Statement of Administration Policy: H.R. 4784 - Rural Development, Agriculture, and Related Agencies Appropriations Bill, FY 1989

(Senate)
(Sponsors: Stennis (D), Mississippi; Burdick (D), North Dakota)

The bill, as reported by the Appropriations Committee, is unacceptable because of the inclusion of seriously objectionable language, excessive funding for discretionary programs, and the overall treatment of loan programs. If the bill were presented to the President in its present form, the Secretary of Agriculture and the Director of the Office of Management and Budget would recommend that he veto the bill.

The most seriously objectionable language provisions include:

— Section 640 which purports to require OMB and the agencies to comply with non-statutory statements issued by the managers of conference committees. This provision restricts the President's ability to execute the actual statutory language of appropriations legislation as concurred in by each House of Congress, presented to the President, and enacted into law. The "instructions and the specific allocations and earmarking of funds contained in the joint statement of managers" are neither voted on by Congress, nor presented to the President. Consequently, such "instructions" are not law; they are legislative history that can only serve to explain the law rather than create it.

Thus, we believe that, to the extent it purports to make non-statutory "instructions" binding on the Executive Branch, section 640 attempts to bypass the "express procedures of the Constitution's prescription for legislative action: passage by a majority of both Houses and presentment to the President." (INS v. Chadha, 462 U.S. 919, 958 (1983)). This departs from the intended constitutional design. The non-statutory "instructions" may or may not be carefully considered by a majority of the members of both Houses, and may or may not even be consistent with the law as actually signed. If Congress wishes to provide for the enactment of the managers' "instructions," it may choose to do so consistent with the Constitution by including them in the bill voted by each House and presented to the President.

—    Section 642 that would allow the Arkansas Electric Cooperative to prepay Rural Electrification Administration (REA) loans without paying the required FFB prepayment premium, and without any reforms to the underlying REA programs. During discussions leading to the Bipartisan Budget Agreement (BBA), Congressional leaders agreed that Congress would address REA loan reforms early in the second session, which Congress has not done. The Administration has already communicated to Congress in a letter dated April 19, 1988, that key senior advisers would recommend to the President that he veto any legislation that implements premium-free prepayments of REA loans without the REA loan program reforms proposed by the Administration.

—    Authorizing legislation in an appropriations bill. The Administration objects strongly to provisions for the Food and Drug Administration that have no demonstrated need and have not even been considered by the appropriate authorizing committees. Of particular concern is the provision creating a new categorical higher education grant and student loan repayment program that clearly duplicates Department of Education and Public Health Service programs.

—    Language that requires obligation in FY 1989 of $364 million of unobligated prior year REA loan authorizations without regard to nonstatutory quotas or other restrictions. This provision results in a 40 percent increase in 5 percent interest loan levels in one year. Each dollar lent at 5 percent interest costs the taxpayer 35 cents in subsidy.

—    Section 632 that permanently prohibits efforts to alter the method of computing normalized prices for agricultural commodities. This prohibition blocks the Administration's efforts to eliminate "double subsidies" — providing subsidized water (a benefit worth hundreds of millions of dollars annually) to grow Federally-subsidized crops.

—    Continuation of unwarranted intrusion by the Committee into the management of the Office of the Secretary of Agriculture and Executive Branch agencies as demonstrated by FTE floors for four USDA bureaus and the Food and Drug Administration, and 11 separate appropriations for presidentially-appointed officials.

In addition, the Administration understands that an amendment will be offered to waive or reduce contributions from Farm Credit System institutions mandated by the Agricultural Credit Act of 1987 (Act). The Administration opposes strongly any reduction of this small contribution and views the amendment as a complete abrogation of the hard fought agreement reached with Congress last year over the bailout of the Farm Credit System. The enactment of this provision would represent a retreat from the already minimum amount of system self-help required by the Act and further increase taxpayers' exposure to the potential costs of Financial Assistance Corporation defaults.

