[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]
AGRICULTURE, RURAL DEVELOPMENT, FOOD AND DRUG ADMINISTRATION, AND
RELATED AGENCIES APPROPRIATIONS FOR 2009
_______________________________________________________________________
HEARINGS
BEFORE A
SUBCOMMITTEE OF THE
COMMITTEE ON APPROPRIATIONS
HOUSE OF REPRESENTATIVES
ONE HUNDRED TENTH CONGRESS
SECOND SESSION
________
SUBCOMMITTEE ON AGRICULTURE, RURAL DEVELOPMENT, FOOD AND DRUG
ADMINISTRATION, AND RELATED AGENCIES
ROSA L. DeLAURO, Connecticut, Chairwoman
MAURICE D. HINCHEY, New York JACK KINGSTON, Georgia
SAM FARR, California TOM LATHAM, Iowa
ALLEN BOYD, Florida JO ANN EMERSON, Missouri
SANFORD D. BISHOP, Jr., Georgia RAY LaHOOD, Illinois
MARCY KAPTUR, Ohio RODNEY ALEXANDER, Louisiana
JESSE L. JACKSON, Jr., Illinois
STEVEN R. ROTHMAN, New Jersey
NOTE: Under Committee Rules, Mr. Obey, as Chairman of the Full
Committee, and Mr. Lewis, as Ranking Minority Member of the Full
Committee, are authorized to sit as Members of all Subcommittees.
Martha Foley, Leslie Barrack, Jason Weller, and Matt Smith,
Staff Assistants
________
PART 4
Page
Food and Nutrition Service....................................... 1
Rural Development................................................ 391
________
Printed for the use of the Committee on Appropriations
AGRICULTURE, RURAL DEVELOPMENT, FOOD AND DRUG ADMINISTRATION, AND
RELATED AGENCIES APPROPRIATIONS FOR 2009
_______________________________________________________________________
HEARINGS
BEFORE A
SUBCOMMITTEE OF THE
COMMITTEE ON APPROPRIATIONS
HOUSE OF REPRESENTATIVES
ONE HUNDRED TENTH CONGRESS
SECOND SESSION
________
SUBCOMMITTEE ON AGRICULTURE, RURAL DEVELOPMENT, FOOD AND DRUG
ADMINISTRATION, AND RELATED AGENCIES
ROSA L. DeLAURO, Connecticut, Chairwoman
MAURICE D. HINCHEY, New York JACK KINGSTON, Georgia
SAM FARR, California TOM LATHAM, Iowa
ALLEN BOYD, Florida JO ANN EMERSON, Missouri
SANFORD D. BISHOP, Jr., Georgia RAY LaHOOD, Illinois
MARCY KAPTUR, Ohio RODNEY ALEXANDER, Louisiana
JESSE L. JACKSON, Jr., Illinois
STEVEN R. ROTHMAN, New Jersey
NOTE: Under Committee Rules, Mr. Obey, as Chairman of the Full
Committee, and Mr. Lewis, as Ranking Minority Member of the Full
Committee, are authorized to sit as Members of all Subcommittees.
Martha Foley, Leslie Barrack, Jason Weller, and Matt Smith,
Staff Assistants
________
PART 4
Page
Food and Nutrition Service....................................... 1
Rural Development................................................ 391
________
U.S. GOVERNMENT PRINTING OFFICE
48-455 WASHINGTON : 2009
COMMITTEE ON APPROPRIATIONS
DAVID R. OBEY, Wisconsin, Chairman
JOHN P. MURTHA, Pennsylvania JERRY LEWIS, California
NORMAN D. DICKS, Washington C. W. BILL YOUNG, Florida
ALAN B. MOLLOHAN, West Virginia RALPH REGULA, Ohio
MARCY KAPTUR, Ohio HAROLD ROGERS, Kentucky
PETER J. VISCLOSKY, Indiana FRANK R. WOLF, Virginia
NITA M. LOWEY, New York JAMES T. WALSH, New York
JOSE E. SERRANO, New York DAVID L. HOBSON, Ohio
ROSA L. DeLAURO, Connecticut JOE KNOLLENBERG, Michigan
JAMES P. MORAN, Virginia JACK KINGSTON, Georgia
JOHN W. OLVER, Massachusetts RODNEY P. FRELINGHUYSEN, New Jersey
ED PASTOR, Arizona TODD TIAHRT, Kansas
DAVID E. PRICE, North Carolina ZACH WAMP, Tennessee
CHET EDWARDS, Texas TOM LATHAM, Iowa
ROBERT E. ``BUD'' CRAMER, Jr., Alabama ROBERT B. ADERHOLT, Alabama
PATRICK J. KENNEDY, Rhode Island JO ANN EMERSON, Missouri
MAURICE D. HINCHEY, New York KAY GRANGER, Texas
LUCILLE ROYBAL-ALLARD, California JOHN E. PETERSON, Pennsylvania
SAM FARR, California VIRGIL H. GOODE, Jr., Virginia
JESSE L. JACKSON, Jr., Illinois RAY LaHOOD, Illinois
CAROLYN C. KILPATRICK, Michigan DAVE WELDON, Florida
ALLEN BOYD, Florida MICHAEL K. SIMPSON, Idaho
CHAKA FATTAH, Pennsylvania JOHN ABNEY CULBERSON, Texas
STEVEN R. ROTHMAN, New Jersey MARK STEVEN KIRK, Illinois
SANFORD D. BISHOP, Jr., Georgia ANDER CRENSHAW, Florida
MARION BERRY, Arkansas DENNIS R. REHBERG, Montana
BARBARA LEE, California JOHN R. CARTER, Texas
TOM UDALL, New Mexico RODNEY ALEXANDER, Louisiana
ADAM SCHIFF, California KEN CALVERT, California
MICHAEL HONDA, California JO BONNER, Alabama
BETTY McCOLLUM, Minnesota
STEVE ISRAEL, New York
TIM RYAN, Ohio
C.A. ``DUTCH'' RUPPERSBERGER, Maryland
BEN CHANDLER, Kentucky
DEBBIE WASSERMAN SCHULTZ, Florida
CIRO RODRIGUEZ, Texas
Rob Nabors, Clerk and Staff Director
(ii)
AGRICULTURE, RURAL DEVELOPMENT, FOOD AND DRUG ADMINISTRATION, AND
RELATED AGENCIES APPROPRIATIONS FOR 2009
----------
Thursday, March 13, 2008.
