[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 23, 2013

                                       U.S. Senate,
           Subcommittee of the Committee on Appropriations,
                                                    Washington, DC.
    The subcommittee met at 10:01 a.m., in room SD-124, Dirksen 
Senate Office Building, Hon. Mark L. Pryor (chairman) 
presiding.
    Present: Senators Pryor and Blunt.

                       DEPARTMENT OF AGRICULTURE

STATEMENTS OF:
        DOUG O'BRIEN, ACTING UNDER SECRETARY, RURAL DEVELOPMENT
        ANN MILLS, ACTING UNDER SECRETARY, NATURAL RESOURCES AND 
            ENVIRONMENT
        DARCI L. VETTER, ACTING UNDER SECRETARY, FARM AND FOREIGN 
            AGRICULTURAL SERVICES
ACCOMPANIED BY MICHAEL YOUNG, BUDGET OFFICER

               OPENING STATEMENT OF SENATOR MARK L. PRYOR

    Senator Pryor. I'll go ahead and bring the hearing to 
order. I want to thank everyone for being here. We have a 
little bit of a new game plan today because the Senate has 
announced that we're having votes at 10:30 a.m. So what I 
thought I would do is shorten my opening statement. Senator 
Blunt has agreed to shorten his opening statement, and we'd ask 
you to shorten your statements if possible, maybe a couple of 
minutes. Then of course your statements will be submitted for 
the record so we'll have the official record.
    But let me go ahead and jump in, and our goal would be to 
actually try to finish the hearing shortly after 10:30 a.m. so 
the two of us could go make our votes and just try to recess 
the hearing from there instead of taking a break and coming 
back.
    So I want to thank you for coming. This is our final budget 
hearing. Today we will hear from: Ms. Darci Vetter, the Acting 
Under Secretary for Farm and Foreign Agricultural Services; Ms. 
Ann Mills, the Acting Under Secretary for Natural Resources and 
Environment; and Mr. Doug O'Brien, the Acting--are you noticing 
a pattern here----
    Senator Blunt. I am.
    Senator Pryor [continuing]. The Acting Under Secretary for 
Rural Development. I'd like to welcome each one of you and 
thank you for being here and thank you for your preparation. In 
a lot of ways you are the face of the USDA out there in the 
field. If there is such a thing, you are the boots on the 
ground in the real world of all the services that you provide. 
Each of you is doing things that are very, very important for 
rural America and for agriculture, and for that we want to say 
thank you.
    You continue to do good work. However, we're in a budget-
shrinking environment, and I notice that the Rural Development 
staff, for example, the Rural Development staff has been cut by 
18 percent since 2010, and there have been over 20 Farm Service 
Agency (FSA) office closures in the last couple years and 
conservation activities have been increasingly limited, and all 
that's done before the sequester.
    So we understand that this is a shrinking environment in 
you guys have had to make some tough choices. But on a positive 
note, we see that you've made a lot of progress in the world of 
technology with the MIDAS system, and I'd like to visit about 
that in a few moments. I hope that what that does is it makes 
it easier for you to provide better service to American 
farmers, and it sounds like you're making progress there.
    So with that, I'd like to turn it over to Senator Blunt for 
his statement.

                     STATEMENT OF SENATOR ROY BLUNT

    Senator Blunt. Thank you, chairman. Thank you for your 
leadership of the subcommittee.
    We're glad to have all of you here today. I do want to get 
right to what you want to tell us and then what we want to ask 
about. Obviously, these have been good times for agriculture, 
but also challenging times for agriculture. In the State of 
Missouri, every one of our counties was declared a disaster 
county in the last year. At the same time, our agricultural 
production has continued to be astonishing as a State and as a 
Nation.
    Rural development makes a real difference in the rural 
communities. Valued at $185 billion, the rural development loan 
portfolio is extensive, it's healthy, and it provides financing 
to many borrowers that wouldn't be able to obtain loans in 
other ways.

                           PREPARED STATEMENT

    It's evident that the vast reach of your agency is being 
managed in new ways because of technology and, like the 
chairman, I look forward to hearing about that. I think I'll 
just submit my statement for the record and let's get started.
    [The statement follows:]

                Prepared Statement of Senator Roy Blunt

    Good morning. Thank you Chairman Pryor for holding today's hearing 
on the Farm and Foreign Agricultural Service, Natural Resources and 
Environment, and Rural Development mission areas of the Department of 
Agriculture. I am pleased to join you in welcoming the Under 
Secretaries.
    The mission areas we will examine in detail today play an important 
role in delivering USDA programs. They represent the frontline of USDA 
efforts to promote agriculture and improve rural communities.
    Missouri is home to over 100,000 farms, the second most nationwide, 
and almost 30 percent of Missouri's population lives in a rural area. 
The agencies represented here today are critically important to their 
daily lives. These agencies are responsible for:
  --Working with farmers to respond to natural disasters and conserve 
        resources;
  --Financing critical infrastructure in rural communities; and
  --Promoting agricultural exports by opening foreign markets.
    Agriculture supports 16 million jobs nationwide and has been a 
bright spot in the country's economic recovery. U.S. agricultural 
exports are expected to break records again this year.
    However, challenges remain prevalent. Last year, about 80 percent 
of agricultural land across America experienced drought. It was the 
most extensive drought our country has experienced since the 1950s, and 
all 114 Missouri counties were declared a disaster area.
    Many farmers in my State and throughout the country would not have 
been able to financially weather the drought had it not been for the 
safety net of the crop insurance program.
    Farmers face risk and uncertainty unlike any other industry--
unpredictable weather conditions, skyrocketing input costs, and 
volatile world markets to name a few.
    Without a robust safety net in place, farmers would have tremendous 
difficulty rebounding after a disaster like last year's drought. I 
commend the Department for its continuous efforts to make these crop 
insurance products more affordable and useful to producers.
    Agencies represented here today play integral roles in solidifying 
America's leading role in global agriculture production, as well as its 
preservation of natural resources.
    USDA's conservation efforts aim to ensure that future generations 
benefit from our country's natural beauty and quality resources as we 
have, and I firmly believe America's farmers are America's best land 
stewards.
    Agriculture remains the cornerstone of rural America, but USDA's 
reach is much broader than most Americans realize.
    Housing ownership loans, rural business start-up grants, and 
drinking water infrastructure are only a few of the financing 
opportunities that Rural Development provides to rural communities.
    Valued at nearly $185 billion, Rural Development's loan portfolio 
is extensive, healthy, and provides financing to many borrowers that 
are not able to obtain loans from private lenders.
    It is evident by the vast mission areas of the agencies represented 
here today that USDA serves a role in nearly every aspect of rural 
America.
    I want to again thank our witnesses for being here today, and I 
look forward to hearing their testimony.

    Senator Pryor. Thank you.
    Mr. O'Brien, you're recognized for 2 minutes.

                   SUMMARY STATEMENT OF DOUG O'BRIEN

    Mr. O'Brien. Thank you, Mr. Chairman, Ranking Member Blunt. 
I want to say thank you for the opportunity to appear before 
you today, and I will keep my statement very brief.
    The Rural Development budget features a mix of grants and 
loans to help rural families, rural communities, small 
businesses, and cooperatives capture the historic opportunities 
in rural America. While certainly difficult choices needed to 
be made in this budget environment, we believe this budget 
strikes the right balance by targeting resources where there is 
greatest need and where there is greatest opportunity. In 
short, this budget continues the commitment to rural America.

                           PREPARED STATEMENT

    I will stop there and look forward to your questions, and 
thank you for the opportunity to be here today.
    [The statement follows:]

                   Prepared Statement of Doug O'Brien

                           RURAL DEVELOPMENT

    Chairman Pryor, Ranking Member Blunt and members of the 
subcommittee, thank you for the opportunity to present the President's 
2014 budget for the Department of Agriculture's (USDA's) Rural 
Development mission area. I am accompanied this morning by Mr. Michael 
Young, USDA's Budget Officer.
    President Obama believes that ``strong rural communities are the 
key to a stronger America.'' USDA Rural Development, as the only 
Federal Department with the primary responsibility of serving rural 
areas, takes seriously our responsibility to support the continued 
revitalization of rural America and the Nation.
    Since 2009, President Obama's commitment and this subcommittee's 
support have brought about significant investment in rural communities 
that has made them stronger and more vibrant. USDA Rural Development 
alone has directly invested or guaranteed more than $131 billion over 
the last 4 years in broadband, businesses, housing, safe water, 
community facilities and more that have benefited not only the 
communities our agency serves, but the overall economy.
    As you know, rural America has unique challenges and assets. Rural 
communities are characterized by their isolation from population 
centers and product markets and benefit most from initiatives that 
integrate local institutions and businesses with State and Federal 
agencies that have intimate knowledge of local needs. To address these 
unique challenges, Congress has provided USDA with a variety of 
programs that comprehensively attend to the rural dynamic.
    The presence of USDA field offices in every State helps us serve 
the specific needs of local communities. USDA Rural Development 
employees are able to identify a wide range of community and economic 
development resources for local elected officials, business owners, 
families, farmers and ranchers, schools, nonprofits, cooperatives and 
tribes. USDA Rural Development staff are located throughout the Nation 
and are members of the communities they serve so they possess expert 
knowledge of the economic challenges and opportunities that exist in 
their particular region.
    USDA Rural Development assistance includes direct and guaranteed 
loans, grants, technical assistance, and other payments. We provide 
assistance to intermediaries that make loans or provide technical 
assistance to the ultimate beneficiaries. We require or encourage 
recipients, in several programs, to contribute their own resources or 
obtain third-party financing to support the total cost of projects, in 
which case these programs leverage USDA's support with private sector 
financing.
    Through USDA Rural Development's infrastructure development 
programs, we make investments in rural utility systems that help 
improve and expand the rural electrical grid, provide clean drinking 
water to rural communities, and deliver increased Internet service to 
rural families and to businesses, allowing them to compete in the 
global economy. In 2012, we provided more than 8 million consumers with 
new or improved electric service, provided 2.5 million of our 
borrower's customers with new or improved water or wastewater service, 
and provided nearly 64,000 rural households, businesses and community 
institutions with new or better access to broadband Internet service.
    Through USDA Rural Development's business and cooperative loan, 
grant, and technical assistance programs, the agency helped thousands 
of rural small business owners and agricultural producers improve their 
enterprises, including those related to renewable energy. Beyond direct 
assistance to these business owners and producers, financial support 
from USDA also creates lasting economic development opportunities in 
the rural communities where the projects are located. Business and 
cooperative funding created or saved over 52,000 rural jobs in 2012.
    Not only have we supported small businesses, but we also support 
the social infrastructure that makes rural communities attractive to 
small business owners and their employees. USDA Rural Development's 
Community Facilities loan and grant program provided assistance to 
construct or improve 215 educational facilities, and supported 168 
healthcare projects--part of more than 1,400 Community Facilities 
projects nationwide in 2012. Other key projects included support for 
local, rural emergency responders.
    Finally, the USDA Rural Development housing program ensures that 
rural families have access to safe well-built, affordable homes. In 
2012, more than 153,000 families with limited to moderate incomes 
purchased homes utilizing our housing programs. We also helped about 
7,000 rural individuals or families repair their existing homes under 
our home repair loan and grant program. More than 400,000 low- and very 
low-income people were able to live in USDA-financed multi-family 
housing thanks to rental assistance.
    At Rural Development we continue to recognize the responsibility we 
share to help shoulder the burden of deficit reduction and, as such, 
have pursued continual process improvements to ensure that our agency 
operates as a responsible steward of taxpayer dollars. Over the past 10 
years, Rural Development's portfolio has more than doubled and now 
stands at $183 billion.
    The agency has also embraced multiple streamlining efforts to 
reduce operating costs. USDA Rural Development contributed to savings 
under the Secretary's Blueprint for Stronger Service by consolidating 
and reorganizing its field office structure, providing projected 
savings of $758,000 annually. These efforts are continuing and are 
expected to result in additional savings over the next few years. Rural 
Development achieved savings of $1.3 million with reductions in 
printing, supplies and promotional items. Furthermore, the agency 
anticipates savings from data center consolidation at our National 
Information Technology Center and using specific services that would 
cost less money. Those savings are cumulative and have not been broken 
down by individual agencies.
    In terms of staff, since the beginning of fiscal year 2012, USDA 
Rural Development has decreased its workforce by 18 percent, totaling 
1,079 people. Those reductions will save the agency more than $95 
million per year in staff costs moving forward, however, at a certain 
point we risk the integrity of the delivery of the programs and the 
servicing of a burgeoning portfolio. The chart below illustrates the 
agency-wide challenge of rapidly increasing program level funding and a 
steady decrease in staffing resources. This type of dynamic strains the 
agency's ability to responsibly deliver and service the programs 
provided for and funded by Congress.




