support the Promise Zones initiative.'' In searching 
the Department's Web site I can find no reference to the Promise Zones 
initiative. What is that initiative and why should scarce resources be 
diverted from existing successful programs for that purpose?
    Answer. In the President's 2014 budget, the Promise Zones 
initiative is a White House/multi-agency initiative that will 
revitalize high-poverty communities across the country by attracting 
private investment, improving affordable housing, expanding educational 
opportunities, and providing tax incentives for hiring workers. 
Investing in the Promise Zones will reduce violence and assist local 
leaders in navigating Federal programs and cutting through red tape.
    USDA has played an active role in a cross-agency working group that 
is designing the Promise Zones initiative. Promise Zones is an 
important piece of the President's Opportunity Ladder agenda. There 
will be Promise Zones in urban, rural, and tribal communities around 
the country. USDA has led the effort to design the Promise Zone 
initiative for rural and tribal communities. Regions will be designated 
in 2013, including at least one rural and/or tribal community.
    At the present time, no funding resources are provided for this 
initiative. The intent is to collaborate and leverage existing 
resources from across the Government to support sustainable regional 
community development activities.

                             SEQUESTRATION

    Question. Please describe, by mission area, how USDA has handled 
sequester reductions. Please include information on reductions to 
service contracts, Federal employees, and contract employees.
    Answer. [Follows:]
    Farm and Foreign Agricultural Services.--Curtail internal and 
external hiring, reduce overtime; offer Voluntary Early Retirement 
Authority (VERA) or Voluntary Separation Incentive Payments (VSIP); 
cancel or strictly limit monetary awards; rescope information 
technology (IT) contracts or delay them until a future fiscal year; 
rescope contracts for program and management support services or delay 
them until a future fiscal year; reduce employee training and travel; 
and renegotiate new grants or delay them until a future fiscal year. 
Additionally, FFAS used interchange authority under 7 U.S.C. section 
2257 to transfer about $174 million from CCC Direct Payments to prevent 
disruptions in the following FSA and CCC programs: Dairy Indemnity, 
Milk Income Loss Contract, Non-Insured Assistance Payments, Non-Bill 
Emerson Humanitarian Trust Commodity Inventory Storage, Disaster 
Relief, Tobacco Trust Fund, and Marketing Assistance Loans.
    Rural Development.--Curtail internal and external hiring; reduce 
overtime; offer Voluntary Early Retirement Authority (VERA) or 
Voluntary Separation Incentive Payments (VSIP); cancel or strictly 
limit monetary awards; rescope information technology (IT) contracts or 
delay them until a future fiscal year; rescope contracts for program 
and management support services or delay them until a future fiscal 
year; rescope contracts for hardware procurement or delay them until a 
future fiscal year; reduce employee training and travel; rescope major 
activities or events related to agency core functions, including the 
production, development and testing of new products, or delay until a 
future fiscal year; and cancel grants, planned maintenance, or major 
activities or events related to agency core functions. Additionally, RD 
used interchange authority under 7 U.S.C. section 2257 to transfer $8.3 
million to the Salaries and Expenses account from the Bioenergy Program 
for Advanced Biofuels to fund on-board employees who provide critical 
services.
    Food, Nutrition and Consumer Services.--Curtail internal and 
external hiring; reduce overtime; and reduce employee travel.
    Natural Resources and Environment (NRE).--Curtail internal and 
external hiring; reduce overtime; cancel or strictly limit monetary 
awards; rescope information technology (IT) contracts or delay them 
until a future fiscal year; rescope contracts for facilities and 
building services or delay them until a future fiscal year; rescope 
contracts for program and management support services or delay them 
until a future fiscal year; rescope contracts for hardware procurement 
or delay them until a future fiscal year; reduce employee training and 
travel; rescope planned maintenance or repairs or delay until a future 
fiscal year; rescope major activities or events related to agency core 
functions, including the production, development and testing of new 
products, or delay until a future fiscal year; and cancel grants, 
planned maintenance, or major activities or events related to agency 
core functions. Additionally, NRE used interchange authority under 7 
U.S.C. section 2257 to transfer $5.4 million in Natural Resources 
Conservation Service funding from the Farm and Ranch Lands Protection 
Program to the Conservation Security Program to avoid billing 
recipients for some of the payments already made.
    Food Safety.--Curtail internal hiring; offer Voluntary Early 
Retirement Authority (VERA) or Voluntary Separation Incentive Payments 
(VSIP); cancel or strictly limit monetary awards; and reduce employee 
training and travel.
    Research, Education, and Economics.--Curtail internal and external 
hiring; reduce overtime; offer Voluntary Early Retirement Authority 
(VERA) or Voluntary Separation Incentive Payments (VSIP); cancel or 
strictly limit monetary awards; rescope information technology (IT) 
contracts or delay them until a future fiscal year; rescope contracts 
for facilities and building services or delay them until a future 
fiscal year; rescope contracts for program and management support 
services or delay them until a future fiscal year; rescope contracts 
for hardware procurement or delay them until a future fiscal year; 
reduce employee training and travel; renegotiate new grants or delay 
them until a future fiscal year; rescope planned maintenance or repairs 
or delay until a future fiscal year; rescope major activities or events 
related to agency core functions, including the production, development 
and testing of new products, or delay until a future fiscal year; and 
cancel grants, planned maintenance, or major activities or events 
related to agency core functions.
    Marketing and Regulatory Programs.--Curtail internal and external 
hiring; reduce overtime; offer Voluntary Early Retirement Authority 
(VERA) or Voluntary Separation Incentive Payments (VSIP); cancel or 
strictly limit monetary awards; rescope information technology (IT) 
contracts or delay them until a future fiscal year; rescope contracts 
for facilities and building services or delay them until a future 
fiscal year; reduce employee training and travel; renegotiate new 
grants or delay them until a future fiscal year; and rescope planned 
maintenance or repairs or delay until a future fiscal year.
    Departmental Activities.--Curtail internal and external hiring; 
reduce overtime; offer Voluntary Early Retirement Authority (VERA) or 
Voluntary Separation Incentive Payments (VSIP); cancel or strictly 
limit monetary awards; rescope information technology (IT) contracts or 
delay them until a future fiscal year; rescope contracts for facilities 
and building services or delay them until a future fiscal year; rescope 
contracts for program and management support services or delay them 
until a future fiscal year; rescope contracts for hardware procurement 
or delay them until a future fiscal year; reduce employee training and 
travel; rescope planned maintenance or repairs or delay until a future 
fiscal year; rescope major activities or events related to agency core 
functions, including the production, development and testing of new 
products, or delay until a future fiscal year; and cancel grants, 
planned maintenance, or major activities or events related to agency 
core functions.

                      CENTRALIZED SERVICING CENTER

    Question. I have been informed that a new procedure is being 
proposed in the Rural Development mission area for insurance claims 
above $30,000. My understanding is that certain claims that have 
traditionally been handled through the Centralized Servicing Center 
will now be handled in the field. Is this correct, and if so, what is 
the justification for this process change, how will the change affect 
staff in the Centralized Servicing Center and the field, and how will 
the change affect rural homeowners?
    Answer. During a Management Control Review (MCR) of the Centralized 
Servicing Center (CSC), it was noted that major development, or 
rehabilitation-related construction, using insurance claim proceeds was 
not being completed according to Rural Development's Instruction 1924-
A, ``Planning and Performing Construction and Other Development''. The 
MCR team noticed that management and documentation of ``large loss'' 
development was weak. This weakness may have been the result of a 
disconnect between tasks performed by the CSC and those assigned to 
field staff. In addition, current guidance on insurance proceeds 
administration lacks a clear definition of ``major development''. After 
extensive discussions with the MCR team and staff from CSC, it was 
determined that rehabilitation work using insurance claims proceeds 
exceeding $30,000 are considered major development and need to be 
closely supervised by the field office staff.
    Rural Development (RD) proposes to revise existing guidance for 
administering insurance claims proceeds. For significant rehabilitation 
(having a total cost of more than $30,000) all development will be 
completed under the supervision of the local field office. The idea is 
to require the use of all construction documents and requirements/
methods only when there is a considerable risk to the value of the 
Government security or the structural integrity of the house. On 
smaller claims, regulations permit the repairs to be completed in a 
fashion commensurate with risk to the Government, and will most likely 
be handled by CSC staff.
    We believe that rural homeowners will benefit from this change. 
Insurance claims exceeding $30,000 are typically the result of a 
catastrophic event and field office staff have the construction 
management expertise needed to assist borrowers throughout the property 
rehabilitation process. The proposed new procedure allows field staff 
to work with borrowers early in the development process and ensures 
that work is completed in accordance with RD Instruction 1924-A, thus 
minimizing the risk of inadequate development work. By doing this, we 
protect the Government's security interest and ensure that after the 
work is completed, the borrower's home is decent, safe, and sanitary.
    The new procedure is not expected to have an impact on either CSC 
or field office staff. Before recommending this change, RD asked a few 
States to provide information on the number of large insurance checks 
that have been processed in their States in recent years and to assess 
the field offices' capacity to manage insurance claims over $30,000. 
All the respondents indicated that these large insurance claims are 
very uncommon (estimated to be 6 percent of the total claims processed 
fiscal year 2012 at CSC) and field offices are deemed to have the 
capacity to take on management of insurance claims over $30,000 on an 
occasional basis. CSC staff will not be affected for the same reason; 
the number of large insurance claims is not significant enough to 
affect their workload. In fact, the revised guidance allows field staff 
to either establish a supervised bank account at the local level or 
forward insurance proceeds to CSC's escrow to manage construction 
funds. Even with the new proposed procedure, CSC staff may be asked to 
be involved in the administration of insurance claims for major 
development.