FOOD AND NUTRITION SERVICES
WITNESSES
NANCY MONTANEZ JOHNER, UNDER SECRETARY FOR FOOD, NUTRITION, AND
CONSUMER SERVICES, USDA
KATE HOUSTON, DEPUTY UNDER SECRETARY FOR FOOD, NUTRITION, AND CONSUMER
SERVICES, USDA
ROBERTO SALAZAR, ADMINISTRATOR, FOOD AND NUTRITION SERVICE, USDA
W. SCOTT STEELE, BUDGET OFFICER, USDA
Ms. DeLauro. The committee is called to order. Thank me
and--thank you, and let me welcome all of you today, and
particularly Under Secretary Johner. And I'm really glad to
have had the opportunity. We met earlier this year to discuss a
number of priorities. And like you, I always find the meetings
to be helpful and informative and productive and are being able
to move forward. Can you hear me?
And let me just welcome the rest of the panel. I'm going to
leave all the introductions to you in your opening remarks,
Under Secretary. This is an important hearing from my
perspective. Families and children should never be forced to
choose between securing adequate food for their kids and other
basics they need. I think one of the government's most critical
responsibilities is providing children and low-income families
with access to quality food, a healthy diet, a positive
education about nutrition, and the Food and Nutrition Service
does exactly that, serving nearly one in five Americans.
Perhaps the most important program under the Food and
Nutrition Service is the school lunch program. That became very
clear last month with the historic meat recall involving a
Westland/Hallmark plant in California. Of the more than 140
million pounds of meat that was recalled, approximately 47
million were distributed to the school lunch program. There are
no reports of any children becoming sick from consuming this
meat, but it is no less alarming to think just how many
students were put at risk. This should not have been allowed to
happen, and must not be allowed to happen again.
I realize that the Food Safety and Inspection Service
shoulders much of the responsibility for allowing this recalled
meat to reach the school lunch program. Nevertheless, I do have
some serious questions about the Food and Nutrition Service's
role. We have a responsibility to determine what could have
been done to stop these dangerous practices and subsequent
recall.
I also intend to address some questions about this year's
budget. While you appear to fully fund critical nutrition
assistance programs such as food stamps and WIC, I remain
concerned about some recycle proposals that would again limit
the program participation. For instance, in what has now become
a tiresome annual ritual, this Administration is once again
proposing to zero out the commodity supplemental food program
in fiscal year 2009.
This is a program in which more than 473,000 seniors,
women, infants and children rely. When it comes to women,
infants and children, when it comes to that program, the WIC
program, the President's budget again proposes to cap grants to
state agencies for nutrition service and administration
expenses at the fiscal year 2000 level. This reduces program
costs by $145 million. However, if the cap is enacted, we will
have to add that amount back to the appropriation level in the
budget.
I also want to express my disappointment at the
Administration's efforts on WIC last year. While the
Administration did request a 3.5-percent increase for the WIC
program in fiscal year 2008, it still failed to acknowledge the
increased participation and food costs. Worse still, the
President threatened to veto any bill that increased total
spending levels above his request. At the time, it was clear to
everyone except the Administration that increased funding above
the President's request was essential to carry out the program
this year.
As you know, Madam Secretary, I'm also very concerned about
the Food and Nutrition Service's approval of Indiana's decision
to contract out virtually the entire administration of its food
stamp program. We've had a number of conversations about this,
and I understand earlier this week several groups held a news
conference pointing to serious flaws in Indiana's privatization
plan, including a dysfunctional and wasteful eligibility
system--difficulty in reaching call centers and navigating web
pages, even the loss of benefits.
I believe you will, but the Food and Nutrition Service and
the state of Indiana must take these complaints seriously, and
they must be investigated. According to initial news reports,
it sounded like state officials were dismissive of these
groups' claims. If these allegations are proven true, it would
seem like we're heading for a repeat of the debacle that
occurred in Texas. And I don't have to remind anyone of the
chaos that that experiment in privatization led to, with
reduced enrollments and decreased services.
I said this before, but I want to emphasize again, our
citizens need to know that they will have access to the food
assistance and health care programs during a time of crisis.
While private companies serve their shareholders, the American
people must be able to count on genuine oversight and strict
accountability.
We must be able to guarantee our most vulnerable citizens,
that they get the adequate care they deserve. Our government
has an obligation to its citizens to check private abuse, to
set standards in the public interest. That principle must apply
in all of our efforts, whether it's food stamps or the school
lunch program when it comes to creating real opportunity and
protecting the public health. It's our responsibility to get it
right, and we cannot afford to fail.
So, as always, we will have much to talk about today, and I
look forward to discussing the issues with you. I might also
add, and I've had some conversations with subcommittee members
about this as well, that there will be--we don't have a date
yet--a follow-up hearing on nutrition which will then include a
combination of both government witnesses and outside experts.
So it's just more broadly to discuss the whole issue of
nutrition.
With that, I thank you, and the ranking member, Mr.
Kingston is here, but I'm going to assume that Ms. Emerson is
going to sit in for him, and I ask you for opening comments.
Ms. Emerson. Thank you, Chairwoman. Thank you all so very
much for being here today. And I do look forward to your
testimony. I do have also a lot of questions. And, Madam Chair,
I want to add something to your remarks. I mean, I know how
disturbed you are about so many issues with regard to food
security and hunger security and the like.
I do want to tell you all, we just had a study done, a
Missouri Hunger Atlas that was done by the University of
Missouri, the Interdisciplinary Center for Food Security. And
it's really very frightening. In Missouri, for example, Madam
Chair, Missouri is one of 17 states with rising rates of food
insecurity with hunger. And the increase over the first part of
this decade is among the highest five in the country. And so--
and 15 percent of our state's children, or nearly 200,000
residents below the age of 18, are food insecure.
