Statement of Administration Policy: H.R. 3520 - Rural Development, Agriculture, and Related Agencies Appropriations Bill, 1988

(House Rules)
(Sponsors: Whitten (D) Mississippi, Smith (D) Nebraska)

The bill is unacceptable to the Administration as reported by the Appropriations Committee because of excessive funding, numerous objectionable language provisions, and the total disregard of the President's credit and cost-saving proposals. If the bill were presented to the President in its present form, the Secretary of Agriculture and the Office of Management and Budget would recommend that he veto it.

In considering the acceptability of Congressional action on appropriations bills, the Administration uses as its benchmark the budgetary resources (i.e., budget authority, obligation limitations, and loan limitations) requested by the President for discretionary programs. The Rural Development/Agriculture bill clearly exceeds that benchmark.

The Committee scores the bill as being $54 million below the request. However, this total is achieved by reducing the Farmers Home Administration's (FmHA) revolving funds, not scoring other funding actions, and disregarding cost-saving proposals offered by the Administration. Thus, these actions do not result in real budgetary savings, and serve only to veil real increases in discretionary spending. For discretionary programs, the Committee provides $1.2 billion more than the President's budget authority request. The Committee also increases the President's request by $4.7 billion in direct and guaranteed loans. As a result, the bill exceeds the Administration's benchmark by $5.9 billion.

— The Committee completely ignores all Administration initiatives concerning REA loan programs, continuing highly-subsidized REA lending at $2.0 billion. The Administration's initiative of converting direct REA loans to 70 percent REA guarantees of private loans and charging a user fee for administrative costs would achieve deficit reductions of $4.5 billion from FY 1988 to FY 1992, while having an insignificant impact on the typical electric customer. In addition, the Committee adds language that deletes the Secretary of Treasury's authority to disallow prepayments which he determines would adversely affect the Federal Financing Bank's operations.

— The Committee continues the costly and inefficient rural housing direct loan program, which the President proposed to terminate, at $1.8 billion rather than adopting the cost-effective housing voucher program.

— Rural development direct and guaranteed loan programs are continued at the FY 1987 level of $522 million, thus effectively removing the incentive for municipalities to seek financing through the private market. The President proposed these programs be terminated.

— The Committee precludes the sale of loans made by the Agricultural Credit Insurance Fund. Effective management of any credit program requires this flexibility, whether or not these steps are taken.

Second, the Administration objects strongly to section 634 that prohibits any effort to alter the method of computing normalized prices for agricultural commodities in effect January 1, 1987. This provision undermines recently-implemented Admiriis-tration efforts to reform the way Federal agencies justify agricultural development water projects. The Administration's new normalized prices remove the effects of USDA programs for surplus crops. The previous practice of double- counting benefits has resulted in construction of unneeded water projects that, in turn, increase the production of surplus crops and cause additional downward pressure on farm prices. This situation is particularly intolerable when Federal taxpayers are spending $25 billion a year for price and income maintenance for farmers who grow surplus crops.

Third, the Committee rejects the President's proposals to terminate programs whose conservation goals could largely be achieved through the conservation activities mandated in the Food Security Act of 1985 or programs that should no longer be funded by the Federal government. For example, increases for the Soil Conservation Service ($164 million) and the Agricultural Stabilization and Conservation Service ($218 million) are provided. These increases are in addition to $1,217 million the Committee provides for the new Conservation Reserve Program, the Administration's preferred mechanism for achieving conservation obj ecti ves.

Fourth, the Committee rejects the Administration's attempts to implement user fees in USDA and FDA programs. Under the President's proposal, beneficiaries of specialized services would be required to pay for these services. The rejection of these user fees requires the taxpayer to pay over $586 million more per year rather than the recipients of these services.

Fifth, the Administration objects strongly to treatment of CCC. The Committee specifies detailed upfront appropriations for each of the CCC farm price support programs. Such a radical departure from existing authorities and practices would leave CCC with a seriously reduced capability to respond .to market conditions and support farm income and prices as required by law.

The enclosed material details these and other previsions that are objectionable to the Administration.