           RURAL DEVELOPMENT AND FARM LOAN PROGRAM CONTRACTS

    Question. Rural Development and the Farm Service Agency have 
contracted out significant work in support of the Rural Development and 
Farm Loan programs, including contracts to support loan processing 
activities and information technology development. Please provide 
information on these contacts, including the amount of the contract, 
how long they have been underway, and how long they are expected to 
continue. In addition, please explain why USDA has determined that 
contracting out this work is the best option for the agencies involved, 
including whether the Department has performed a cost-benefit analysis.
    Answer. [Follows:]

             RURAL DEVELOPMENT--FISCAL YEAR 2013 CONTRACTS

Centralized Servicing Center (CSC)
    1. CBC Innovis--AG-31ME-C-12-1010:
  --Contract amount: $35,000 for locator services.
  --Period covered: 6-14-13 through 6-13-14.
  --Why contracting is best option: The vendor provides a wide range of 
        resources throughout the country which integrate and interact 
        to obtain information on individuals. The Government has no 
        similar organizational system or network of resources to 
        perform this function at a similar cost for the relatively low 
        volume of searches.
    2. CMW & Associates--AG-31ME-D-10-0095:
  --Contract amount: $2,797,658.83 for prepping, scanning, indexing, 
        and filing.
  --Period covered: 9-1-12 through 8-31-13.
  --Why contracting is best option: CSC utilizes a support service 
        contract to perform centralized services for other agencies 
        utilizing and leveraging CSC's existing infrastructure to 
        increase efficiencies and mitigate overall costs to USDA. Due 
        to length and nature of service agreements, budgeting and 
        fluctuating volumes, staff years are not a viable option at 
        this time.
    3. CMW & Associates--AG-31ME-D-12-0026:
  --Contract amount: $1,254,327.50 for mortgage loan processing 
        services, guaranteed loan appraiser/auditor assistance in 
        reducing backlog of loan loss claims and servicing in the 
        Guaranteed Loan Section (GLS); Single Family Housing-Direct 
        Section; and Multi-Family Legal Liaison Support, which includes 
        providing operational/program analytical skills on each legal 
        action case.
  --Period covered: 9-1-12 through 8-31-13.
  --Why contracting is best option: to supplement existing staff during 
        the current hiring freeze to process loss mitigation, property 
        disposition plans and loss claims for the Single Family Housing 
        Guaranteed Loan Program (SFH-GLP). These contractor employees 
        are necessary to assist CSC in addressing a larger than 
        expected volume of loss mitigation requests, property 
        disposition plans, and loss claims resulting from the recent 
        housing crisis and from the ``robo-signing'' practices from 
        many of the larger guaranteed lenders. CSC continues to see a 
        future need to supplement its existing guaranteed workforce 
        with contractor personnel to assist with processing the larger 
        than anticipated volume of guaranteed servicing actions and 
        reduce the existing backlogs to bring inventory levels within 
        established regulatory requirements.
    4. Corelogic--AG-31ME-C-11-1011:
  --Contract amount: $1,530,000 for tax services.
  --Period covered: 9-30-12 through 9-29-13.
  --Why contracting is best option: to support loans with escrow 
        accounts for taxes and insurance. It is an industry standard 
        for a tax service provider to be utilized for tax research and 
        payments due to the asset protection provided by an efficient, 
        automated procurement and payment process. The vendor also 
        assumes liability in case of a loss due to properties sold in a 
        tax sale.
    5. Corelogic--AG-31ME-C-11-1010:
  --Contract amount: $10,626,620 for property preservation services for 
        centralized States.
  --Period covered: 9-30-12 through 9-29-13.
  --Why contracting is best option: Property maintenance and 
        preservation services provide guarantees that the Government's 
        interest is protected. For properties that are in foreclosure 
        and have been abandoned and for properties that have been 
        foreclosed upon and are part of the USDA RD Real Estate Owned 
        (REO) inventory, we are required to protect and care for the 
        physical condition of those properties (e.g., mowing grass, 
        cleaning out trash, boarding up and securing and winterizing of 
        pipes). Properties in about half the States are serviced by 
        this contract and efficiencies are realized through a single 
        point of contact and single vendor relationship for these 
        services.
    6. Fiserv--AG-31ME-C-10-0016:
  --Contract amount: $3,319,499.40 for mortgage and loan program 
        services. Task orders associated with this contract total $4.6 
        million and extend through 1-31-14.
  --Period covered: 8-27-10 through 2-27-13.
  --Why contracting is best option: It enables the Government to obtain 
        services that are not available in house and a cost-benefit 
        analysis was performed on the contract.
    7. Pitney Bowes--AG-31ME-D-11-0016:
  --Contract amount: $34,446 for postage mailing equipment to cover 
        maintenance, repairs and software on an as needed basis; and 
        provides bulk mailing services.
  --Period covered: 5-1-13 through 4-30-14.
  --Why contracting is best option: Pitney Bowes is a leading industry 
        provider of mail equipment and services which could not be 
        provided by RD personnel.
    8. SunTrust--AG-31ME-C-13-1001:
  --Contract amount: $492,826 for investment and disbursement services.
  --Period covered: 10-11-12 through 10-10-17.
  --Why contracting is best option: The contractor provides the 
        expertise that CSC needs to ensure the custody, disbursement 
        and preservation of principal while maximizing investment 
        returns. CSC utilizes five bank accounts at the contractor for 
        the receipt and disbursement of ``escrow funds'' (non-
        Government funds) on behalf of single family housing borrowers; 
        and a single custody account at the contractor for the 
        accumulation of ``net income'' from the investing of borrower 
        funds, which is net of all associated contract fees. No cost-
        benefit analysis was performed since RD is unable to supply the 
        investment and banking services that were required under the 
        contract while ensuring no co-mingling of borrower escrow funds 
        with Government funds.

Procurement and Administrative Services
    1. Central Paper Stock--AG-31ME-C-11-0051:
  --Contract amount: $59,800 for destruction and disposal of sensitive 
        documents.
  --Period covered: 09-27-11 through 09-30-16.
  --Why contracting is best option: Services are needed to remove 
        recyclable materials and destroy sensitive materials that 
        require shredding prior to disposal for security reasons. The 
        contract covers warehousing services in addition to removal, 
        destruction, shredding, and disposal services.
    2. Challenge Unlimited--AG-31ME-C-10-0009:
  --Contract amount: $306,036 for warehousing services of RD forms, 
        supplies, equipment, and other items.
  --Period covered: 09-01-10 through 10-1-15.
  --Why contracting is best option: No Government employees perform 
        warehousing services or distribute/ship products and items to 
        employees nationwide.
    3. First Choice--AG-31ME-C-12-0014:
  --Contract amount: $84,854 for courier services.
  --Period covered: 07-02-12 through 07-02-17.
  --Why contracting is best option: No Government employees perform 
        courier or courier-related services, including picking up and 
        delivering checks from lockboxes.
    4. MERS Goodwill--AG-31ME-C-09-0006:
  --Contract amount: $420,291 for full-service mail operation and for 
        construction and warehousing labor services.
  --Period covered: 02-26-09 through 09-30-13.
  --Why contracting is best option: No Government employees perform 
        full-service mail operations; or furniture and cubicle 
        construction, maintenance, and warehousing services.
    5. Pitney Bowes--AG-31ME-D-11-0006:
  --Contract amount: $59,800 for postage system and meter heads, which 
        process daily USPS, Priority, Register, and Return Receipt 
        Mail.
  --Period covered: 02-28-11 through 02-28-15.
  --Why contracting is best option: A contract for the system and 
        equipment is more cost-effective than purchasing an updated 
        system and equipment.

Deputy Chief Financial Officer (DCFO)
    1. Solutions Data System--AG-31ME-P-08-0021:
  --Contract amount: $14,486.85 for data conversion services for the 
        1st and 2nd quarters.
  --Period covered: 4-17-13 through 5-16-13.
  --Why contracting is best option: The contract was put in place so 
        that Accounting Data (banking transactions) could be converted, 
        transmitted electronically and in real-time. A cost-benefit 
        analysis was performed that showed contracting out is more 
        cost-effective than providing the services in house.