    Despite our best efforts to prepare for additional funding 
reductions through these prudent actions, we cannot prevent the 
negative impact of the March 1 sequestration or across-the-board 
reductions in every Rural Development program as outlined in the 
Consolidated and Further Continuing Appropriations Act of 2013. We will 
have to cut back on essential services. 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 heads of households, who live in multi-family 
housing in rural areas. As you know, the Secretary has notified this 
subcommittee and your colleagues in the House of his intention to use 
interchange authority to avoid furloughs and minimize the disruption 
caused by these cuts to rural communities.
    We know that American taxpayers expect more, so we are continually 
looking for ways to improve, innovate and modernize. The Rural Housing 
Service (RHS) directed each State office to centralize the loan 
guarantee process for the Single Family Housing Guaranteed program. The 
purpose of the initiative is to maximize efficiencies that enable a 
reduction in staff time while still meeting audit requirements and 
providing States flexibility. Each State was instructed to centralize 
the guarantee process into one entry point, and then electronically 
distribute workflow to the appropriate workstation where the designated 
employee was located. The purpose was not to reassign employees to a 
central office location, but to deploy technology for a process 
improvement as a remedy for staff reductions. The result of the 
centralization initiative has been a success. All States have 
centralized their guarantee workflow process or are in the process of 
implementing it. Some States even implemented the same workflow for 
other Rural Development programs.
    RHS hopes to go even further in 2014 with a proposal that will make 
USDA's guaranteed home loan program a direct endorsement program, which 
is consistent with Veterans Affairs and Housing and Urban Development's 
guaranteed home loan programs. This will make RHS more efficient and 
allow the Single Family Housing staff to focus on other unmet needs.
    RHS is also in the process of instituting an automation project 
known as automated loan closing, or ALC, that will eliminate the need 
for staff to process paper checks for guarantee fees. It will eliminate 
the double entry of data and automate the scanning of critical loan 
closing documents. It will also enable an e-signature feature which 
will eliminate the need for staff to print and sign a loan note 
guarantee. The ALC project will begin deployment nationwide this 
summer.
    The Rural Utilities Service (RUS) has also undertaken initiatives 
to improve performance and accountability measures. For example, in 
fiscal year 2010 we launched a process improvement project to address 
issues related to the Rural Alaska Village Grant Program. A Steering 
Committee composed of senior officials from both the national and State 
offices of USDA Rural Development, Alaska Department of Environmental 
Conservation, Alaska Native Tribal Health Consortium, Indian Health 
Service, Environmental Protection Agency and the Denali Commission was 
formed and convened in Anchorage. In June 2011, the partners, signed a 
memorandum of understanding outlining a streamlined application 
process, new grant agreements, improved accountability measures and 
other critical documents. Today, we are seeing the results of those 
efforts with projects being built serving Alaskan villages, many for 
the first time. Based on these successes, we are in the process of 
codifying the streamlining of this program through a regulation that we 
plan to announce later this year.
    RUS is also undergoing a business process review (BPR) in electric 
and telecom programs to consolidate and streamline program activities, 
both in the field and in the national office as a result of exponential 
increases in the portfolio size, coupled with diminishing staff 
resources. This activity includes increased use of technology, staff 
reorganization and retraining, and potential revision of program 
regulations to increase the efficiency and effectiveness of program 
delivery.
    In Rural Business and Cooperative Service (RBS) we established a 
field structure, consisting of 10 regions. The structure allows the 
national office to provide direction and oversight for all RBS programs 
nationally, with reliance on two regional coordinators (East and West), 
and 10 RBS team leaders (State program directors) that provide guidance 
to the State RBS program directors in their regions. This regional 
structure improves agency efficiency and effectiveness, which is vital 
as RBS addresses reductions to budget and staffing levels.
    With its regional structure, RBS is able to save on travel and 
training expenses by reducing the number of staff that attend training. 
Typically, regional coordinators work with national office staff to 
train team leaders who then provide guidance and direction to the 
program directors in their region.
    This approach also improves communication across the agency, 
resulting in greater consistency in program delivery. The regional 
structure provides a network for sharing institutional knowledge, best 
practices, and solutions to common challenges within a region.
    RBS' regional structure also enables offices to address gaps in 
staffing by sharing human resources. For instance, a team leader can 
temporarily help with program delivery in a State if a program director 
retires or leaves the agency. This is especially important now, as RBS 
has lost a number of program directors over the last several years. Not 
only do team leaders help fill in where a program director position is 
vacant they also provide training and guidance to new program 
directors. Over the last few years this has been essential to the 
agency's success in supporting the many programs delivered by RBS, with 
fewer staff.
    Under the budget proposal, we continue to seek efficiencies to 
better serve the American people. For example, the budget includes $55 
million for 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. This new program will award funding 
to grantees that meet or exceed minimum performance targets, and that 
agree to be tracked against those performance targets. This 
consolidation will utilize all existing authorities available under the 
Rural Business Opportunity Grant, Rural Business Enterprise Grant, 
Rural Microenterprise Assistance Grant, Rural Cooperative Development 
Grant, Small/Socially Disadvantaged Producer Grant and Rural Community 
Development Initiative Grant programs. Doing so will enable RBS to 
leverage resources to create greater wealth, improve quality of life, 
and sustain and grow the regional economy. The new program is also 
expected to improve the agency's current grant allocation and 
evaluation process.
    The President's budget reflects his commitment to jobs, growth and 
opportunity for America. With a proposed budget authority of $2.3 
billion and a proposed program level of $35 billion, the three agencies 
of Rural Development are fully engaged in efforts to increase 
opportunities and address the challenges unique to rural America. The 
budget provides $662 million in funding for salaries and expenses 
needed to carry out USDA Rural Development programs. This level of 
funding will support an estimated staff level of 5,000 in 2014--many of 
whom are located in rural areas throughout the United States and Puerto 
Rico. In addition, the budget requests that $32 million of the total 
funding provided for salaries and expenses to be set aside for 
information technology investments for the Comprehensive Loan Program. 
Investing in modernizing this system will ensure that all loan programs 
are serviced with up to date technology safeguarding the portfolio from 
cyber threats and upgrading the management capabilities for the agency.
    I should note that our largest programs at Rural Development, the 
Electric, Telecommunications, Community Facilities Direct Loan, and the 
Single Family Housing Guarantee programs require no Federal funding and 
are all operating at a negative subsidy rate. The budget also supports 
$1.2 billion in Water and Waste Disposal direct loans at no Federal 
cost due to improved performance of the program. However, I note that 
as savings from programs have been realized due to program performance 
and low interest rates, funding for S&E has not kept pace. The S&E 
request needs to be fully funded in order to realize the full 
authorized loan levels in these most efficient programs. The execution 
of these programs, particularly in an extremely challenging economic 
environment, is a win for taxpayers, rural residents and communities 
working to enhance their quality of life and increase their economic 
opportunities.
    Rural Development is known as an agency that can help build a 
community from the ground up. Today, we are assisting rural America 
prepare for the global challenges of the 21st century by looking not 
only within a community for defining strengths and opportunities, but 
to regions and strategic partners, where one community or program can 
complement and draw upon the resources of another to create jobs and 
strengthen economies.
    We are resolutely pursuing President Obama's vision of an America 
that promotes the economic well-being of all Americans. In rural 
communities, we support entrepreneurs and innovators, individuals and 
families, the youth and the elderly. We support entire communities. We 
do so by financing housing for individuals, families and the elderly, 
building schools and emergency centers, connecting leading doctors to 
rural clinics and hospitals, and encouraging business startups and 
expansions. We know our investments will pay dividends for years to 
come.
    I appreciate the opportunity to work with members of the 
subcommittee to build a foundation for American competitiveness. The 
President has offered a responsible, balanced budget that continues to 
meet key priorities and includes targeted investments to support long-
term job creation and renewed economic expansion. Moving forward will 
require hard work and sacrifice from everyone, and Rural Development is 
committed to doing its part. I am confident that the agencies of Rural 
Development will successfully implement the programs needed for a 
thriving rural America.
    I appreciate the opportunity to testify today before members of the 
subcommittee. This budget proposal supports our efforts and helps us 
fulfill the promise of rural communities. Thank you for your support of 
Rural Development programs. I am happy to answer your questions on the 
budget proposals at this time.

    Senator Pryor. Thank you.
    Ms. Mills.

                     SUMMARY STATEMENT OF ANN MILLS

    Ms. Mills. Thank you, Mr. Chairman and Ranking Member 
Blunt. I'm very pleased to present to you the Natural Resources 
Conservation Service's (NRCS) fiscal year 2014 budget, and we 
appreciate your ongoing support for voluntary rural lands 
conservation. NRCS remains committed to helping America's 
farmers and ranchers achieve their conservation goals while 
also meeting the challenges and opportunities of the 21st 
century.
    We are using--I want to highlight just a couple things 
where NRCS is coupling its traditional strengths of on-the-
ground assistance with a whole new generation of conservation 
approaches that will allow America's farmers to remain the most 
productive in the world. We're using science to help focus our 
investments. We're supporting the development of nonregulatory 
incentives, like agricultural certainty in environmental 
markets, that also help introduce private dollars into the farm 
economy. We're promoting soil health that is going to boost 
farmer productivity while at the same time helping them get 
buffered from extreme weather events. When these weather events 
do occur, NRCS is there in drought-stricken States, during 
flooding events, and even yesterday in Oklahoma. Today we're 
doing damage assessments there.
    We're also focusing our efforts to support the Department's 
Strike Force Initiative to address poverty in persistent 
poverty counties. This budget reflects tough cuts, but also 
some strategic investments, such as improving our business 
functions, where we can continue to deliver excellent services 
to America's farmers and ranchers.

                           PREPARED STATEMENT

    In a changing climate and high commodity prices, now more 
than ever America's farmers and ranchers need NRCS to help them 
protect our natural resource base.
    Thank you very much.
    [The statement follows:]

                    Prepared Statement of Ann Mills

                   NATURAL RESOURCES AND ENVIRONMENT

    Mr. Chairman and members of the subcommittee, I am pleased to 
appear before you today to present the fiscal year 2014 budget for the 
Natural Resources Conservation Service (NRCS) of the Department of 
Agriculture. I appreciate the ongoing support of the chairman and 
members of the subcommittee for USDA's work on voluntary, private lands 
conservation and the protection of soil, water and other natural 
resources.
    Our Nation's prosperity--particularly the prosperity of our rural 
communities--is closely linked to the health of our lands and natural 
resources. USDA remains committed to helping the Nation's farmers and 
ranchers meet their conservation goals. NRCS is working hard to couple 
its traditional strengths of site-specific, science-based technical and 
financial assistance with innovative efforts to leverage funding from 
private and non-governmental organizations in an effort to extend the 
value of taxpayer dollars. NRCS is also supporting the establishment of 
forward-thinking, incentive-based conservation and restoration programs 
including water quality, wildlife certainty, and environmental markets.
    Natural resource conservation does not just protect the water we 
use, the air we breathe, and the soil that is necessary for producing 
our food. In many cases, the conservation practices that producers 
implement, with NRCS's assistance, can reduce production costs and 
improve productivity, making improvements to a producer's bottom-line 
and helping sustain rural communities.
    The President's fiscal year 2014 budget requests a total of about 
$4 billion for NRCS conservation programs, including approximately $3 
billion in mandatory funding and $808 million in discretionary funding. 
Although the agency will continue to face budgetary pressures, 
particularly in discretionary spending, this budget represents a 
significant investment in conservation programs and related activities.
    Secretary Tom Vilsack recently testified that, under President 
Obama's leadership, USDA has taken significant steps to strengthen 
rural America and provide a foundation for continued growth and 
prosperity. Today, I will highlight for you how USDA, through NRCS, is 
working smarter to achieve natural resource improvements by leveraging 
resources and modernizing business operations in order to reduce 
administrative overhead and complexity. USDA employees are setting a 
tremendous example in this regard, delivering record levels of service 
to their customers with fewer resources and staff.

                        RESOURCE ACCOMPLISHMENTS

    With implementation of the 2008 farm bill, NRCS and its customers 
have benefited from historic levels of technical and financial 
assistance, provided through the agency's dispersed workforce working 
one-on-one with farmers and ranchers. The agency has remained flexible, 
allowing for quick and agile responses to acute challenges, such as the 
Deepwater Horizon oil spill and 2012's historic drought. For example, 
since 2008, NRCS has:
  --Established landscape conservation initiatives in targeted areas 
        such as the Gulf of Mexico, the California Bay Delta, the 
        Everglades, and the Great Lakes. NRCS initiatives in targeted 
        areas address high-priority natural resource concerns and have 
        improved the Federal return on investments in conservation.
  --Helped producers adapt to drought conditions. In 2012 farmers and 
        ranchers experienced the worst drought since the 1950s, 
        according to the National Climatic Data Center. As the severity 
        of the drought became apparent, NRCS moved quickly with 
        partners to get technical and financial assistance to farmers 
        and ranchers. Funding was provided to plant cover crops to 
        minimize soil erosion, install livestock watering facilities, 
        and install more efficient irrigation systems to limit impacts 
        on aquifers. In fiscal year 2012 and fiscal year 2013, NRCS 
        provided nearly $44 million for drought mitigation that was 
        used to address drought issues in 22 States.
  --Instituted a Working Lands for Wildlife partnership that will allow 
        farmers and ranchers to protect threatened wildlife species 
        while ensuring continued agriculture and forestry production. 
        Working Lands for Wildlife is a new partnership between NRCS 
        and the U.S. Fish and Wildlife Service (FWS) that uses agency 
        technical expertise, combined with financial assistance from 
        the Wildlife Habitat Incentive Program, to combat the decline 
        of seven specific wildlife species whose habitat needs overlap 
        significantly with agricultural landscapes. For example, at one 
        time Longleaf pine forests covered 90 million acres in the 
        southeastern United States. Now only 3.4 million acres remain. 
        By increasing the use of management practices such as 
        prescribed grazing and forest stand improvements, forest 
        landowners can make many of these acres more functional and 
        viable.
  --Played a major role in helping Gulf Coast States and landowners 
        address water quality impacts to the Gulf of Mexico. The Gulf 
        of Mexico Initiative (GoMI) provides assistance to agricultural 
        producers in the five Gulf Coast States to improve water 
        quality, conserve water, and enhance wildlife habitat within 
        watersheds draining into the Gulf of Mexico. NRCS obligated 
        approximately $8 million in contracts and easements under the 
        initiative in fiscal year 2012 and will commit up to $30 
        million more over the next 2 years to provide conservation 
        assistance to farmers and ranchers in priority areas along 
        seven major rivers that drain to the gulf.
  --Addressed water quality issues through NRCS's Mississippi River 
        Basin Initiative. This effort builds on the past efforts of 
        producers, NRCS, partners, and other State and Federal agencies 
        in a 13-State area, in addressing nutrient loading in selected 
        small watersheds in the Mississippi River Basin. Excess 
        nutrient loading contributes to both local water quality 
        problems and the hypoxic zone in the Gulf of Mexico. In fiscal 
        year 2011 and fiscal year 2012, NRCS directed over $50 million 
        in financial assistance for this initiative.
  --Played a leadership role in emergency responses to natural 
        disasters, including the Deepwater Horizon oil spill and 
        Hurricane Sandy. Responses to these events are ongoing. Many of 
        the producers in the States affected by the oil spill are still 
        providing wintering habitat after their crops are harvested. 
        NRCS is helping private landowners and communities recover from 
        the effects of Hurricane Sandy through the Emergency Watershed 
        Protection Program.
  --Instituted a pilot program through the Environmental Quality 
        Incentive Program (EQIP) that will allow producers to comply 
        with EPA regulations by using EQIP financial assistance to 
        prevent on-farm oil spills. The Oil Spill Prevention, Control 
        and Countermeasure (SPCC) pilot is in its third year. In its 
        first 2 years (fiscal year 2011 and fiscal year 2012), it 
        provided more than $4.2 million to over 1,000 producers in nine 
        States to develop professionally prepared and certified SPCC 
        plans and provide for appropriate secondary containment of oil 
        storage facilities.

               LOOKING AHEAD--INNOVATIONS IN CONSERVATION

    Despite the recent decreases in the NRCS budget, the agency 
continues to keep pace with changes in conservation approaches and 
resource needs. Our landscape initiatives, guided by information 
gleaned from the Conservation Effects Assessment Project (CEAP), are 
just one example. Below are additional examples of how NRCS will help 
farmers and ranchers through what we call 21st century conservation.
  --CEAP, composed of a series of resource assessment efforts, has 
        enhanced our data-driven capabilities for getting targeted 
        conservation on the ground. CEAP has also helped spawn the next 
        generation of technical tools--such as the Soil Vulnerability 
        Layer and the CEAP Conservation Benefits Identifier--that will 
        take our ability to target conservation to a higher level. A 
        user-friendly version of the APEX model (the field-level model 
        powering CEAP) will help field staff and producers to 
        determine, at a glance, which suites of practices offer the 
        greatest conservation benefit.
  --In recent years NRCS has regularly heard from producers around the 
        country that they are concerned that the potential for shifting 
        regulatory requirements will make it difficult to plan their 
        business operations. One solution is to give producers 
        certainty that the rules won't change for them for a set period 
        of time, in exchange for their implementing practices proven to 
        address water quality concerns. USDA has been a staunch 
        supporter of voluntary State certainty programs. In January 
        2012, Secretary Vilsack signed a memorandum of understanding 
        with the Governor of Minnesota and the EPA Administrator, 
        announcing the establishment of Minnesota's Agricultural Water 
        Quality Certification Program. Other States are pursuing water 
        quality certainty programs, including Virginia and Maryland. 
        NRCS is also supporting the certainty approach for addressing 
        wildlife habitat issues through our Working Lands for Wildlife 
        partnership. Farmers, ranchers, and forest managers have 
        regulatory predictability and confidence that the conservation 
        investments they make on their lands today will not result in 
        regulatory penalties and that they can help sustain their 
        operations over the long term. Our partnership with the USFWS 
        provides landowners with regulatory predictability should the 
        target species be listed under the Endangered Species Act at 
        some point in the future.
  --Emerging greenhouse gas, water quality, and wildlife markets 
        present opportunities for agricultural producers to receive 
        compensation for the ecosystem services they generate from 
        certain voluntary conservation practices. NRCS is developing 
        the science and decision tools to help producers quantify the 
        environmental benefits generated by these practices.
    Researchers and programmers at the NRCS National Technology Support 
        Center (NTSC) in Portland, Oregon, are working with experts 
        from across the Department to create tools that will quantify 
        the soil carbon footprint of all agricultural activities at the 
        farm gate--from nutrient management to buffer strips. These 
        tools will be used by farmers, ranchers, and USDA field staff 
        to identify practices that result in greenhouse gas emission 
        reductions and carbon sequestration.
    To advance our ability to address water quality concerns, NTSC in 
        Portland is working with experts from across the Department to 
        develop the Nutrient Tracking Tool (NTT). NTT is a Web-based 
        application that allows a farmer to calculate the differences 
        in nitrogen, phosphorus, and sediment runoff and yields at the 
        field scale when current farming practices are compared to 
        conservation practices. This tool will be improved with 
        additional investments by NRCS in its new Edge-of-Field Water 
        Quality Monitoring program that, combined with instream 
        monitoring efforts, will allow us to more accurately measure 
        the effects of our conservation practices and strengthen our 
        APEX/CEAP modeling efforts. Taken together, these tools will 
        help NRCS better understand the benefits of Federal 
        conservation investments, while also supporting producer 
        efforts to pursue new business opportunities and help ensure 
        the integrity of environmental credits used in trading markets.
    The agency is also supporting pilot projects that help create 
        market supply for the environmental credits generated by 
        farmers and ranchers, with the goal of acclimating producers to 
        the general requirements for participation in environmental 
        markets. Special Conservation Innovation Grant (CIG) 
        opportunities used greenhouse gas projects (fiscal year 2011) 
        and water quality trading projects (fiscal year 2012). For both 
        of these efforts, NRCS established awardee networks--forums for 
        the awardees to convene regularly and share information and 
        lessons learned.
  --NRCS is working on thoroughly integrating soil health into the 
        agency's policies and programs. Partners and stakeholders, 
        recognizing the potential benefits from widespread adoption of 
        soil health management systems, benefits in productivity, 
        natural resource condition and profitability, are stepping up 
        to amplify and support our soil health effort. By focusing more 
        attention on soil health and by educating our customers and the 
        public about the positive impact healthy soils can have on 
        productivity and conservation, we can help the Nation's farmers 
        and ranchers feed the world more profitably and sustainably 
        while also helping them adapt to extreme weather events and new 
        climate patterns.
  --NRCS is comprehensively restructuring the Budget and Financial 
        Management, Property and Procurement, and Human Resources 
        functions to improve service and lower costs. The vision of the 
        future is to enable our employees to service more customers. 
        The plan includes functionally aligning the work between the 
        field and headquarters staffs and ultimately looks to 
        streamline functions, reduce redundancies and realize cost-
        savings.