Enclosure

November 10, 1987
(House Rules)

RURAL DEYELOPMEMT/AGRICULTURE APPROPRIATIONS BILL, 1988 OBJECTIONABLE PROVISIONS

I. FUNDING LEVELS

Rural Electrification (REA). The Committee's FY 1988 REA 1 oans levels are Tar Tn excess of the President's request. The Committee provides: (1) insured 5 percent loans of $872.4 million as compared to the President's request of $290 million; (2) Rural Telephone Bank (RTB) loans of $177 million versus the President's request of $93 million; and (3) REA-guaranteed Federal Financing Bank (FFB) direct loans of $933.1 million versus the President's request of no 100 percent REA-guaranteed lending. As a result of reduced insured 5 percent REA loans and RTB loans, the President's request offered a program of $840 million in 70 percent REA guarantees of privately-originated loans.

The Committee also includes language that would change section 306(a) of the REA Act, and delete the authority of the Secretary of Treasury to disallow any premium-free prerepayment of REA-guaranteed FFB loans that he determines would adversely affect the operation of the FFB. The Secretary of Treasury has already determined that prepayments would adversely affect the operation of the FFB and no prepayments should have been allowed in FY 1988 or thereafter. The section 306(a) change could result in about $5.7 billion in premium-free prepayments and the loss of about $1.5 billion that borrowers are contractually obligated to pay. The Administration objects strongly to this provision as an unnecessary additional subsidy to REA borrowers.

Finally, the bill includes $20 million to partially reimburse the REA revolving fund for the differential between interest income and interest costs, and specifies that the Rural Telephone Bank sell $28.7 million in Class A Stock to the Treasury in FY 1988. The President requests no appropriation for reimbursements to the Fund in FY 1988 because it is an unwarranted subsidy and direct loans were scheduled to be phased out by FY 1990. The President requests no purchase of Class A stock because it is unnecessary given a replacement of RTB loans with 70 percent guarantees of private loans. Class A stock represents an unwarranted subsidy to telephone borrowers and only pays a 2 percent annual dividend to Treasury.

Rural Housing Insurance Fund (RHIF). The Committee rejects all of the President's proposals to terminate funding for the housing programs in the RHIF and replace them with housing vouchers. The bill funds these programs at $2 billion over the President's request for new loans. Thus, the bill continues to fully fund the inefficient new housing construction programs the President has actively sought to terminate for years.

Rural Development Insurance Fund. The Committee completely rejects all of the President?s proposals to discontinue the direct and guaranteed loan programs. The continuation of these programs at the FY 1987 level of $521 million is objectionable and inappropriate. By rejecting the President's request, the Committee effectively removes the incentive for creditworthy borrowers to seek adequate credit resources through the more appropriate private markets.

Rejection of User Fee Initiative. The President's user fee proposals for the following programs were rejected by the Committee:

-- REA ($27 million)
-- Food and Drug Administration ($34 million)
-- Food Safety and Inspection Service ($395 million)
-- Animal and Plant Health Inspection Service ($86 million)
-- Federal Grain Inspection Service ($7 million)
-- Marketing Services ($33 million)
-- Agricultural Cooperative Service ($4 million).

This action, which results in the loss of $584 million in offsetting collections, in concert with additional funding increases to these programs, is unnecessary and burdens the Federal government with costs it should not bear.

Soil Conservation Service. The Administration proposal to provide only funding for close-out activities for the following programs is rejected by the Committee:

-- River Basin Surveys and Investigations
-- Watershed Planning
-- Watershed and Flood Prevention Operations
-- Great Plains Conservation Program
-- Resource Conservation and Development.

In addition, the Committee provides $637 million, $164 million more than requested by the President, for all SCS programs. Continued funding of these programs at the expense of higher-priority programs is inconsistent with good fiscal policy. Moreover, any continued funding of many of these programs should be assumed by local entities.

Agriculture Stabilization and Conservation Service (ASCS). The Committee rejects the President's proposal to terminate ASCS programs whose objectives are essentially available through the conservation activities mandated in the Food Security Act of 1985. The President's request of $1,388 million for the Conservation Reserve Program (CRP), as compared to the $1,426 million the Committee provides for both the CRP and the ASCS cost-share programs, is sufficient to ensure the realization of conservation goals. The CRP is clearly the preferred mechanism to achieve conservation ot ectives in the most cost-effective manner.