Deputy Chief Information Officer (DCIO)
    1. QFLOW--AG-31ME-D-09-0026:
  --Contract amount: $1,249,187.00 for imaging and document management.
  --Period covered: 9-18-12 through 9-17-13.
  --Why contracting is best option: A contract is needed to maintain 
        licensing and obtain technical support for services to provide 
        maintenance support and enhancement development to the Rural 
        Development FileNet Imaging System and the USDA Enterprise 
        Content Management System utilizing Oracle's Stellent document 
        management. Additional certifications are required for services 
        that are only available through contracting.
    2. Rose International AG--31ME-C-12-0018:
  --Contract amount: $1,587,026.00 for Oracle Hyperion and OBIEE 
        services.
  --Period covered: 9-29-12 through 9-28-13.
  --Why contracting is best option: Support services are needed to 
        administer the systems and the development of Hyperion and 
        OBIEE reports. Although no formal cost-benefit analysis was 
        completed, it is more cost-effective to obtain these services 
        through contracting from a vendor who can provide well-trained 
        and experienced personnel. Contracting out also provides 
        additional flexibility for large or multiple projects in a 
        given time period where it is necessary to quickly expand or 
        reduce the size of teams.
    3. Rose International AG--31ME-C-09-0019:
  --Contract amount: $3,179,924.28 for technical support services, 
        which includes maintenance for the Automated Multi-family 
        Accounting System (AMAS) at a cost of $618,688.44.
  --Period covered: 8-31-12 through 7-31-13.
    4. Unisys (CLP)--AG-31ME-C-10-0013:
  --Contract purpose: maintaining and implementing upgrades/
        enhancements to the automated components that support the 
        direct loan and grant and guaranteed loan programs. See task 
        order (TO) amounts below.
  --Period covered: 5-10-13 through 5-9-14.
  --Why contracting is best option: Although no formal cost-benefit 
        analysis was completed, contracting out enables RD to obtain 
        services from a vendor who can provide well-trained and 
        experienced personnel. It also provides additional flexibility 
        for large or multiple projects in a given time period where it 
        is necessary to quickly expand or reduce the size of teams.
  --Associated Active TO AG-31ME-D-12-0036.
    Contract amount: $291,843.47 for maintaining and implementing 
upgrades/enhancements to the automated components that support the 
direct loan and grant and guaranteed loan programs.
  --Period covered: 9-28-12 through 9-27-13.
  --Why contracting is best option: Although no formal cost-benefit 
        analysis was completed, contracting out provides additional 
        flexibility for large or multiple projects in a given time 
        period where it is necessary to quickly expand or reduce the 
        size of teams.
  --Associated Active TOs, amount, customer and period covered:
    --AG-31ME-D-10-0083--$219,715.79--Automated Multi-family Accounting 
            System (AMAS)--9-13-10 to 3-31-13.
    --AG-31ME-D-10-0098--$2,129,810.82--Date Warehouse (DW)--9-29-10 to 
            4-2-13.
    --AG-31ME-C-11-0046--$3,057,973.90--OM/HD--9-26-12 to 9-25-13.
    --AG-31ME-D-12-0005--$249,999.70--Community Program Application 
            Processing (CPAP)--2-15-12 to 2-14-13.
    --AG-31ME-D-12-0013--$5,429,258.82--Comprehensive Loan Program OM 
            (CLP OM)--8-1-13 to 6-30-14.
    --AG-31ME-D-12-0025--$1,797,930.15--E-Government (EGOV)--9-1-12 to 
            7-31-13.
    --AG-31ME-D-12-0029--$249,935.40--Guaranteed Loan System (GLS) Loan 
            Close--9-28-12 to 9-30-13.
    --AG-31ME-D-12-0031--$63,943.10--RD Intranet--9-28-12 to 4-30-13.
    --AG-31ME-D-12-0037--$399,844.69--Comprehensive Loan Program (CLP) 
            Initiative--9-28-12 to 9-27-13.
    --AG-31ME-D-12-0028--$59,977.81--CASH--9-28-12 to 3-31-13.
    --AG-31ME-D-12-0040--$604,489.00--Rural Electric and Telephone 
            (RET)--9-29-12 to 9-28-13.
    --AG-31ME-D-12-0036--$291,843.47--Deputy Chief Financial Officer 
            (DCFO)--9-28-12 to 9-27-13.
    --AG-31ME-D-12-0032--$692,148.80--Broadband Collection Application 
            System (BSAC)--5-1-13 to 9-30-13.
    5. Unisys (GLS)--AG-31ME-C-09-0021:
  --Contract amount: See below TOs totaling over $2 million for a 
        support contract to develop the necessary user documentation to 
        support the implementation of Phase 3 of the Guaranteed Single 
        Family Housing Annual Fee Project.
  --Period covered: 9-1-12 through 8-31-13.
  --Why contracting is best option: Although no formal cost-benefit 
        analysis was completed, contracting out provides additional 
        flexibility for large or multiple projects in a given time 
        period where it is necessary to quickly expand or reduce the 
        size of teams.
  --Active TOs, amount and period covered:
    --AG-31ME-C-11-0014: $1,189,765.64. Period covered 9-30-12 through 
            7-31-13.
    --AG-31ME-D-10-0085: $845,540.50. Period covered 9-13-10 through 6-
            30-13.
            farm service agency--fiscal year 2013 contracts
    1. Program Loan Accounting System (PLAS)--AG-3151-C-11-0019 
Bluemont Technologies, Inc.
  --Contract amount: $4,711,162.35 to maintain the expiring legacy 
        system until it is re-engineered to a Web-based system.
  --Period covered: A 5-year contract was awarded for 07-01-11 through 
        09-30-15.
  --Why contracting is best option: contracted maintenance of the 
        expiring system is needed because:
    --Government PLAS legacy knowledge has been lost to attrition;
    --It is not cost-effective or beneficial to the future of FSA's 
            programs to recruit and train Government employees on old 
            technology and platforms; and
    --Government resources can be dedicated to supporting newly 
            developed Web-based systems and inherently Government 
            functions.
  --FSA has complied with the FAR 39.102 requirement to analyze risks, 
        benefits and cost in its USDA and OMB information technology 
        submissions. FSA performs continuous collection and evaluation 
        of risk-based assessment data through monthly review of 
        invoices (hours used and funding burn rate) and comparison of 
        scheduled milestones in the project schedule to determine cost, 
        schedule, variances and risk. Post implementation reviews are 
        conducted to determine actual project cost, benefits and 
        returns. The quantifiable measures are captured and analyzed on 
        a monthly basis and an associated risk is deduced from the 
        analysis.

Appraisals
    2. AgWare--AG-3151-C-10-0009:
  --Contract amount: $543,780.00 for a complete commercially available 
        off-the-shelf appraisal PC-based software system that 
        encompasses the features and data required to complete both an 
        Agricultural Real Estate Appraisal and a Housing Appraisal. It 
        is a complete package that can be used even when network 
        connectivity is not available (i.e., remote areas). It creates 
        reports and performs third-party mapping, sketching, deed 
        plotting, scanning, image file importing and integrating with 
        Arc GIS software.
  --Period covered: A 5-year contract for 05-25-10 through 05-24-14.
  --Why contracting is best option: it provides functions not performed 
        by Government employees.
    3. Marshall & Swift/Boeckh (MSB)--AG-3151-C-12-0031:
  --Contract amount: $622,400.00 for commercial off-the-shelf (COTS) 
        software that is a Web-based hosted application which provides 
        quarterly updates and unlimited use of free technical support 
        services available via an annual subscription. The cost 
        estimators are used as support and documentation of cost of 
        improvements in the appraisal process.
  --Period covered: A firm fixed-price 5-year contract was awarded for 
        the period 09-25-12 through 09-24-17.
  --Why contracting is best option: This contract provides functions 
        not performed by Government employees. MSB provides National 
        Residential, Commercial, and Agricultural Estimating Software 
        and Support.
    4. Farm Business Plan (FBP)--AG-3151-C-11-0029--WebEquity 
Solutions, LLC:
  --Contract amount: $10,885,250.00 for a commercial off-the-shelf 
        (COTS) farm business planning and financial/credit analysis 
        Web-based software package.
  --Period covered: A firm fixed-price 5-year contract was awarded for 
        the period 09-30-11 through 09-29-16.
  --Why contracting is best option: This contract provides functions 
        not performed by Government employees.
    5. Farm Loan Program Information Delivery System (FLPIDS)--AG-3151-
C-12-0032:
  --Contract amount: $25,564,663.16 for Information Technology 
        Services.
  --Period covered: A 5-year contract was awarded on 09-26-12 through 
        09-25-17.
  --Why contracting is best option: The Government does not have the 
        current capability or expertise to perform the type of service 
        provided by FLPIDS. Inherently governmental functions are not 
        applicable to this solicitation pursuant to FAR subpart 7.5.
  --FSA has complied with the FAR 39.102 requirement to analyze risks, 
        benefits and cost concerning FLPIDS in its USDA and OMB 
        information technology submissions. Lifecycle cost--There have 
        been prior investments in pre-existing 2004 FLPIDS, GS-06F-05 
        5OZ, AG-3151-D-09-0156, AG-3151-D-10-0137 and AG-3151-C-11-0028 
        which will be added to by current FLPIDS procurement.
    2. Rural Development Reimbursable Agreements:
  --Farm Service agency has reimbursable agreements for Rural 
        Development to use the:
    --Guaranteed Loan System; and
    --Program Funds Control System.
                                 ______
                                 