So, obviously, the issues with which you all deal on a
daily basis are quite important to me and this entire
subcommittee. But it is worrisome with, you know, higher gas
prices, higher food prices, higher about everything. This is an
issue which I think we need to pay special attention to,
because I think in the short term it might get worse before it
gets better. And certainly, the government working with all of
the private--with private industry and charitable foundations
and what work we can do here in the committee, Madam Chair, I
think are going to be critical in saving lives.
So I appreciate you all being here and thank you so much. I
have lots of questions.
Ms. DeLauro. I thank the gentlelady and also say I often
think about the terminology of ``food insecurity.'' It
essentially means that people are hungry, in my view, and that
we ought to be able to have the determination, the will and the
wherewithal to make sure that people in this country are not
hungry.
Let me ask you to make your remarks. You know the testimony
will be put in full into the record, but you're free to
summarize and make any comments that you care to before we get
to questions. Thank you.
Opening Remarks
Ms. Johner. Thank you, Madam Chair. And we're very grateful
to be here too this morning, because we have a lot to share.
But, Madam Chair and members of the Subcommittee, thank you for
this opportunity to present the Food, Nutrition and Consumer
Service budget request for fiscal year 2009.
By your permission, I would like to introduce three key
members of my team who are with me here who are with me today.
Kate Houston. She's our Deputy Under Secretary for Food,
Nutrition and Consumer Services. And Ms. Houston also
previously served as our Deputy Administration for Special
Nutrition Programs. Roberto Salazar, who is our Administrator
for the Food and Nutrition Service. And in the audience today
but not at the witness table is Dr. Brian Wansink, who recently
joined our mission area as Executive Director for the Center
for Nutrition Policy and Promotion.
My written testimony has already been submitted for the
record. So rather than recount what is already before you, I
would like to share with you key concepts that underlie our
fiscal year 2009 budget request. In doing so, I hope it will be
clear to you why we at FNCS and I personally as Under Secretary
have proposed the budget before you, and as to why we believe
it is fitting and sufficient for the programs we administer.
There are three basic themes which are fundamental in the
design of the budget before you: Good stewardship, improved
program integrity, and better access to the program benefits. I
realized that good stewardship is not necessarily the primary
factor in proposing a budget, yet good stewardship is demanded
whether we request a budget increase or we propose reduced
funding levels. Nevertheless, be assured that the budget before
you represents a thorough, honest assessment of the investment.
We believe we'll fulfill the requirements of the program we
administer, no more, no less, and that is good stewardship.
Likewise, our budget request is based on a dedication to
program integrity. Our commitment to you is that we will do our
utmost to ensure that every dollar you entrust to us is used in
accordance with law and regulations. Waste, fraud and abuse are
not acceptable, and our budget proposal makes no concession to
this principle.
Our ultimate goal at FNCS is ensuring eligible participants
have every opportunity to receive the benefits Congress
intended for them to receive. We aspire to provide these
benefits with dignity and compassion. I can assure you that we
would not present a budget that we knew to be greatly lacking
and detrimental to their well being.
As evidence of this factor, a number of increases are in
the Administration's budget. For example, the President's
request includes an increase of $11.2 million, which is aimed
at the Food Stamp Program. There is also a provision for $6
billion in reserve for the Food Stamp Program alone. Likewise,
we have an increase of just over $550 million for the Child
Nutrition Programs.
But I do not wish to digress too far into the details. What
I believe is more appropriate and closer to the business at
hand is to answer any questions that you may have so that you
can move quickly to approve our request. We invite an open
dialogue with the Subcommittee, a dialogue based on mutual
respect and trust, and it is in this spirit of encouraging
constructive dialogue that I have shared my thoughts with you
today.
We are certain that good stewardship, improved integrity
and improved program access is as important to you as it is to
us. These are principles, in which I'm sure we can all agree
on, principles as I say, that underlie the budget request
before you. And so it is with all due respect and in mutual
understanding as public servants we come before the
Subcommittee today.
We thank you for your time and attention, and I will be
happy to answer any questions you may have for me or from my
honorable and dedicated co-workers, Kate Houston and Roberto
Salazar. And also we have our Budget Officer, Scott Steele, at
the desk.
[The information follows:]
hallmark/westland beef recall
Ms. DeLauro. Again, welcome to all of you, and I thank you
for your testimony, Secretary Johner. Let me start--before we
start to talk about the budget, I want to ask a few questions
about the recent beef recall. Let's just start there. Of the
140 million pounds of beef that was recalled by Westland/
Hallmark, over 50.3 million pounds was sold to the USDA feeding
programs, with 47 million pounds going to the national school
lunch program. Can you provide this subcommittee with a list of
the school food authorities, the SFAs, that received beef from
this recall?
Ms. Johner. Yes we can. In fact, we do have that list and
it's in the final process of being cleared, so we--I can assure
you, as soon as I can give that to you, we will give you a
copy.
Ms. DeLauro. Thank you. I appreciate that and I applaud
that effort. This is the first time that anyone has been
forthcoming with saying that we could get such a list, so I
thank you for that. You understand this list of school food
authorities will be included in the record and made public
information.
Ms. Johner. Right.
[The information follows:]
The Food and Nutrition Service (FNS) is committed to maintaining
constant communications with our State, local and industry
stakeholders. To that end, we will provide a list of affected School
Food Authorities under separate cover and we intend to make the list
available on our public Web site at http://www.fns.usda.gov/fns/
newsroom.htm. Of the 143 million pounds of Hallmark/Westrand recalled
beef, approximately 51 million pounds was distributed to FNS' nutrition
assistance programs. About 94 percent of the 51 million pounds was
distributed to schools.
Ms. DeLauro. This also seems to me that you should put this
up on your Web site. Will you do that?
Ms. Johner. Yes, Madam Chair.
Ms. DeLauro. And when do you anticipate finishing them? I
believe this ought to go up immediately.
Ms. Johner. Yes. As soon as we have that through final
clearance, yes, you have my assurance that it will go up
immediately.
Ms. DeLauro. When do anticipate final clearance?
