Commodity Programs: Freedom-to-Farm Approach Will Reduce USDA's Personnel
Costs (Letter Report, 05/22/96, GAO/RCED-96-116).

Pursuant to a congressional request, GAO examined the personnel
reductions that the Department of Agriculture (USDA) could have achieved
if Congress had implemented the freedom-to-farm provisions of H.R. 2195
and the proposed Balanced Budget Act.

GAO noted that: (1) under H.R. 2195, the freedom-to-farm provisions
would have reduced the Farm Service Agency's (FSA) personnel by 1,823
staff years and saved approximately $332 million; (2) most of the
personnel savings under H.R. 2195 would have occurred at the county
level and would affect such program activities as commodity payment,
record keeping, compliance, and reimbursable farm-measurement; (3) the
proposed Balanced Budget Act would have achieved greater personnel
savings than H.R. 2195 because it included changes not addressed by H.R.
2195; (4) personnel reductions under the proposed Balanced Budget Act
would have decreased FSA staff by 13 percent, a net reduction of 2,719
staff years; (5) the Balanced Budget Act would have had the net effect
of reducing FSA workload by 896 staff years; (6) as a result of the
personnel reductions, USDA would have incurred separation costs of $28
million for a workload of 126 staff years; (7) these costs would have
lowered USDA net savings to $304 million; and (8) the Balanced Budget
Act would also afford USDA additional organizational changes, more
savings, and an opportunity to focus on how it delivers its services.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  RCED-96-116
     TITLE:  Commodity Programs: Freedom-to-Farm Approach Will Reduce 
             USDA's Personnel Costs
      DATE:  05/22/96
   SUBJECT:  Agricultural programs
             Proposed legislation
             Personnel management
             Reductions in force
             Employee buyouts
             Farm subsidies
             Agricultural policies
             Cost control
             Budget cuts
             Commodity marketing

             
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Cover
================================================================ COVER


Report to the Chairman, Committee on the Budget, House of
Representatives

May 1996

COMMODITY PROGRAMS -
FREEDOM-TO-FARM APPROACH WILL
REDUCE USDA'S PERSONNEL COSTS

GAO/RCED-96-116

Personnel Savings From Freedom-to-Farm Approach

(150067)


Abbreviations
=============================================================== ABBREV

  FSA -
  GAO -
  USDA -

Letter
=============================================================== LETTER


B-271582

May 22, 1996

The Honorable John R.  Kasich
Chairman, Committee on the Budget
House of Representatives

Dear Mr.  Chairman: 

On April 4, 1996, the Federal Agriculture Improvement and Reform Act
of 1996 (P.L.  104-127) was enacted, fundamentally changing farm
programs in place since the 1930s.  Under the provisions of the new
farm bill, farmers receiving federal support for agriculture will
operate with fewer federal controls over which crops to plant and how
much acreage to put into production.  This new approach to farm
programs is known generically as "freedom to farm."

Prior to the enactment of this legislation, you asked us to examine
the level of personnel reductions and associated cost savings that
the U.S.  Department of Agriculture (USDA) could achieve if
freedom-to-farm provisions were put in place.\1 The freedom-to-farm
approach was first presented in H.R.  2195, introduced by the
Chairman of the House Committee on Agriculture on August 4, 1995. 
This proposal, with certain changes, was then incorporated into H.R. 
2491, the proposed Balanced Budget Act of 1995, which was vetoed by
the President.  The freedom-to-farm attributes contained in H.R. 
2195 and the proposed Balanced Budget Act are similar to, but differ
in several important aspects from, those enacted in the 1996 farm
bill. 

This report discusses the personnel reductions that could have been
achieved by implementing the freedom-to-farm approach as set forth in
H.R.  2195 and the proposed Balanced Budget Act.  Under the
provisions of the farm bill ultimately enacted, reductions in USDA's
personnel will still be possible but probably to a lesser degree than
would have occurred if the provisions originally proposed had been
put in place.  This change occurs because, compared with the earlier
freedom-to-farm proposals, the new act adopted various program
provisions that changed some of the assumptions used by USDA when
estimating workload impacts and delayed implementation of crop
insurance changes that will reduce USDA personnel requirements.  On
the other hand, if USDA reduces its staffing under the new farm bill,
it may be able to achieve further savings by closing or consolidating
county offices. 