The Administration is also seriously concerned with overall discretionary funding levels. The bill, based on current estimates, provides funding for domestic discretionary programs that exceeds the President's request by $2.9 billion in budget authority, $1.8 billion in outlays, and $5.0 billion in loan limitations. In addition, the P.L. 480 program is funded at $1.1 billion, an increase to the President's request of $75 million in budget authority and $68 million in outlays. These funding levels could in combination with other appropriations legislation jeopardize seriously the FY 1989 BBA spending levels for domestic and international programs.

Lastly, the bill is unacceptable because of the overall treatment of loan programs and the total disregard for the Administration's loan program proposals. Specifically, the bill:

—    Disregards the Administration's proposals to make long overdue reforms to the costly Rural Electrification Administration (REA) loan programs; proposals that would result in outlay savings of $4.3 billion from FY 1989 through FY 1993, while having an insignificant impact on the average REA borrowers' electricity rates.

—    Continues the costly and inefficient traditional rural housing direct loan program rather than adopting the Administration's proposal to expand the more cost-effective rural voucher program and terminate the direct loan program.

—    Includes restrictions on USDA's ability to manage its loan program by prohibiting the sale of ACIF loans, denying the use of private debt collections services for delinquent Farmers Home Administration loans, and limiting the volume of loan sales from the Rural Development Insurance Fund loan portfolio.

The Administration urges the Senate to address satisfactorily the issues discussed above and in the attachment to ensure that the President is presented a FY 1989 Rural Development, Agriculture, and Related Agencies Appropriations Bill he can sign.

Attachment

RURAL DEVELOPMENT/AGRICULTURE APPROPRIATIONS BILL, 1989
OBJECTIONABLE PROVISIONS

I. FUNDING LEVELS

Rural Electrification Administration (REA):

Premium-Free Prepayments. The Administration has communicated its strong opposition to additional premium-free prepayments of REA loans in an April 19, 1988 letter sent to specific members of Congress. The letter stated that senior advisers of the President would recommend veto of any bill that contains premium-free prepayments without necessary reforms to the REA programs. Financially troubled borrowers have already been permitted to prepay and any additional prepayments would go to financially healthy borrowers. Section 642 would allow the Arkansas Electric Cooperative (Coop) to prepay REA loans without paying the required FFB mortgage contract prepayment premium. The Coop would not use a REA guarantee to prepay these loans. Since none of the Administration's REA reforms are included, the inclusion of this provision will result in a veto recommendation of the bill as communicated in the April 19 letter.

In addition, the bill includes a provision, section 634, that requires within 30 days after enactment of the bill, that $500 million of premium-free REA prepayments authorized in FY 1988 be made available with $150 million allocated to telephone borrowers and $350 million allocated to electric borrowers. The allocation of $150 million for telephone borrowers is very objectionable since these borrowers are highly profitable including some who are subsidiaries of very large telephone holding companies. Finally, by law, offsetting collections from any such prepayments cannot be counted towards reducing the deficit under Gramm-Rudman-Hollings.

REA Unobligated Loan Authorizations. The bill requires that unobligated prior year loan authorizations of approximately $364 million be obligated in FY 1989 without regard to nonstatutory quotas or Executive Branch restrictions. This provision will result in a 40 percent increase in 5 percent loans and cost taxpayers $400 million in subsidies for REA borrowers who are financially strong and profitable. In addition, this provision is fundamentally counter to the Administration proposal to phase out 5 percent interest direct loans in FY 1988 and substitute financial assistance in the form of 70 percent REA guarantees of privately originated loans beginning in FV 1989.

REA Loan Program Reform Proposals. The Administration objects strongly to the continuation of the highly subsidized REA direct lending program at the FY 1988 enacted levels and the total disregard for the Administration's initiatives that would make available a new and less costly program of REA partial guarantees (70 percent for distribution and telephone, and 80 percent for power supply). The Administration's proposal would save $4.3 billion over FY 1989-93, and only increase electric distribution customers' bills by 74 cents per month on average 5 years after the enactment of these proposals. The goals of the REA have been accomplished and nearly all REA borrowers would be able to borrow privately at affordable rates under the Administration's proposed program. Moreover, the wasteful and costly $334 million appropriation to reimburse the REA Revolving fund for "interest subsidies and losses sustained...", would be unnecessary if the Administration's proposed reforms are enacted — an appropriation that provides an additional subsidy to the $50 billion in subsidies already provided electric and telephone borrowers since 1973.