Commodity Credit Corporation (CCC). The Committee establishes funding levels within the appropriation for specific program activities that would eliminate the financial latitude necessary to operate the CCC and require significant changes in CCC accounting and management systems. The requirement of submitting a subsequent request to Congress to adjust these levels does not consider the timing of operational needs, could re suit in avoidable delays in executing program requirements, and raises the possibility of the CCC not being able to fulfill its obligations in a timely manner. Such a radical departure from existing authorities and practices would leave the CCC with much reduced capability to respond to market conditions and support farm income and prices as required by law.

Federal Crop Insurance Corporation (FCIC). The Committee underfunds FUTC by $111million by assuming a lower level of business activity than assumed by the Administration. This funding level achieves no real savings and could force FCIC to use CCC borrowing authority in the event of higher business activity.

Extension Service. The Committee provides $363 million for this program, $100 million in excess of the President's request. The bill funds section 3(d) grants under the Smith-Lever Act, and includes such low-priority activities as urban gardening and pesticide impact assessment, for which no funds were requested. Also, the bill provides $4 million in unrequested grants for counseling programs activity. These programs can be financed by resources other than those provided by Federal taxpayers.

Agricultural Research Service. The Administration objects to the Committee's $20 million increase to the President's request for this program, including an additional $13.7 million for buildings and facilities. The Committee funds many low-priority specialized programs, including a $3.0 million increase above the President's request for the Human Nutrition Research. The Committee also includes funds for many construction projects not included in the FY 1980 budget, including $0.9 million for a feasibility study for agriculture research at the Oceanic Institute. The Administration has a research program based on nationwide priorities. The use of Federal funds is carefully evaluated in terms of these priorities. If a State has a particular interest in certain type of research, the State should fund that research.

Cooperative State Research Service. The Committee provides $273 million, a 133 million increase to the President's request. The Committee concurrently decreases funds for the high-priority competitive research grants by $14.2 million and increases funding for special research grants. States with specialized interest should fund those interest. Grants from this program should be made competitively rather than provided outside of the formula grant program.

Animal and Plant Health Inspection Service. The Committee provi des $318 million for this program, a $108 million increase to the President's request. The largest increase, discounting the user-fee proposal, is $10.5 million for Animal Damage Control (ADC). A large portion of ADC benefits accrue directly to local beneficiaries who should bear the major responsibility for funding these activities.

WIC. The Committee provides $1,803 million, an increase of $116 million to the President's request, and $80 million above current services. Despite tight budgetary constraints on all domestic programs, WIC funding has more than doubled since FY 1980. With more than 3 million low income women, infants, and children currently participating, further program improvements should come through more efficient use of existing resources and better targeting to the neediest, rather than through such unfocused funding increases. In Tennessee, for example, current estimates indicate that State WIC participation may increase by 8-12 percent due to a recent food cost savings initiative.

Nutrition Assistance for Puerto Rico. The Committee provides more funds than necessary for the Nutrition Assistance for Puerto Rico block grant. For FY 1988, the Administration requests $825 million; the Committee provides $879 million. Puerto Rico has complete flexibility to set benefit levels and eligibility criteria. Puerto Rico can maintain benefits for high-priority recipients and, if necessary, reduce benefits to the less needy to stay within its appropriation.

Food Stamps. The Committee provides $12,056 million and underfunds Food Stamps by $450 million. The President's current estimate of the Food Stamps funding level is $12,506 million, while the Congressional Budget Office estimates Food Stamps will need $12,590 million in FY 1988. The effects of underfunding are potentially severe. USDA has authority to reduce Food Stamp benefits for all recipients if program requirements exceed statutory authorization levels -- $14,741 million is authorized for FY 198ET If the Committee levels remain, USDA will have no choice but to terminate benefits once Food Stamp funds are exhausted. Since Congress has failed to enact the Administration's FY 1988 Food Stamp proposals, Congress must take reponsibi1ity for fully funding the program. By underfunding the program, the Committee has failed to recognize the true, total costs of its actions.

Agricultural Credit Insurance Fund (ACIF). The Committee continues funding for various ACIF loan programs proposed for termination by the President. These funds should be used for higher-priority programs that require appropriate Federal funding.

FmHA, Grant Programs. The Committee funds all of the grant programs aT a total cost of $163 million over the President's request. The President proposed termination of all of these programs.

Temporary Emergency Food Assistance Program (TEFAP). The Committee funds the Temporary Emergency Food Assistance Program for which no funds were requested by the President. The bill provides $50 million in grants to States for the distribution of surplus commodities donated to the needy. The government already provides surplus commodities to the needy. In addition, the government also pays the cost of processing and transporting these commodities to the States. Any additional costs should be provided by the States as their fair share.