                Questions Submitted by Senator Tom Udall

                           RURAL DEVELOPMENT

    Question. Secretary Vilsack, in New Mexico, the Rural Development 
office is down to 39 employees, 6 months ago the New Mexico office had 
44 employees, and in 2011 the office had 53 employees. This decline in 
employees is resulting in programs being shut down as the 2-year hiring 
freeze continues. I understand that these are difficult times, and that 
the sequestration is making budgets even tighter. My concern, however, 
is about the disparity between the number of employees in western 
States compared to those east, and whether or not the resources we do 
have are reaching the rural and poor communities that they are intended 
for.
    According to your staff, in May 2012 about 12 States had over 100 
Rural Development employees, while States like Nevada, Alaska, 
Colorado, Utah, Wyoming, and New Mexico had well under 50. These are 
some of our country's most rural States.
    According to the most recent data published by USDA, New Mexico has 
the second highest poverty rate in the United States for both adults 
and children. New Mexico's rate of poverty is roughly 30 percent higher 
than the national average. New Mexico is also one of the most rural 
States. If there is a region that needs the resources that Rural 
Development provides, it is New Mexico.
    Could you help the subcommittee understand how this disparity in 
Rural Development efforts has come to be, and what the agency is doing 
or can do to ensure a more equitable distribution of resources?
    Answer. When faced with sequestration of funds, Rural Development 
(RD) considered several options when looking for ways to meet the 
funding levels. One of those options was offering RD employees early 
retirement and not filling many positions. As a result of these 
retirements and the freeze on hiring, Rural Development lost 
approximately 18 percent of its workforce. Unfortunately, these losses 
were not equally divided by program or geography. We recognize that 
many States are struggling to provide services and are looking at ways 
to correct these inequities.
    In the last year, RD has also reexamined its FTE allocation formula 
and adjusted it to provide greater weight to States with deeper 
poverty. We continue to examine this formula.
    Question. What kind of impact does a declining staff have on the 
distribution of grants and loans in a State like New Mexico?
    Answer. Loss of staff slows down the processing time for loans and 
delays the distribution of grant funds.
    Question. I am concerned about whether or not Rural Development 
resources are reaching the rural and poor communities that they are 
intended for. In New Mexico there are many very small and very rural 
communities that have a hard time accessing grants and loans through 
Rural Development because they do not have the personnel and even 
infrastructure, like Internet service, to successfully apply for and 
manage grants and loans.
    Could you share with the subcommittee how the President's budget 
would ensure that Rural Development funds in fiscal year 2014 make it 
to the small and very rural communities who need it most?
    Answer. Rural Development is working closely with the USDA Office 
of Advocacy and Outreach to make sure that the citizens and communities 
who need assistance the most are aware of what our programs can do and 
how to apply. Also, in 2010, the Department implemented the 
``StrikeForce Initiative'' to increase participation in USDA programs 
in high poverty counties. Many of the RD programs provide additional 
points to the smaller communities competing for funding.
    Question. What kind of technical assistance is available for 
communities who may not have a full time employee to write a grant 
application or manage a loan?
    Answer. Most Rural Development programs are administered through 
our State and Area Offices, and the majority of direct support and 
assistance in preparing a grant application will come from these 
offices. However, while RD staff can provide support and guidance in 
developing an application, they do not participate in the actual 
writing of the grant or loan proposal.
    Through existing programs, Rural Development supports a number of 
University and nonprofit organizations who provide direct technical 
assistance to prospective program applicants through programs such as 
the Rural Business Enterprise Grant, Rural Business Opportunity Grant, 
and Rural Cooperative Development Grant programs. Through a variety of 
methods (i.e., business incubators, cooperative development centers), 
recipients of funding from these programs have delivered technical 
assistance and other services to individuals and communities seeking to 
apply for RD programs.
    Further, several existing programs contain components that can 
provide application development assistance. For example, the 
Agricultural Marketing Resource Center (AgMRC) which is funded out of 
the Value Added Producer Grant (VAPG) program is a free, virtual 
resource for producers looking to get into a value added agricultural 
business. The AgMRC Web site provides an array of resources, including 
business planning tools, budget templates, and marketing plans that can 
be used to address requirements in a grant application.

                          STRIKEFORCE PROGRAM

    Question. Secretary Vilsack, it is my understanding that your 
StrikeForce Program is targeting USDA assistance to communities in New 
Mexico.
    Could you share with the subcommittee how this program is helping 
communities in New Mexico, and what kind of results you are seeing from 
the program in New Mexico?
    Answer. The New Mexico Farm Services Agency (FSA), Natural 
Resources Conservation Service (NRCS), and Rural Development (RD) 
agencies continue to improve and widen USDA outreach efforts.
    Since being identified as a StrikeForce State, the RD staff has 
worked to expand and establish new partnerships with various 
organizations to help provide greater use of Rural Development's (RD) 
resources. Partnership examples include the YWCA in Sunland Park and 
the Southwestern Regional Housing and Community Development Corporation 
(SRHCDC), another nonprofit organization based in Deming, New Mexico. 
The YWCA is helping individuals and families with homebuyer education 
classes and counseling designed to help the borrower be more successful 
as a homebuyer and homeowner. The Southwestern Regional Housing and 
Community Development Corporation (SRHCDC) another nonprofit 
organization based in Deming has stepped up its relationship with USDA 
Rural Development since Luna County was designated a StrikeForce 
county. The organization has become a major partner with Rural 
Development in single family housing, multifamily housing, and business 
programs. USDA's partnership with SRHCDC has increased the delivery of 
USDA loans to these border communities.
    FSA partnered with NRCS to assist groups of producers, who irrigate 
from traditional Acequias, to submit applications for the Environmental 
Quality Incentives Program (EQIP). Multiple workshops have been held 
around the State to educate these producers about the EQIP program and 
the application process. This collaboration gives producers the benefit 
of learning more about EQIP while also learning FSA's eligibility 
process regarding farm records, Adjusted Gross Income provisions, and 
other FSA programs. The first of its kind NRCS Acequia EQIP contract 
was approved in July 2013. The Acequia Initiative, along with many 
others, are StrikeForce projects that provide direct additional 
resources to better serve our farmers, ranchers, and producers in 
persistently poor rural communities. The focus is on these identified 
high-poverty areas to help improve the quality of life of farmers, 
ranchers, producers, and their communities.
    NRCS hosts its fourth Conservation Planning Initiative (CPI) 
workshop--this time in Los Lunas in October 2013. The target groups 
include women, Hispanic, and Native American small agricultural 
producers. Participants are thoroughly immersed in the process of 
developing and the significance of having a viable Conservation Plan. 
These CPI workshops have been well received in Las Cruces, Carrizozo, 
and Chama communities. NRCS New Mexico is also restructuring itself to 
make more of its specialists available to agricultural producers across 
New Mexico--particularly in StrikeForce recognized areas. This leads to 
more customized service for those who need it most.
    As of mid-June, New Mexico FSA Farm Loan Programs expects to 
approve more than $24 million through nearly 190 loans in fiscal year 
2013. Approximately 75 percent of those will be Direct Loans totaling 
over $11.6 million. Nine are currently waiting on funding of about 
$865,000; nearly one in five Direct Loans will be Micro Loans totaling 
nearly $711,000; and 40 loans are currently waiting on $55,200 in 
funding. The total loans projected for approval through June 2013 also 
include 36 Guaranteed Loans totaling $12.6 million.

                      ALFALFA AND FORAGE RESEARCH

    Question. Secretary Vilsack, In the last Congress, I joined with 
several of my Senate colleagues in urging Appropriations Committee to 
include funding for the Alfalfa and Forage Research Program in the 
fiscal year 2013 agriculture appropriations bill. It is my 
understanding that language expressing the Committee's support for such 
research was included in the fiscal year 2013 continuing resolution, 
but that to-date, no funds have been allocated for the Alfalfa and 
Forage Research Program.
    Does the USDA plan to allocate funds for the Alfalfa and Forage 
Research Program in fiscal year 2013 as recommended by the Committee?
    Answer. USDA is allocating funds for alfalfa research in ARS and 
NIFA. ARS scientists are conducting alfalfa genetic improvement and 
marker selection research for biotic and abiotic stresses to build a 
genetic pipeline to help accelerate the development of superior 
performing plants. The ARS Plant Germplasm Introduction and Testing 
Research Station expands the genetic diversity in the U.S. alfalfa 
germplasm collection, improves availability of information about 
alfalfa genetic resources, and distributes pathogen-tested samples.
    For fiscal year 2013 and fiscal year 2014, ARS has developed a 
coordinated national research plan to increase the impact of agency 
alfalfa research and to build effective linkages with university and 
industry partners. The coordinated plan addresses three broad areas of 
research that provide value to the alfalfa, forage, and dairy 
industries including, but not limited to the following: (1) germplasm 
improvement (yield, biotic and abiotic stress, marker assisted 
selection); (2) management for animal nutrient intake and for revenue 
lines; and (3) ecosystem services (rotational effect, soil health [N, 
P, K microbes], and carbon sequestration).
    Funding for ARS research activity related to alfalfa is as follows: 
$3,367,000 in fiscal year 2009; $4,124,000 in fiscal year 2010; 
$3,768,000 in fiscal year 2011; $4,322,000 in fiscal year 2012; 
$4,322,000 estimated in fiscal year 2013; and $4,516,000 estimated in 
fiscal year 2014.
    In NIFA, a specific program directed at alfalfa was not implemented 
in fiscal year 2013, but report language will be considered when 
drafting fiscal year 2014 RFAs. For example, work on alfalfa and 
forages will be explicitly included, where appropriate, in fiscal year 
2014 RFAs for the Agriculture and Food Research Initiative (AFRI). 
Alternative capacity funding (from Hatch Act, McIntire-Stennis, and/or 
Smith-Lever 3(b) and (c)) may be used to support aspects of this topic 
area deemed to be of priority at State and/or local levels. The active 
AFRI, Hatch, and Biotechnology Risk Assessment program projects 
include, but are not limited to, alfalfa topics such as: understanding 
of and mitigation strategies for co-existence/gene flow in alfalfa; 
improving alfalfa quality and production as a biofuel feedstock; 
enhancement of alfalfa forage quality for animal feed by alfalfa 
breeding and genetic improvements; developing tolerance to changing 
climatic conditions and biotic diseases in alfalfa production by 
breeding and genetic enhancement technologies; and understanding 
interactions of symbiotic bacteria with their alfalfa host in fixing 
nitrogen from the soil. Other programs have also included alfalfa in 
multi-crop studies.
    Funding in support of NIFA research on alfalfa is as follows: 
$2,425,000 in fiscal year 2009; $2,025,000 in fiscal year 2010; 
$1,264,000 in fiscal year 2011; and $1,264,000 estimated in fiscal year 
2012.