Rural Telephone Bank (RTB) Capital Stock. The President's FY 1989 Budget calls for privatization of the RTB by 1995 and no further purchase of Class A stock. Disregarding the President's request, the Committee appropriates $28 million for the purchase of Class A stock. Telephone borrowers as a group are financially strong. Some are subsidiaries of major multi-billion and multi-million dollar highly profitable telecommunications holding companies (e.g., CONTEL Corporation and ALLTEL Corporation). The RTB pays only a 2 percent annual dividend to Treasury on Class A stock which totals $506 million. Since 1973, the cost of this subsidy exceeds $200 million.

Special Treatment for RTB Borrowers. Section 635 would allow RTB borrowers to rescind existing loans that have not been advanced fully and permit these borrowers to re-apply for a new lower-interest RTB loans. This provision is highly objectionable since it violates the loan contract between RTB and its borrowers by permitting a borrower to cancel an approved but not fully advanced loan, and re-apply for a new loan to get a lower-interest rate. This will substantially increase the cost and complexity of administering the program.

Rural Housing. The Committee continues the costly and inefficient traditional rural housing direct loan program at $1.7 billion rather than adopting the Administration's proposal to expand the more cost-effective rural voucher program and terminate the direct loan program. The direct loan programs offered by the Rural Housing Insurance Fund are not as effective as vouchers in helping low-income families move to standard housing units.

The Farm Credit Assistance Board. The Committee includes language that would restrict the administrative expenses of the Farm Credit Assistance Board and subject its personnel actions to Title 5 of the U.S. Code. Farm Credit legislation created the Farm Assistance Board, a temporary institution established to support the farm credit system. A specific decision was made to provide the board with the greatest possible flexibility in the pursuit of this mission. The proposed language would restrict the board and impair its operation.

Rural Development Insurance. The Administration, as part of its Rural Development Initiative, proposes to continue its program of grants, and direct and guaranteed loans through the Farmers Home Administration. Instead of supporting the Administration's proposed loan levels, the bill increases the President's request by $118 million. Moreover, by rejecting the Administration's proposals, the Committee provides disincentives for creditworthy borrowers to seek credit through private markets.

Sunflower Oil Program. Section 636 makes available up to $20 million but not less than $10 million of section 32 funds to purchase sunflower oil. This expands an one-year FY 1988 program and represents a back door method of implementing a Federal farm program for the sunflower industry without appropriate review.

Soil Conservation Service (SCS) and Agricultural Stabilization and Conservation Service (ASCS). The Committee ignores the Administration's proposals to terminate funding for SCS and ASCS programs that should not be financed by the Federal Government or could be better achieved through the conservation activities mandated by the Food Security Act of 1985. In addition, the Committee disregards the Administration's proposal to fund all SCS water resources activities in a single appropriations account — the Water Resource Management and Improvement account. In total, the bill provides $239 million more than requested by the President for all SCS and ASCS programs; funding provided at the expense of higher-priority programs and good fiscal policy.

FmHA Housing Grants Programs. The bill provides appropriations at approximately the FY 1988 level for all FmHA housing grant programs proposed for termination by the President. These funds, $50 million, should be used for higher priority programs.

Agricultural Credit Insurance Fund (ACIF). The Committee funds the ACIF non-disaster direct loan program at $972 million, an increase of $472 million to the President's request and includes $588 million for disaster loans instead of the anticipated demand levels, or $100 million in FY 1989. These increases should be used for higher priority programs that truly require direct. Federal spending.

CCC. The Administration commends the Committee for supporting the President's request for a current, indefinite appropriation and not including the funding ceiling proposed in the House-passed bill.