                        FISCAL YEAR 2014 BUDGET

    In the fiscal year 2014 budget, we propose difficult cuts to some 
programs, but also strategic investments in other programs to maintain 
NRCS's position as the country's leading private lands conservation 
agency. We have been working for some time to modernize our business 
operations to better serve our customers in a constrained budget 
environment. Our goals are to deliver effective on-the-ground 
conservation, maintain the flexibility to address emerging resource 
issues and protect mission critical strengths including our technical 
capacity and our ability to work with local partners in addressing 
resource priorities.
    We continue to improve the condition of our natural resources, but 
more needs to be done. Through CEAP we have learned that approximately 
15 percent of the Nation's nearly 300 million acres of cultivated 
cropland needs a high level of treatment in order to reduce impacts on 
water quality, while 33 percent needs a moderate level of improvement. 
Water quality concerns resulting from the subsurface loss of nitrogen 
through natural pathways or tile drains remain a significant resource 
concern. Climate change and extreme weather call for better adaptation 
strategies for producers.
    We must find ways to maintain strong ties to local experts who can 
provide valuable insight into local and regional resource concerns. We 
also need to maintain investments in the agency's technical strengths 
that have supported NRCS's operations for over 75 years and--more 
importantly--that are critical to solving ongoing and emerging 
conservation challenges. Our technical products and services benefit 
local economies and are necessary to maintain a viable agriculture 
sector. They are increasingly used by other sectors of the economy as 
well. These products include: the National Resources Inventory (NRI), a 
widely respected source for natural resource conditions and trends in 
the United States; the National Soils Information System, which 
provides practical applications of soils data for many audiences and is 
delivered to more than 12,000 individual customers per day; and the 
Snow Survey and Water Supply Forecasts which provide reliable, accurate 
and timely forecasts of surface water supply to water managers and 
water users in the West. NRCS's water supply data are more important 
than ever in this time of highly variable precipitation and changing 
climate patterns.
    These services will become more valuable as we seek to address 
sustainable food production for the world's growing population. In 
addition to these information resources, our most essential technical 
assistance component is our capable technical field staff who help our 
farmers, ranchers, and nonindustrial private forest land owners at the 
field level. It is in the field where we are going to address the 
natural resource challenges now and into the future.

                               CONCLUSION

    The President's budget enables NRCS to continue fulfilling its 
historic commitment to providing assistance to farmers, ranchers and 
forest landowners. We will continue to work to find solutions that 
allow us to provide efficient, effective service to all our customers. 
This budget provides the resources needed to equip NRCS to confront new 
challenges such as climate change, manage conservation activities while 
maximizing food production, and reduce loss of open space. As we 
explore new opportunities for protecting our environment while creating 
wealth in rural communities, our conservation efforts will continue to 
make a real difference in the health and prosperity of the Nation. NRCS 
employees have stepped up time and time again to manage key programs in 
an effective manner and we will continue to do so.
    I thank members of the subcommittee for the opportunity to appear, 
and would be happy to respond to any questions.

    Senator Pryor. Thank you.
    Ms. Vetter.

                  SUMMARY STATEMENT OF DARCI L. VETTER

    Ms. Vetter. Good morning, Mr. Chairman and Ranking Member 
Blunt. I'm pleased to be with you today. The Farm and Foreign 
Agricultural Services (FFAS) mission area has reviewed our 
programs and developed budget proposals for 2014 that 
streamline agency operations, improve efficiency, and reduce 
our administrative costs.
    Turning first to the Farm Service Agency, or FSA, our total 
request from appropriated resources is $1.6 billion, which 
reflects a modest increase of $83 million from the 2013 level 
enacted after sequester and rescission are factored in, but a 
$179 million decrease from our 2012 enacted level.
    As you know, FSA provides producers with a broad range of 
services, from disaster assistance and income support payments, 
the conservation reserve program, and our loan programs to 
farming families, and the 2014 budget proposes a total program 
level of about $5.6 billion, an increase of $1 billion from the 
2013 enacted level.
    For the 2012 crop year, the Risk Management Agency (RMA) 
provided a record $117 billion in crop protection on a record 
282 million acres of farmland. Due to widespread drought, 
hurricanes, and other natural disasters, RMA paid out insurance 
indemnities in excess of $17 billion to producers. But our 
current projections for the 2013 crop year are that total crop 
protection will decline to about $82 billion, largely as a 
result of lower commodity prices.
    For the Foreign Agricultural Service, we are of course the 
lead agency for the Department's international trade activities 
and are at the forefront of efforts to expand overseas markets 
and to foster global food security. Our 2014 budget is designed 
to ensure that FAS has the resources needed to continue these 
activities globally.
    For FAS trade expansion and promotion programs, the budget 
includes $200 million for the Market Access Program. Our other 
trade programs are subject to reauthorization and their 
appropriation levels will be set in the next farm bill.
    For the international food assistance programs, the budget 
includes discretionary funding of $185 million for McGovern-
Dole and mandatory funding of $255 million for Food for 
Progress. For Public Law 480, or title II, no funding is 
requested as part of the USDA budget, a decrease of $1.4 
billion from the 2013 level. Rather, the budget seeks to reform 
our largest food assistance program by providing $1.47 billion 
into the accounts of USAID. The goal here is to make our food 
assistance more efficient by moving away from strictly U.S. 
commodity assistance and including other options, such as local 
and regional procurement and cash vouchers. However, the 
proposal requires that at least 55 percent of the International 
Disaster Assistance funding be used for the purchase and 
transport of U.S. agricultural commodities.

                           PREPARED STATEMENT

    Mr. Chairman, thank you for the opportunity to be with you 
today. I look forward to your questions.
    [The statement follows:]

                 Prepared Statement of Darci L. Vetter

                 FARM AND FOREIGN AGRICULTURAL SERVICES

    Mr. Chairman and distinguished members of the subcommittee, I 
appreciate the opportunity to appear before you today to present the 
2014 budget and program proposals for the Farm and Foreign Agricultural 
Services (FFAS) mission area of the Department of Agriculture (USDA).
    My statement will summarize FFAS agencies' budget and program 
proposals, after which I will be pleased to respond to your questions.
    Mr. Chairman, the FFAS mission area carries out a diverse array of 
programs and services that support a competitive agricultural system 
and provide the foundation for prosperity throughout rural America. 
Price and income support, farm credit assistance, conservation and 
environmental incentives, risk management tools, and trade expansion 
and export promotion provide a critical safety net for our producers 
and have spurred record exports. The importance of this safety net has 
been apparent particularly during the 2012 drought, the worst since the 
1930s.
    The 2014 budget reflects a number of legislative proposals that 
would reduce the deficit by $38 billion over 10 years compared to 
current baseline spending. Several of these proposals affect the 
programs of this mission area, and lower the deficit while maintaining 
a strong safety net for American agriculture. The savings would result, 
in part, from eliminating direct farm payments, decreasing payments to 
crop insurance companies and premium subsidies to producers, and 
capping the Conservation Reserve Program (CRP) at 25 million acres. The 
budget also proposes to extend some disaster assistance programs for 
the 2014 through 2018 crops and provides additional assistance to dairy 
farmers through expansion of the dairy gross margin insurance program.
    Also reflected in the budget is the Department's Blueprint for 
Stronger Service. Since 2009, USDA has undertaken historic measures to 
save more than $700 million in taxpayer funds through the streamlining 
and modernization of management and operations. These improvements have 
allowed the Department to strengthen its mission of building a stronger 
middle class and economy in rural America and to continue the success 
of American agriculture. The Blueprint for Stronger Service takes a 
realistic view of the needs of American agriculture in a challenging 
budget climate, and outlines USDA's plans to renew and accelerate the 
delivery of services and enhance the customer experience through the 
use of up-to-date technologies and business solutions. Ultimately, 
these improvements will help producers and rural businesses drive 
America's economy and respond to 21st century challenges.
    Today, American agriculture is strong, with record income and 
exports over the past 4 years. During that period, our mission area has 
worked hard to do more with less, to manage current and future budget 
challenges, and to ensure that critical investments in rural America 
continue. Specifically, FFAS has taken a variety of steps to cut costs 
and improve services, including:
  --Saved $4 billion over 10 years with the negotiation by Risk 
        Management Agency (RMA) of a new standard reinsurance agreement 
        for the Federal Crop Insurance Program;
  --Cut travel, printing and supplies budgets;
  --Cut burdensome paperwork for farmers and administrative costs for 
        RMA and FSA condensing 70 common dates down to 15 for reporting 
        acreage and crop data;
  --Consolidated 125 service centers in compliance with the 2008 farm 
        bill while improving high quality service from the remaining 
        2,100 plus offices;
  --Closed two overseas locations while strengthening trade policy, 
        trade promotion, and capacity building efforts in 96 
        international locations; and
  --Implemented employee buy-out and early-out authorities. All three 
        agencies are operating with fewer staff. Staffing levels in 
        Farm Service Agency (FSA) have declined 32 percent since 2003; 
        and, during the past decade RMA staff years declined by nearly 
        8 percent, while the value of insurance protection has more 
        than tripled.

                          FARM SERVICE AGENCY

    FSA provides producers with a broad range of helpful services, such 
as farm ownership and operating loans, disaster assistance, income 
support payments, commodity marketing assistance loans, and certain 
conservation programs, such as the CRP. FSA administers discretionary 
programs as well as mandatory programs that are funded through the 
Commodity Credit Corporation (CCC).
Salaries and Expenses
    The 2014 budget requests $1.49 billion for salaries and expenses 
from appropriated sources, including credit reform transfers. This 
level is adequate to maintain a staffing level of 4,436 Federal staff 
years and 7,980 non-Federal staff years.
    We are grateful for the subcommittee's support for FSA's efforts to 
upgrade its aging information technology. FSA continues to implement 
paperless, Web-based services and more streamlined business 
applications for more timely, more accurate, and more reliable service 
to farmers and ranchers. This year, FSA expects to reach its target of 
76 percent of FSA programs with Web-enabled applications and plans to 
boost this to 88 percent in 2014.
    The 2014 budget also recommends $65.5 million in funding for the 
continued development and operation of MIDAS (Modernize and Innovate 
the Delivery of Agricultural Systems). In 2012, FSA developed the first 
version of MIDAS and began testing the system to prepare for 
implementation. The first version of the MIDAS system was released in 
April 2013 and provides farm records, customer data, and acreage 
reporting with GIS mapping capability. For the first time, FSA staff 
now has access to this data through a single operating system, 
eliminating the need for staff to re-enter data because the systems 
were not interlinked. This change alone will speed the application 
process, reduce input errors, and improve program compliance and 
integrity.

Commodity Credit Corporation
    The farm commodity price and income support programs are financed 
through the CCC, a Government corporation for which FSA provides 
operating personnel. CCC also provides funding for conservation 
programs, including CRP and certain programs administered by the 
Natural Resources Conservation Service. CCC also funds some export 
promotion and foreign food aid activities administered by FAS. The 
commodity programs were mandated by provisions of the 2008 farm bill. 
The American Taxpayer Relief Act of 2012 (ATRA) extended the authority 
to operate some farm bill programs through 2013.
    Under provisions of current law, CCC outlays are projected to be 
$10.1 billion in 2013 and $9.1 billion in 2014, down from the record 
high of $32.3 billion in 2000. The reductions since 2000 are due 
primarily to reduced commodity program outlays, reflecting higher 
prices for most commodities. Commodity prices are expected to remain 
relatively robust into 2014 resulting from strong exports and demand 
for production of bio-based products and bio-energy. The increase in 
CCC outlays from 2012 to 2013 reflects 2008 farm bill changes which 
eliminated the option for producers to receive advance direct payments. 
This shifted some direct payments that would have been paid in 2012 
into 2013.

Conservation Reserve Program
    CRP is a voluntary program that provides annual rental payments and 
cost-share assistance to agricultural producers in return for 
establishing long-term plant cover on highly erodible and other 
environmentally sensitive farmland. CRP assists farm owners and 
operators to conserve and improve soil, water, air, and wildlife 
resources. Since CRP began in 1985, over 8 billion tons of soil has 
been prevented from eroding, with an estimated 308 million tons in 2012 
alone. Approximately 200,000 stream miles are protected with CRP 
riparian and grass buffers.
    Twenty-seven million acres were enrolled in CRP as of March 2013. 
In 2012, FSA held a general sign-up, accepting 3.9 million acres while 
contracts expired on 6.5 million acres. The American Taxpayer Relief 
Act of 2012, provided USDA the authority to enroll new acres in CRP 
through 2013. Contracts on 3.3 million acres will expire at the end of 
2013; however, USDA will hold a general sign-up from May 20 to June 14, 
2013. FSA also offers ``continuous'' signup, which now makes up about 
20 percent of total CRP acreage. The budget baseline projects CRP 
enrollment will end at about 27.6 million acres for 2014.

Farm Loan Programs
    FSA plays a critical role for our Nation's agricultural producers 
by providing a variety of direct loans and loan guarantees to farm 
families who would otherwise be unable to obtain the credit they need 
to continue their farming operations. By law, a substantial portion of 
the direct and guaranteed loan funds are reserved each year to assist 
beginning, limited resource, and socially disadvantaged farmers and 
ranchers. In 2012, 66 percent of direct loan funds went to beginning 
farmers. To further assist small and socially disadvantaged farmers, 
FSA recently implemented a streamlined microloan program, under the 
authorities of the direct operating loan program.
    The 2014 budget proposes a total program level of about $5.6 
billion. Of this total, over $1.9 billion is requested for direct loans 
and about $3.7 billion for guaranteed loans offered in cooperation with 
private lenders. These levels reflect credit usage forecasts at the 
time the budget was developed. Due to the excellent performance of the 
farm loans portfolio, we will be able to provide this level of 
assistance with just $92 million in budget authority. With this 
funding, we will be able to serve about 34,000 farmers and ranchers.

                         RISK MANAGEMENT AGENCY

    The Federal crop insurance program represents the primary risk-
mitigation tool available to our Nation's agricultural producers. It 
provides risk management tools that are market driven and reflect the 
diversity of the agricultural sector; including specialty crops, 
organic agriculture, forage and rangeland, as well as traditional row 
crops.
    Over its 75-year history, the value of the Federal crop insurance 
program to American agriculture has grown. In 2012, the crop insurance 
program provided coverage on more than 282 million acres of farm and 
ranch land and protected nearly $117 billion of agricultural 
production. This represents a 10-fold increase from the $11 billion in 
crop insurance protection provided just two decades ago. We currently 
project that indemnity payments to producers on their 2012 crops will 
be about $17 billion on a premium volume of about $11 billion. Our 
current projection for the 2013 crop year shows the value of protection 
will decline, to about $82 billion. The decline is based on the 
Department's November 2012 estimates of planted acreage and expected 
changes in market prices for the major agricultural crops.
    The 2014 budget requests an appropriation of ``such sums as are 
necessary'' as mandatory spending for all costs associated with the 
program, except for Federal salaries and expenses. This level of 
funding will provide the necessary resources to meet program expenses 
at whatever level of coverage producers choose to purchase. For 
salaries and expenses of the RMA, $71 million in discretionary spending 
is proposed to support 455 employees. Compared to 2010's $80 million 
appropriation that supported 528 employees, it is a reduction of nearly 
11 percent and about 14 percent, respectively.