                           WILDLIFE SERVICES

    Question. Secretary Vilsack, it is my understanding that the 
President's budget includes an increase in Wildlife Services funding to 
bring the fiscal year 2014 total up to $104 million. The work that 
Wildlife Services does in New Mexico is very important for producers, 
especially at this time when feral hogs continue to spread into the 
State and threaten landscapes and animals.
    How will the funding proposed by the President in fiscal year 2014 
help to deal with the impacts of feral hogs across the country?
    Answer. The President's budget includes $20 million to implement a 
national strategic plan to conduct integrated feral swine removal, to 
reduce property damage, and reduce threats to agriculture and urban 
areas. USDA will work with Federal, State, and local entities to carry 
out this control program in the 38 States where feral swine are 
located. The program will focus control efforts on reducing populations 
and excluding feral swine from agricultural resources in States where 
feral swine are well established. In States where feral swine are 
emerging or populations are low, the program will focus on eliminating 
animals. The requested funds will also enable USDA to develop new and 
improved control tools; conduct economic analysis and risk modeling and 
develop outreach materials and activities.
    USDA will also conduct disease monitoring and diagnostic testing 
for diseases that may pose risk to domestic livestock or human health. 
As feral swine quickly establish themselves throughout the Nation, they 
carry numerous endemic diseases that could be transmissible to humans, 
domestic livestock, or other wildlife species. The requested funds 
allow for the early detection of diseases in feral swine. Currently, 
risk analysis and mitigation is based on opportunistic sampling of 
feral swine collected near farms. USDA will conduct target sampling to 
improve the understanding or risks and to develop mitigation measures 
for reducing disease threats that feral swine pose.
    Question. Will the $104 million requested by the President allow 
USDA to meet the demand for assistance from Wildlife Services?
    Answer. USDA cooperates with Federal, State, and local agencies and 
public stakeholders on all Wildlife Services programs. To carry out 
these programs, APHIS uses a variable cost-share formula based on the 
core mission, strategic and program priorities, whether the activity 
substantially enhances the program's efficiency, whether it is 
appropriate for the cooperator to contribute more under a particular 
agreement, and the cooperator's ability to pay toward the program. As a 
result, cost-share varies by State, cooperator, and project. In fiscal 
year 2014, USDA is seeking higher contributions from cooperators who 
pay less than the amount the Federal Government pays. Although USDA 
attempts to respond to all requests for assistance to the greatest 
extent possible, some program needs cannot be met without an increased 
cooperator contribution.

                     NATIONAL SCHOOL LUNCH PROGRAM

    Question. Secretary Vilsack, you were asked by members of this 
subcommittee about the temporary change in rule the USDA made to allow 
no limits on weekly grain and protein for school lunches, while keeping 
calorie limits in place. It is my understanding that this temporary 
change has been very well received by schools and school nutritionists. 
You also mentioned the possibility of making this rule change 
permanent.
    Is this change in school lunch protein requirements something you 
are considering making permanent?
    Answer. The current flexibility on portion sizes for grains and 
proteins lasts through the end of school year 2013-2014. USDA has no 
intention of discontinuing that flexibility. The Department is 
committed to making the current flexibility permanent by the end of the 
calendar year 2013.
    Question. Does the USDA have the authority to make such a change 
permanent?
    Answer. Yes, USDA set the limits and has the authority to make such 
a change permanent through regulation. One of our top regulatory 
priorities is to complete the regulation that will make the grains and 
meats/meat alternates flexibility permanent in calendar year 2013.
    Question. Since 1946, when the act was first signed by President 
Truman, until last year, the Federal Government deferred to the local 
school food authority and school board to set the price of a ``paid'' 
meal. This was changed in the last child nutrition reauthorization in 
an effort to drive more non-Federal money into the program. However, I 
have heard concerns that not all communities can afford the newly set 
prices for school lunches, and that paid participation has declined in 
some schools due to the price increase.
    Could you share with the subcommittee what kind of response you 
have been receiving from schools and parents about prices set for 
``paid'' school meals?
    Answer. USDA received only 96 comments on the interim rule 
published on June 17, 2011, implementing the increase to paid lunches. 
About half of these comments came from school districts. Of the school 
districts that did comment, many of them stated that school lunch 
prices should be set at the local level citing local economic 
circumstances as a main contributor to setting paid lunch prices.
    A few comments suggested that we allow a la carte sales as a non-
Federal source of revenue to support paid meals.
    In response to comments on the interim rule, on April 17, 2013, FNS 
issued new flexibilities school districts may use when implementing the 
Paid Lunch Equity requirement for school year 2013-2014. For school 
year 2013-2014, FNS expanded the definition of a non-Federal source 
school districts can use in lieu of raising paid lunch prices to 
include State or local funds for any paid meal including breakfast or 
snacks. Additionally, State agencies, upon request by a district, may 
exempt the district from the requirement to increase prices or add 
funding to the school food service account if the school district can 
demonstrate that it already has sufficient revenue to operate a meal 
program that meets or exceeds all the nutritional and administrative 
requirements of the program.
    Outside of the formal rule comment process, USDA has received 
positive feedback from school districts wanting to raise their paid 
lunch prices as a way to increase revenue but have not been allowed by 
their school boards. While some districts are concerned about losing 
participation, they understand increasing revenues from paid lunches is 
a way to improve the financial standing of their foodservice account 
and improve the overall quality of meals.
    Question. Have you seen any decline in paid participation due to 
increases in meal prices?
    Answer. Based on the additional flexibilities offered and feedback 
received from districts thus far, if there is any impact on 
participation, USDA would expect it to be minimal. Because multiple 
changes have been occurring simultaneously in school meals, it is not 
feasible to determine, at this time, the precise relationship between 
this particular policy and participation in the program. USDA will 
continue to collect data on program participation and work with States 
to monitor participation.
                                 ______
                                 
            Questions Submitted by Senator Susan M. Collins

                   AGRICULTURAL MANAGEMENT ASSISTANCE

    Question. Mr. Secretary, potato production is an important 
component of Maine's economy. Maine is eighth in the Nation in potato 
production and fifth in acres harvested. Drought is a significant 
concern to our potato farmers, and many struggled with drought 
conditions in 2012. Farmers without the ability to irrigate experienced 
dramatically reduced yields and smaller potatoes. The Agricultural 
Management Assistance (AMA) program administered by NRCS provides 
management and technical assistance to farmers by incorporating 
conservation into their water management, water quality, and erosion 
control operations. In Maine, AMA and EQIP funds have been extremely 
helpful to Maine potato farmers. EQIP funds, however, can only be used 
on land that is already being irrigated. AMA funds can be used on new 
projects and to increase the number of farmers who are irrigating. 
Maine is one of the 16 States for which AMA is available (where 
participation in the Federal Crop Insurance Program is historically 
low). Additional AMA funds for potato farmers in Maine could be 
extremely consequential in assisting farmers who do not currently have 
the ability to irrigate. Mr. Secretary, can additional AMA funds be 
made available to Maine potato farmers?
    Answer. The Food, Conservation and Energy Act of 2008 (section 
2801(b)(ii)) authorized $15 million in Agricultural Management 
Assistance (AMA) funding for fiscal years 2008-2012, and requires that 
not less than 50 percent of that funding be provided to NRCS. Section 
716(a) of the Consolidated and Further Continuing Appropriations Act, 
2012 (Public Law 112-55) reauthorized the funding through fiscal year 
2014. However, a $5 million savings proposed in fiscal year 2014 would 
reduce the total authorized level to $10 million and NRCS's portion to 
$2.5 million, since the entire savings is applied to the NRCS portion 
of the authorized funding.
    We recognize that this program has been of significant value to 
Maine's producers and the demand for AMA funding in Maine reflects that 
value. In fiscal year 2011 Maine received $2.13 million of AMA 
financial assistance (36 percent of the total available); $279,000 (14 
percent of total) in fiscal year 2012; and $391,000 (20 percent of 
total) in fiscal year 2013. Due to high demand in Maine compared to 
other AMA States, Maine has been able to obligate additional funds that 
were originally allocated to other AMA States but were returned before 
the end of the fiscal year. We will continue to support funding AMA for 
Maine and other States with new and existing AMA projects.

           FEDERAL MILK MARKETING ORDERS--DAIRY PRICE REFORM

    Question. Secretary Vilsack, I remain very concerned about milk 
pricing and have joined with Senator Kirsten Gillibrand of New York to 
introduce the Dairy Price Reform Act of 2013. Dairy farmers in Maine 
are under severe financial stress due to a number of factors beyond 
their control, including high energy prices, escalating feed prices, 
and the wildly fluctuating price paid for their milk. This legislation 
would require USDA to initiate hearings about restructuring the milk 
pricing system and directs the Secretary of Agriculture to release 
recommendations to Congress. The legislation also enables you to 
dispense with the pre-hearing requirements in the bill and to initiate 
a formal hearing at any time. Mr. Secretary, could you please provide 
us with your views on Federal milk marketing orders and also give us 
your opinion on the possibility of accomplishing dairy price reform in 
a realistic timeframe?
    Answer. Federal milk marketing orders are not designed to be a 
price or income support program. They are voluntary marketing tools 
requested by producers or their cooperatives for specific geographic 
areas in the country. Our 10 marketing areas cover about 65 percent of 
the milk produced in the United States. Marketing orders help 
facilitate the efficient marketing of milk and dairy products by 
maintaining a balance in negotiating power between dairy farmers and 
milk processors. Federal milk marketing orders enforce market-based 
minimum payments to farmers, monitor the accuracy of milk weights and 
tests, and provide extensive equal access market information to all 
segments of the industry to support marketing decisions.
    A formal hearing process is used to establish and make amendments 
to Federal milk marketing orders. In the 2008 farm bill, Congress 
provided timeframes for making amendments to orders. We have adopted 
supplemental rules and held three hearings under these rules that have 
each met or exceeded the timeframe deadlines. I believe the current 
timeframes provide a realistic benchmark for making changes. However, 
we need to keep in mind that major changes, such as a sweeping 
modification to how we establish minimum prices under Federal milk 
marketing orders needs sufficient time for careful and thoughtful 
contemplation of impacts. The timeframes of the Dairy Reform Act of 
2013 (S. 670) and as outlined in section 1462 of S. 954, Agriculture 
Reform, Food, and Jobs Act of 2013 should provide USDA with adequate 
timeframes for accomplishing dairy price reform.