Temporary Emergency Food Assistance Program (TEFAP). The Federal Government provides surplus commodities for the needy and pays the cost of processing and transporting these commodities to the States. However, the bill includes an unrequested appropriation of $50 million in grants to States for the State and local distribution of surplus commodities. Funding for State and local distribution should be provided by the States.

Public Law 480. The increase of $75 million in budget authority and $68 million in outlays above the President's request could in combination with funding provided in other appropriations legislation jeopardize the Bipartisan Budget Agreement spending levels for international programs. In addition, the Adminstration objects to the provision that limits the Administration's flexibility in meeting unforseen program needs by allowing for only a 10 percent transfer among P.L. 480 titles as compared with 15 percent allowed in the authorization.

Rural Economic Development Subaccount. A new appropriation of $540 thousand, and funds in the "cushion of credit" REA subaccount, are included to subsidize rural economic development and job creation projects through already highly subsidized REA borrowers. The Administration proposes repeal of the program and opposes any funding. Prepayments should be used to pay debt owed to Treasury. Moreover, this program is anti-competitive because it gives REA borrowers, who are mostly Federal tax-exempt and otherwise heavily subsidized, an unfair advantage in economic development projects over businesses that are not as advantaged through Congressional largesse. In addition, language is included that requires that no less than 2 percent of the total full-time REA employees (11 FTE) be employed as "economic and community development professionals," to provide technical assistance to REA borrowers for economic development activities. The REA staff are needed to deal with other pressing problems in the REA programs such as regulation management and completing debt workout agreements on $7.0 billion in loan defaults and arrearages.

Food and Drug Administration. The Administration supports funding for AIDS activities but urges that the Senate appropriate all such funding in the central account proposed in the Department of Health and Human Service's Office of the Secretary of Health.

Office of the Secretary. The Administration objects to the inclusion of 11 separate appropriations for the Office of the Secretary. The Secretary of Agriculture should have the administrative discretion to determine resource levels for his own staff offices within a single appropriation account.

II. LANGUAGE PROVISIONS

Agricultural Commodities Normalized Pricing. The Administration objects strongly to Section 632, which prohibits efforts to alter the method of computing normalized prices for agricultural commodities in effect on January 1, 1986. This provision requires the Federal water resource agencies (the Departments of the Interior, Army, Agriculture, and the Tennessee Valley Authority) to continue to justify new agricultural development water projects on the basis of agricultural commodity prices that over-state project benefits by including the effects of USDA price support and income maintenance programs for surplus crops. This provision, previously enacted in the FY 1988 Continuing Resolution (P.L. 100-202), but modified by the Committee to be a permanent change in law, would curtail the Administration's efforts to reform the way Federal agencies justify agricultural development water projects. The Administration's new normalized prices would remove the effects of the USDA programs for surplus crops. This is one step the Administration would take to eliminate the "double subsidy" — providing Federally subsidized water (a benefit worth hundreds of millions of dollars annually) to grow Federally subsidized crops.

Food and Drug Administration (FDA). The Administration objects strongly to the inappropriate inclusion of authorizing legislation in the FDA appropriations. The appropriate authorizing committees have not even held hearings on these provisions and there is currently no evidence that any of these provisions are necessary. Specifically, the Administration objects to:

—    the creation of a new categorical higher education grant and student loan repayment program in FDA that clearly duplicates the multi-billion dollar Department of Education and the Public Health Service student assistance programs. There is no evidence that FDA is experiencing difficulty in this area, that special training authority is required, or any benefits will result from this program.

—    language authorizing FDA to directly appoint members of technical and scientific advisory groups without regard to the Federal Advisory Committee Act. There is no evidence suggesting that FDA is having difficulty staffing or maintaining the requisite advisory groups under current authority.

—    the inclusion of language providing definite authority for biotechnology demonstration programs and language authorizing funding levels for FDA small business assistance programs. No benefits are envisioned with the creation of this new authority that further restricts FDA's management flexibility. Also, FDA currently has indefinite authority for small business assistance and maintains an effective small business assistance program. This language would serve only to restrict FDA's management flexibility in response to program requirements.