--------------------
\1 Budgetary savings would only occur if the Congress captured the
savings from personnel reductions by reducing appropriations. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

The freedom-to-farm provisions set forth in H.R.  2195 would have
enabled USDA to realize significant savings in personnel because the
proposal would have required fewer program activities than the
commodity programs in effect under previous farm bills, and, as a
result, USDA would have needed fewer staff.  Specifically, using
USDA's assumptions about personnel savings, we found that USDA's Farm
Service Agency (FSA), which is responsible for administering the
commodity programs, could have reduced personnel by 1,823 staff years
and saved a total of about $332 million between 1997 and 2002.  The
reduction in staff years would have represented about 9 percent of
FSA's total staff years.  Most of FSA's personnel savings would have
occurred at the county office level. 

While the freedom-to-farm provisions under the proposed Balanced
Budget Act would have achieved savings similar to those under H.R. 
2195, the personnel savings would have been greater because the act
included changes in areas not addressed by H.R.  2195.  The act would
have resulted in a net reduction of 2,719 staff years, which
represents about a 13-percent decrease in FSA's total staff from the
fiscal year 1995 level.  Most of these additional reductions would
have resulted from transferring certain activities from FSA to the
private sector, such as signing up farmers for crop insurance. 
However, USDA would not have realized any dollar savings from this
additional reduction because crop insurance program staff are
supported by offsetting collections--funds collected from the fees
farmers pay to sign up for the crop insurance program. 


   BACKGROUND
------------------------------------------------------------ Letter :2

In general, freedom-to-farm proposals allow farmers who have
participated in the commodity payment programs to plant whatever
crops they wish.  The proposals in H.R.  2195 and the Balanced Budget
Act of 1995 would have ended the 60-year-old requirement for farmers
to idle farmland in order to qualify for federal support payments. 
Farmers would have been expected to plant for the marketplace, and
the federal government would have gradually reduced its role in
agriculture. 

Under H.R.  2195, farmers would have entered into 7-year market
transition contracts and received fixed annual payments based on
their production.\2 The proposal would have placed a limit on total
payments under the program and allowed farmers greater flexibility in
planting decisions.  The program's total expenditures would have been
limited to $43.2 billion over the 7-year period.  The program's
annual expenditures would likewise have been limited, and the crops
covered by the proposal would have been allocated a percentage of
these total annual expenditures.  Similar provisions were included in
the proposed Balanced Budget Act of 1995. 

FSA is the agency principally responsible for administering payments
to the farmers who receive federal agricultural assistance.  FSA
calculates payments to farmers under the federal agricultural
assistance programs.  FSA also monitors compliance with the programs'
requirements, including the environmental requirements.  In addition,
the agency administers the federal crop insurance program and
provides credit to farmers under the agricultural credit programs. 
In fiscal year 1995, FSA had the equivalent of 20,905 full-time
employees, including 13,432 county-based employees.  FSA employs 11
percent of USDA's staff in the Washington, D.C., area and 18 percent
of USDA's staff outside that area. 

FSA's county office staff perform a series of complex tasks to
compute acreage bases and calculate and distribute payments to
farmers.  FSA tracks the workload in its field offices through a
system that measures the amount of time staff take to complete tasks. 
The agency uses this information to project personnel and budget
needs.  During fiscal year 1995, five major tasks--administrative
functions, compliance activities, commodity program payments, crop
insurance activities, and maintenance of basic farm
records--represented 70 percent of the field offices' workload. 


--------------------
\2 For contract payments, production is defined as a farmer's 1995
historical average of a crop planted for harvest (the farmer's 1995
acreage base) multiplied by the farmer's 1995 program yield per acre. 


   SAVINGS UNDER THE
   FREEDOM-TO-FARM PROPOSAL IN
   H.R.  2195
------------------------------------------------------------ Letter :3

Adopting the freedom-to-farm provisions set forth in H.R.  2195 would
have enabled USDA to realize significant personnel savings because
the proposal would have required fewer program activities than the
commodity programs in effect until the enactment of the 1996 farm
bill.  As a result, USDA would have needed fewer staff.  All of the
personnel savings would have occurred in FSA, most of it at the
county office level. 


      PERSONNEL SAVINGS
---------------------------------------------------------- Letter :3.1

Under the provisions of H.R.  2195, USDA could have reduced FSA
personnel by 1,823 staff years and saved approximately $332 million
between 1997 and 2002, using USDA's assumptions about personnel
costs.  USDA would not have realized dollar savings from the
reduction of 197 of these staff years.  These 197 staff years are
associated with farm-measurement services, which are supported by the
funds collected from the fees that farmers pay for the services.  The
savings would essentially have begun in fiscal year 1997--the second
year of implementation--and continued through fiscal year 2002--the
final year of implementation. 