Ms. Johner. I would hope that we can have that in the next
few weeks. I mean, probably sooner than that. I can't give you
a specific time, so I'm kind of giving it a ballpark figure
here. I would hope by next week.
Ms. DeLauro. I really want to emphasize the need. I mean,
we had folks here last week. We were told we would get some
answers this week. I wrote to the Secretary I think on February
20th, and to date, I don't believe I have had a response from
the Secretary. This is about two lists, the retail consignees
and the schools. But I have had no answer from Secretary
Schafer. So it would seem to me if the list is together, its
final clearance, with given the importance of this information
to our school food authorities, that it ought to be able to be
done, you know, 48 hours? I don't know what's left except for a
final clearance, and that shouldn't take very long if it's been
through the traps here.
Ms. Johner. Madam Chair, again, we also believe that that's
important information, and so we just want to make sure that
the information that's on there is accurate. So, we're just
making sure that the i's are dotted and the t's are crossed.
And so, I assure you again, as soon as we can, we will get that
to you.
Ms. DeLauro. And we will be--you need to be in touch with
us, but we will be----
Ms. Johner. Okay.
Ms. DeLauro (continuing). You know, just vigilant on when
that is going to be made available.
Ms. Johner. Yes.
Ms. DeLauro. Have you accounted for all of the beef that is
included in this recall that went to the national school lunch
program?
Ms. Johner. Yes. Yes we have.
Ms. DeLauro. Again, thank you very, very much.
Ms. Johner. And also if I can add, we have worked very
closely with the School Nutrition Association. They were here
in Washington I think last week, and we met with them to do
some probably, we've learned lessons throughout this whole
process, and you can always learn from your experiences. And so
we've met with them, and we are putting some next steps in
place to tighten up, to improve the process that we currently
have. And we can provide you a list of those things if you'd
like a copy of that.
Ms. DeLauro. Yes. I would, because that's part of, you
know, what are requests are here today about the lessons that
you learned and what changes are you implementing based on this
recall. That is critical. That's critical information for the
subcommittee.
Ms. Johner. Yes. We can get you that.
[The information follows:]
USDA has a long-standing commitment to school food safety. From our
pioneering work with the School Nutrition Association to establish a
food safety credentialing program for school food service employees, to
our collaborative efforts to establish standard procedures for recall
actions affecting foods purchased by the Department for school use, we
have done much to ensure the safety and wholesomeness of school meals.
The result is that in comparison to other food service alternatives,
the documented incidence of food-borne illness associated with school
meals is extremely low. We continue to work with schools to improve on
this record of success.
USDA hold and recall processes and procedures have been in place
for a number of years and have worked efficiently and effectively in
past recalls that involved school commodities. FNS, in cooperation with
the National Food Service Management Institute (NFSMI), has provided
training and technical assistance materials to State agencies and
school food service managers on these procedures. However, given the
magnitude of the Hallmark/Westland beef recall, FNS has identified
several areas where communication can be strengthened and how
information dissemination about a food recall can be improved to ensure
parents and students receive accurate and timely information. FNS is
working more closely with State agencies to provide additional
technical assistance to effect better implementation of recall
processes and procedures. We will seek input from our program
cooperators to help us in this regard. The NFSMI is working to finalize
guidance for State agencies to better manage future hold/recall
situations. Once this guidance is complete, there will be an education
and training campaign tailored to States and school districts. The
guidance is expected to be ready in July 2008. Furthermore, we are
exploring various communication options that will allow both FNS and
our State agency partners to transmit food safety information directly
to schools so they, in turn, can provide timely and accurate
information to students, parents, and teachers about food safety
matters. This was a concern we heard during the Hallmark/Westland
recall, and we intend to be fully responsive.
Ms. DeLauro. I will just say that there have been a number
of complaints about the timeliness of the school food service
directors in receiving official information about the recall.
Many of the schools, as you can imagine, as parents, they
received calls from concerned parents who learned of the recall
on the news, and they didn't have any information at all, and
the schools didn't have any information from FNS through their
state agencies.
Let me just ask you this question and get your thoughts.
Should FNS have the capability to communicate directly with the
school food authorities about any future recalls or other
potential health threats in the national school lunch program?
Ms. Johner. I think the current system that's in place is
where the FNS communicates through the rapid alert system
through the state agencies, and the state agencies then
communicate with the school. That's the area where I know our
conversations with SNA that we're looking in how to improve and
strengthen that aspect of it.
Ms. DeLauro. You think that that's the model that we should
continue to use----
Ms. Johner. Yes, I do.
Ms. DeLauro [continuing]. Rather than your direct
communication with the school food?
Ms. Johner. Yes, I do. I believe working with the state
agency, we need to improve and strengthen that piece right
there.
Ms. DeLauro. How much is this--how much is the recall of
the beef that was provided to the national school lunch program
expected to cost, including the cost of destroying and
replacing the recalled beef?
Ms. Johner. Okay. We don't have that information at this
point.
Ms. DeLauro. Can you get that information to us?
Ms. Johner. Yes. And I'm going to turn this over to Kate,
because she has been working extensively on the recall. So
she's--and she testified I think earlier on.
Ms. DeLauro. Okay, Kate. You're on, Kate. [Laughter.]
Ms. Houston. Now that we have accounted fully for all of
the beef that went to the school lunch program, schools are in
the process of sending information on their costs back up to
the state, at which point that information will get bundled and
the state will provide us a full accounting of what the local
costs were, both for the storage during the hold and for any
transportation and destruction costs.
So, at the point at which all of that information comes to
us, we will provide the appropriate reimbursements, and we can
get you then the information on what the final costs were. But
it's premature to have that information at this point.
Ms. DeLauro. What accounts are these expenses--will they be
paid from?
Ms. Houston. Again, we work with our partners at the
Agricultural Marketing Service who will be handling the
reimbursements. I can tell you that we have provided some
information about what costs USDA will be able to reimburse,
and they include transportation of the recalled products to a
disposal site, up to one month of storage costs, and the direct
disposal costs.
Ms. Johner. And Madam Chair, we are also currently
replacing the product too at this time. They've already begun
doing that.
Mr. Steele. Madam Chair, I think that the account probably
will be Section 32, AMS.
