ctc33.03

by

Secretary of Agriculture Ann M. Veneman
Before the Subcommittee on Agriculture, Rural Development,
Food and Drug Administration, and Related Agencies
Committee on Appropriations, U.S. House of Representatives

February 27, 2003

     "Mr. Chairman, Members of the Committee, it is an honor for me to appear before you to discuss the fiscal year (FY) 2004 budget for the Department of Agriculture (USDA). I have with me today Deputy Secretary Jim Moseley, our Chief Economist, Keith Collins, and our Budget Officer, Steve Dewhurst.

     "I want to thank the Committee again this year for its support of USDA programs and for the long history of effective cooperation between this Committee and the Department in support of American agriculture. I look forward to working with you, Mr. Chairman, and all the Members of the Committee during the 2004 budget process.

     "As you know, the President’s Budget was released on February 3rd. Total USDA outlays for 2004 are estimated to be $74.1 billion. This is an increase of $1.4 billion above the level requested in 2003. Departmentwide discretionary outlays are estimated at $20.2 billion, about $300 million below the 2003 requested level. The Department’s request for discretionary budget authority before this committee is $15.4 billion.

    "This year’s budget is consistent with this Administration’s policy book: Food and Agricultural Policy for the 21st Century and supports the Department’s 5-year strategic plan. This plan outlines long-term goals and strategies for providing leadership in food, agriculture, resource and related issues, and the 2004 budget is designed to help accomplish USDA’s strategic goals of: enhancing economic opportunities for agricultural producers; supporting increased economic opportunities and improving quality of life in rural America; enhancing protection and safety of the Nation’s agriculture and food supply; improving the Nation’s nutrition and health; and protecting and enhancing the Nation’s natural resource base and environment.

    "Because of fiscal realities, this budget is highly constrained. However, it maintains and enhances critical programs that supports the Department’s strategic goals by:

   "For 2004, this budget supports the following key initiatives:

•     " Providing necessary funding for the continued implementation and administration of new and expanded programs enacted as part of the Farm Security and Rural Investment Act of 2002 (Farm Bill).
  
  
•     " Implementing the largest and most wide-reaching Farm Bill conservation title ever which represents an unprecedented investment in conservation that will have significant environmental benefits.
  
  
  
•     "Infants and Children (WIC) and covers the anticipated increases in participation in the Food Stamp Program, including legal immigrants and others newly eligible for benefits under the 2002 Farm Bill.
  
  
•    "Providing record level funding to strengthen protection against harmful bacteria in meat and poultry products. The request funds additional food safety inspectors and supports continued implementation of a science-based food safety inspection system by providing specialized food safety training to inspectors and other food safety professionals, increasing microbiological testing, and enhancing the information available to inspectors for evaluating food safety hazards that threaten the food supply
  
  
  
•  " Supporting the Department’s strategic goal of expanding international marketing opportunities by providing over $6.0 billion for the Department’s international programs and activities.
  
  
  
• " Protecting American agriculture from threats to plants and animals and transfers necessary inspection and research functions to support the new Department of Homeland Security (DHS).
  
  
•  "Providing continued support for fundamental and applied sciences in agriculture, including advancing research on agricultural genomics and on animal and plant pests and diseases.
  
  
• " Providing over $11 billion in loans, grants, and technical assistance for rural development needs, including electric and telecommunications systems, water and waste disposal systems, rural housing, and business and industry.
  
  
•  " Improving the management and delivery of the Department’s programs.
  
  " With this as an overview, I would now like to discuss the details of our budget proposals for 2004.

Homeland Security

    "The Department is transferring the border inspection functions of the Animal and Plant Health Inspection Service’s (APHIS) Agricultural Quarantine Inspection (AQI) program and the Plum Island Animal Disease Center to the new DHS. The transfer involves $247 million and nearly 2,700 staff years. A Memorandum of Understanding will ensure that USDA has access to AQI employees in the event of future outbreaks of plant and animal pests and diseases.

    "The budget requests an increase of nearly $42 million over that for FY 2003. It will support 7,680 food safety inspectors, an increase of 80 inspectors, and provide specialized training for the inspection workforce, increase microbiological testing and sampling, strengthen foreign surveillance programs and increase public education efforts. In addition, $30 million will fund efforts by APHIS to expand inspection services, increase the availability of foot-and-mouth disease vaccines, provide protection against chronic wasting disease and poultry diseases, and expand diagnostic and other scientific/technical services. An increase of $47 million will strengthen laboratory security measures, fund research on emerging animal diseases, develop new vaccines, create new bio-security database systems, and continue development of the unified Federal-State Diagnostic Network for identifying and responding to high risk pathogens.