                    POULTRY SLAUGHTER MODERNIZATION

    Question. Mr. Secretary, a front page article in the Washington 
Post on April 25, 2013, detailed questions and concerns surrounding the 
increased use of possibly toxic, bacteria-killing chemicals in poultry 
processing plants. As the Department of Agriculture is poised to 
implement new rules that would modernize the poultry inspection 
slaughter system, including increasing line speeds, I am concerned 
about the impact of these new rules not only on worker safety, but on 
public health. With the number of chemical treatments to disinfect 
poultry carcasses likely to increase at processing plants, what steps 
will your Department be taking to assure that worker health concerns 
are adequately addressed? In addition, how can your Department be sure 
that increased line speeds and reductions in the numbers of on-line 
inspectors will result in a higher level of food safety?
    Answer. The modernization plan will protect public health, improve 
the efficiency of poultry inspections in the United States, and reduce 
spending. The new inspection system will reduce the risk of foodborne 
illness by focusing FSIS inspection activities on those tasks that 
advance our core mission of food safety. By revising current procedures 
and removing outdated regulatory requirements that do not help combat 
foodborne illness, the result will be a more efficient and effective 
use of taxpayer dollars.
    Regarding the effects this rule will have on chemical usage in 
plants, generally plants determine how they meet FSIS standards. They 
have many tools at their disposal to choose from--antimicrobial 
interventions used at appropriate levels are one. FSIS has examined 
HACCP-based Inspection Model Program (HIMP) and non-HIMP plants' usage 
of antimicrobials. The majority of plants were found to have chosen to 
use chemical/antimicrobial steps to help meet FSIS' targeted 
salmonella/campylobacter reductions, with no particular pattern whether 
the plant is HIMP or non-HIMP.
    In the course of the development of this rule, the issue of worker 
safety in poultry plants has been raised. The data that we have to date 
does not show any link between this new type of inspection system and 
increased risk for poultry industry employees or for our own inspection 
personnel. While we as a food safety agency do not have the ability or 
expertise to regulate worker safety, we have been working closely with 
the Occupational Safety and Health Administration and the National 
Institute for Occupational Safety and Health on important efforts to 
strengthen the Federal Government's data collection and enforcement 
activities in this area.
    FSIS put forward this modernization proposal because the Agency's 
risk assessment demonstrates that the system it embodies will prevent 
foodborne illnesses--approximately 5,000 per year. It will prevent 
illnesses by making common sense, scientifically verified changes in 
the way inspection personnel do their work in plants.
                                 ______
                                 
               Questions Submitted by Senator Jerry Moran

         IMPLEMENTATION OF NEW SCHOOL MEAL PATTERN REGULATIONS

    Question. Schools across Kansas have been working hard to implement 
the new regulations for lunches served at school. While schools and 
students are still adjusting to the new lunch regulations, another 
change is scheduled to take effect at the beginning of the 2013 school 
year when the new breakfast regulations go into effect. What outreach 
has USDA done to make sure the type of problems we saw with the 
implementation of the lunch regulations do not also occur next fall 
when schools are required to change the breakfasts they serve? 
Furthermore, has USDA consulted with school nutrition professionals to 
determine if they are ready to make the breakfast changes this fall?
    Answer. While the majority of updates to the school lunch program 
occurred in school year 2012-2013, the changes to breakfast are being 
phased in over multiple years. In this coming year the only changes 
schools will need to make are increased whole grains and new weekly 
calorie ranges. Increased fruit offerings will become effective in 
school year 2014-2015. The first sodium limits will be implemented in 
school year 2014-2015 and the final targets will be reached in school 
year 2022-2023. This phased-in approach will allow both industry and 
food service operators ample time to create appealing food items and 
menus that students will accept. Additionally, the breakfast meal 
pattern readily provides operators with much menu planning flexibility. 
For instance, while neither meats/meat alternates nor vegetables are 
required at breakfast, operators may choose to offer these foods and 
credit them in the reimbursable meal.
    In addition to existing technical resources available on the USDA 
Web site, as the start of the school year approaches, we will offer 
Webinars and social media activities and provide further information on 
what's new for school breakfast in 2013-2014. The agency is also 
working on an update to its breakfast toolkit resources, which empower 
program operators with information about starting or expanding school 
breakfast service, evaluating costs and serving methods, and marketing 
the program to key stakeholders. The toolkit also assists operators 
with implementation of the upcoming changes by providing sample menus 
and suggestions for offering healthy and appealing meals in compliance 
with the new meal pattern. Additionally, USDA has partnered with the 
President's Council on Fitness, Sports, and Nutrition to produce 
promotional materials, including posters and public service 
announcements, on breakfast. These materials promote the importance of 
eating a healthy breakfast for all students and are intended to 
maintain or increase participation in the SBP.
    USDA has consulted with school nutrition professionals through 
various formal and informal channels including national conferences, 
State agency trainings, and phone and email inquiries. USDA will 
continue to provide technical assistance and outreach to schools and 
program partners and anticipates that the phased-in implementation 
timeline and numerous flexibilities built into the breakfast meal 
pattern will result in successful implementation of breakfast in most 
schools this coming year.
                                 ______
                                 
              Questions Submitted to Hon. Phyllis K. Fong
                Questions Submitted by Senator Tom Udall