Commodity Supplemental Food Program (CSFP). The Committee increases CSFP by $15.5 mlllion above the President's request, and $7.5 million above current services. Needy women, infants, and children eligible for CSFP are much better targeted by WIC, which serves the same population, and has expanded dramatically in recent years to serve over 3.3 million women, infants, and children in all but 200 counties nation-wide. Unlike WIC, CSFP does not require participants to show medical/nutritional need and is open to low-income elderly.

FmHA, Office of the Administrator. The Administration objects to restrictions imposed by the Committee funding level for this program.

Assistant Secretary of Agriculture for Natural Resources and Environment. The Committee provides no funds for this office. This is an ill-advised action to redirect responsibilities within the Department. The Administration objects to this treatment and cautions that such actions will impede the management of the Department and execution of its responsibilities, legal and otherwise.

II. LANGUAGE PROVISIONS

Section 634. The Administration objects strongly to Section 634, that prohibits any effort to alter the method of computing normalized prices for agricultural commodities in effect January 1, 1987. This section requires the Federal water resource agencies (the Departments of the Interior, Army, Agriculuture, and the Tennessee Vally Authority) to continue to justify new agricultural development water projects on the basis of agricultural commodity prices that overstate project benefits by including the effects of USDA price support and income maintenance programs for surplus crops.

The provision undermines recently-implemented Administration efforts to reform the way Federal agencies justify agricultural development water projects. The Administration's new normalized prices remove the effects of the USDA programs for surplus crops. The previous practice of double-counting benefits has resulted in construction of unneeded water projects that, in turn increase the production of surplus crops and cause additional downward pressure on farm prices. This situation is particularly intolerable when Federal taxpayers are spending $25 billion a year for price and income maintenance for farmers because of substantial overproduction of surplus crop, including certain farmers (primarily in the West) growing these surplus crops with water supplied by Federal projects at rates well below the true costs (a benefit worth hundreds of millions of dollars annually).

Sale of ACIF Loans. The Administration objects strongly to section 635 that precludes funds to be used to sell ACIF loans. This type of restriction has the direct result of preventing the Administration from achieving significant improvements in the management of credit programs and should be deleted.

Food and Drug Administration. In rejecting the President's proposal for FDA user fees, the Committee retains restrictive language prohibiting the use of funds to develop, establish, or implement user fees. This language represents an intrusion into effective management of FDA drug and device approvals and would seriously hamper FDA's effort to improve the processing of new drug and device applications.

Commodity Supplemental Food Program. The Administration opposes 1anguage that forbi ds 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 subsidies to CSFP by CCC.

Minimum Staffing Levels. Section 626 mandates minimum staffing levels Tor four bureaus of USDA -- Farmers Home Administration, Agricultural Stabilization and Conservation Service, Rural Electrification Administration, and Soil Conservation Service. This infringes on the Executive Branch's ability to implement programs efficiently and effectively.

Credit to Poland. The Administration continues to object to section 620 restricting the President's ability to conduct foreign policy by modifying terms of existing U.S. commitments to U.S. banks under credit guaranteed to the Polish People's Republic.

FmHA Debt Collection. Section 531, which denies the Administration the opportunity to use private debt collection agencies, is objectionable. Sound debt management requires the ability to seek effective and cost-efficient collection alternatives and not to preclude the use of these alternatives.

Intrusions in Executive Branch Matters. The Administration objects to the provisions directing the Chief of Soil Conservation Service to report directly to the Secretary of Agriculture and precluding funds to be used for consolidating technical centers. These provisions, as well as section 617 that disallows the phasing out of the Resource Conservation and Development Program are inappropriate intrusions in Executive Branch matters.

Mandating New Construction Projects. Section 622 directs the Secretary of AgricuIture 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 tasked with executing these programs.

Release of Proprietary Information. The Administration objects to section 630 because laws to enforce and control the release of proprietary information already exist. Given the protections already established by these laws, this provision will only serve to hamper the effective administration of the program.

Financing of Larger Homes. The Administration opposes the inclusion of section 632 as an attempt to legislate the financing of larger homes under the section 502 program. Where and when appropriate, the Administration will take administrative action to permit financing of larger homes.