    "The FY 2002 Emergency Supplemental provided the Department with $328 million for 2002 and 2003 to protect American agriculture and its food supplies from terrorism. The supplemental provided $15 million to APHIS for moving laboratory operations from a strip mall in Ames, Iowa, to the main National Veterinary Services complex. It is under construction. The supplemental of $50 million to ARS at Ames, Iowa, is being used as part of the $124 million appropriated by Congress in recent years for modernization of the research facility. It is awaiting construction. Another $23 million was allocated to Plum Island, New York. It is being transferred to DHS for laboratory improvements. Funding of $115 million was allocated to improve physical and operational security at USDA labs and facilities, undertake security related research, and improve cyber security. The planning for this effort is largely completed. The remaining $125 million was allocated to improve security for food and agriculture by expanding pest detection and animal health monitoring, emergency preparedness training and exercises and strengthening the regional laboratory network. As of January 2003, $124.6 million has been obligated with the remainder to be spent during 2003.

FARM AND FOREIGN AGRICULTURAL SERVICES

    "The farm sector in recent years has experienced lower market returns for several major commodities and recurring losses from various diseases, pests and other natural disaster-related causes. While the situation is showing signs of improvement, market returns in some areas of the farm economy are still low. The new Farm Bill enacted in 2002 provides additional financial support for the farm economy if market conditions weaken. The President’s budget for 2004 reflects the new Farm Bill which added new countercyclical programs to the farm safety net, reformed other farm programs and substantially expanded the Department’s conservation programs. In addition, the budget supports a strong crop insurance program and an aggressive international trade program that will be critical to improving the farm economy in the next few years.

Farm Program Delivery

    "Farm Service Agency (FSA) salaries and expenses are funded at $1.3 billion in 2004. This would support staffing levels of about 5,900 Federal staff years and 10,800 county non-Federal staff years, including about 1,500 temporary staff years. Temporary staff will be reduced from the high level required in 2003 because of the heavy workload associated with the initial implementation of the new farm programs. However, we expect the workload for FSA to remain at significant levels in 2004, particularly because of Farm Bill requirements in the conservation area. Therefore, permanent county non-Federal staff levels are protected at current levels.

    "In order to help FSA meet its workload challenges, improve service to farmers, and enhance operating efficiency, the budget provides increased funding of $41.9 million for FSA’s information technology efforts related to the Service Center Modernization Initiative. This includes continued installation of geographic information systems (GIS) and other Common Computing Environment (CCE) initiatives to help move the delivery system into the e-Government era. The budget presents these funds as well as funds for the other Service Center agencies under the CCE appropriation to ensure that these activities are well coordinated.

    "Management initiatives to modernize farm credit program servicing activities and to streamline information technology and related administrative support for the Service Center activities of FSA, the Natural Resources Conservation Service (NRCS), and Rural Development (RD) will also be undertaken in an effort to improve our ability to provide services at less cost.

International Trade

    "One of the key objectives set forth in the Department’s new strategic plan is the expansion of international marketing opportunities. As the strategic plan and our earlier review of the U.S. food and agricultural system in the 21st century make clear, expanding markets is critical to the long-term health and prosperity of American agriculture. With 96 percent of the world’s population living outside the United States, future growth in demand for food and agricultural products will occur primarily in overseas markets.

    "The Department is moving ahead aggressively to achieve our trade expansion objectives. At the center of these efforts is negotiation of trade agreements that will reduce trade barriers and increase market access overseas. At the World Trade Organization, the United States has presented an ambitious proposal for reform of global agricultural trade that will eliminate export subsidies and reduce market access barriers and trade distorting domestic support. At the same time, the Department is actively engaged in efforts to establish regional free trade agreements with countries in Central America and southern Africa, as well as the Free Trade Area of the Americas. Work also has begun to reach comprehensive trade agreements with Australia and Morocco.

    "Our trade policy activities are not limited to negotiating new agreements, however. As these agreements are implemented, it is essential that we bolster our efforts to monitor compliance and ensure that U.S. rights are protected. These efforts are critical to preserving markets as evidenced by the Department’s work over the past year to resolve trade disputes, such as China’s restrictions on soybean imports and Russia’s ban on U.S. poultry imports.

    "The Foreign Agricultural Service (FAS) is the lead agency in the Department’s international activities and plays a critical role in our efforts to expand and preserve overseas markets. To support its activities, the 2004 budget provides a program level of $145 million for FAS. This is an increase of nearly $10 million above the 2003 request level and supports a number of important trade-related activities. Among these is a trade capacity building initiative that will allow FAS to work with other countries in their implementation of the Cartagena Protocol on Biosafety. The Protocol is intended to provide uniform standards for ensuring the safe transport and use of products derived from biotechnology. Through a series of regional seminars, training sessions, scientific exchanges, and related activities, FAS will work to ensure that the Protocol’s provisions are properly interpreted and applied. This is intended to facilitate the adoption of science-based, transparent, and non-discriminatory standards and, thereby, help to avoid potential disruptions in agricultural trade.