                      FOREIGN AGRICULTURAL SERVICE

    Agricultural trade significantly contributes to the prosperity of 
local and regional economies across rural America through increased 
sales and higher commodity prices. USDA estimates that every $1 billion 
of agricultural exports generates $1.3 billion in economic activity and 
supports 6,800 American jobs throughout the economy. The Department, 
with the FFAS mission area in the lead, plays an important role to 
remove agricultural trade barriers, develop new markets, and enhance 
the competitive position of U.S. agriculture in the world marketplace.
    U.S. farm exports reached $135.8 billion in fiscal year 2012, the 
second highest total on record, and the agricultural trade surplus 
reached $32.4 billion. The fiscal year 2013 forecast for U.S. 
agricultural exports was recently revised to $142 billion--the highest 
total on record. In 2013, agricultural exports are expected to 
contribute a positive trade balance of $29.5 billion to the Nation's 
economy. For U.S. agriculture to continue to thrive, we must continue 
to open, expand, and maintain access to foreign markets, where 95 
percent of the world's consumers live.
    Fiscal years 2009 through 2012 represent the strongest 4 years in 
history for agricultural trade. To achieve this, USDA worked with the 
Office of the U.S. Trade Representative, the Department of Commerce, 
the White House, Congress and industry stakeholders to gain approval 
for new trade agreements with Panama, Columbia, and South Korea. These 
agreements will result in an estimated $2.3 billion in additional 
agricultural trade each year and support nearly 20,000 domestic jobs. 
Since 2009, the United States has also entered into free trade 
agreements with Jordan, Oman and Peru; and an organic equivalency 
agreement with the European Union. This progress will be continued 
under President Obama's National Export Initiative, which has set a 
goal to double U.S. exports by the end of 2014.
    Today, Foreign Agricultural Service (FAS) trade negotiators are 
involved in two major negotiations: the Trans-Pacific Partnership (TPP) 
and the Transatlantic Trade and Investment Partnership (TTIP). The TPP 
is an opportunity to shape a high-standard trade agreement in a region 
that represents more than 40 percent of global trade. Key objectives in 
the TTIP negotiations are to eliminate duties on agricultural goods and 
eliminate or reduce trade distorting non-tariff barriers between the 
United States and the European Union (EU), currently our fifth largest 
agricultural export market. Expanding markets abroad creates more jobs 
and boosts the bottom line for companies all along the supply chain.
    As we work to open new and maintain existing markets overseas, we 
face many challenges and barriers that must be addressed. In the past 
year, FAS and has been instrumental in resolving numerous sanitary, 
phytosanitary and technical barriers to trade. USDA efforts to remove 
trade barriers led to billions of dollars in additional U.S. exports 
around the world in fiscal year 2012. We've expanded beef market access 
with Japan, Mexico, and Hong Kong. We've removed barriers in the Korean 
market to U.S. cherries--U.S. cherry exports to Korea for the 2012 
season totaled nearly $74 million, compared to $39 million in the 
previous year. We have also participated in negotiations with the 
European Union that resulted in the elimination of its ban on the use 
of lactic acid as a pathogen reduction treatment on beef and 
discussions that led authorities in Taiwan to adopt and implement a 
maximum residue limit for ractopamine in beef. Monthly shipments of 
U.S. beef to Taiwan more than doubled from $2 million to $5 million per 
month and remain at record levels.
    The FFAS mission area also makes a significant contribution to the 
Department's strategic goal of enhancing global food security. Through 
foreign food assistance, technical assistance, training, and capacity 
building activities, we are working closely with other U.S. departments 
and agencies to address global food insecurity. USDA is well positioned 
to encourage the adoption of new technologies and production practices 
that can help increase the availability of food and improve its 
marketing and distribution.

Salaries and Expenses
    FAS is the lead agency for the Department's international 
activities and is in the forefront of our efforts to expand and 
preserve overseas markets and foster global food security. FAS carries 
out its activities through a network of 96 overseas offices and its 
headquarters staff here in Washington. FAS overseas staff represents 
American agricultural interests world-wide.
    The 2014 budget is designed to ensure that FAS has the resources 
needed to continue to represent and advocate on behalf of American 
agriculture on a global basis and to create new market opportunities 
overseas. The budget provides a program level of $185 million. This 
level of funding is expected to be sufficient to maintain the agency's 
overseas presence at current levels. The budget reflects ongoing cost 
avoidance in headquarters through the continuation of a hiring freeze 
and further reductions to travel and training.
    In 2012, under the Blueprint for Stronger Service, FAS closed two 
overseas offices. The 2014 budget provides an increase of $1.5 million 
for higher operating costs at the agency's overseas posts, including 
increased payments to the State Department for administrative and 
security services provided at overseas posts. FAS has no administrative 
staff overseas and, therefore, relies on the State Department for those 
services.

International Food Assistance
    For the McGovern-Dole International Food for Education and Child 
Nutrition Program, the 2014 budget provides funding of $185 million. 
The requested level is expected to assist as many as 4.3 million women 
and children during 2014. About 34 million children throughout the 
world have now received benefits from the McGovern-Dole program and its 
predecessor, the Global Food for Education Initiative.
    The 2014 budget proposes to replace $1.47 billion in funding for 
Public Law 480 title II food assistance with an equivalent amount in 
U.S. Agency for International Development 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, with the goal of making food aid more 
timely and cost-effective. The reform will improve program efficiencies 
and performance by shifting resources to programs that will allow 
greater ability to use the right tool at the right time for responding 
to emergencies and chronic food insecurity. The tools include 
interventions such as local and regional purchase, cash vouchers and 
transfers, and cash for work programs. As part of the reform proposal, 
appropriations language is included requiring that at least 55 percent 
of the requested fiscal year 2014 IDA emergency food aid funding be 
used for the purchase and transport of U.S. agricultural commodities.
    Food assistance will also be provided through the Food for Progress 
program that FAS administers. The 2014 budget includes an estimated 
program level of $255 million for this CCC-funded program, which 
supports the adoption of free enterprise reforms in the agricultural 
economies of developing countries.

Export Promotion and Market Development Activities
    The CCC export credit guarantee programs (GSM-102 and Facilities 
Guarantee) provide payment guarantees for the commercial financing of 
U.S. agricultural exports. The guarantees facilitate sales to buyers in 
countries where credit is necessary to maintain or increase U.S. sales. 
For 2014, the budget includes a program level of $5.5 billion for the 
CCC export credit guarantee programs.
    For the foreign market development programs, the budget includes a 
program level of $200 million for the Market Access Program. The 
remaining programs, including the Emerging Markets Program, Foreign 
Market Development Program, and Technical Assistance for Specialty 
Crops Program are subject to reauthorization and funding levels are 
expected to be established in the next farm bill.
    Mr. Chairman, this concludes my statement. Thank you for the 
opportunity to present our 2014 budget and program proposals. I would 
be pleased to answer any questions you and other members of the 
subcommittee may have.

    Senator Pryor. Thank you.
    Let me, if I may, start with you, Ms. Vetter.
    Senator Blunt. Does Mr. Young have a statement?
    Senator Pryor. Mr. Young, you don't have a statement, 
right?
    Mr. Young. Right.
    Senator Pryor. Senator Blunt just wanted to make sure you 
didn't want to speak your piece before we got under way here.

                             TRADE BARRIERS

    Ms. Vetter, let me ask you, if I may. As you know, you're 
well aware U.S. agricultural exports are at record levels, and 
that's great news. That's great news for the country, it's 
great news for rural America, great news for our farmers. The 
question is, what are the biggest challenges we face to ensure 
the competitiveness of U.S. agricultural products as we go 
forward?
    Ms. Vetter. Thank you, Mr. Chairman. We face, frankly, a 
variety of trade barriers, but as global trade liberalization 
has advanced those tend to be less on the tariff side and 
instead tend to be more on sanitary and phytosanitary, or SPS, 
barriers to our products. In particular, we've seen a number of 
challenges to the export of our meat and poultry products over 
the years and are particularly focused now on key barriers with 
Russia and China, two of our largest markets and with great 
expansion potential.
    Specifically, we're looking at barriers that have been 
imposed on the use of the veterinary drug ractopamine. We 
continue to push other governments to adopt the international 
standard for that and we'll continue to do so and to work 
closely with industry on ways that we may reopen the Russian 
market in particular.
    We have seen some real progress on the bovine spongiform 
encephalopathy (BSE) front, where a number of markets have 
remained closed or partially closed to U.S. beef and beef 
products. Hong Kong did significant market opening earlier this 
year. Japan is now accepting our beef products under 30 months 
of age, and we continue discussions with Mexico as well, who 
has opened to all of our products under 30 months at this time.
    Senator Pryor. Thank you.

                             ELECTRIC LOANS

    Mr. O'Brien, let me move to you if I can. Your budget 
proposes significant restrictions on the ability for rural 
electric cooperatives to use the electric loan program for 
fossil fuel-related activities. I hear a lot of concern from 
the Arkansas electric coops, and my guess is you hear that from 
around the various States, because as it turns out the 
cooperatives tend to use a lot of fossil fuels in electricity 
generation.
    So approximately--tell us how your proposal would change 
things and give us a sense of how much of your loan program 
this year will be used to support renewable fuel activities 
versus more traditional activities?
    Mr. O'Brien. Thank you for that question, chairman. You're 
right, this is certainly something we've heard from a number of 
cooperatives across the country. The proposal I think 
recognizes the need to incentivize a change within the energy 
mix for rural America. We have seen this year--we're working on 
an 80-megawatt loan right now that does envision using 
renewable energy, and we're working with industry and with the 
coops on cultivating some other loans.
    The proposal itself would utilize a $3 billion program 
level for projects that would utilize renewable energy. The 
proposal also envisions up to $1 billion of financing for 
environmental upgrades for fossil fuel, fossil fuel plants.
    Senator Pryor. So give me those numbers again?
    Mr. O'Brien. It's $3 billion for projects that utilize 
renewable energy, program level of course, and then $1 
billion--and that's a floor. I should make that clear. It is a 
little bit confusing. The $3 billion is a floor. If we have 
greater demand than that, we can utilize the total $4 billion 
program level.
    The $1 billion is a cap and that cap would relate to 
improvements, environmental improvements for existing plants.

                        PLANT MATERIALS CENTERS

    Senator Pryor. Ms. Mills, let me follow up. Let me ask you 
a question and then I want to turn it over to Senator Blunt. As 
you know, there are 27 Plant Materials Centers (PMCs) around 
the country. They do all kinds of different things. Of course, 
we have one in Booneville, Arkansas, which I'm kind of partial 
to, and I'm sure other members have them in their States. 
There's actually broad support for these in Congress.
    The budget request, though, has a decrease of nearly $1 
million for these PMCs. Is USDA planning to close or 
consolidate any of those centers?
    Ms. Mills. Thank you, Mr. Chair. I agree with you that 
these Plant Materials Centers are really important to helping 
support the mission of NRCS in testing and providing important 
vegetative and other plants to adapt to changing climate. What 
has happened since 2011 is we've seen a 22-percent cut in the 
Plant Material Center budgets. So right now we are going 
through a process of considering how we're going to absorb 
those cuts. We are doing that very carefully, with an 
underlying commitment to making certain that we can continue to 
service all regions of the country as we go forward.
    We're in those beginning stages of making those 
determinations, but we'd be very happy to work with you and 
other members of the subcommittee as those decisions are being 
made.
    Senator Pryor. That would be great. But right now, are you 
saying there's no plans to close those or you don't know yet?
    Ms. Mills. We don't know yet. We're still going through a 
deliberative process at this point. But we are committed to 
ensuring that, whatever path we go down, we are going to 
continue to ensure that our plant material service centers are 
going to be able to service those regions and those communities 
that depend on them.
    Senator Pryor. Senator Blunt.

                           WATERSHED PROJECTS

    Senator Blunt. Thank you, chairman.
    Secretary Mills, on the Watershed Protection and Flood 
Prevention Act there's a program, Public Law 566, that we 
haven't funded in 3 years and there's no funding here for that 
program, though I know there are at least two Missouri projects 
and I assume a few others that are in the middle of getting 
done what they wanted to get done and had anticipated that this 
would be available.
    Do you see any future for this program?
    Ms. Mills. Ranking Member Blunt, yes, actually I'm familiar 
with those two projects and some of the other projects that 
have been in the process of being developed. I know that NRCS 
helped in the early stages to develop plans for the two 
projects.
    Unfortunately, as you mentioned, the program has not been 
funded. So that creates one of those challenges that we're 
facing with this program and other programs--very tough budget 
challenges we're facing in the tough decisions we have to make. 
That said, we would be happy to come up and visit with you to 
talk about these projects if you would like.
    Senator Blunt. Well, that would be helpful. I think--and 
Mr. Young, you might know this, or Ms. Mills, you might. Did we 
put money in the Senate bill last year for these programs and 
then you had to use it because of the overall cut? I think it 
was in the Senate bill. I don't know if it was in the final 
bill.
    Ms. Mills. Mr. Young may be aware of that. I would defer to 
him, or we could certainly get back to you.
    Senator Blunt. There was a little money in the conference 
report that we approved, but I think that account has been 
decided you needed that money worse in other places.
    Mr. Young. Well, yes, sir. Actually, Mr. Blunt, it was 
included within the rural development area.
    Senator Blunt. Right.
    Mr. Young. And I believe that the funding level, the 
program level, was $40 million.
    Senator Blunt. $40 million. But it's no longer--it had to 
be used for some other purpose, or is it still there?
    Mr. Young. It's still there.
    Mr. O'Brien. Actually, it is still there and we are working 
with some applicants right now, and we'd be happy to discuss 
sort of where we are in the process and discuss with your staff 
or with you.
    Senator Blunt. That would be great, and I'd be very 
interested about whether those applicants would be people that 
already you've worked with before, that are well on the way. 
Approving a new project here, a brand new project, I don't 
think would be the right thing to do, and that's not just--
because there are a handful of these that really, some of them 
have had local levies, local votes to provide the local money. 
Really, I'd like to talk about that.

                          CENTER OF EXCELLENCE

    Mr. O'Brien, the big service center for your system is in 
St. Louis. I think I was out there with the Secretary not too--
a couple of years ago when that was expanded. You're working to 
make that a center for excellence, as I understand it?
    Mr. O'Brien. The centralized service center in St. Louis, 
as you say, it's basically our back office. It's our operation 
that maintains the integrity primarily of that $185 billion 
portfolio that you mentioned. We do see that as a great asset 
for the Federal Government and we do envision that it could do 
more for the Federal Government.
    In this year, because of the reduction in staff we've 
really focused on making sure that the operations at CSC are 
responding to our burgeoning portfolio and particularly the 
single family guaranteed loan program, and we do look forward 
to continuing to examine the possibilities. It is a resource 
question where we feel like we really need to make sure that we 
have a very good handle on the current responsibilities we have 
to protect the integrity of the portfolio and look from there.
    Senator Blunt. And your view is that you could use that 
facility and the structure you have in place there for other 
loan service in the Federal Government beyond Rural 
Development?
    Mr. O'Brien. We think that there's some opportunity there. 
As you very well know, there are different operations in 
locations that the Federal Government, that USDA uses. For 
instance, in New Orleans there's a group that does a lot of 
back office work for different agencies even outside of USDA. 
We think that we could, with the right resources, we could have 
the expertise and capacity to service other parts of the 
Federal Government. But at this point we're really focused on 
sort of making sure that we can take care of the big portfolio 
that's coming through.