The staff year workload would not have decreased in fiscal year 1996,
the first year of implementation, because of the increased workload
associated with implementing the new program.  For example, FSA's
staff would have had to sign up owners and operators\3 for the
program and inform them of the new program's provisions.  FSA would
also have needed to inform participants how these provisions would
affect their operations and payments.  Furthermore, although staff
reductions would have begun in fiscal year 1997, the savings during
that year would have been partially offset by $28 million in employee
separation costs.\4 The personnel reductions would have decreased
FSA's total staff by about 9 percent over the period. 

According to USDA officials, because of the timing of the enactment
of the 1996 farm bill, the full savings related to its
freedom-to-farm and crop insurance provisions may not occur until
1998. 


--------------------
\3 The term "operator" refers to the person or persons who farm the
land but may or may not own the land. 

\4 According to USDA, some separation costs will also occur in fiscal
years 1998 and 1999, reducing savings in those years. 


      PROGRAM ACTIVITIES AFFECTED
      BY PERSONNEL REDUCTIONS
---------------------------------------------------------- Letter :3.2

Most of the personnel reductions resulting from H.R.  2195 would have
occurred in FSA's county staff,\5 particularly in five functional
areas--payments under the commodity programs, maintenance of basic
farm records, compliance activities, reimbursable farm-measurement
services, and the establishment of bases and yields.  USDA
anticipated that additional staff reductions would occur in FSA's
headquarters, state offices, and technical offices.  Table 1 shows
our analysis of the changes in staff years by work function. 



                                Table 1
                
                 Reductions in Staff Years by Function,
                               1997-2002

Function                                     Reductions in staff years
----------------------------------------  ----------------------------
County employees
----------------------------------------------------------------------
Payments under commodity programs                                  553
Maintenance of basic farm records                                  296
Compliance activities                                              261
Reimbursable farm-measurement services                             197
Establishment of bases and yields                                  159
Loan activities                                                     29
Subtotal--county employees                                       1,495

Federal employees
----------------------------------------------------------------------
Headquarters and related activities                                328
======================================================================
Total staff years                                                1,823
----------------------------------------------------------------------
Source:  GAO's analysis of USDA's data. 

Regarding payments for commodity programs, reductions would have
occurred primarily because farmers would have signed up for the
program only once, by entering into a contract at the start of the
7-year period.  Consequently, FSA would have performed the
notification and recordkeeping associated with enrollment only once. 
In contrast, under the 1990 farm bill, farmers had to sign up
annually for program payments.  Regarding basic farm records, staff
reductions would have occurred because less recordkeeping would have
been required for changes pertaining to owners' and operators'
relationships.  Under the 1990 farm bill, the relationships between
owners and operators could change annually.  Under H.R.  2195, owners
and operators would have been less likely to change their
relationships because they would have signed 7-year contracts with
USDA.  As a result, FSA staff would have performed less work to keep
the records on owners and operators updated.  According to USDA
officials, contrary to the initial assumptions made for H.R.  2195,
under the 1996 farm bill, changes to owner-operator relationships may
continue at the same level as in the past. 

Under the initial assumptions made for H.R.  2195, staff reductions
would also have occurred in relation to compliance activities because
the amount of farmland that participants would have to certify as
meeting environmental standards would have decreased.\6 Under the
1990 farm bill, participating farmers had to certify that all of
their farmland met certain environmental standards.  Under H.R. 
2195, participating farmers would have certified only that the land
covered by the market transition contracts met these environmental
standards.  As a result, FSA would have needed fewer staff because
the number of acres subject to environmental standards would have
decreased.  According to USDA officials, under the 1996 farm bill,
this assumption is no longer valid because participants will have to
certify all farmland as meeting environmental standards, not just the
land subject to the market transition contracts. 

Regarding reimbursable services, FSA collects fees for measuring
participants' farmland.  Measuring farmland helps ensure that farmers
report acreage accurately.  Under the 1990 farm bill, farmers could
request that FSA measure their farmland to avoid the penalties
assessed for incorrect reporting.  H.R.  2195 would have allowed
farmers greater flexibility in deciding not only what crops to plant
but also how much of each crop.  Because reporting accuracy would not
have been as critical under this proposal, farmers may have requested
this service less and therefore decreased FSA's workload.  However,
since farmers pay for this service, the salary savings would have
been offset by the loss of these fees. 