Child Care Program. Section 638 amends the Adult Day Care portion of the Child Care food program to exclude income of non-spousal, non-dependent household members when determining income eligibility. Thus, an elderly person living with, and supported by, affluent offspring could get free meals if his/her personal income were low. In the Food Stamp program, elderly participants qualify as a separate household only if they prepare their meals separately. Adult day care participants would have no such requirement under this provision. Setting different standards for adults and children in the Child Care program could result in disparate benefits to members of the same household. Adult day care program costs would increase by about 20 percent if such a provision were enacted.

Restrictions on Loan Program Management. Sections 631 and 633 restrict the USDA's ability to manage its loan program by prohibiting the sale of ACIF loans and denying the use of private debt collections services to collect delinquent Farmers Home Administration loans. Such restrictions can be counter-productive because they increase costs to the taxpayer and reduce program efficiency and effectiveness. The Administration also opposes prohibitions in legislation precluding the sale of loans without recourse from the RHIF loan portfolio. The President's FY 1989 Budget propose non-recourse RHIF sales to net $870 million in FY 1989 receipts. Failure to prevent such prohibitions would preclude the sale and increase the deficit by the same amount. Finally, the Administration opposes language limiting RDIF loan sales to $584 million. This provision would preclude the Administration from using RDIF loan sales to help-meet the FY 1989 $3.5 billion loan asset sale target required by the BBA.

Micro-Management and Intrusions in Executive Branch Matters. The Administration objects to language prohibiting the consolidation of SCS national technical centers, a provision that caps the amount of funding for SCS technicians, and section 617 which disallows the phasing out of the Resource Conservation and Development Program. These provisions are inappropriate intrusions ip Executive Branch matters.

Credit to Poland. The Administration urges the Senate to strike section 620. This provision restricts the President's ability to conduct foreign policy by modifying the terms of existing U.S. commitments to U.S. banks under credit guaranteed to the Polish People's Republic.

GSA Rental Payments. Section 621 limits rental payments to the General Services Administration (GSA) to the amounts specified in the bill. This is inconsistent with the Administration's attempts to charge market rates to encourage the efficient utilization of space and with the Federal Property and Administrative Services Act of 1949. This provision would result in an estimated increase of $8 million in outlays. Consistent with the scoring of a similar provision in the Transportation Appropriations Bill, OMB has determined that this increase will be charged to the Rural Development/Agriculture Appropriations Bill.

Section 616. This provision limits the Government's cost share portion to 10 percent of the total cost of negotiated cooperative agreements. This could prohibit Government participation on existing cooperative agreements and eliminate cooperative agreements as a management option for satisfying conservation compliance requirements of the 1985 Food Security Act.

Section 622. This provision directs the Secretary of Agriculture to initiate construction on not less than twenty new projects under the Watershed Protection and Flood Prevention Act and not less than five new projects under the Flood Control Act. These types of decisions should be reserved for the Federal managers responsible for executing these programs.

Section 626. The bill mandates minimum staffing levels for four USDA bureaus — Farmers Home Administration, Agricultural Stabilization and Conservation Service, Rural Electrification Administration, and Soil Conservation Service — and the Food and Drug Administration. The provision infringes on the Executive Branch's ability to implement programs efficiently, effectively - ignores productivity improvements, and can only result in the inefficient allocation of Federal resources.

Section 639. The Administration supports this provision, which requires full absorption of any FY 1989 pay raise by programs funded in this bill. All pay raises should be provided fully in the annual appropriations acts to be consistent with the Bipartisan Budget Agreement which precludes supplemental requests except in the event of "dire emergency." Moreover, in order to ensure that the absorption requirement has Government-wide application, similar language should be included in each appropriations bill to ensure that 100 percent absorption is required for all Federal programs.

Commodity Supplemental Food Program. The Administration opposes language that forbids CSFP from reimbursing CCC for commodities donated to the program. The reimbursement of CCC for commodities is a valid program expense, and failure to pay for donated CCC items understates the resources needed to maintain CSFP food packages. This restriction results in unnecessary subsidies to CSFP by CCC.