    "The FAS budget also includes funding for a USDA contribution to the Montreal Protocol Multilateral Fund. Established in 1991, the Fund assists developing countries switch from ozone-depleting substances to safer alternatives. Agricultural issues are expected to become increasingly important in the Montreal Protocol process, particularly as the scheduled phase-out date for the use of methyl bromide approaches. The USDA contribution will help to further U.S. agricultural interests in the Protocol implementation process.

    "Additional funding in support of FAS trade agreement negotiation, enforcement, and standards-setting activities will be made available from funds requested for the Office of the Secretary to conduct USDA cross-cutting trade negotiation and biotechnology activities. These funds also will be available to bolster efforts by FAS, APHIS, and other USDA agencies to address market access constraints related to biotechnology.

    "The Department’s export promotion and market development programs are another key component in our efforts to expand international marketing opportunities. The 2002 Farm Bill increased funding for many of these programs in order to bolster our trade expansion efforts, and the President’s budget fully reflects those increases.

     "For the Commodity Credit Corporation (CCC) export credit guarantee programs, the budget includes a program level of $4.2 billion which continues the programs near their current level. For the Department’s market development programs, including the Market Access Program and Cooperator Program, the budget increases funding to $163 million in 2004. This includes $2 million to continue the Technical Assistance for Specialty Crops Program authorized by the Farm Bill and implemented by FAS last year. The budget also includes $57 million for the Dairy Export Incentive Program and $28 million for the Export Enhancement Program.

    "The budget supports a total program level for U.S. foreign food assistance activities of nearly $1.6 billion. Of that amount, just over $1.3 billion is provided for the P.L. 480 Title I credit and Title II donation programs. It also includes a projected $151 million for the CCC-funded Food for Progress programs which, based on current price projections, should support 400,000 metric tons of assistance as required by the Farm Bill. The budget also requests $50 million in appropriated funding for the new McGovern-Dole International Food for Education and Child Nutrition Program. As the Committee is aware, the program is funded through CCC in 2003, but beginning in 2004 is to be funded through appropriations. This funding level will provide continuity to new program activities that will begin to be implemented in late 2003.

Farm Credit

    "The budget also supports a program level of about $3.7 billion in farm credit programs to enhance opportunities for producers to obtain, when necessary, federally-supported operating, ownership, and emergency credit. The program level is down slightly from last year due to higher subsidy costs for the direct loan programs. In addition, funding has been reallocated from guaranteed operating loans to the direct loan programs to better accommodate the actual demand in these programs. No additional funding is being requested for the emergency loan program. Based on current estimates, the budget assumes that carry-over funding in the emergency loan program will be sufficient to meet demand.

Crop Insurance

    "The budget also includes full funding for the crop insurance program. The budget includes “such sums as necessary” for the mandatory costs associated with program delivery and the payment of indemnities. The program is delivered by private insurance companies, and the Federal Government reimburses the companies for their delivery costs. The companies may also receive underwriting gains on policies for which they retain the risk of loss.

    "In 2000, Congress substantially reformed the crop insurance program, in part, by providing for substantial increases in the premium subsidy available to producers, especially at higher levels of coverage. Producers have responded by purchasing higher levels of coverage. As a result, the premium earned per policy has increased from about $1,500 to over $2,300. However, the number of policies sold has remained virtually steady at about 1.3 million policies, indicating that most policies are renewal business which requires less sales effort than does the solicitation of new customers. In addition, technological advances mandated, in part, by the 2000 reforms have provided producers the opportunity to access information and to apply for crop insurance electronically.

    "The Administration recently announced that the 2004 book of business would be delivered under the Standard Reinsurance Agreement that has been in place for a number of years. However, the budget includes a proposal to cap the amount of delivery expense reimbursement the companies may receive at 20 percent of the premium. The existing cap of 24.5 percent has been in place since 1998. This proposal is expected to save about $68 million in 2004. These savings are achievable because of improvements in the cost-effectiveness of the delivery system through the establishment of e-commerce procedures, higher premium dollar policies for insuring the same number of acres, and more business being done on a renewal basis.

MARKETING AND REGULATORY PROGRAMS

    "Marketing and Regulatory Program agencies provide the basic infrastructure to protect and improve agricultural market competitiveness for the benefit of both consumers and U.S. producers.

Pests and Diseases

    "Helping protect the health of animal and plant resources from inadvertent as well as intentional pest and disease threats has been a primary responsibility of APHIS. The Department is entering into a Memorandum of Understanding with the DHS regarding the transfer of the AQI border inspections program. In this regard, APHIS will retain responsibility for promulgating regulations to protect against agricultural pests and diseases. DHS will provide access to the AQI inspectors in the event of future outbreaks. USDA will retain the role of inspecting passengers and cargoes traveling from Hawaii and Puerto Rico to the mainland for compliance with specified regulations to protect the health of the agricultural sector on the mainland.