Regarding establishing bases and yields, FSA's workload would have
been reduced under H.R.  2195 because staff would not have needed to
update this information annually under the 7-year contracts.  Under
the 1990 farm bill, FSA annually recalculated and notified operators
of changes in crop acreage bases and yields.  Under H.R.  2195,
contract payments over the entire 7-year period would have been based
on 1995 acreage bases and yields.  Therefore, FSA would have had to
update this information only when an event changed a contract
payment, rather than annually.  Such events would have included
changes in the relationships between owners and operators or land
being taken out of the Conservation Reserve Program during the 7-year
period. 


--------------------
\5 County-based FSA employees are not federal employees.  However,
they are paid from FSA's Salaries and Expenses Account. 

\6 This assumption was also made for the proposed Balanced Budget Act
of 1995. 


   SAVINGS UNDER THE PROVISIONS OF
   THE PROPOSED BALANCED BUDGET
   ACT
------------------------------------------------------------ Letter :4

The proposed Balanced Budget Act of 1995 included freedom-to-farm
provisions as well as provisions affecting crop insurance, livestock,
and conservation programs.  While the freedom-to-farm provisions
under the proposed Balanced Budget Act would have achieved savings
similar to those under H.R.  2195, USDA would have achieved greater
personnel savings under the act because it included changes in areas
not addressed by H.R.  2195.  The act would have resulted in a net
reduction of 2,719 staff years, which represents about a 13-percent
decrease in FSA's total staff from the fiscal year 1995 level. 
Reductions in staff beyond those resulting from the freedom-to-farm
provisions would have occurred because the primary responsibility for
enrolling farmers in the crop insurance program would have been
transferred to the private sector.  However, no dollar savings are
associated with these reimbursable activities because USDA would have
lost, in addition to the staff, the related offsetting collections. 
In addition, other provisions in the act would have slightly offset
the total savings.  Table 2 shows the net effect of the provisions of
the proposed Balanced Budget Act. 



                                Table 2
                
                Staff Year and Dollar Savings Under the
                Proposed Balanced Budget Act, 1997-2002

                         (Dollars in millions)

Provisions under the proposed Balanced      Staff year          Dollar
Budget Act                                    decrease         savings
--------------------------------------  --------------  --------------
Freedom-to-farm provisions                       1,823            $332
Other proposed provisions                          896            (28)
Net impact of all proposed provisions            2,719            $304
----------------------------------------------------------------------
Source:  GAO's analysis of USDA's data. 

As the table shows, the proposed Balanced Budget Act included
additional provisions that would have had the net effect of reducing
FSA's workload by 896 staff years beyond the savings resulting from
the act's freedom-to-farm provisions.  Most of these additional staff
year savings are associated with transferring enrollment for crop
insurance from FSA to the private sector.  Under procedures in effect
until the enactment of the 1996 farm bill, FSA's staff sold basic
catastrophic crop insurance to farmers through FSA's county offices. 
Farmers paid a $50 service fee per crop to sign up for the insurance
coverage.  FSA retained this fee to cover the cost of administering
the enrollment.  Transferring the crop insurance function to the
private sector would have reduced FSA's workload by 1,022 staff
years.  Other provisions of the act covering livestock programs,
environmental programs, and the reporting of information to reinsured
companies would have resulted in a net workload increase of 126 staff
years.  Thus, the net effect of the personnel savings from crop
insurance and other provisions would have been 896 staff years. 

Although no dollar savings would have resulted from the decrease of
these 1,022 staff years, all of which are supported by offsetting
collections, USDA would have incurred separation costs of $14 million
as a result of these reductions.  Similarly, USDA would have incurred
additional costs of $14 million for the increased workload of 126
staff years resulting from the Balanced Budget Act's provisions, as
discussed above.  Combined, these two costs would have lowered the
savings under the act by $28 million, resulting in a net savings of
$304 million.  The newly enacted farm bill delays the transfer of
crop insurance enrollment from FSA to the private sector until crop
year 1997, and FSA's county offices will continue to sell insurance
in areas where private insurance is not available.  Therefore,
according to USDA officials, the full impact of the staff year
savings and separation costs associated with changes in the crop
insurance program will be delayed until 1998. 