                           TRADE DISCUSSIONS

    Senator Blunt. Ms. Vetter, in the trade discussions that 
are out there, what do you think are going to be the biggest 
challenges for agriculture in those discussions? What you 
mentioned earlier, the nontariff barriers or the standards?
    Ms. Vetter. Those of course will be at the top of the list, 
although the market access discussion and making sure that we 
get good access for the full range of U.S. agriculture products 
will be challenging. But we note that both in the Trans-Pacific 
Partnership negotiations and in our negotiations that we are 
launching with the European Union (EU) there is a commitment to 
making these a comprehensive agreement.
    I think for the Trans-Pacific Partnership we are in fact 
putting more emphasis on regulatory matters and making sure 
that our partners in that agreement maintain a high degree of 
transparency and meet their international commitments in 
acceptance of our products on that level. I would note that in 
this agreement, the countries that have signed on have again 
committed themselves to a comprehensive structure. Part of the 
reason it's so important that we engage in the Trans-Pacific 
Partnership is that there are a number of other sort of trade 
agreements of convenience throughout that region where 
countries have sort of left out hard areas like agriculture. So 
getting a number of the countries in that very dynamic region 
to sign onto comprehensive talks, I think, is important in and 
of itself.
    In the European Union (EU), I know you're aware that we 
face a number of nontariff barriers, particularly in 
biotechnology and in beef hormones, other areas, that really 
restrict or have restricted our growth in trade. We're going to 
have to find a way to look at how we normalize trade in those 
areas under this agreement. Frankly, I don't expect that we 
will change the EU's whole approach to regulation, but I think 
we can take a hard look at how they apply those measures and 
find a way that makes their trading environment a lot more 
predictable and open to U.S. products.

                       RACTOPAMINE TRADE BARRIER

    Senator Blunt. You mentioned with ractopamine that our view 
is that both China and Russia are not looking at the 
international standard, which we meet?
    Ms. Vetter. That's right. Russia has in fact restricted our 
trade or stopped our trade in our meat and turkey products 
based on ractopamine. We continue to push at the Government 
level and note with them that we think in fact those measures 
are inconsistent with their international trade obligations. We 
are also working with our beef and pork industries to look at a 
ractopamine-free program that those in the industry who could 
meet--that could use to access the Russian market. But we will 
not stop pushing them for a removal of the barrier.
    China on March 1 imposed new restrictions that require a 
testing result to be sent to China showing the lack of 
ractopamine in product. But they have not asked for U.S. 
Government assistance or assurance in this product and we don't 
actually see it affecting trade at this time. But we continue 
to consult with China about the safety of ractopamine and 
encourage them to apply the international standard.
    Senator Blunt. I know you're very familiar with it. Am I 
right in remembering that, Taiwan, have they decided that 
ractopamine in beef products is acceptable, but not yet in pork 
products? And what could the rationale for that be?
    Ms. Vetter. Well, you are correct that we're pleased that, 
after the Codex adopted that international standard for 
ractopamine this summer, Taiwan did move forward and implement 
that standard for beef, but not for pork. Frankly, that's 
largely due to political difficulties with their own pork 
industry. We continue to push them to adopt that standard for 
pork as well and provide them with a lot of safety information 
to provide greater assurance about the safety of our products. 
But it's a difficult issue for them, and we will continue 
pushing them to resolve it.
    At the Trade and Investment Framework Agreement, the TIFA 
agreement we have with Taiwan, this was a key agenda item for 
the United States that we raised with them, and we'll continue 
to do so.

              CHINA POLICY ON DEHYDRATED POULTRY PRODUCTS

    Senator Blunt. On one specific instance that I think we 
told you yesterday I was going to ask about, there's a company 
in Springfield, Missouri, International Dehydrated Foods, that 
we tried to help, because last year China changed its policy on 
importing dehydrated poultry products, in the case of this 
company after they already had product en route, and it just 
sat there for quite a while.
    Particularly in the poultry industry, where Senator Pryor 
and I live, the ability to send some of that product out of the 
country and even in a dehydrated fashion really matters. I 
think we wrote you a letter, we wrote a letter, or you wrote a 
letter to Ambassador Locke about this issue in October 2012. I 
haven't seen a response to that letter from the Ambassador to 
you, and I hope you're continuing to try to resolve this 
favorably.
    My guess is that the product went somewhere and may or may 
not have been destroyed, but I do know that the company lost 
the value and the control of the product. Do you have any new 
information on that?
    Ms. Vetter. At this point I do not. I was in China in March 
and our Minister-Counselor in Beijing, Scott Sindelar, briefed 
me on this problem. He had had some recent discussions and had 
raised this issue with Chinese officials. I think we are 
frankly trying to ascertain why the change in policy occurred 
with China and to try to figure out exactly what their food 
safety concerns might be with that product and provide them 
with the information to resolve that.
    That has been a bit more difficult than I think we thought 
might be the case, but we continue to work on it. It is a 
priority and we will keep you and your team updated on our 
progress on this issue.
    Senator Blunt. I think where you have trading partners that 
change the rules after things have been shipped and then 
wouldn't even let this be shipped back--it was there and it sat 
there until it lost value--is a problem.
    Chairman, I have a couple of other questions, but go ahead 
if you have some more.
    Senator Pryor. Thank you.

                 RURAL BUSINESS AND COOPERATIVE GRANTS

    Mr. O'Brien, let me start with you if I may. In the world 
of economic development, your budget proposes consolidating 
five programs into one. Let me say I have some concerns about 
that. So let me ask kind of a two-part question. First, this is 
a new program, new approach, and wouldn't it be better to have 
that authorized in the farm bill? That would be my first 
question. Since that's on the floor this week, it makes sense 
to do that.
    My second question would be: If this does occur, how do you 
ensure that these disparate needs, because these five existing 
programs are pretty different and serve different needs out 
there, how do you ensure that all those needs get met in this 
one big program?
    Mr. O'Brien. Mr. Chairman, thank you for that question. 
Certainly there are a number of very important considerations 
and needs that these grant programs serve. In fact, just 
earlier this week I had an opportunity to spend a couple days 
in northwest Arkansas, and I saw some of the fruits of these 
grants. We utilize a number of these grants within the Strike 
Force arena in Arkansas in partnership with Heifer in a great 
farmers market project in Newport.
    To get right to your questions, certainly the authorizers 
are considering some similar strategies to consolidate and 
streamline the grant programs. Actually, it is in the 
underlying bill that's being considered right now, some of 
these ideas.
    I think the reason why we thought it was appropriate within 
the fiscal year 2014 budget is that the way we envisioned this 
approach is that it would utilize current authorities. There's 
no new authorities. We'd simply consolidate and streamline the 
authorities into one grant program, for two very simple 
reasons. One is to streamline. We have five different grants, 
five different application periods, five different basically 
work flows that our State and national staff need to work 
through.
    I think to your most important question, how do we assure 
that the different areas and the different needs are met, we 
think that with the proper discretion that we'd be able to 
craft a program that could continue to focus the grants on 
those in most need, to make sure to serve the cooperative 
community, and we'd be able to do that through prioritization 
and making sure we make clear that the different entities are 
eligible for the program.
    Senator Pryor. I'd like to just follow up on that after the 
hearing at some point, because all that's important. I just 
have concerns there.

                        WATER AND WASTE PROGRAM

    Let me also stay with you, Mr. O'Brien, if I can. I want to 
talk to you about the USDA's water and waste loan/grant 
programs. As you know, these are very popular, heavily utilized 
programs. To me, what I'm seeing in the administration's 
proposal, it kind of falls into the category of those who need 
it the most can afford it the least.
    So when I look at your numbers I see that the budget cuts 
the grant level by about $110 million, while the loan level is 
increased by about $275 million.
    Mr. O'Brien. Right.
    Senator Pryor. So I guess again a two-part question here. 
What caused the administration to do such a big change in this 
popular program and what's the administration's analysis about 
how that will change the effectiveness of the program?
    Mr. O'Brien. Thank you for that question. It's a 
terrifically important program for small communities dealing 
with their water and waste water issues. To your first 
question, what caused the change, three things. One, simply the 
tough budget environment that we all find ourselves in.
    Number two, historically low interest rates make it 
possible for some small communities that otherwise with more 
traditional interest rates wouldn't be able to access some 
dollars and have a sustainable financing, that we think they'll 
be able to do it. In fact, the cohort, the lowest interest 
rates for the poorest communities, is down to about 2\1/8\ 
percent right now, so it's some nice low interest rates.
    The third thing is the subsidy score for the direct loan 
component of the water program went to zero this year, which 
means that we could grow that program level with no budget 
authority. So we grew that significantly, as you mentioned. We 
think that, given the fiscal situation we have, it is the right 
mix.
    You asked about what type of analysis. What we do know is 
that in fiscal year 2012 over 74 percent of the dollars were 
loan dollars. So the primary financing mechanism currently is 
already loan dollars. In that year 80 percent of those dollars 
went to communities of 5,000 or fewer and 55 percent went to 
communities of 1,500 or fewer. So we know from the past that 
we'll be able to continue to serve communities in the future.
    I think again it's these historically low interest rates 
that make this possible to work in 2014. In another year there 
might have to be another mix. So thank you for that question.
    Senator Pryor. Senator Blunt.

                       RENTAL ASSISTANCE PROGRAM

    Senator Blunt. Mr. O'Brien, on the rural housing rental 
assistance, what are you doing with that under the current 
budget and will there be any impact to people in that program 
between now and September 30? If you want to go beyond that, 
what impact then do we have based on what we do this year on 
next year?
    Mr. O'Brien. Right. As you know, Senator, it's an issue 
that's been highlighted by the Secretary when he was here 
before you recently. It is an area where we're very concerned 
on the impact of sequester and the rescission from the final 
fiscal year 2013 appropriations bill. There is an impact, but I 
think what I can assure you is that, to the tenants who live in 
those multifamily properties, we do not envision a negative 
impact on the tenants in the near term.
    There will be some--what we need to do with the owners of 
those properties is--and we've begun to alert people. We sent a 
letter out over 1 month ago to all the owners to let them know 
that as we work through the funds, which frankly the funds are 
not sufficient to meet all the renewals that we project this 
year--we're short maybe around $65 million--that we will work 
with those owners that we do not have the resources to do the 
renewal in a number of workout authorities that we have, such 
as deferring loan payments, extending the loan, allowing them 
to use their reserve account.
    Come about in June next month, certainly in July, we're 
going to know exactly which owners are going to be affected and 
we're going to start working with each of those to make sure 
that they can get through this fiscal year and be able to renew 
their contract and keep their properties up.
    Fiscal year 2014, the proposed number that we provided you 
in the budget was based on basically a situation before 
sequester and before the rescission. So in 2014 some of the 
numbers, basically that backlog, if you will----
    Senator Blunt. Things that don't get paid in September, 
that get paid in October?
    Mr. O'Brien. Precisely. We plan to--very early in October, 
we're going to renew those contracts, and it will cause sort of 
a cascading effect into the next fiscal year. We're working 
through exactly what that number is. We've implemented a number 
of cost-saving strategies this year, so I don't think--in fact, 
I'm sure it's not going to be that $65 million. We didn't push 
the whole $65 million into next year. It's a number somewhat 
smaller than that. And we'd be happy to work with your staff on 
exactly kind of what we know and what our best estimate is 
right now.

                             ELECTRIC LOANS

    Senator Blunt. On the rural electric coop effort that 
Senator Pryor talked to you about, can electric cooperatives 
under the proposal that the President made in this budget, 
would they be able to finance distribution or transmission 
projects?
    Mr. O'Brien. They would for those distribution projects 
that are related to a renewable energy effort. So it's a 
qualified yes, I think.
    Senator Blunt. Since 100 percent of the $4 billion could go 
to renewables, there'd be nothing for anything but renewables 
in that $4 billion?
    Mr. O'Brien. There's up to $1 billion for environmental 
upgrades.
    Senator Blunt. You said unless there was more than $3 
billion in requests on the other column.
    Mr. O'Brien. Yes. I think exactly it probably would be a 
timing question. But there is up to $1 billion allowed for 
environmental improvements, and then at least $3 billion 
allowed for projects related to renewable energy.
    Senator Blunt. Well, I don't agree with that, but we'll 
talk about that more. I think this is a big mistake for these 
cooperatives. I assume if it's a one-time mistake that they'll 
all survive and continue to do the best they can to provide 
electricity at the level that they can provide it, at the cost 
that people can afford to pay for it.
    But every time we make rules and regulations that are 
either impossible to comply with or you do have to comply and 
it's too expensive, the poorest customers are the customers 
that are most dramatically impacted by this. The people that 
get the last better windows, the last people to get the better 
windows, the last people to get the energy efficient 
refrigerator, the last person to get more insulation in the 
ceiling, they're the people impacted the most.
    When you take a program like this that's been well used--I 
mean, these cooperatives--72 percent of the geography of the 
country is served by rural electric coops. I think it's a 
mistaken policy, but we can talk about it more and look at it 
more. Putting all the eggs in a renewable basket I believe is a 
mistake.

                 EMERGENCY WATERSHED PROTECTION PROGRAM

    I had one question, Ms. Mills, on water. We use a lot of it 
in the Mississippi River. I think of the 13 States that use one 
of those projects, we would be 2 of them. Was there money 
available in any of the disaster relief that let's you use that 
program more effectively?
    Ms. Mills. Sir, we've got--certainly we've got dollars that 
are allocated for Hurricane Sandy, I believe it's $171 million 
after the rescission. We have to work our way through that 
process. In terms of whether or not there's a balance left over 
after that to repurpose, we will certainly take a hard look at 
that later.
    We have prepositioned money for EWP funds in the Upper 
Midwest and the Mississippi River Basin in the event that 
communities need relief assistance there.
    Senator Blunt. Okay.
    Ms. Mills. I'd be happy to follow up with your staff on 
this question.

                   MISSISSIPPI RIVER BASIN INITIATIVE

    Senator Blunt. Well, what about the Healthy Watershed 
Initiatives in the Mississippi River?
    Ms. Mills. Yes. The Mississippi River Basin Healthy 
Watershed Initiative (MRBI) is one of our most significant and 
very successful initiatives. The 13 States you mentioned, where 
we are using our science and our partnerships--we have roughly 
an average of nine partners per priority watershed there. In 
States like yours and Arkansas--in fact, Arkansas and Missouri 
are the two highest receiving States of MRBI dollars, and 
that's a testament to, frankly, the quality of the projects 
that are being submitted and the interest in both farmers and 
ranchers and the strong partner base there.
    So we're very excited. We're in our fourth year in the 
Mississippi River Basin Initiative and it's been extremely 
effective at putting conservation dollars on the ground in 
those watersheds, where we're going to see significant water 
quality improvement.
    Senator Blunt. Okay.
    Chairman, I may have some other questions to submit later, 
but that's what I have today.
    Senator Pryor. Thank you, Senator Blunt.
    I too have--actually, I have a long question. I'm just 
going to submit it for the record, but I'll just tell you about 
it. Basically, I know what you've gone through with 
sequestration so far and my guess is you've hit a lot of low-
hanging fruit. I mean, it hasn't been easy, but it's going to 
be easier this year than going forward.
    The question is really for each one of you, kind of in your 
subject areas, what sequestration looks like in the future 
years. So I'll ask that question in writing because that's a 
long, detailed answer. But I'd appreciate that.
    So let me just say thank you all for being here. I'm sorry 
for the hurried-up nature of the hearing today. They've called 
the vote and we're about to walk over and do that.