    "The 2004 budget proposes a program level of slightly more than $800 million for salaries and expenses, an increase of about $10 million from the current comparable 2003 estimate. Notable programmatic increases would double efforts against chronic wasting disease, increase the availability of foot-and-mouth disease vaccines to protect against a potential outbreak, fund a low-pathogenic avian influenza program, enhance the ability to track animals and animal products entering and leaving the country, and expand regulatory enforcement. Further, bio-security and physical and operational security efforts would be bolstered, as would veterinary biologic and diagnostic support for the livestock sector. About
$32 million is reduced from specific pest and disease management programs assuming an increase in cost-sharing for emergency pest and disease outbreaks by some cooperators. A proposed rule will be published for comment which will provide the criteria for cost-sharing for all cooperators.

Marketing

    "Another important proposal in the marketing and regulatory programs area involves the Grain Inspection, Packers and Stockyards Administration (GIPSA). The 2004 budget requests $13 million to help ensure efficient market functioning. An increase of almost $1 million would fund a new pilot program to audit the top four steer and heifer meatpackers. The audits are anticipated to result in substantially better financial protection to the regulated industries through heightened financial scrutiny. An additional $500,000 would enhance compliance with the Packers and Stockyards Act and fund a review of the Act. GIPSA will implement a General Accounting Office recommendation to provide industry participants with clear information on agency views of competitive activities. The GIPSA budget also proposes user fees to recover the costs of establishing and amending U.S. Grain Standards, as well as license fees to recover costs of the Packers and Stockyards program.

    "For the Agricultural Marketing Service the budget proposes a program level of $297 million of which over 65 percent will be funded through user fees with the remainder funded through appropriations. An increase of $1 million in appropriated funds for increased pay costs is included in order to maintain existing program operations in Marketing Services and Payments to States.

FOOD SAFETY

    "USDA plays a critical role in safeguarding the food supply and its policies have contributed to the recent decline in pathogenic contamination of meat and poultry products and the level of foodborne illness as reported by the Centers for Disease Control and Prevention. This Administration believes that continued investment in the food safety infrastructure is necessary to ensure that the appropriate personnel, tools, and information are available to address the emerging food safety hazards that threaten public health and the viability of our agricultural system.

    "For 2004, the budget for the Food Safety and Inspection Service (FSIS) provides a program level of $899 million, an increase of nearly $42 million over 2003. The budget includes increases for pay and inflation, the resources necessary to support approximately 7,680 meat and poultry inspectors, an increase of
80 inspectors from 2003. These inspectors are necessary to provide uninterrupted inspection services to the growing poultry industry. Increased funding for domestic inspection programs is also requested to take into account Virginia’s decision to terminate its State inspection program and Maine’s decision to implement a State inspection program.

    "The budget includes an increase of approximately $16 million to support programmatic improvements aimed at achieving USDA’s strategic objective to reduce the prevalence of foodborne hazards from farm-to-table. These program improvements will permit FSIS to continually assess and update food safety systems in order to ensure the highest level of safety possible. The following programmatic improvements will be supported by the budget.

    "The budget includes an increase of $2 million to intensify the oversight of foreign inspection systems and inspection of the meat and poultry products which are exported to the United States. As more countries seek permission to export meat and poultry products to the United States, greater efforts will have to be made by inspection personnel to determine that their inspection systems ensure the level of safety that we expect here at home. With this funding, the number of countries being evaluated will increase from 33 to 40.

    "The budget also includes a programmatic increase of $6 million to strengthen FSIS’s microbiological testing program. First, consistent with recent directives issued by FSIS concerning the control of E. coli O157:H7 and Listeria monocytogenes, FSIS will significantly increase the level of testing of meat and poultry products for the presence of these pathogens. With this funding, the number of tests of ready-to-eat meat and poultry products samples for Listeria and Salmonella will increase by 50 percent; environmental sampling for Listeria monocytogenes in firms processing ready-to-eat meat and poultry products will be initiated; and samples of raw ground beef and ground beef products will more than double. This level of sampling will give consumers greater assurance that establishments are effectively controlling or eliminating the presence of pathogens in meat and poultry products.

    "In order to handle the increased level of testing and to develop the emergency surge capacity in the event of a bioterrorist incident, the budget includes funding to improve the agency’s laboratory infrastructure and to increase the number of highly trained chemists and microbiologists. These improvements are necessary to provide FSIS the capability it needs to ensure the safety of the products on a daily basis and to respond effectively to national emergencies involving the products it regulates.

    "FSIS will also conduct nationwide microbiological baseline studies to provide the long-term data necessary to assess the ongoing risks presented by the products FSIS regulates. Improved risk assessments will make inspection decisions more science-based. Consistent with the Administration’s policy on outsourcing, this laboratory testing would be conducted by outside laboratories.