    Question. Inspector General Fong, I would first like to applaud you 
for the efforts you and your team have taken to ensure that the USDA is 
running in the most ethical and efficient way possible. From your 
testimony, I understand that the work you are doing results in huge 
amounts of money for the USDA to use in areas that are effective. I 
understand your financial impact in 2012 was around $1.5 billion.
    I understand that much of your work focuses on combating fraud 
within the SNAP program. This is a very important and often discussed 
effort.
    Could you give the subcommittee your view of how the SNAP program 
is doing in terms of insuring that taxpayer dollars are being well 
spent?
    Answer. By far the largest program within the U.S. Department of 
Agriculture (USDA), the Supplemental Nutrition Assistance Program 
(SNAP) provides monthly food assistance and nutrition for the health 
and well-being of more than 47 million low-income individuals. Due to 
the economic downturn, program participation has grown by 80 percent 
since fiscal year 2007 and over $74.5 billion in benefits was disbursed 
in fiscal year 2012. Given the program's significance, fraud committed 
by both SNAP recipients and the retailers that redeem SNAP benefits is 
a critical concern. With increased participation comes increased risk, 
and past audit work has found that the Food and Nutrition Service (FNS) 
needs to redouble its efforts to enforce its policies against such 
fraud as trafficking,\1\ and to establish strong internal controls to 
prevent it.
---------------------------------------------------------------------------
    \1\ Trafficking is the exchange of benefits for cash or other 
compensation.
---------------------------------------------------------------------------
    Recognizing this challenge, FNS has taken measures in recent years 
to strengthen its oversight of SNAP in three key areas: (1) reducing 
improper payments and errors; (2) combating the abuse and misuse of 
benefits; and (3) better pursuing recipient fraud. While FNS has made 
progress, further efforts are needed to fully utilize available 
resources and to ensure taxpayer dollars are well spent.
    Since September 2012, OIG has issued four national audit reports 
\2\ that help define how well SNAP is doing to ensure taxpayer dollars 
are spent well. We found that FNS needs to better detect and prevent 
recipient fraud. FNS has agreed to specify a set of tools that States 
can use for fraud detection, and create associated guidelines for their 
consistent usage. For example, manual transaction reports are used to 
identify all activity where retailers manually enter SNAP recipients' 
EBT card numbers into point-of-sale (POS) terminals. Manual transaction 
reports are used to detect potentially fraudulent activities between a 
retailer and recipient where large numbers of manual entries are 
processed by the retailer. FNS also agreed to assess the feasibility 
of: (1) creating a uniform method for States to report recipient fraud 
and (2) conducting a nationwide random sample of SNAP retailers.
---------------------------------------------------------------------------
    \2\ Analysis of FNS' SNAP Fraud Prevention and Detection Efforts 
(27002-0011-13, September 2012--this report also consolidates the 
results of audits performed in 10 States); Overlap and Duplication in 
Food and Nutrition Service's Nutrition Programs (27001-0001-10, June 
2013); Recovery Act Impacts on Supplemental Nutrition Assistance 
Program Phase II (27703-0001-22, June 2013); and FNS: Controls for 
Authorizing Supplemental Nutrition Assistance Program Retailers (27601-
0001-31, July 2013).
---------------------------------------------------------------------------
    We also found that the potential for overlap and duplication exists 
among FNS' 15 nutrition programs, and determined that FNS may be 
duplicating its efforts by providing participants total benefits in 
excess of 100 percent of daily nutritional needs when households and/or 
individuals participate in more than one FNS program simultaneously. 
FNS has agreed to determine and document the requirements for 
conducting a study to identify and determine the extent to which 
overlap and duplication may exist in FNS' nutritional assistance 
programs. FNS also agreed to determine whether they have the resources 
necessary to conduct the assessment of the potential overlap of its 
nutrition programs, or whether additional funding will be necessary to 
complete the assessment.
    Our recent reviews have also highlighted concerns with how States 
use and account for the administrative funding provided by the Recovery 
Act to oversee SNAP. For example, for the Recovery Act, an 
unprecedented level of transparency, oversight, and accountability was 
required. Recovery Act funds were to be distributed timely and reported 
separately from funding provided through routine annual appropriations. 
We found that FNS made Recovery Act administrative funds available for 
States to use on a timely basis; however, FNS did not provide adequate 
accounting guidance, coordination, and oversight to ensure States fully 
complied with transparency and accountability requirements. 
Accordingly, we are working with FNS to recover $470,272 that was spent 
on unallowable costs.
    We have also recently reported on FNS' controls for authorizing, 
reauthorizing, and disqualifying retailers that participate in SNAP. 
FNS does not have clear procedures and guidance to carry out key 
oversight and enforcement activities to address SNAP retailer fraud, or 
adequate authority to prevent multiple instances of retailer fraud. We 
recommended that FNS comprehensively review its policies and 
procedures, seek legislative change to retain a portion of retailer 
penalties, require background checks for retailers, strengthen internal 
guidance, improve its automated retailer data system, create and 
strengthen safeguards for high-risk stores, and require more 
supervisory reviews. We identified nearly $71 million in questioned 
costs and $6.7 million in funds to be put to better use. FNS agreed 
with 12 of the report's 20 recommendations. We are continuing to work 
with the agency to resolve the remaining eight recommendations.
    As OIG's audit work moves into fiscal year 2014, we will continue 
to provide oversight of FNS administration of SNAP. For example, we are 
currently conducting an audit on the accuracy of the SNAP quality 
control error rate. For this review, our objective is to determine 
whether FNS and the State agencies responsible for administering SNAP 
have adequate controls in place to ensure that SNAP payment error rates 
are accurately determined and reported, the appropriate actions are 
taken to reduce the error rates, and errors are timely corrected when 
detected. We also plan an audit of FNS' implementation of penalties 
against SNAP retailers. Our planned objective is to evaluate FNS' 
controls over civil money penalties assessed against SNAP retailers, 
including oversight of the penalty assessment and collection process. 
We also plan to determine whether FNS correctly calculated penalties, 
and whether they follow through to ensure penalties are collected once 
imposed.
    OIG's Office of Investigations collaborates on a regular basis with 
FNS to address SNAP fraud. For example, as a result of recent 
discussions, OIG and FNS are coordinating resources on a SNAP 
initiative aimed at partnering with Federal, State, and local law 
enforcement and non-law enforcement agencies in three States to combat 
SNAP fraud. The initiative will focus on ensuring that SNAP benefits 
are being used for their intended purpose.
    Question. How does the SNAP program compare with other programs 
over which you have oversight?
    Answer. When compared to other USDA programs, SNAP has the largest 
dollar value of improper payments. USDA reported in fiscal year 2012 
that in fiscal year 2011, 16 of its programs were vulnerable to 
significant improper payments (``high risk'' programs) and estimated 
$5.5 billion in improper payments for that year--a 5.11 percent error 
rate.\3\ SNAP, with outlays of $71.8 billion in fiscal year 2011, had 
improper payments totaling approximately $2.7 billion--a 3.8 percent 
error rate. That is almost 50 percent ($2.7 billion/$5.5 billion) of 
the Department's improper payments in fiscal year 2011.
---------------------------------------------------------------------------
    \3\ Fiscal year 2012 Improper Payment Elimination and Recovery Act 
of 2010 Compliance Review (50024-0004-11, March 2013).
---------------------------------------------------------------------------
    Other programs in the Department, however, may have higher improper 
payment rates due to the ratio of improper payments to outlays. For 
example, the program with the next highest level of improper payments 
is the National School Lunch Program (NSLP) at approximately $1.5 
billion, or 27 percent of USDA's improper payments. With outlays of 
just $10 billion, this translates into an improper payment rate of 15.5 
percent for the NSLP. Hence, NSLP's improper payment rate is higher 
than SNAP's although its dollar value of improper payments is $1.2 
billion less.
    The following table, as cited on page 166 of USDA's Agency 
Financial Report for fiscal year 2012, provides the summary level 
information for all high-risk programs outlining improper payment rates 
for the last 2 years and future reduction targets. When a number cannot 
be provided, an explanation is provided in the notes following. The 
table includes amounts from program sampling results. USDA programs 
report results the year following sampling activity. For example, 
results reported during fiscal year 2011 represent measures of fiscal 
year 2010 outlays and program activity.

                                        IMPROPER PAYMENT SAMPLING RESULTS
----------------------------------------------------------------------------------------------------------------
                                                Results reported in fiscal year  Results reported in fiscal year
                                                              2011                             2012
                                               -----------------------------------------------------------------
                                                                          IP                               IP
                                                               IP      (dollars                 IP      (dollars
                                                 Outlays   (percent)      in      Outlays   (percent)      in
                                                                      millions)                        millions)
----------------------------------------------------------------------------------------------------------------
Marketing Assistance Loan Program, FSA/CCC          3,054      0.52%        $16      2,878      0.08%         $2
 [Note #3]....................................
Supplemental Nutrition Assistance Program, FNS     64,705       3.81      2,465     71,813       3.80      2,729
 [Note #8]....................................
National School Lunch Program, FNS [Note #1]:
    Total Program.............................     10,739      15.98      1,716     10,024      15.53      1,557
    Certification Error.......................  .........       9.10        977  .........       8.65        867
    Counting/Claiming Error...................  .........       6.88        739  .........       6.88        690
School Breakfast Program, FNS [Note #1]:
    Total Program.............................      2,824      24.96        705      2,987      25.18        752
    Certification Error.......................  .........       9.17        259  .........       9.39        280
    Counting/Claiming Error...................  .........      15.79        446  .........      15.79        472
Women, Infants, and Children, FNS [Note #2]:
    Total Program.............................      4,648       4.13        192      4,886       4.13        202
    Certification Error Component.............  .........       3.05        142  .........       2.98        146
    Vendor Error Component....................  .........       1.08         50  .........       1.15         56
Child and Adult Care Food Program, FNS [Note
 #2]:
    Total Program.............................      2,521        N/A        N/A      2,653        N/A        N/A
    FDC Homes--Tiering Decisions..............        896       1.53         14        900       1.58         14
    FDC Homes--Meal Claims....................  .........        N/A        N/A  .........        N/A        N/A
Milk Income Loss Contract Program, FSA [Note          182       2.00          4          1        N/A        N/A
 #4]..........................................
Loan Deficiency Payments, FSA [Note #5].......        0.2        N/A        N/A        0.1        N/A        N/A
Direct and Counter-Cyclical Payments, FSA           3,877       0.05          2      3,867       0.50         19
 [Note #3]....................................
Conservation Reserve Program, FSA [Note #3]...      1,605       1.77         27      1,686       0.36          6
Miscellaneous Disaster Programs, FSA [Note #6]        235       2.90          7        477       2.16         10
Noninsured Assistance Program, FSA [Note #3]..         90       8.97          8         69       7.00          5
Wildland Fire Suppression Management, FS [Note        491       0.00        0.0        694       0.00        0.0
 #9]..........................................
Rental Assistance Program, RD [Note #9].......      1,020       1.48         15      1,078       3.44         37
Federal Crop Insurance Corporation Program          5,225       4.72        247      4,249       4.08        173
 Fund, RMA [Note #7]..........................
Farm Security and Rural Investment Act              1,433       0.80         11      2,088       0.02        0.4
 Programs, NRCS [Note #9].....................
                                               -----------------------------------------------------------------
      USDA Total..............................    101,024       5.37      5,428    107,696       5.11     5,507
----------------------------------------------------------------------------------------------------------------
 Source: USDA's Agency Financial Report for fiscal year 2012.
 Note #1: Information has not been adjusted for interaction between the different sources of certification error
  and counting/claiming error. NSLP and SBP estimated improper payment amounts reported for fiscal year 2012 are
  based on improper payment rates for school year 2010/2011, multiplied by the fiscal year 2011 outlays.
 Note #2: WIC and CACFP currently test components of their programs measuring fiscal year 2011 outlays for
  fiscal year 2012 reporting. CACFP currently tests and reports on the FDCH tiering decision component of the
  payment process. FNS continues to evaluate the measurement processes for the CACFP meal claim component. The
  agency has not set a date for measurement and reporting.
 Note #3: MAL and NAP information for fiscal year 2012 reporting is based on total outlays for fiscal year 2011.
  DCP and CRP information for fiscal year 2012 reporting is based on October 2011 through December 2011 outlays,
  which represent 98.3 percent of the annual outlays for DCP and 94.7 percent of the annual outlays for CRP. The
  estimated improper payment dollar amounts for MAL, DCP, CRP, and NAP may reflect variances from the
  relationship between the improper payment percentage and the outlays amount. These variances result from the
  complex, multi-stage statistical sampling methodology developed by the contract statistician in calculating
  the independent projections of the dollars and percentages in error. The variances represent a complex ratio
  estimate weighted with respect to the payments within their applicable county stratification. They reflect the
  variability within the payment data and occur with a 90-percent confidence level.
 Note #4: A full statistical sample was not cost-effective due to low outlays during fiscal year 2011 and the
  low improper payment rates in previous years. OMB will evaluate MILC activity annually to determine if
  measurement for a specific fiscal year would be cost-effective.
 Note #5: A statistical sample was not performed; it was not cost-effective due to low outlays during fiscal
  year 2011, and low improper payment rates in previous years. OMB will evaluate LDP activity annually to
  determine if measurement for a specific fiscal year is cost-effective.
 Note #6: FSA measured one component of the several MDP disaster program components for fiscal year 2012
  reporting. A full statistical sample of all MDP components was not cost-effective. The Livestock Forage
  Disaster Program fiscal year 2011 outlays (63 percent of all MDP outlays) were statistically sampled. FSA is
  undergoing a risk assessment of the Livestock Indemnity Program (35 percent of MDP outlays). OMB will evaluate
  MDP activity annually and determine which components to measure for a specific fiscal year.
 Note #7: RMA uses a 3-year running average to calculate its improper payment rate. fiscal year 2012 is based on
  the measurement of 2009, 2010, and 2011 crop year outlays.
 Note #8: SNAP fiscal year 2012 reporting information is based on fiscal year 2011 outlays. SNAP reduction
  targets may be reduced and adjusted in consideration of increased need resulting from further growth in the
  program, which has been unprecedented during the past few years, State budget constraints, and other related
  factors. The SNAP improper payment rate trend line goes from 5.99 percent in fiscal year 2007 to 3.80 percent
  in fiscal year 2012. Due to the above issues, it is not realistic and likely not achievable for SNAP to
  consistently have 3.80 percent or less improper payment rate for future years.
 Note #9: The FSRI, RAP, and WFSM programs' information for fiscal year 2012 reporting is based on fiscal year
  2011 outlays.
 Note #10: The MAL improper payment rate trend line goes from 7.52 percent in fiscal year 2007 to 0.08 percent
  in fiscal year 2012. The 0.08 percent rate for fiscal year 2012 is an outlier compared to rates of the
  previous 5 years. Due to the inherent variables in the statistical sampling measurement process, a fiscal year
  2013 reduction lower than 0.08 percent is not realistic and likely not achievable. The MAL reduction target
  rates for fiscal year 2013, fiscal year 2014 and fiscal year 2015 in Exhibit 27, are more realistic and
  achievable in relationship to the MAL trend line from fiscal year 2007 through fiscal year 2011.
 Note #11: The WFSM program has reported a 0.00 percent improper payment rate for the past 4 years. Due to the
  inherent variables in the statistical sampling measurement process, it is not realistic and likely not
  achievable for WFSM program to consistently have 0.00 percent improper payment rate for future years.
 Note #12: Due to the inherent variables in the statistical sampling measurement process, it is not realistic
  and likely not achievable for FSRI program to consistently have 0.02 percent or less improper payment rate for
  future years.