   OTHER FACTORS MAY AFFECT USDA'S
   STAFFING LEVELS
------------------------------------------------------------ Letter :5

USDA may have achieved additional organizational changes and related
savings as it reevaluated efficiencies in its delivery of services to
its customers.  For example, the loss of over 2,300
county-office-based staff years could have led to office closures or
consolidations.  These, in turn, would have resulted in savings of
operations and maintenance costs.  Until the regulations for the 1996
farm bill become final, similar savings under that legislation will
be difficult to estimate. 


   AGENCY COMMENTS
------------------------------------------------------------ Letter :6

We transmitted a draft of this report to FSA for review and comment. 
In commenting on this report, FSA's Associate Administrator pointed
out that the estimates used in developing the savings discussed in
this report were based on assumptions that were valid when USDA's
analysis was completed.  However, with the enactment of the 1996 farm
bill, several of these assumptions will have to be reevaluated.  For
example, he said that the new legislation delays the timing of
changes in the crop insurance program, amends the conservation
provisions, and changes the assumptions USDA used when estimating its
workload for maintaining basic farm records.  We made changes in the
body of this report to reflect these concerns. 

USDA acknowledges that the 1996 farm bill will result in reductions
in workload and staffing, but the magnitude of the savings has not
been determined at this time.  USDA will soon begin evaluating the
implications for personnel levels of the new farm bill. 


   SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :7

To estimate the reductions in staffing levels under H.R.  2195 and
the agricultural provisions of the proposed Balanced Budget Act of
1995, we used the fiscal year 1995 levels of personnel in farm
support programs and of workload as a baseline.  The estimates of
reductions were based on the changes that would have occurred in the
work processes under the two proposals. 

We reviewed H.R.  2195 and title I of the proposed Balanced Budget
Act of 1995 to identify how commodity programs would be affected.  We
also reviewed the Federal Agriculture Improvement and Reform Act
(P.L.  104-127) to determine whether its freedom-to-farm provisions
were similar to those in the two legislative proposals. 

We reviewed the methodology and workload measurement assumptions that
USDA used in making its estimates of the workload and staffing levels
that would be needed in its county offices to administer all of the
farm support programs under the proposed Balanced Budget Act of 1995. 
Because the proposed act included freedom-to-farm provisions, USDA's
analysis included data on how staff years and work functions would be
affected by these provisions.  We isolated the work functions related
to the freedom-to-farm provisions in H.R.  2195 and estimated the
resulting work reductions. 

USDA estimated that FSA's staff at headquarters, state offices, and
technical offices would be reduced by 10 percent--about the same
percentage that resulted from its calculation of the reduction in
county office staff.  This methodology differs from the analysis of
workload statistics that USDA used to estimate the workload changes
and staff reductions in the county offices. 

To assess the reasonableness of USDA's workload measurement
assumptions and estimates, we reviewed and analyzed work processes,
tasks, and personnel levels at several field offices.  This analysis
enabled us to reach an informed opinion on the reasonableness of
USDA's methodology and assumptions.  We believe USDA's methodology
was reasonable.  We also reviewed and discussed with USDA officials
at headquarters, state, and county levels the impact that
freedom-to-farm provisions would have on staffing levels. 

For information on the workload required to administer the commodity
programs, we relied heavily on USDA's workload management assumptions
and workload measurement statistics.  We did not verify the accuracy
of USDA's workload measurement data, but we identified how the data
were developed, collected, and summarized. 

We performed our review from October 1995 through April 1996 in
accordance with generally accepted government auditing standards. 


---------------------------------------------------------- Letter :7.1

We are sending copies of this report to the Senate Committee on
Agriculture, Nutrition, and Forestry; the House Committee on
Agriculture; and other appropriate congressional committees.  We are
also sending copies to the Secretary of Agriculture, the
Congressional Budget Office, and the Office of Management and Budget. 

If you or your staff have any questions about this report, I can be
reached at (202) 512-5138.  Major contributors to this report are
listed in appendix I. 

Sincerely yours,

Robert A.  Robinson
Director, Food and
 Agriculture Issues


MAJOR CONTRIBUTORS TO THIS REPORT
=========================================================== Appendix I

Robert C.  Summers, Assistant Director
Signora James May, Project Leader
Patrick J.  Kalk
Paul Pansini
Stuart Ryba
Carol Herrnstadt Shulman


*** End of document. ***