[The information follows:]
FNS is committed to working closely with the Agricultural Marketing
Service and States to account for all costs associated with the
Hallmark/Westland recall related to FNS' nutrition assistance programs.
FNS is actively collecting the data necessary to complete a full
accounting of the funds associated with the recall and will be glad to
provide the information to the Committee once the accounting is
complete.
We will be seeking reimbursement for the expenses from the
Westland/Hallmark Meat Company as a part of our contractual action
against the company. However, if Hallmark/Westland is financially
unable to cover the full cost of expenses incurred by USDA commodity
programs, the difference will be paid out of Section 32 funds.
Ms. DeLauro. Okay. Can we receive copies of communications
provided to the state agencies in regard to the national school
lunch recall?
Ms. Johner. Sure.
Ms. DeLauro. And, again, these communications, they include
the types of expenses that will be reimbursed? They know what's
going to be reimbursed? The procedures, the timeline for
reimbursement? They have all of that information?
Ms. Johner. That's correct. They should. I think it's
important to note that some of that information is state
specific. Our clients obviously in this case were the state
agencies. State agencies are responsible for providing
information down to the local level regarding specific
instructions for the manner in which the foods should be
destroyed, and some of that varies from state to state,
depending on what their public health agencies require.
So there is some general information provided by USDA and
then some specific, state specific information that goes to the
school level.
[Clerk's note.--Because of the length of these documents
they are not printed in the hearing volume. The Subcommittee
will maintain a copy in the official files.]
BEEF QUALITY STANDARDS
Ms. DeLauro. I am interested in what standards--what are
the standards that are set by FNS for the quality of the beef
that comes into the national school lunch program. Do you set
the standard that no beef will come from downer cattle, or is
that AMS's responsibility? And how do you enforce these
standards?
Ms. Houston. The specs for the product that is purchased on
behalf of schools by the Department are established by the
Agricultural Marketing Service. They are the Departmental
purchaser of entitlement commodities for schools.
I can say that they really have very high quality standards
that are comparable to those in the commercial marketplace.
They were first adopted over a decade ago in response to
concerns that were voiced by advocates, parents and Congress
regarding the quality of the meat and very stringent standards
and safeguards were put in place at that time to make sure that
the product really met the highest quality standards.
Ms. DeLauro. Do you have enforcement standards? How do you
enforce these standards? Has that become part of your
responsibility as well as, I mean, AMS or? The standards that
are laid out in terms of the beef that goes into the school
lunch program. Do you enforce standards? Do you require--do you
have requirements with regard to pathogen testing, quality and
so on? Is that part of your mission?
Ms. Houston. AMS has contractual agreements with verified
vendors that are required to meet the specifications laid out,
and AMS is responsible for regulating those vendors and
ensuring that they are complying with all aspects of those
contracts.
Ms. DeLauro. So you do not have any enforcement authority
or standards with regard to that process?
Ms. Houston. Well, my----
Ms. DeLauro. You are in essence the customer?
Ms. Houston. We are in essence the customer, but
microbiological standards, testing requirements are included in
AMS specifications for ground beef that is purchased for the
school lunch program.
Ms. DeLauro. My time----
Ms. Houston. Every lot is tested, is my understanding.
Ms. DeLauro. My time has expired. Let me--Ms. Emerson.
FOOD STAMP PROGRAM OUTREACH
Ms. Emerson. Thank you, Madam Chair. I want to start with
kind of where I left off in just the opening statement. But I
was being specific to Missouri with regard to the issues of
hunger. And, you know, we have right now about 35.5 million
people who have--suffer from one form of hunger or another, at
least in 2006.
And, you know, all of the factors that we talked about with
regard to economic issues do make me very nervous. And I worry
about increased numbers of people who become either totally
hungry or food insecure. And I want to know what the agency is
doing to prepare and to reach out to those individuals.
Ms. Johner. Yes. That's a great question. I think that we
have done a lot in our--probably strengthening our partnerships
with the state, because the states ultimately are responsible
in administering the program. So one of the things that's
important for us is to make sure that the people who are
eligible and wish to participate in the program have access to
the program.
So, again, working closely with partners, and not only
that, but with community and faith-based organizations. I know
personally I have gone out to different states, and I do
roundtables, and I bring various people to the table. The local
leadership, the state leadership, because it also has to be
sustained. And so what I try to do at our level is try to bring
that in cooperation to collaborate to say what do we do for the
folks in your state? And so that's one aspect of it.
We provide outreach grants to four states to be able to
come up with some of their own pilot projects. But this is a
very important issue for us, because we do know that there's
underserved population, the elderly, the working poor,
Hispanics that have low numbers. And so, again, if they are
eligible for the program, we want to make sure that they get
the program.
Ms. Emerson. Well, you know, I know in Missouri, for
example, we have a very high participation rate. We have an
excellent food stamp outreach program, and I'm very grateful
because since my Congressional district happens to bear the
largest number of people below the poverty line as well as
those who are food insecure, if you look at this map here,
Madam Chair and Secretary Johner, you'll see all this dark
blue. And this is where--this is my district. That shows the
highest participation rate with regard to food stamps.
And so we're doing a good job in Missouri, but my worry is
that you all may not have adequate resources necessary to
respond and process and even approve new applications for food
stamp or WIC or school meals. Do you feel like--do the state
agencies with whom you work, do you feel that they have--and I
meant to say state agencies--do you feel that they have the
adequate resources to be doing this?
Ms. Johner. And again, I think that's part of the--again,
it varies. Each state has its own individual strengths and
challenges in their state. But I think working together again
with--what we try to really encourage is again the local
collaboration that's there, because I do believe that there's a
lot of--the states have more resources than they realize, but
they need to bring them together. And so if we can be part of
that, that would be great. But as far as working with the
states, and, yes, coming up with innovative ways, I think the
modernization piece is one component that I think states are
looking to incorporate, to be able to handle the number of
people that are coming in, to be able to better meet their
needs.
FOOD STAMP PROGRAM PARTICIPATION
Ms. Emerson. Okay. You mention in your testimony a slight
increase in the participation of, what, about 200,000
recipients per month.