    "The budget also provides a programmatic increase of $6 million to improve the scientific and surveillance skills of FSIS workforce. This represents approximately a 33 percent increase in FSIS’ training budget and a commitment to raising the base level of skill of the FSIS workforce. Training will be provided to in-plant inspectors to enhance the consistency and effectiveness of inspection. Inspectors highly trained in the latest food safety science and technology, including skills in assessing establishment Hazard Analysis and Critical Control Point systems and Sanitation Standard Operating Procedures, must be the backbone of our food safety infrastructure. In addition, training needs to be provided to food safety professionals, such as microbiologists, toxicologists, and risk assessors, in order to improve the development and enforcement of more science-based regulations.

    "An increase of approximately $2 million is requested to evaluate and design a mass media campaign aimed at improving the safe food handling practices of consumers. A well educated public is better prepared to understand and address the food safety hazards they face and, therefore, will be more confident in the food they buy and eat.

    "The 2004 budget also proposes legislation to collect an additional $122 million in user fees annually by recovering 100 percent of the cost of providing inspection services beyond an approved primary shift. Recovering a greater portion of these funds through user fees would result in savings to the taxpayer. These fees will have a minimal impact on prices received by producers or prices paid at retail by consumers.

FOOD, NUTRITION, AND CONSUMER SERVICES

    "The budget includes $44.2 billion for USDA’s domestic nutrition assistance programs, the highest level ever requested. The budget will ensure access to food assistance for all eligible recipients, it will help improve nutritional intakes and reduce obesity, and it will provide support for those recipients working toward economic self-sufficiency.
The Special Supplemental Nutrition Program for Women, Infants and Children is budgeted at $4.8 billion. This is a record high funding request, which funds record levels of at-risk, low-income participants. This request also includes additional funding for program initiatives, including State information systems, breastfeeding peer counselors, and childhood obesity prevention projects. WIC reauthorization is a priority and is assumed in the budget. Ensuring an appropriately funded WIC program with the best possible outcomes is a top Administration priority. Further, the budget includes $20 million for the WIC Farmer’s Market Nutrition Program and another $15 million in CCC funds for the Senior Farmers’ Market Nutrition Program.

    "The Food Stamp Program, which is the cornerstone of America’s effort to ensure low-income people have access to an adequate diet, is funded at $27.5 billion. This covers anticipated food cost inflation and participation growth of about 1 million participants, including legal immigrants and others newly eligible based on legislative changes in the 2002 Farm Bill. Included is a $2 billion contingency reserve, $1.4 billion for Nutrition Assistance for Puerto Rico, and funds to improve integrity and Electronic Benefit Transfer. Significant progress has been made in reducing over and under payment error in the program such that average State payment accuracy is now 91.34 percent, and overpayment error averages 6.37 percent of benefits. The budget maintains the emphasis on program integrity and seeks to reduce error further.

    "The Child Nutrition Programs would be funded at $11.4 billion, also a record for these programs. Increases are provided for food cost inflation, growth in the number of meals served and program integrity. Reauthorization of the Child Nutrition Programs is a priority for this coming year, and the Administration believes the focus should be on:

• "Ensuring stable and adequate funding for program benefits, especially for eligible meals served to low-income children who are eligible for free or reduced price meals;
  
  
• "Ensuring access to meals for all children;
  
  
• "Providing financial incentives to schools that serve meals consistent with The Dietary Guidelines; and
  
  
• "Streamlining program administration, minimizing administrative burden, ensuring adequate resources for program oversight, reducing error and improving program outcomes, while reinvesting any savings in strengthening the programs.

    "The budget also includes a proposal specifically to explore policy changes to help ensure that all free and reduced price meal eligibles are correctly certified. USDA studies and national survey data suggest that a significant number of children approved for free and reduced price meals are from ineligible households. Correct certifications are a priority not only because they affect about $7 billion in school meal funds, but also because a wide array of Federal, State, and local education resources, totaling considerably more than meal reimbursements, are targeted to low-income children and schools using the same data. More accurate certifications will help ensure that these resources are all targeted correctly. The Administration would fully reinvest any savings that result from improved payment accuracy to strengthen the programs.

NATURAL RESOURCES AND ENVIRONMENT

    "The 2002 Farm Bill contains many new conservation programs designed to protect and enhance the environment. The Department is now faced with the demanding task of implementing this Farm Bill which provides nearly $17.1 billion in new conservation funding over the next 10 years. The 2004 budget request in the conservation area recognizes the importance of this task, as well as the need to continue to support underlying programs to address the full range of conservation issues at the national, State, local and farm level.

    "The 2004 budget request for NRCS includes $1.2 billion in appropriated funding, and $1.4 billion in mandatory CCC financial assistance funding for the Farm Bill conservation programs, including $850 million for the Environmental Quality Incentive Program. The appropriated request includes $577 million for conservation technical assistance for the base programs that support the Department's conservation partnership with State and local entities. One new element in the NRCS appropriated account structure, proposed initially in a 2003 budget amendment, is a new Farm Bill Technical Assistance Account that will provide all technical assistance associated with the implementation of all the Farm Bill conservation programs. In 2004, this new appropriated account is funded at $432 million.