                     ADDITIONAL COMMITTEE QUESTIONS

    For the members of the subcommittee, any questions that 
you'd like to submit for that hearing record should be 
submitted within 1 week, which is Thursday, May 30. We would 
appreciate USDA's responses within--I'd love to say within 2 to 
3 weeks after that, but certainly within 4 weeks of that time.
    [The following questions were not asked at the hearing, but 
were submitted to the Departments for response subsequent to 
the hearing:]

                  Questions Submitted to Doug O'Brien
              Questions Submitted by Senator Mark L. Pryor

                  CHANGES TO THE ELECTRIC LOAN PROGRAM

    Question. Mr. O'Brien, this budget proposes significant 
restrictions on the ability of rural electric cooperatives to use the 
electric loan program for fossil fuel-related activities. Electric 
cooperatives in Arkansas are concerned that they would not be able to 
build electric generation with Rural Utilities Service (RUS) loan funds 
unless it is in conjunction with an intermittent renewable project.
    Will you please summarize the restrictions this proposed language 
would place on eligible program activities?
    Answer. The President's budget for fiscal year 2014 proposes a 
total of $4 billion for the principal amount of new guaranteed rural 
electric loans under section 306 of the Rural Electrification Act of 
1936 (7 U.S.C. 936). The proposal would provide $3 billion to be used 
for: (1) renewable energy projects; (2) new or existing fossil-fueled 
electric generating plants with carbon sequestration systems; or (3) 
new or existing fossil-fuel electric peaking units that operate in 
conjunction with generating plants that produce electricity from solar, 
wind, or other intermittent sources of energy. The proposal also would 
make available up to $1 billion for environmental improvements to 
fossil-fuel electric generating plants to reduce emission of air 
pollutants including greenhouse gases.
    This proposal recognizes the need to incentivize a changing energy 
mix in rural America and supports the administration's energy policy. 
The proposal would allow lending for transmission and distribution 
system investments associated with renewable generation, environmental 
improvements and eligible fossil-fuel generation projects.
    Question. Approximately how much of your loan program this year 
will be used to support renewable fuel activities? Do you expect to see 
$4 billion in demand for renewables in fiscal year 2014?
    Answer. At present we are reviewing about 100 megawatts of proposed 
new renewable electric generation projects that may go to the loan 
committee next year. We are continuing to work with electric 
cooperatives, the industry, and potential new borrowers to cultivate 
additional renewable generation loan applications for fiscal year 2014.
    Question. Isn't it true that rural electric systems rely more 
heavily on fossil fuels than urban systems do?
    Answer. Rural electric systems serve almost 75 percent of the 
Nation's land mass and are concentrated in regions that are more 
dependent on fossil-fired generation than more urbanized areas. Like 
all prudent utility systems, rural cooperative borrowers strive to 
maintain a balanced and diverse portfolio of fossil and non-fossil 
generation resources and demand side resources to meet the needs of 
their customers for safe, reliable, and affordable electricity.
    Question. This proposal concerns me, because it seems like it may 
create a regional bias against financing electricity improvements in 
States like Arkansas, where wind and solar development are not as 
feasible. I also have concerns about loans to distribution co-ops under 
this proposal. Rural Utilities Service (RUS) has a 75-year partnership 
with the co-ops and I hope that partnership continues. Without this 
partnership I expect to see the costs for these projects to rise which 
may result in higher electricity costs.
    Will you work with me and my staff to find a solution to this so we 
can hopefully avoid increased electricity costs?
    Answer. We look forward to working with you to continue to provide 
the benefits of our rural electrification loan program and other Rural 
Development programs to help keep energy affordable for rural homes and 
businesses.

                               BROADBAND

    Question. Mr. O'Brien, rural broadband providers have relied on 
access to the Universal Services Fund to be able to extend broadband 
services to remote rural areas.
    Please bring us up to date on the status of Federal Communications 
Commission changes in rural providers' access to the Universal Services 
Fund.
    Answer. We remain committed to working with the Federal 
Communications Commission (FCC) to ensure that the promise of section 
254 of the Telecommunications Act of 1996 be fully realized. 
Sufficient, predictable, and specific Universal Services Fund (USF) and 
Inter-Carrier Compensation (ICC) mechanisms can drive investment, 
improve the quality of life, create jobs, and increase economic 
opportunities in rural America. According to the FCC's Eighth Broadband 
Progress Report, nearly one-fourth of the rural population lacks access 
to high-speed broadband. Yet, demand for RUS telecommunication loan 
funds dropped to roughly 37 percent of the total amount of loan funds 
appropriated by Congress in fiscal year 2012. Current and prospective 
RUS borrowers have communicated their hesitation to increase their 
outstanding debt and move forward with planned construction due to the 
recently implemented reductions in USF support and ICC payments.
    Question. What do these changes mean in terms of the credit quality 
of your existing broadband loan portfolio and the demand for new 
broadband loans in the future?
    Answer. While the USF reforms continue to unfold, RUS is open for 
business. We want to press forward and continue the momentum of the 
American Recovery and Reinvestment Act of 2009. As a lender we will 
have to make conservative assumptions about revenue streams until the 
USF environment becomes more certain. We continue to focus our 
attention on addressing the challenges, namely cost, density, distance 
and economic hardship in delivering affordable, high-capacity bandwidth 
to the most rural and remote portions of our Nation. Expanding 
broadband connectivity, increasing capacity, and extending service to 
the millions of rural communities still lacking affordable access 
remain our primary objectives.

               WATER AND WASTE DISPOSAL LOANS AND GRANTS

    Question. Mr. O'Brien, you are aware that USDA's water and waste 
loan/grant program is one of the most popular programs in your 
portfolio. This program has a long history of successfully bringing 
clean water and sanitary waste disposal systems to remote rural 
communities. Projects are generally financed by a combination of loans 
and grants, with poorer rural communities receiving a larger grant 
share.
    However, this budget cuts the grant level by about $110 million, 
while increasing the loan level by about $275 million. As a result, 
rural communities will be forced to take on more loans to finance 
needed clean water and sanitary waste disposal projects.
    Question. Mr. O'Brien, what caused the administration to propose 
such a large change to this successful program?
    Answer. As a result of low interest rate and historically low 
levels of defaults, the direct loans can be provided at a negative 
subsidy rate and do not require a request for budget authority. The 
current low interest rates also mean that more communities can afford 
to service higher levels of debt than before, reducing the need for 
grant funds. Accordingly, grant funding is reduced by about $131 
million. Collectively, the 2014 budget provides a total program level 
of $1.5 billion. Rural Development is confident that this level of 
funding in the current interest rate environment will allow us to 
continue to serve small and economically challenged rural communities 
near historical levels.
    Question. Can you describe the analysis used by the Department in 
determining that this change would not harm the program?
    Answer. The 2014 budget includes over $1.2 billion in direct loans 
and $304 million in grants for water and waste disposal projects, for a 
total program level of $1.5 billion. The majority of the funds issued 
through the Water and Waste Disposal Loan and Grant program are loans. 
In most years, the program maintains a 70-percent loan to 30-percent 
grant ratio, but as noted before, current low interest rates mean that 
more communities can afford to service higher levels of debt than 
before, reducing the need for grant funds. So we expect to provide a 
similar amount of assistance with more loans and less grants. In 
addition, through a scoring system and strict underwriting the program 
has been successful in ensuring that small rural communities have 
access to funding. In 2012, 55 percent of the projects funded served 
populations of 1,500 or more and 70 percent of the projects funded were 
to serve populations of 2,500 or fewer.
    Question. What assurances can you provide that remote rural 
communities will continue to receive the assistance necessary to obtain 
safe, clean water, and sanitary waste disposal?
    Answer. The low interest rates will make loans more affordable for 
many communities. This will allow Rural Development to ensure that 
grants are reserved for the smallest, most economically challenged 
communities. We will also make use of our Special Evaluation Assistance 
for Rural Communities and Households (SEARCH) program, to provide 
grants for predevelopment, planning, design assistance and technical 
assistance for financially distressed communities with 2,500 or fewer 
residents. In addition, we will continue to partner with other State 
and local programs to fund projects requiring grants. In cases where 
sufficient grant funding for a project is not available, we will work 
with communities to consider other alternatives, such as phasing of 
projects. About 2.2 million rural residents would benefit from new or 
improved water facilities alone in 2014.

            RURAL JOBS AND INNOVATION ACCELERATOR CHALLENGE

    Question. In August, the President announced $9 million for winners 
of the Rural Jobs and Innovation Accelerator Challenge. The goal of the 
initiative is to promote job creation and community and economic 
development in rural regions. The Department of Commerce, USDA, the 
Appalachian Regional Commission, and the Delta Regional Authority all 
contributed funding to this initiative.
    Will you please explain exactly what this initiative does?
    Answer. The Rural Jobs and Innovation Accelerator Challenge is a 
national multi-agency initiative to support rural partnerships that are 
critical in attracting new businesses, quality jobs and improving the 
economic climate and sustainability of rural communities. By leveraging 
local assets, the selected industry clusters and partnerships can do 
even more to help entrepreneurs and small businesses foster innovation, 
increase competitiveness, and employ highly skilled workers, all of 
which are critical to long-term economic growth in their regions. The 
Rural Jobs and Innovation Accelerator Challenge is a project of the 
Taskforce for the Advancement of Regional Innovation Clusters (TARIC) 
and the White House Rural Council, in partnership with many other 
Federal partners.
    Question. What will be the total amount of Challenge awards made in 
2013 and 2014?
    Answer. There will not be any awards in 2013 and 2014. The Rural 
Jobs and Innovation Accelerator Challenge was a one-time multi-agency 
initiative for fiscal year 2012.
    Question. How much will be contributed by USDA in 2013 and 2014, 
and from what programs?
    Answer. The Rural Jobs and Innovation Accelerator Challenge was a 
one-time multi-agency initiative in fiscal year 2012. As a result, USDA 
is not contributing to this initiative in 2013 or 2014.
    Question. What metrics are you using to measure success?
    Answer. The metrics included: (1) jobs created during the project 
period; (2) jobs retained during the project period; (3) private 
investment leverage during the project period; (4) businesses assisted 
during the project period; and (5) engagement and collaboration of 
regional organizations.

             SINGLE FAMILY HOUSING GUARANTEED LOAN PROGRAM

    Question. Mr. O'Brien, in this budget you are requesting ``direct 
endorsement'' authority in the guaranteed single family housing loan 
program.
    Under direct endorsement, will the agency turn over the entire 
responsibility for loan underwriting to private bank participants?
    Answer. No. Direct endorsement loans will require electronic 
submission to the Guaranteed Underwriting System (GUS). GUS is an 
automated underwriting system currently utilized by approved agency 
lenders to evaluate proposed loan applications. GUS utilizes a modified 
version of FHA's Technology Open to Approved Lenders (TOTAL) mortgage 
scorecard to evaluate the likelihood of loan success based upon 
measurable underwriting criteria such as credit score. The modified 
TOTAL scorecard has been validated for agency use based upon thousands 
of performing and non-performing agency loans. All direct endorsement 
lenders will be required to receive an acceptable underwriting 
recommendation from GUS prior to issuing an individual loan note 
guarantee on behalf of the agency. This will help ensure all 
eligibility parameters associated with the program are successfully 
met. It will also indicate the loan exhibits positive characteristics 
closely associated with performing loans in the agency's portfolio. The 
agency has continued to strengthen GUS acceptance standards and 
portfolio delinquency rates are declining for the fourth consecutive 
fiscal year. As of March 31, 2013, the portfolio was outperforming its 
FHA benchmark by 131 basis points.
    For the majority of lenders, direct endorsement will not replace 
the current agency process. It is intended to allow the agency to 
streamline the issuance of loan note guarantees for high-quality loans 
underwritten solely by high-performing, low-delinquency approved 
lenders. Following year 3 of a controlled rollout, it is expected that 
40 percent of all loan note guarantees will be issued by direct 
endorsement lenders (i.e., 10 percent of all loans in year 1, 25 
percent of all loans in year 2, and 40 percent of all loans in year 3 
and beyond).
    Question. Under direct endorsement, how would you maintain 
underwriting standards and your current (good) loan portfolio quality?
    Answer. The agency will reserve direct endorsement authority for 
select lenders meeting established criteria. Lenders will not qualify 
for consideration unless they have strong loan performance 
characteristics as an approved program lender for a period of 2 years 
or more. Additional prerequisites will be established by the Secretary 
to further determine a lender's eligibility for direct endorsement 
authority. For example, the lender would need to demonstrate a proven 
history of delinquency rates below the national average for all 
approved lenders. Lenders granted direct endorsement authority will be 
required to maintain certain credentials and training requirements to 
retain such status.
    The inherent risks associated with direct endorsement authority for 
lenders will be managed with the establishment of a robust post-closing 
lender monitoring effort to maintain the integrity of the portfolio. A 
portion of the single family housing staff previously engaged in the 
origination function of guaranteeing loans will be reassigned to lender 
oversight and post-closing compliance reviews. Ten percent of all loans 
approved by direct endorsement lenders will be reviewed post-closing 
for compliance to ensure a sufficient population of loans are evaluated 
for potential weaknesses. The audit sample size can be increased in the 
event of perceived need.
    Current underwriting standards and portfolio performance will be 
maintained by a four-pronged approach as follows: (1) loans must pass 
automated underwriting scorecard requirements; (2) direct endorsement 
authority is reserved for the agency's top lenders with a proven track 
record of below average delinquency rates; (3) a post-closing lender 
monitoring effort, which includes a sampling of all loans closed by 
each direct endorsement lender and the discretion to perform more 
rigorous investigations as needed; and (4) a controlled rollout to 
enable the post-closing review team adequate time to acclimate to new 
processes, streamline review procedures, develop analytical tools, and 
effectively measure performance.
    Question. How much will this save in agency administrative costs?
    Answer. When looking at the program by itself, there will be 
measurable savings in the cost of carrying out the 502 guarantee 
program. Rural Development (RD) will be able to originate guaranteed 
loans with fewer full-time equivalents (FTEs). All lenders meeting 
eligibility requirements for direct endorsement authority will be 
approved by the agency over a 3-year period (controlled rollout). In 
addition, there will be a 2-year phase-in period where we will be 
making IT enhancements. However, it is expected that the FTEs freed up 
by the efficiencies gained by moving to a direct endorsement structure 
will address the tremendous number of unmet needs within the RHS field 
office. Ultimately, this proposal will help RD live within the current 
constrained S&E budget environment more effectively and efficiently.
    Question. Does your current information technology (IT) system have 
the capacity to handle this process, and if not, how much will IT 
enhancements costs and how long would that take?
    Answer. Modifications to existing IT systems, as well as new system 
development, will require significant upfront funding for direct 
endorsement implementation. The projected cost for implementing 
necessary system enhancements is $5.2 million and this cost will be 
absorbed within base funding. The cost will be spread out over 2 years 
for system development and user acceptance testing. An additional cost 
would be necessary to ensure minor changes to the system can be made 
following the initial implementation, as is customary with any major 
system enhancement.
    The agency will not realize any cost benefit during the first 2 
years of the project. This time period will be dedicated to readying 
systems for implementation and no delegated authority will be extended 
to preferred lenders during this time.

             EFFECTS OF SEQUESTRATION ON RENTAL ASSISTANCE

    Question. Mr. O'Brien, the Department provides rental assistance 
(RA) for very low- and low-income occupants of about 260,000 affordable 
rural rental housing units. These occupants are mainly female-headed 
households, the elderly, or disabled, with annual household incomes 
under $10,000. Agreements are renewed annually. It has been estimated 
that over 10,000 poor households will not receive rental assistance 
this year due to sequestration.
    If rental assistance is not available, will these low-income 
households face rent increases and possible eviction?
    Answer. No households will face rent increases due to the 2013 
sequestration cuts. We are anticipating that the loss of rental 
assistance will impact the borrowers only in September of fiscal year 
2013. Therefore, no rent increases or evictions will be necessary, as 
we will be working with affected owners to mitigate the loss of rental 
assistance through a rental assistance relief plan.
    Question. How do you plan to manage the situation to minimize 
disruptive impacts?
    Answer. Rural Development (RD) has developed a relief plan through 
which we will work with affected borrowers to agree on a plan to cover 
the anticipated 1-month loss of rental assistance. Participation by 
property owners is voluntary, but RD is encouraging each affected 
borrower to work with their loan specialist to develop a plan that 
works for that property. Relief measures to cover the rental assistance 
shortfall consist of: (1) allowing the use of funds in the General 
Operating account; (2) permitting borrower loans to the project with 
payback at 1 percent interest; (3) allowing authorized Reserve account 
withdrawals; (4) deferring the return to owner (or asset management 
fee, if nonprofit); (5) deferring the section 515/514 1st position debt 
service payments, with no interest charge; and/or (6) suspension of 
monthly reserve account deposits.
    Question. Do you plan to ask building owners to extend forbearance 
to these households?
    Answer. Due to the short-term impact of the rental assistance 
shortfall, RD does not anticipate that any of the residents of the 
involved properties will be affected adversely.
    Question. What will the loss of rental assistance do to the credit 
quality of the Government loans securing these multi-family housing 
projects?
    Answer. Since the loss of RA will only be for a 1-month period, RD 
does not anticipate that there will be any effect to the credit quality 
of the section 515 direct loans.