Ms. Johner. Right.
Ms. Emerson. Is that still your all's expectation?
Ms. Johner. Yes.
Ms. Emerson. It is? Even in spite of, you know, more tough
economic times?
Ms. Johner. And given, I mean, again, given--that's our
numbers, given the data that we've had. And so we continue to
look at this very closely, and the numbers change as we get the
data in, so at this point, I have to say yes.
FOOD STAMP PROGRAM ERROR RATE
Ms. Emerson. Okay. You also cited in your testimony an
error rate of--in the food stamp program of less than 6
percent. You know, when we discuss farm and conservation
programs, we discuss improper payments where, you know, a
simple mistake on a form can classify a payment as improper.
What qualifies as an error with regard to food stamps?
Ms. Johner. Well, I guess the food stamp error rate is
actually dollars lost and not the procedure errors. And I can
tell you that we do have a strong indication for this coming
year that our numbers are even better than they were last year,
and they continue to truly work on trying to improve that.
FOOD STAMP PROGRAM CATEGORICAL ELIGIBILITY
Ms. Emerson. Madam Chair, can I ask one more question? Just
because I have to run to Energy and Water. Ms. Secretary, in
past years, we've seen a proposal to end the categorical
eligibility--sorry. That's a very hard word for me to
pronounce--eligibility of TANF noncash recipients for food
stamps, and I don't think there's a proposal like that before
us this year, but it was in the President's farm bill
recommendations. Do you know if this is still the
Administration's position?
Ms. Johner. Yes.
Ms. Emerson. Well, that's unfortunate, Madam Chair,
because, you know, I think the GAO has stated that an analysis
shows the vast majority of TANF noncash households may remain
eligible for food stamp even after this change. So I know that
the states are concerned about those administrative costs,
particularly given the potential for increased applications.
Well, I don't--it was a GAO report from last--that GAO report
identified several states which did allow the categorical
eligibility. But has FNS--and maybe I should ask the
Administrator, have you acted to correct that inconsistency?
Mr. Salazar. We do provide technical clarifications, of
course, to GAO reports. We have asked to wait until after Farm
Bill implementation to see what recommendations at this time--
--
Ms. Emerson. Do either of the farm bills--because I haven't
obviously seen either of the drafts--do they actually contain
the President's requested language on categorical eligibility?
Mr. Salazar. Madam Chair and Congresswoman, they do not.
Ms. Emerson. They do not? Okay. Well, with that, I have
exceeded my time, Madam Chair. Sorry. Thank you all very much.
Ms. DeLauro. Thank you. Ms. Kaptur.
LEADERSHIP AND RESOURCE COLLABORATION
Ms. Kaptur. Thank you, Madam Chair. Welcome back to the
subcommittee, Secretary Johner and all of your colleagues,
thank you. And thank you for making the effort to come to Ohio.
It is truly appreciated. And to watch your engagement with our
food banks and our religious community and all of those who are
trying to feed the hungry, I can't thank you enough for that.
I wanted to ask you, I know you had a chance to view some
of our shellshocked food pantry operators, and you may have had
a chance to reflect a little bit on the visit, and I know you
are considering coming out again, which we would deeply
welcome. I'm wondering if you have thoughts based on your visit
you would want to share at this point?
Ms. Johner. Yes, I do. And I think part of that I mentioned
earlier. Again, I think after visiting Ohio, and again, putting
my old hat on as a State Director and, you know, working in the
field, it's important and I think sometimes we lose sight of
that, that the local leadership and our statement leadership as
well as the Federal leadership all need to come together to be
able to address in a collaborative manner be able to meet the
needs of our population that is out there.
And I know in Ohio there was, I've seen a tremendous amount
of resources, and it was actually pretty exciting to see that
many resources, but we need--there needs to be some
coordination of that and how do we work on that. And I think it
needs to be at all levels. And I think when I come back out
there, we were going to have certain people at the table so
that we can have those planning and then the next session,
because, again, it needs to be sustainable.
I think everyone has competing priorities and limited
resources, so we need to figure out how do we still help those
most in need with the resources we have out there.
COMMODITY PURCHASES
Ms. Kaptur. Well, I'm hoping that as you consider that, we
can think together about how the Agricultural Marketing Service
and extension might be more fully engaged in an effort like
this where we have so many hungry people and programs not
reaching those who are eligible. Could we get electronic
benefits transfer machines to all of our farmer's markets so
people could take food stamps there if they are eligible for
food stamps? And are there any legal or structural hurdles we
need to overcome in order to do that?
And the connection to local production agriculture, how we
connect the nutrition program eligibility to local production.
The food stamp EBT connection is one, how one engages the local
community, farmers in producing, or let's say extra food that's
needed by the food banks. I'm not quite sure how to do that,
but if there's a way that you might talk to some of your
colleagues over there at USDA on the production side.
We really need some new visions of how to meet the needs in
these urban areas. And when you have food pantries that have a
rise in need of over 30 percent and donations are down by 75
percent, because the economy is so bad, there have to be some
other mechanisms. And we're hoping that you will consider
those.
Yes, I agree the state needs to be involved, because, for
instance, in our school lunch and breakfast programs, we're
losing money because the state can't make the match, because
the state of Ohio is nearly a billion dollars out of balance.
So how can the state meet the match when it doesn't have any
money? And yet we have agriculture programs that on the
production side that we might be able to link to our nutrition
programs.
That's where I'm asking you to look, assuming the state
will have nothing to put on the table. Maybe they will. If they
don't, we're still stuck with empty shelves in our food
pantries and in our ministries and so forth that are trying to
feed the hungry.
Do you anticipate USDA will have any other announcements to
make about additional commodity purchases that can go to these
food pantries for emergency purposes, where you've got very
high levels of unemployment?
Ms. Johner. Well, we are--the stocks for food. Are you
aware of that?
Ms. Kaptur. Well, there was one announcement, what was it,
$63 million purchase?
Ms. Johner. Yes. That was the second shipment that will be
going out starting, I believe, in May or June. If I'm correct
on that, we'll start having shipments that actually will be
hitting the food banks.