    Regarding a comparison of SNAP to other USDA programs from the 
perspective of our Investigations division, our foremost observation is 
the large number of successful SNAP investigations OIG has conducted 
recently, and the significant proportion of investigative resources OIG 
is allocating to pursue criminal activity in the program. The amount of 
convictions and monetary results from recent OIG investigations in SNAP 
are higher than for any other USDA program. For example, in fiscal year 
2012, the total convictions and monetary results obtained from 
investigations pertaining to Farm Service Agency (FSA), Risk Management 
Agency (RMA), Rural Housing Service (RHS), Rural Business Service 
(RBS), and Grain Inspection, Packers and Stockyards Administration 
(GIPSA) programs were 72 convictions and $36.8 million, respectively. 
In the same fiscal year, OIG investigative work in SNAP alone resulted 
in 342 convictions and $57.7 million in monetary results. Overall, SNAP 
investigations produced over 50 percent of the monetary results 
achieved by OIG's Investigations division in fiscal year 2012.
    The following chart provides a breakdown by agency of fiscal year 
2012 indictments, convictions, and monetary results from OIG 
investigations. Note that the overall monetary results OIG 
investigations obtained in fiscal year 2012 were approximately $106 
million; as mentioned above, SNAP investigations accounted for over $57 
million of that total (which is reflected in the Food and Nutrition 
Service monetary results below).

----------------------------------------------------------------------------------------------------------------
                                                                                                     Monetary
                             Agency                                Indictments   Convictions \1\      Results
----------------------------------------------------------------------------------------------------------------
Agricultural Marketing Service.................................               2                4            $340
Animal Plant Health Inspection Service.........................              50               75         263,620
Agricultural Research Service..................................               4                2          71,200
Foreign Agricultural Service...................................               3                1          99,191
Food and Nutrition Service.....................................             626              364      68,531,818
Forest Service.................................................               6                9          82,700
Farm Service Agency............................................              28               37      14,554,850
Food Safety and Inspection Service.............................              17                9         371,825
Grain Inspection, Packers and Stockyards Administration........               6                4       1,100,000
Natural Resources Conservation Service.........................               2                2          65,800
Rural Business--Cooperative Service............................               6                4      10,196,005
Rural Housing Service..........................................              29               17       8,937,577
Risk Management Agency.........................................              12               10       2,053,929
Rural Utility Service..........................................               1  ...............  ..............
                                                                ------------------------------------------------
      Totals...................................................             793              538     106,328,855
----------------------------------------------------------------------------------------------------------------
\1\ This category includes pretrial diversions.

    Question. Are there any areas where there are major problems that 
the USDA could address within the SNAP program?
    Answer. FNS needs to address the following recommendations issued 
in our audit reports:
    27002-0011-13 SNAP Fraud Prevention and Detection Efforts.--In this 
audit, issued September 2012, our objective was to evaluate the 
adequacy of FNS and State tools used to prevent and detect SNAP fraud, 
determine whether the States were using the tools provided, and 
identify and evaluate the integrity of amounts reported for recipient 
and retailer fraud. We found that States need to more fully use 
existing tools to ensure applicant eligibility and detect fraud. We 
also found that FNS has not established processes to identify or 
estimate the total amount of SNAP fraud occurring nationwide, either by 
recipients or by retailers. Overall, the report recommended that for 
FNS to better detect and prevent recipient fraud, FNS should specify a 
set of tools that States are required to use for fraud detection, and 
create associated guidelines for their consistent usage. We have agreed 
with FNS on its corrective actions on each of the report's nine 
recommendations. In addition, FNS has reported that it has completed 
corrective actions on seven of the nine recommendations.
    27001-0001-10 Overlap and Duplication in FNS' Nutrition Programs.--
In this audit, issued June 2013, our objective was to assess FNS' 
nutrition programs to identify the potential for overlap and 
duplication. We found that the potential for overlap and duplication 
exists among FNS' 15 nutrition programs, and determined that FNS may be 
duplicating its efforts by providing participants total benefits in 
excess of 100 percent of daily nutritional needs when households and/or 
individuals participate in more than one FNS program simultaneously. 
The overall recommendations in the report were for FNS to determine and 
document the requirements for conducting a study, and to identify and 
determine the extent to which overlap and duplication may exist in FNS' 
nutritional assistance programs. For the report's two recommendations, 
we have agreed with FNS on the corrective actions on both 
recommendations. FNS is currently working to implement the corrective 
actions outlined in those recommendations.
    27703-0001-22 Recovery Act Impacts on SNAP.--In this audit, issued 
June 2013, our objective was to determine if FNS had sufficient 
internal controls to ensure that SNAP administrative funds provided by 
the Recovery Act were used in accordance with the Recovery Act's 
provisions, Office of Management and Budget guidance, and FNS 
requirements for allowable program costs. FNS did not provide adequate 
accounting guidance, coordination, and oversight to ensure States fully 
complied with transparency and accountability requirements. The overall 
recommendations for the report were for FNS to recover unallowable 
expenditures totaling $470,272 from three State agencies and one 
county. We have not reached agreement on the report's four 
recommendations for corrective actions. We are continuing to work with 
the agency to do so.
    27601-0001-31 FNS: Controls for Authorizing SNAP Retailers.--In 
this audit, issued July 2013, our objective was to assess FNS' controls 
over the retailer authorization process, findings reported by Scripps 
Howard News Service of permanently disqualified owners participating in 
SNAP, and FNS' recent actions to strengthen its processes. We found 
that FNS does not have clear procedures and guidance to carry out key 
oversight and enforcement activities to address SNAP retailer fraud, or 
adequate authority to prevent multiple instances of fraud--either by a 
particular owner or within a particular location. In addition, FNS 
regional offices put their limited resources towards other activities, 
such as retailer authorization, rather than assessing and enforcing 
retailer penalties. The overall recommendations for the report were for 
FNS to comprehensively review its policies and procedures, seek 
legislative change to retain a portion of retailer penalties, require 
background checks for retailers, strengthen internal guidance, improve 
its automated retailer data system, create and strengthen safeguards 
for high-risk stores, and require more supervisory reviews. Of the 
report's 20 recommendations for corrective actions, we have agreed with 
FNS' corrective actions on 12 of the recommendations. For the remaining 
eight recommendations, we continue to work with the agency to reach a 
resolution.

                          SUBCOMMITTEE RECESS

    Senator Pryor. The subcommittee will meet again 10 a.m. on 
Thursday, May 16. And I think this is the room where we'll hear 
from some of the Under Secretaries.
    So again, thank you for your time and thank you for being 
part of this.
    And with that, we'll recess the hearing.
    [Whereupon, at 11:59 a.m., Thursday, May 9, the 
subcommittee was recessed, to reconvene at 10 a.m., Thursday, 
May 16.]