    "The 2004 budget for NRCS will also enable the agency to maintain support for important ongoing activities such as addressing the problems associated with polluted runoff from animal feeding operations and providing specialized technical assistance to land users on grazing lands. In addition, limited increases will be directed to other high priority activities such as addressing air quality problems in noncompliance areas, more fully implementing the Customer Service Toolkit, and
establishing a more effective and meaningful monitoring and evaluation regimen to oversee the implementation of Farm Bill programs.

    "The budget also proposes certain other changes for the watershed programs. With emergency spending being so difficult to predict, the budget proposes to not seek appropriated funding for emergency work while partially restoring the ongoing watershed planning and PL-566 programs. This will help address the backlog of unmet community needs that these programs are designed to meet. Disaster funding will be addressed as emergencies arise.

    "The Department's 2004 budget request maintains funding for the 368 Resource Conservation and Development areas now authorized. The ongoing program will continue to improve State and local leadership capabilities in planning, developing and carrying out resource conservation programs.

RURAL DEVELOPMENT

    "Over 60 million people call rural America home and relatively few of them are farmers and ranchers. USDA must embrace this reality and commit to creating new economic opportunities and improving the quality of life for a diversified rural population. Rural America needs to share in the Nation’s economic prosperity, in terms of good jobs and earning potential, homeownership and infrastructure for community services, including telecommunications to participate in a highly technological, global society.

    "The Administration is committed to bringing new ideas, new solutions and new approaches to rural America. The 2004 budget reflects this commitment. It includes new programs that are being implemented using the mandatory funding provided by the 2002 Farm Bill, and maintains the traditional loan, grant and technical assistance programs for rural development purposes at realistic levels of funding while offering new ways to operate these programs. For example, on January 29, 2003, USDA announced the availability of over $1.4 billion in loans for broadband telecommunication. This initiative started as a pilot program in 2001 and is on the verge of becoming one of USDA’s most important programs. It could make the same difference to rural America as the railroads did in the 19th century and the highway program did in the 20th century.

The 2004 budget proposes $11.9 billion for USDA’s rural development programs, including $680 million for administrative expenses. This program level is estimated to cost the Government $2.3 billion in budget authority, which compares to about $2.6 billion in the President’s 2003 budget. Because interest rates have declined, the subsidy costs for most direct loan programs are lower than those reflected in the 2003 budget. The 2004 budget maintains these programs at their 2003 levels, which results in a savings in budget authority.

The 2004 budget maintains the water and waste disposal program at an overall program level of $1.5 billion. However, it proposes that the amount of grants included in this level be reduced from $587 million to $346 million. Because the subsidy rate is only about 3.33 percent for direct loans, compared to 100 percent for grants, the shift toward more loans would maintain the same program level as the 2003 President’s budget while achieving a substantial savings in budget authority. The lowest interest rates in a decade should allow more communities to repay loans rather than rely on grants. In addition, mandatory funding provided by the 2002 Farm Bill was used to fund a backlog of projects that needed a substantial portion of their funding through grants in order to be viable. Recent applications indicate that more projects can be funded through loans alone or with only a moderate grant.

Electric loans are maintained at a $2.6 billion level. However, the amount available for direct loans at the 5 percent interest rate would be increased from $121 million to $240 million. This increase is intended to serve areas with low density and high consumer costs as well as other hardships. Further, USDA intends to ask electric borrowers, most of which qualified for eligibility based on service areas defined decades ago, to recertify that they are still serving rural areas, rather than urban or suburban areas.

     "Loans for broadband access were initiated as a pilot program in 2001. The 2002 Farm Bill provided the statutory authority and mandatory funding for this initiative. The 2004 budget provides for an increase in discretionary funding for broadband loans from $80 million in the 2003 budget to $196 million for 2004. This increase reflects the Administration’s support for bringing internet and broadband services to rural areas, and its belief that this activity should compete for funding under the annual budget process. Therefore, the 2004 budget proposes rescinding the mandatory funding for broadband loans that the 2002 Farm Bill makes available for 2004. The mandatory funding relating to the January 29, 2003, announcement is reflected in the budget as being used in 2003. However, this funding remains available until expended.

     "The 2004 budget also includes $2 million for broadband grants. As has been the policy since 2001 when the program was established, these grants will be used to assist a few small communities that lack the repayment capacity for loans.

     "With regard to the rest of the telecommunications programs, the budget includes $495 million for telecommunication direct loans, and $50 million in direct loans and $25 million in grants for the distance learning and telemedicine program. These levels are the same as those requested for 2003. Further, the 2004 budget contains the Administration’s prior proposal to stop funding the loan-making activities of the Rural Telephone Bank (RTB). The RTB is fully capable of obtaining funds to make loans through commercial channels as soon as it is privatized through the redemption of its Class A stock, which the Government holds.

     "The business and industry guaranteed loan program is funded at a program level of $602 million, down from $733 million in 2003. The decrease reflects an increase in subsidy costs due to both increased losses on guarantees made in prior years and technical adjustments.