Ms. Kaptur. All right. And are those--that isn't Commodity
Supplemental Food Program. That's areas like milk or protein-
based foods, or what form will that take?
Ms. Johner. That takes, actually it's canned meats, and I
have a list of those that I can definitely get to you.
Actually, they're very, it's a more substance. It isn't just
milk and stuff. It is actually canned meat and chicken and
turkey and, I want to say beans, beef stew, things like that.
Ms. Kaptur. All right. Okay. I would be very interested if
your department----
Ms. Johner. Yes.
Ms. Kaptur [continuing].--Could provide us with a
projection of what will that mean in a state like Ohio----
Ms. Johner. Yes.
Ms. Kaptur [continuing].--Which is going through very
difficult times.
Ms. Johner. We can get you that information.
[The information follows:]
FNS is pleased to report that the innovative Stocks-for-Food barter
has benefited The Emergency Food Assistance Program (TEFAP) nationwide.
Commodities that will be made available to States under the second
Stocks-for-Food Barter include canned and frozen chicken, pork and
turkey hams, canned tuna and salmon, peanut butter, and pinto beans.
Under TEFAP, each State's fair share of commodities is calculated
based upon a weighted formula that takes into account each State's
poverty and unemployment statistics. Ohio is expected to receive about
$2 million of the roughly $50 million worth of commodities that will be
obtained under the second barter.
FNS supports multiple options that allow farmers' markets to accept
food stamp EBT benefits efficiently and securely. Between 2006 and
2007, the number of farmers' markets participating in the Food Stamp
Program increased by 22 percent from 436 to 532. Farmers markets
redeemed more than $1.6 million in food stamp benefits in 2007.
Promising practices related to the use of food stamp EBT are available
at http://www.fns.usda.gov/fsp/ebt/ebt_farmers_markstatus.htm.
There are no legal hurdles associated with placing EBT machines
into farmers markets; however, there may be logistical hurdles.
Specifically, many farmers' markets do not have electricity and/or
phone lines necessary to support regular EBT Point-of-Sale (POS)
devices.
To help farmers' markets adapt to the EBT environment, alternative
redemption systems were developed. FNS approves demonstration projects
that use alternative forms of food stamp benefit issuance, including
scrip, tokens, and receipts, in conjunction with EBT. Recipients
exchange EBT food stamp benefits for scrip or tokens to purchase
produce and other eligible food products at individual farmer stalls in
a farmers' market.
Additonally, as wireless technology has improved, more markets are
taking advantage of it. The major hurdles to using wireless technology
are equipment and maintenance costs and transaction fees. Often, these
costs are born by the markets themselves or by the organizations that
sponsor the markets. Markets leverage grants (such as Agricultural
Marketing Service grants or those from private foundations such as the
Kellogg Foundation) and their affiliations with organizations such as
the State Farm Bureau to reduce costs. The added advantage of wireless
POS for farmers is that they run commercial debit and credit as well as
EBT transactions. Commercial transactions help justify and off-set the
cost of equipment and processing.
TOLEDO SCHOOL LUNCH AND SCHOOL BREAKFAST
Ms. Kaptur. All right. All right, very good. And also,
Madam Secretary, as you look at coming out again, if you could
give us--if you could take a look at the Toledo school system
and their school lunch and breakfast program and tell us why
they forego millions and millions of dollars of federal money
because of lack of subscription to the programs. There's
another area where--is it the state's fault that they're not
providing the match? If you could help us understand what's
going on there, I would greatly appreciate it.
Ms. Johner. We can look into that.
[The information follows:]
FNS is committed to ensuring all eligible children have the
opportunity to participate in the school meals programs. FNS is aware
of Toledo's desire for assistance in developing strategies to increase
participation in the school meals programs. Consistent with the
commitment made to you in our recent meeting, FNS will soon contact
school district officials to begin the discussion. FNS will work with
Toledo officials to identify ways to strengthen program quality,
including lessons learned from other districts with similar
characteristics. FNS will work with the district to build a program
that attracts greater student participation and helps put Toledo's
school nutrition programs on solid financial ground.
Ms. Kaptur. Thank you, Madam Chair.
Ms. DeLauro. Mr. Kingston.
FOOD STAMP PROGRAM ENROLLMENT AND UNEMPLOYMENT
Mr. Kingston. Thank you, Madam Chair. Madam Secretary, do
you have a chart that you could give me later on that would
show from a better understanding the link between food stamp
enrollment and unemployment?
Ms. Johner. Yes, we could do that.
Mr. Kingston. In a local area.
Ms. Johner. In a local area? It's a little more difficult.
Is it like state specific, or?
Mr. Kingston. Well, I think it would be----
Ms. Johner. Or a region?
Mr. Kingston [continuing]. Public interest for any town or,
you know, any political subdivision, either a county, a city,
an MSA. I can't believe you don't know this off the top of your
head. [Laughter.]
Mr. Kingston. But just something so that by the smaller
subdivision is possible, hopefully something below the state
level, but something that would show, okay, for example, in
Ohio, it has been unusually maybe even the hardest hit by the
current economy, I think you have wasn't it a 21 percent job
reduction or something in the last couple of years? I just--but
it would be interesting to see, you know, how the employment
rate went up and food stamp eligibility enrollment up and went
down, to make sure also that that line is consistent. Because
if it--in some areas if you have an aberration, that would be
interesting to know also.
Ms. Johner. Okay. I tell you--I'll commit to with working
with you and your office and then we'll see what we can do and
then we'll get some type of table out. How's that?
Mr. Kingston. You know--well, let me ask you. Let me just
comment on that. I don't know why you wouldn't have it already.
Ms. Johner. At this point, do we have this information at
all? We have a table--a chart that shows at a national level,
but not at the county level.
Mr. Kingston. Well, my fondness for you notwithstanding----
Ms. Johner. Do you want the national----
FOOD STAMP PROGRAM EMPLOYMENT AND TRAINING
Mr. Kingston [continuing]. I'm going to have to pick on
you, because this wasn't a set up question, but you're asking
for $362 million for unemployment training. Why? If you don't
know the stat, the correlation between food stamp eligibility
and your need to come up with $362 million, how can you ask for
that much money if you don't have that here's why we need it?