               DIRECT SINGLE FAMILY HOUSING LOAN PROGRAM

    Question. Mr. O'Brien, the Single Family Housing Direct loan 
program has been the flagship housing program in this Department for 
years. very low- and low-income rural households are provided 
homeownership opportunities with no down payment and low interest 
rates. This is the most efficient Federal homeownership program of its 
type, with its portfolio credit quality exceeding FHA and VA, and far 
exceeding the commercial subprime market. Furthermore, this year the 
cost of the program fell by 54 percent.
    This budget cuts this program by 60 percent from the fiscal year 
2012 level, from $900 million to $360 million in loans. Is there any 
other Federal homeownership program that can help families the way that 
this program does? If not, where will these families go to get housing 
assistance?
    Answer. The Department acknowledges that the Single Family Housing 
Direct Loan program plays an important role in meeting USDA's 
commitment to improving the economic vitality and quality of life in 
rural America, but also acknowledges that difficult choices have to be 
made, including cuts to the section 502 direct loan program. It is 
anticipated that at the fiscal year 2014 proposed funding level of $360 
million for section 502 direct over 3,100 low- and very low-income 
families will achieve homeownership.
    USDA also intends to continue developing partnerships with 
qualified nonprofit organizations in rural areas to deliver program 
funds where it is needed most. We recognize that families living in 
more rural, poorer communities have difficulties accessing programs and 
services that promote long-term wealth. The Department anticipates that 
the assistance from nonprofit groups will provide targeted delivery of 
program funds to the most economically distressed and lower income 
communities.
    Finally, the section 502 guarantee loan program will provide a 
source of financing for low-income families. Since 2008, about 32 
percent of our guarantees have been to low- and very low-income 
families. We project that more than 33,000 lower income families will 
meet their housing needs with a loan guarantee through USDA. This is 
roughly the same total as all direct loans we obligated in the previous 
4 years (2009-2012). The section 502 guarantee program will soon be 
publishing a final rule which will enable local community-based 
lenders, such as credit unions and small community banks, to 
participate in the program with the purpose of reaching the smaller, 
poorer and more remote rural communities.
    Question. What is the current backlog of applications?
    Answer. As of May 23, 2013, there are 8,851 section 502 direct loan 
applications on hand totaling $1,118,047,513.
    Question. Why are you proposing to slash this program, in the face 
of its long history of documented success in making low-income families 
successful homeowners?
    Answer. The Department acknowledges the importance of the section 
502 direct loan program in providing low- and very low-income families 
an opportunity to attain homeownership in rural America. However, with 
budgetary constraints the Department has had to make difficult choices 
which include reductions in the section 502 direct program. Current low 
interest rates and the great success of our guaranteed program assure 
that rural families in need of mortgage financing will not be unserved. 
The 2014 request will still provide families in self-help and those 
with greater needs access to credit.
    Question. A $360 million program level would only fund 60 loans in 
each State. How would you allocate such a small program in the face of 
huge demand in rural areas?
    Answer. At this time, we expect to allocate available funding as 
required in regulations of 7 CFR, the 1940-L. Under these regulations, 
funds are distributed according to formula that takes in to account 
rural population, area income, substandard housing, and those in areas 
with populations below 2,500.
    Depending on the amount of the final allocation, consideration will 
also be given to targeting funding to isolated groups most in need of 
housing financing or obligated by participation in other Rural 
Development programs. This includes Mutual Self-Help Housing Loan 
participants, those in areas such as colonias and Native American 
reservations, and those underserved.
    The national office also will have an option to reserve funds for 
those in greatest need, such as homeless, veterans and those needing 
additional funding to assume a current loan.
    Question. The only other USDA rural homeownership program available 
is the guaranteed loan program, which does not provide subsidized 
interest rates, and charges origination and annual fees. Do you believe 
the guaranteed program can adequately offer the homeownership 
opportunities that the direct program provides?
    Answer. The fiscal year 2014 budget request continues the 
administration's commitment to rural areas by targeting resources to 
citizens in greatest need and where there are economic opportunities. 
We capitalize on beneficial subsidy rates in a number of our programs, 
including the Guaranteed Single Family Housing Loan program, to provide 
historic program levels. For the seventh consecutive year, the total 
amount of rural guaranteed home loans has increased from $2.9 billion 
in 2006 to $19.2 billion last year. The 2014 budget request proposes a 
program level of $24 billion for the Single Family Housing Guaranteed 
program, which could provide more than 171,000 homeownership 
opportunities.
    Since 2008, about 32 percent of our guarantees have been to low- 
and very low- income families. We project that more than 33,000 lower 
income families will meet their housing needs with a loan guarantee 
through USDA. This is roughly the same total as all direct loans we 
obligated in the previous 4 years (2009-2012). In addition, the section 
502 guarantee program will soon be publishing a final rule which will 
enable local community-based lenders, such as credit unions and small 
community banks, to participate in the program with the purpose of 
reaching the smaller, poorer and more remote rural communities.
    Question. The success of the Mutual Self-Help Housing Loan program, 
in which families can reduce their housing costs through their sweat 
equity, relies on sufficient direct single family housing loan funds. 
This budget cuts the Mutual Self-Help Housing Loan program by 67 
percent.
    Does the administration now believe that the direct single family 
housing program, and the Mutual Self-Help Housing Loan program are no 
longer effective and efficient programs to support homeownership 
opportunities for rural households?
    Answer. The Department continues to believe both the section 502 
direct loan program and the self-help program are viable programs that 
meet the needs of many low- and very low-income families. The 
Department does not expect the 2014 budget request reduction to 
adversely affect the overall viability or productivity of the section 
523 Mutual Self-Help Housing Loan program. The proposed $10 million for 
the fiscal year 2014 funding along with the proposed $360 million for 
the section 502 direct single family housing will ensure continued 
success of the program. The mutual self-help housing program has a high 
level of dedicated supporters from community and faith-based 
organizations who offer in-kind services to participating families. The 
self-help grantees and regional technical assistant providers have 
assisted in maintaining the integrity of the program by soliciting and 
securing other funding resources. Based on the positive response and 
support for the self-help program, we believe both the direct loan and 
self-help programs will continue to provide the opportunities for low-
income families to secure homeownership and develop strong communities.
                                 ______
                                 
                Questions Submitted by Senator Tom Udall

                RURAL DEVELOPMENT PROGRAMS IN NEW MEXICO

    Question. Mr. Doug O'Brien, in New Mexico, the Rural Development 
(RD) 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 each 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.
    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 
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 or looking at ways to correct these inequities.
    Among the options being considered is a regional sharing of 
employees which would allow States to work together to provide 
services. Also, now that the first round of sequestration has passed 
and RD has been given the opportunity to move funds between programs, 
we are looking at making strategic hires in those areas where the need 
is greatest.
    In the last year, RD has also reexamined its full-time equivalent 
(FTE) allocation formula and adjusted it to provide greater weight to 
States with deeper poverty. We continue to examine this formula.
    Question. Mr. Doug O'Brien, 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 and 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 a variety of 
methods (e.g., business incubators, cooperative development centers), 
recipients of funding from this program have delivered technical 
assistance and other services to individuals and communities seeking to 
apply to 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.
                                 ______
                                 
                    Questions Submitted to Ann Mills
              Questions Submitted by Senator Mark L. Pryor

             CONSERVATION DELIVERY STREAMLINING INITIATIVE

    Question. Ms. Mills, NRCS's budget proposes an increase of nearly 
$9 million for the Conservation Delivery Streamlining Initiative. When 
fully implemented, some of the goals of CDSI are to allow NRCS staff to 
spend 75 percent of their time with customers in the field; eliminate 
over 80 percent of time that field staff devotes to clerical tasks; and 
shorten the time between when customers apply for a program and when 
they are awarded contracts to less than 2 weeks.
    Can you talk a little more about CDSI?
    Answer. In fiscal year 2010, NRCS leadership formally initiated an 
agency-wide effort called the Conservation Delivery Streamlining 
Initiative (CDSI). The initiative's goal is to define and implement a 
more effective, efficient, and sustainable business model for 
delivering conservation technical and financial assistance. Three 
overarching objectives were identified:
  --Simplify Conservation Delivery.--Conservation delivery must be 
        easier for both customers and employees.
  --Streamline Business Processes.--The new business model and 
        processes must increase efficiency and be integrated across 
        agency business lines.
  --Ensure Science-Based Assistance.--The new business model must 
        reinforce the continued delivery of science-based products and 
        services.
    CDSI is currently implementing five broad strategies under this 
effort. These include: (1) redesigning NRCS's business processes; (2) 
aligning its information technology with these redesigned processes; 
(3) integrating science technologies to enhance the quality and 
effectiveness of NRCS programs; (4) simplifying and standardizing the 
delivery of financial assistance; and (5) providing ways for clients to 
work with NRCS that are more convenient and efficient.
    Question. I understand it is now being tested in four States, and 
your new estimates are that it will be implemented nationally by 
November 2014. How is the current testing going? Is your timeline still 
achievable?
    Answer. In October 2012, NRCS began testing the Conservation 
Desktop application-version 1. NRCS deployed version 1 as a beta 
release to four States in March 2013. Upon completion of the four-State 
beta test, additional assessments were performed that included agency 
quality assurance tests and an independent assessment from a leading 
information technology research and advisory firm. Based on these tests 
and assessments NRCS decided to revise its deployment timeline and path 
forward.
    NRCS is working closely with USDA and the Office of Management and 
Budget to finalize these revisions. The updates include a more modular 
development approach that focuses on smaller and more frequent 
releases. This approach splits the functionality of the Conservation 
Desktop into three separate releases that focus on: (1) financial 
assistance; (2) replacement of the current conservation planning 
software; and (3) providing enhanced conservation planning support. The 
first nationwide release of the Conservation Desktop is now tentatively 
planned for the first half of calendar year 2015.
    Question. What are the total cost estimates for the program?
    Answer. The overall lifecycle cost for the entire CDSI investment, 
spanning fiscal years 2012 through 2021, is estimated at $187,883,300. 
The lifecycle cost includes business process reengineering, business 
requirements development and the development, enhancement, and 
maintenance of the three main CDSI applications, their supporting 
databases and computer services: (1) Conservation Desktop, (2) Mobile 
Planning Tool, and (3) Client Gateway.
    Question. What is the current wait time for customers from the time 
they apply for a contract to when it's awarded? How will this be sped 
up?
    Answer. The average amount of time from when a customer applies for 
a financial assistance program and when they sign a contract is 2 to 6 
months. NRCS plans to decrease this time by standardizing its financial 
assistance business processes, providing centralized program support 
staff, and implementing alternative technologies such as:
  --Electronic signatures for customers;
  --Automated geospatial application scoring and ranking;
  --Automated workflows and electronic tasking;
  --Electronic document storage;
  --Streamlined funding selection using a threshold concept; and
  --A customer-facing Web site to provide access to USDA-NRCS programs 
        and services.

                        PLANT MATERIALS CENTERS

    Question. Ms. Mills, as you know, there is broad support in 
Congress for the work of the Plant Materials Centers (PMCs). I have a 
special fondness for the one in Booneville, Arkansas.
    The budget request proposes to decrease funding for the PMCs by 
nearly $1 million.
    Is USDA planning to close or consolidate any of those centers?
    Answer. USDA plans to restructure its Plant Materials Centers 
(PMCs) operated by the Natural Resources Conservation Service (NRCS) 
this calendar year consistent with USDA's Blueprint for Stronger 
Service. Reorganization is necessary considering PMC funding has 
declined by over 22 percent since 2010. This, coupled with years of 
rising costs, has necessitated decreases in staffing and increases in 
facility and equipment maintenance and replacement, thus reducing 
efficiency. However, final decisions as to which, if any, locations 
will be closed or consolidated have not been made at this time.

                               STAFF CUTS

    Question. Ms. Mills, the budget for Conservation Operations assumes 
a cut of 273 staff. This is spread across all of your activities, but 
the largest decrease is in the Conservation Technical Assistance 
account.
    In an operation where face time with your customers is an important 
part of what you do, how will you absorb this FTE reduction?
    Answer. NRCS certainly recognizes that time spent in the field 
working with producers and landowners on conservation plans are central 
to the mission of the agency. As we have stated before, getting more 
boots on the ground for conservation is vital for that mission. At the 
same time, the agency must manage its resources during a period when 
the funding available for our programs may be constrained. Therefore, 
NRCS is also committed to becoming more efficient and to maximizing 
conservation assistance in the field by streamlining the agency's 
structure and processes, and by looking for ways to increase the 
agency's flexibility in providing technical assistance.
    For example, the agency has already started to update and 
streamline its administrative processes, which should remove some of 
the administrative burdens from the State offices and free up more 
staff resources to deliver conservation. The agency is also looking for 
ways to simplify and efficiently deliver conservation assistance to 
customers, which should ultimately increase the amount of staff time 
devoted to direct conservation efforts.
    The agency will also explore opportunities to provide greater 
flexibility in its ability to deliver conservation technical assistance 
through partnerships and agreements with technical service providers. 
These partnerships provide the agency the flexibility to increase or 
decrease technical service capacity as demand for those services 
changes, helping to ensure the agency is able to provide assistance 
where and when it is needed.
    The reduction in FTEs represents approximately 4.6 percent of the 
staff funding through the Conservation Operations account. This is not 
an insignificant reduction, but the agency will work to maximize the 
amount of conservation technical assistance that is available to our 
customers by becoming more efficient and by increasing capacity without 
increasing staff.
                                 ______
                                 
                 Questions Submitted to Darci L. Vetter
              Questions Submitted by Senator Mark L. Pryor