     "Section 502 direct loans for single family housing would be increased from $957 million in 2003 to almost $1.4 billion in 2004. This increase would contribute to meeting the President’s goal of increasing minority homeownership. In addition, the 2004 budget includes $2.725 billion for Section 502 guaranteed loans, including $225 million for refinancing. While there have been shortfalls in demand for these guarantees in prior years, the Administration recently lowered the fees to bring them more in line with what other Federal agencies charge. This change is expected to ensure a strong demand for the program through 2004. Section 502 direct and guaranteed loans are expected to provide about 49,000 homeownership opportunities in 2004.

     "Consistent with last year’s budget proposal, the 2004 budget does not include funding for new construction of Section 515 rural rental housing projects. This proposal reflects concern about the long-term cost of the Government for maintaining the existing portfolio of 17,800 projects, and the need to find more cost-effective ways to provide housing support for rural residents with very low income. Many of these projects are over 20 years old and in need of repair or rehabilitation. They also require substantial amounts of rental assistance payments to remain viable. USDA has already initiated a review of alternatives for servicing the portfolio and developing options for making loans for new projects at less cost to the Government. Direct loans for repair, rehabilitation and preservation would continue to be made. The 2004 budget would support $71 million for these purposes. Further, the 2004 budget provides $740 million for rural rental assistance payments, which is sufficient to renew all expiring contracts and to support new construction of $59 million of farm labor housing projects.

     "In addition, the 2004 budget includes an estimated savings of $5 million for sales of loan assets. USDA’s RD mission area, along with FSA, will be evaluating the potential for conducting such sales on a regular basis.

RESEARCH, EDUCATION, AND ECONOMICS

     "Publicly supported agricultural research has provided the foundation for modern agriculture and is an important component of virtually all of our strategic objectives. Research will lead to commercially feasible renewable energy and biobased products with benefits to the environment, national security, and farm income. Genetic and molecular biology hold promise to reduce plant and animal diseases that threaten U.S. agriculture as the movement of plants and animals increases and as bioterrorism becomes a matter of increasing concern. There are technology-based opportunities to make our food supply safer and more wholesome that need to be exploited to address serious human health-related problems.

     "The 2004 budget for the four Research, Education and Economics agencies is approximately $2.3 billion, nearly the same as 2003 budget level. The 2004 budget follows the general pattern of the 2003 budget with reductions in earmarked programs and program increases in areas where needs and returns are the greatest. The budget also includes increases for pay costs, homeland security related activities, information technology and other infrastructure requirements.

     "The centerpiece of the 2003 budget was the proposal to move aggressively towards the full authorization level for the National Research Initiative (NRI). The proposal in the 2004 budget is based on the same underlying policy objective, but in a way that is consistent with the greater overall constraints of the 2004 budget. The proposal for $200 million for the NRI will finance work that will have an immediate impact on such issues as emerging diseases of plants and animals, biosecurity, air quality, and food and nutrition. The NRI provides critical support for mapping and sequencing the genomes of organisms of importance to agriculture. These projects are carried out in the major Federal genome sequencing centers in cooperation with other agencies including the National Institutes of Health, the Department of Energy, and the National Science Foundation, where USDA funds are highly leveraged.

     "The 2004 budget for the Agricultural Research Service (ARS) calls for increases to support participation in genome mapping and sequencing projects and enhance the agency’s bioinformatics capacity to transfer this information into research programs. There are increases for work on animal diseases and biosecurity to develop new vaccines, rapid diagnostic tests, and genome data on biosecurity threat agents. The research will lead to improved vaccines and therapeutics against foot and mouth disease and the newly emerging and most threatening swine disease, known as porcine reproductive respiratory syndrome or PRRS.

     "The budget includes funds to install security countermeasures in ARS laboratories. Security assessments and initial investments in countermeasures were funded through the 2002 emergency supplemental funding. Assessments of all ARS facilities are being completed and funds in the 2004 budget will be used for the highest priority projects. At this time, such security measures represent the highest priority for the Buildings and Facilities account. Congress has appropriated a total of $124 million in recent years for implementation of the animal health facilities in Ames, Iowa. No funding is proposed in the 2004 budget as security of existing facilities is the higher priority for this year. The Administration will reconsider the full range of options for future modernization of these facilities and present recommendations in the FY 2005 budget.

     "The 2004 budget for the Cooperative State Research, Education, and Extension Service (CSREES) includes funds to continue the formula programs for the 1862 institutions at current levels and increase formula payments to the 1890 institutions as a step towards funding these programs at the higher authorization levels established in the 2002 Farm Bill. There are also proposed increases in funds for the 1994 Tribal Land Grant schools and an increase in the CSREES graduate fellowship program that will allow more funding for fellowships at the masters degree level which is especially important for recruiting minority graduate students. Finally, there is an increase in the Outreach and Technical Assistance Program authorized under Section 2501 of the 1990 Farm Bill which is now being administered by CSREES. Our goals for the 2501 program are to encourage and assist socially disadvantaged farmers and ranchers own and operate farms and ranches and participate in USDA programs. With increased funding to $4 million we will be making more awards, for longer periods of time, to a wide range of community-based entities.