                      FOREIGN AGRICULTURAL SERVICE

    Question. As you know, U.S. agricultural exports are at record 
levels. In fiscal year 2012 exports reached $136 billion.
    Can you briefly discuss some of the things Foreign Agricultural 
Service (FAS) is doing to develop new foreign markets as well as making 
sure our agriculture products remain competitive in the world 
marketplace?
    Answer. FAS deploys a global market development strategy that 
integrates trade policy, monitoring and enforcement, trade promotion, 
and trade capacity building/food security. FAS resources and tactics 
are tailored to country markets that range from fragile market 
economies, to high-growth markets with a rapidly expanding middle 
class, to mature maintenance markets to achieve our overarching goals 
of enhancing U.S. market access and expanding U.S. agricultural exports 
while improving global food security and food safety. FAS trade policy 
work is aimed at negotiating and enforcing market-expanding trade 
agreements for U.S. exports of food and agricultural products, and 
preventing or resolving foreign measures that hinder U.S. food and 
agricultural exports.
    The United States continues to negotiate the Trans-Pacific 
Partnership (TPP) with Australia, Brunei, Canada, Chile, Japan, 
Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam. From the 
beginning of TPP negotiations, USDA negotiators have been actively 
involved in aspects of the negotiations related to agriculture 
including market access, rules of origin, sanitary and phytosanitary 
measures, technical barriers to trade, regulatory coherence, 
competition, and trade capacity building. USDA's goal, with guidance 
from the U.S. industry, Congress, and other stakeholders, is to create 
a TPP agreement that increases U.S. agricultural exports and supports 
U.S. jobs by addressing tariff and non-tariff barriers.
    On March 20, 2013, the administration notified Congress of our 
intent to enter into negotiations with the European Union (EU) on a 
Transatlantic Trade and Investment Partnership (TTIP). We are currently 
conducting consultations with Congress and the public to help refine 
our objectives and priorities for these negotiations. A public comment 
period on priorities and issues for the negotiations was open from 
April 1-May 10, 2013. The first round of negotiations took place in 
July in Washington, DC. USDA was, and continues to be, very active in 
the preparatory work for the initial and subsequent rounds of 
negotiations. The European Union is our 5th largest agricultural export 
market, valued at $10.1 billion in calendar year 2012. Key export 
products include soybeans, tree nuts (especially almonds) and alcoholic 
beverages. We will continue pressing for full elimination of tariffs 
and substantial progress on reducing non-tariff barriers.
    FAS continues to monitor and enforce trade agreements with 20 
countries, with particular attention to agreements with South Korea, 
Colombia, and Panama that were implemented in 2012. FAS participates 
with the U.S. Trade Representative in regular meetings with all three 
trading partners. For example, a Korean Free Trade Agreement (KORUS) 
Sanitary and Phytosanitary (SPS) meeting occurred in Washington on 
February 19, 2013. FAS staff regularly provide technical assistance to 
Colombian and Panamanian Government officials in tariff rate quota 
(TRQ) administration which has resulted in smooth TRQ implementation. 
U.S. agricultural exports to Korea exceeded $6 billion in fiscal year 
2012, making it our sixth largest market. U.S. agricultural exports to 
Colombia topped $1 billion in fiscal year 2012, and are expected to be 
46 percent higher in March-May 2013 after the Colombia Trade Promotion 
Agreement goes into force than for the same time period a year earlier, 
totaling over $1.2 billion. U.S. agricultural exports to Panama reached 
almost $490 million in 2012. Products that have increased export 
markets include corn, rice, and chicken leg quarters.
    FAS market development programs focus on cooperation with program 
participants to help U.S. producers, exporters, private companies, and 
trade organizations promote U.S. agricultural products in priority 
countries. These partnerships are supported by FAS staff facilitating 
in-country relationships, providing market analysis, and approving use 
of program funds for activities to maintain and expand market share and 
target new opportunities in foreign markets. Market development 
programs are administered on a cost-share basis with participating 
industry partners using Market Access Program (MAP), Foreign Market 
Development (FMD) program, Technical Assistance for Specialty Crops 
(TASC) program, Emerging Markets Program (EMP), and Quality Samples 
Program (QSP) funds to help U.S. food and agricultural exporters 
maintain a competitive edge. For example, FAS overseas offices in China 
provide information on opportunities in secondary and tertiary cities 
and encourage U.S. agriculture, fish and forest products industries to 
develop relationships and activities with a broader spectrum of 
potential customers. Nearly all of our MAP and FMD partners conduct 
activities in China. The programs also are used to conduct critically 
important outreach activities to small- and medium-sized enterprises 
(SMEs) and new-to-export food and agricultural businesses, to broaden 
and expand the base of U.S. agribusinesses exporting for the first time 
or to more markets. FAS has provided additional MAP funding to expand 
export readiness training of SMEs across the country. An upcoming FAS 
initiative is leveraging resources to organize a regional African 
market development conference, in conjunction with a U.S. trade mission 
to South Africa this September, to highlight market opportunities in 
the rapidly growing economies of South Africa, Kenya, and Ghana. A 
recent study found that other countries are increasing their use of 
market development funds, increasing the need for U.S. producers to 
remain active in overseas markets.
    FAS trade capacity building efforts focus on less-developed 
countries that have good governance, economically enabling 
environments, and high potential as full trading partners with the 
United States. FAS-led technical assistance programs, with substantial 
funding from USAID and State Department, strengthen SPS systems and 
reduce technical barriers to trade (TBTs) for current and potential 
trading partners, while building regulatory capacity. The aim is to 
eliminate import-restrictive policies and regulations, and create a 
policy environment that values transparent and science-based food 
regulations and agricultural policies consistent with international 
standards and favorable to U.S. food and agricultural interests.
    Question. What are some of your biggest challenges to ensure the 
competitiveness of U.S. agriculture products?
    Answer. The USTR's Report on Sanitary and Phytosanitary Measures 
(SPS Report) and the Report on TBT highlight challenges that have the 
potential to negatively affect trade and pose significant market losses 
for the United States.
    The leading cross-cutting SPS barriers arise in connection with 
export certification requirements, agricultural biotechnology, bovine 
spongiform encephalopathy (BSE), avian influenza (AI), and maximum 
residue levels (MRLs) for pesticides. USDA diligently attacks each of 
these barriers. For example, USDA efforts have contributed to the 
reopening of export markets for U.S. beef and beef products closed as a 
result of the BSE-related trade bans. As a result, U.S. beef and beef 
products exports recovered to a record $5.5 billion in fiscal year 
2012.
    USDA worked hard to lead the Codex Alimentarius Commission to 
finally adopt an international MRL for ractopamine in beef and pork in 
2012. This was the culmination of more than 9 years of work by USDA. 
Adoption of the standard for beef by Taiwan has provided significantly 
improved market access for U.S. exports. The international standard is 
important in our continuing efforts to reduce barriers to U.S. pork in 
Taiwan and barriers to meat and poultry in China and Russia.
    Similarly, the TBT Report provides illustrations of technical 
barriers with the potential to negatively affect trade and pose 
significant market loss for the United States. For example, Chile and 
Peru are important in this regard because of their stringent 
nutritional labeling requirements for processed foods high in fats, 
sugar, sodium, and trans-fats content. Additionally, Peru maintains 
mandatory labeling and a moratorium on foods derived from genetic 
engineering. Turkey and India are also highlighted in the TBT Report 
for their trade restrictive measures on genetically engineered 
products.
    Slow acceptance of biotechnology-developed crops and products is 
one of the biggest challenges to U.S. agricultural exports. The United 
States is the world's largest producer of biotechnology crops, and the 
bulk of our biotechnology exports enter commodity streams alongside 
conventional varieties. Many new crops and products derived through 
modern technologies are likely to enter the market in the next few 
years. However, concern about these products persists in some regions 
and has led to long approval processes overseas and the proliferation 
of regulatory barriers to U.S. trade in biotechnology derived products. 
For example, China's asynchronous approval for biotech products 
continues to delay the commercialization of new products globally. In 
order to improve our bilateral agricultural relationship with China and 
to deepen our cooperation on tackling global challenges, USDA hosted 
the first United States-China High Level Agricultural Symposium 
(symposium) in February 2012. The first symposium facilitated many 
agricultural trade successes in 2012, including China's agreement to 
participate in a pilot program to address its asynchronous 
biotechnology approvals.

                           FARM LOAN PROGRAMS

    Question. Can you discuss how your budget request benefits 
beginning farmers and ranchers?
    Answer. The 2014 budget request for Farm Service Agency (FSA) farm 
loan programs will support funding for loans that will allow several 
thousand beginning farmers and ranchers to begin or continue farming or 
ranching. Many beginning farmers and ranchers have difficulty obtaining 
credit due to limited equity, collateral, or experience. FSA farm loan 
programs are required by statute to reserve a portion of the direct and 
guaranteed loan funds for beginning farmers and ranchers. Under the 
targets, 75 percent of direct ownership funds, 50 percent of direct 
operating funds, and 40 percent of guaranteed operating and ownership 
funds are reserved for beginning farmers for at least the first two 
quarters of the fiscal year. Based on these targets, the fiscal year 
2014 budget request will provide funding for over 2,600 direct and 
2,000 guaranteed farm ownership loans to beginning farmers, 
facilitating in most cases a first-time farm purchase. The 2014 request 
will also provide funding for over 11,300 direct and 3,400 guaranteed 
operating loans for beginning farmers. These loans provide critical 
operating capital to beginners who cannot obtain credit from other 
sources.
    Question. In your testimony you discuss a recently implemented 
microloan program. Can you go into further detail about that program? 
What farming population is this program targeting?
    Answer. The microloan program is administered under FSA's existing 
Operating Loan (OL) program. The program streamlines the process for 
producers obtaining loans under $35,000 by reducing the paperwork and 
simplifying the loan application process. The program includes 
additional flexibility in certain loan eligibility requirements, 
reduces documentation requirements, and provides for simplified 
financial planning to align with the less complex structure of small 
farms. Producers can use microloan funds to pay for initial start-up 
expenses such as land rent, essential tools, livestock and farm 
equipment, and annual expenses such as seed, fertilizer, utilities, 
marketing, and distribution expenses.
  --Microloan repayment terms may vary, but typically will not exceed 7 
        years for intermediate-term purposes. Interest rates are based 
        on the regular OL rates that are in effect at the time of loan 
        approval or loan closing.
  --The program is designed to increase credit opportunities for 
        smaller and beginning farmers, particularly producers who sell 
        through farmers markets, roadside stands, and community-
        supported agriculture (CSA) programs, although almost any type 
        of farm production is eligible. The limited documentation 
        requirements and less rigorous farm managerial experience 
        requirements are intended to make microloans more accessible 
        for first-time farmers.

                         MC GOVERN-DOLE PROGRAM

    Question. For a relatively small amount of money, this program has 
a huge impact on the lives of some of the world's poorest children.
    Ms. Vetter, can you briefly discuss some of the ways the McGovern-
Dole program has positively affected children around the world?
    Answer. The McGovern-Dole program focuses on improving literacy and 
improving dietary and health practices in recipient countries. The 
program encourages parents to send their children to obtain a primary 
school education, when they might not have otherwise done so, and to 
utilize these skills as they progress in life to become productive 
members of society. USDA regularly sees between a 3- and 10-percent 
increase in attendance rates per school year, teachers regularly 
comment that children have more energy, and the promotion rates of 
children to the next grade are often over 80 percent in USDA assisted 
schools. A key focus of the program is improving literacy outcomes and 
the quality of education provided to the children. This involves more 
consistent teacher attendance, better access to school supplies, 
improved instructional materials, increased skills and knowledge of 
school administrators, and improved awareness of educational value and 
attainment by parents (who may themselves be illiterate). For example, 
USDA's project in Mali with Catholic Relief Services (CRS) is focused 
on education in collaboration with USAID in the area of education 
quality and literacy. Program activities include working with the PTAs, 
local school management committees, and locally elected officials to 
inform parents and communities about the support that is available and 
to ensure that teachers in the targeted areas are able to access 
trainings and resources to promote improved educational outcomes and 
literacy in the classroom.
    McGovern-Dole projects also build the capacity of recipient country 
governments and civil society with the ultimate goal of transitioning 
the management of school feeding programs to recipient governments and 
local communities. In Bolivia, for example, 12 more municipalities 
graduated from McGovern-Dole funding in 2012. These municipalities 
started to manage their own programs and continued to feed over 21,000 
school children ensuring these children receive a nutritious meal so 
their hunger does not detract from their learning. In Nepal, USDA is 
working with the Government of Nepal to develop a national school 
feeding framework. In February 2013, USDA hosted a delegation of 
government representatives from the Nepalese Ministry of Agriculture 
and Department of Education to learn about the U.S. school feeding 
experience. FAS and FNS worked together to arrange visits to U.S. 
schools, and the delegation left the United States with a better 
understanding of school feeding programs, the need for clear budget 
allocations, and the importance of good program monitoring.
    We are field testing new and improved micronutrient-fortified food 
aid products developed in the United States to best meet nutritional 
needs of populations served by McGovern-Dole. In Guinea-Bissau, we are 
field testing a dairy paste containing iron, vitamin A, vitamin D, and 
zinc that are critical for child growth and mental development. In 
Cambodia, the effectiveness of a rice product fortified with Vitamin A 
and iron is being evaluated. We are working with Kansas State 
University on new formulations of three, fortified blended foods 
(FBFs). These FBFs (sorghum-soybean, sorghum-cowpea, and corn-soy 
blends) will be made into porridge mixes for McGovern-Dole 
beneficiaries in Tanzania.
    Question. Do you see a correlation between a higher standard of 
living for girls who participate in the program and girls that do not?
    Answer. Studies by the World Bank, World Economic Forum, and the 
Organization for Economic Cooperation and Development have found a 
correlation between educating girls and the rate of economic 
improvement of countries. Educating girls has been found to help break 
the cycle of poverty because girls who attend school tend to delay 
having babies, and are healthier and better prepared as mothers when 
they do have children, and are better able to be productive members of 
society. This increases a country's overall productivity and income 
level. Educating girls has also been found to improve the health of 
populations, help reduce disease incidence, and reduce the incidence of 
violence against women. The McGovern-Dole program targets girls and 
provides many health interventions aimed at teaching them the 
importance of good hygiene, nutrition, and sanitation. Girls 
incorporate these lessons into their future families and pass these 
teachings on to their own children. This results in stronger family 
units. The McGovern-Dole program also targets girls for education 
interventions, tailoring activities to reduce or eliminate gender 
disparities in school attendance and achievements. Additionally, USDA 
often works with the mothers of school children, teaching them lessons 
in nutrition, hygiene, and the importance of education.
    During the fiscal year 2012 solicitation cycle, FAS began a 
comprehensive results-oriented management (ROM) system to strengthen 
the delivery of more efficient and effective food assistance programs 
through a greater focus on results and accountability of taxpayer 
resources. This approach also provides a platform for more meaningful 
program evaluations and opportunities to learn which interventions work 
well and which ones do not. Through this ROM system and associated 
initiatives, USDA expects to improve its ability to measure the impact 
of the McGovern-Dole Program by: (1) clarifying program strategy; (2) 
identifying expected results; (3) linking measurable indicators to 
results; and (4) mapping program objectives and results back to the 
agency's strategic plan. In turn, implementing partners are expected to 
identify project results and report achievements of the identified 
results. These organizations must report twice a year as well as have a 
midterm and final evaluation performed.

                       FARM SERVICE AGENCY--MIDAS

    Question. I was pleased to learn that you recently launched MIDAS. 
Can you give us an update on how things are going?
    Answer. The MIDAS Program is the largest automated system ever 
implemented by the Farm Service Agency. It is a complete re-engineering 
of business processes and information technology (IT) systems and 
software that will replace outdated technology used in FSA county 
offices since the 1980s. MIDAS is in week 15 of system stabilizing and 
these new systems phasing in nationwide. During this deployment, the 
challenges such as availability, reliability and responsiveness of the 
systems are closely monitored and addressed so that the performance can 
be improved and ensured. MIDAS operates with many complex 
interdependencies, with attributes in commercial-off-the-shelf 
software, custom-developed Web farm applications, and geospatial 
imagery. Components of MIDAS are hosted in three separate data centers 
across USDA's network. As this comprehensive new system is implemented, 
any reports of performance dips or needed improvements are closely 
examined and addressed to ensure the continuation of customer service 
as effectively as possible during this transition period.
    The number of issues has stabilized over the last few weeks 
indicating the system is improving, and in the past 5 weeks, the rate 
of resolved issues has exceeded the number of issues reported.
    Through these and related actions, MIDAS is moving forward towards 
full stabilization and integration into the everyday business practices 
of FSA offices.
    Question. What have you done to educate farmers and ranchers on 
using the new system?
    Answer. The initial MIDAS system launched in April 2013 provided 
capability for the FSA service center employees to administer Farm 
Records information with full geospatial imagery integration, and to 
maintain customer profile and product information. At this time there 
is no direct access to MIDAS by farmers and ranchers. Robust training 
was provided to over 9,000 FSA employees on the new system to maintain 
the high level of customer service provided to farmers and ranchers. 
Additional functionality planned in fiscal year 2015 will enable 
farmers and ranchers to access the new system online and conduct 
business with FSA in a self-service fashion.
    Question. The budget requests $65 million for supporting MIDAS. Do 
you expect the cost of maintaining the system to decrease over the next 
few years?
    Answer. The $65 million budget request submitted for fiscal year 
2014 provides operations & maintenance support for the production 
system and limited funding for system enhancements. FSA is currently 
working on a re-baseline of the MIDAS project to define the final 
operating capability, total project cost, and project timeline plan for 
the remainder of the project's lifecycle. The costs will increase in 
fiscal year 2015 as the final operating capability is delivered and 
begin decreasing in the out years as the system moves into full 
sustainment.

                         CONCLUSION OF HEARINGS

    Senator Pryor. As I mentioned earlier, this is the final 
budget hearing, and I appreciate the work that everyone at USDA 
and FDA, because they were the subject of our first hearing, in 
preparing their witnesses. The testimony presented during these 
hearings was very helpful and that constant flow of information 
back and forth has been very good and it will help us write the 
fiscal year 2014 bill.
    The subcommittee's next markup--meeting will be a markup of 
the fiscal year 2014 bill and that date has not yet been 
determined. It's something that I'm waiting to get the okay 
from Senator Blunt over here. No, actually we're just trying to 
get the room availability and what-not. But we're going to do 
that soon and we look forward to it.
    With that, this hearing will be recessed. Thank you.
    [Whereupon, at 10:45 a.m., Thursday, May 23, the hearings 
were concluded, and the subcommittee was recessed, to reconvene 
subject to the call of the Chair.]

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