     "The budget for the Economic Research Service (ERS) includes an increase for two initiatives. An increase of $1 million for a Security Analysis System for U.S. agriculture (SAS-USA) to provide information critical for the mitigation of security threats and attacks to the Nation’s agriculture and food supply. The system will integrate spatial and economic data with analysis functions to deliver security assessments and recommendations to key decision makers within a short timeframe. An increase of $1.1 million will allow ERS to investigate consumer behavior, particularly in U.S. export markets, towards foods modified by genomic and other agricultural biotechnology innovations.

     "The budget for the National Agricultural Statistics Service (NASS) includes an increase for three initiatives and a decrease of $16.5 million for the Census of Agriculture, reflecting the decrease in staffing and activity levels to be realized in 2004 due to the cyclical nature of the 5-year census program.

     "An increase of $4.8 million is requested to help restore and modernize NASS’ core survey and estimation program for U.S. agricultural commodities and other economic, environmental and rural data. These data are used by a variety of customers for business decisions, policy making, research, and other issues. They are also necessary for the calculation of national countercyclical payments rates provided under the 2002 Farm Bill.

     "An increase of $1.6 million for NASS’ Locality-Based Agricultural County estimates program continues the improvements included in the 2003 budget request. These local estimates are one of the most requested data sets, and are especially important to the Risk Management Agency (RMA) for their risk rating process, (affecting premium levels paid by producers), and to FSA for calculating national loan deficiency payments.

     "Finally, an increase of $3.25 million is requested to support NASS’ efforts as the lead agency for two of USDA’s enterprise-wide e-Government initiatives, Survey Capability and Data Management. This funding will allow NASS to develop the infrastructure necessary for electronic data reporting for its surveys, thereby reducing the reporting burden on farmers and ranchers.

DEPARTMENTAL MANAGEMENT

    "The Departmental staff offices provide leadership, coordination and support for all administrative and policy functions of the Department. These offices are vital to USDA's success in providing effective customer service and efficient program delivery. Salaries and benefits often comprise 90 percent or more of these offices- budgets, leaving them little flexibility to reduce other expenditures needed to continue their operations. The 2004 budget proposes funding required to ensure that these offices maintain the staffing levels needed to provide management leadership, oversight and coordination.

    "These offices also have key responsibilities related to the President's Management Agenda and other departmentwide and agency-specific management reforms, which are crucial to making the Department an efficient, effective and discrimination-free organization that delivers the best return on taxpayers' investments.

The Department has made significant progress in improving management. Examples are:

• "The Department has a new strategic plan which is being used to communicate and drive our programmatic, budget and management priorities.
  
• "The Department received its first-ever unqualified or “clean” opinion on the FY 2002 financial statements, significantly reduced delinquent debt and all of the Department’s agencies now use a single financial information system that meets Federal standards.
  
• "The Department’s National Finance Center was one of four winners of a governmentwide competition to streamline payroll service providers. It also helps nearly 3 million Thrift Savings Plan participants manage and track their investments.

    "USDA’s customers can increasingly conduct business with the Department online, saving them and the Department time and money over the long term.

    "The FY 2004 budget builds upon that progress by continuing funding levels for these offices and providing key funding increases in order to:

• "Provide $6.6 million to appropriate agencies, such as APHIS, FAS, and GIPSA, through the Office of the Secretary to address cross-cutting trade related challenges. Additional resources are needed for trade negotiations and enforcement actions, as well as in solving biotechnology issues related to market access and regulatory standards. This request will allow Secretarial level coordination, flexibility and resource sharing to target current trade issues.
  
  
• "Meet demands for Departmental coordination of homeland security efforts, including emergency planning and strengthened physical and cyber security in light of the September 11, 2001, attacks
  
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• "Continue efforts to modernize the Service Center agencies (FSA, NRCS, and RD) to improve efficiency and customer service. A key element in these plans is the maintenance of a CCE for the Service Center agencies and RMA acceleration of our efforts to acquire and use Geospatial Information Systems (GIS). The CCE and GIS are critical to providing electronic services to USDA customers.
  
  
• "Continue renovations of the South Building to ensure that employees and customers have a safe and modern working environment.
  
  
• "Enable the new Assistant Secretary for Civil Rights to guide civil rights activities. The President has nominated Vernon Parker as the new Assistant Secretary for Civil Rights and we look forward to a quick confirmation.
  
  
• "Enhance outreach efforts to provide all of our customers with information about our programs
  
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• "Enable the Offices of the General Counsel and the Inspector General to provide needed services to the Department.

    "That concludes my statement. I look forward to working with the Committee on the 2004 budget so that we can better serve those who rely on USDA programs and services.

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