Ms. Johner. We do know, sir, that there is lower
participation in the food stamp program by the working poor,
and there's a number of reasons for that, but we've asked for
some specific targeted funding as part of our proposal to help
improve participation among specific underserved populations,
the working poor being one of them.
Sometimes there are some myths, thinking that if you have a
job you are not eligible for food stamps, when in fact the
eligibility is determined based on the income level of the
household. And even if there is a household that's working,
they may have an income that would enable them to receive some
supplementation of their food budget through food stamps.
Mr. Kingston. Well, on your $362 million number for job
training, how did you arrive at that?
Mr. Salazar. Madam Chair, Congressman Kingston, our
projections for employment and training are based in large
measure on food stamp participants calculated in our program.
Participation in the Employment and Training Program is part of
the Food Stamp Program, is a requirement for many participants,
and based on those participation projections, we project
funding needs for that program.
Our ability to project and forecast food stamp
participation is reliable on a number of economic factors,
inclusive of unemployment rates, but recognizing that there are
respective lag times in which that data is tracked with food
stamp participation. It is somewhat of a science but also a
complicated projection.
Mr. Kingston. What is the Department of Labor asking for?
Mr. Salazar. With respect to?
Mr. Kingston. Job training.
Mr. Salazar. I regret that I don't have specifics on----
Mr. Kingston. Do you know if went up or down? I mean, how
much is the overlap between what the Department of Labor job
training programs do and what you're doing?
Mr. Salazar. Madam Chair, Congressman Kingston, the
services provided by the Department of Labor are distinct and
unique to those individuals seeking unemployment compensation
benefits and the requirements of them for seeking those
benefits. There may be a potential of overlap of those
individuals seeking those benefits also applying for Food Stamp
Program benefits. The requirements of the Food Stamp Program
are to ensure for those who are required to participate in the
employment and/or training programs that we can provide them
adequate services through the State agency.
Mr. Kingston. A person could have dual enrollment though,
right?
Mr. Salazar. Madam Chair, Congressman Kingston, that is
correct. Likewise, their children may also be participating in
the National School Lunch Program and receiving other services
as well from a multitude of various local programs.
Mr. Kingston. But if you're taking one job training program
from one federal agency, why would that not, you know, be a
sufficient voucher for both agencies and therefore for
eligibility?
Mr. Salazar. Madam Chair, Congressman Kingston, again,
recognizing that the populations served by Food Stamp
Employment and Training Program is that population defined by
statute as what we call the ABAWDS population, the adult
population who is able to work, we rely heavily on states to
coordinate the delivery of their services. Having been a former
state director of social services, I know for a fact that as
that state director, I worked very closely with my State
Department of Labor to ensure the coordination of our services
because of limited resources.
Mr. Kingston. But if they are in your job training program
in order to complete their eligibility, it still seems like a
waste of time if they already have job training from another
agency. And I don't see why your job training isn't--one can't
be as good as the other. I don't understand why if you're
taking a Department of Labor job training program you couldn't
get a voucher that would suffice your eligibility.
Ms. Salazar. Madam Chair, Congressman Kingston, in many
cases, that's exactly what does occur with the coordination by
the state agencies to avoid the duplication of provision of
services, precisely that.
Ms. Kingston. And if I'm enrolled in one of those job
training programs, am I going to learn one set of skills from
your program and another set of skills from labor? Or, you
know, is it if I don't have a voucher?
Mr. Salazar. Madam Chair, Congressman Kingston, the
provision of services may in fact only be one program in the
state. It's the sources of funding that come from both
Department of Labor and USDA's Food Stamp Program that may
provide the resources to administer the program. It's not to
say that there are two distinct training programs, but whether
there are two distinct Federal programs that have the
requirement for employment and training. The actual delivery of
the services may in fact be one program which is in most
instances the case.
Mr. Kingston. So there's not a duplication?
Mr. Salazar. Not a duplication of services by any means.
And you know, what we're doing is making sure that we're
picking up the population, if not through the Department of
Labor, we're certainly capturing them through the Food Stamp
Program.
Ms. DeLauro. What is regulation with regard to food stamps
in able-bodied adults? Aren't they just eligible for a very
restricted period of time, over a three-year period in which
they're eligible for food stamps? Is that accurate?
Ms. Johner. Yes. Three months.
Ms. DeLauro. So they're only eligible to able-bodied
adults----
Mr. Salazar. Without dependents.
Ms. DeLauro. Without dependents--and this comes out of the
welfare bill, I think, that was passed in 1996--are only
allowed to receive food stamps for a three-month period of a
period of three years. Quite frankly, it's one of the areas
which we're trying to take a look at to see if there's anything
that can be done about that----
HALLMARK/WESTLAND BEEF RECALL
Let me if I can finish up with one or two more questions on
the beef recall and I will then move on to some other areas.
I'm interested in your views on liability, on the liability of
Hallmark Westland in the recent beef recall. We face the
possibility the Federal Government may have to make substantial
expenditures to reimburse schools for expenses they incur
related to the recall. The company was the entity that provided
meat from downers to the Federal Government for the school
lunch program. I understand that the company says that it is
bankrupt, and I think yesterday in a hearing yesterday with the
Energy and Commerce Center, the CEO of the company indicated
that in fact downers did get into the food supply. They say
that they're bankrupt, that it may not have the funds to
reimburse the government.
But setting that aside, what is your view of the company's
liability to the Federal Government?
Ms. Johner. Well, Madam Chair, I with all due respect I do
think that that's out of my scope on that, because what we
focus on is again to school lunch, make sure that they are safe
and they're nutritious for our children and that they're
getting the school lunches. So I guess I just feel it's out of
my scope.
Ms. DeLauro. Mm-hmm. Well, in terms of the job description,
do you have a personal view as to what the company's liability
in this regard, since the responsibility, actually it may be
out of your scope, but the costs are going to be added to or
come out of your budget, and ultimately it's going to come from
the--you know, where do we go with regard to appropriations? I
don't know if this budget request includes funding for
reimbursement, for all of this effort, and so forth. You know,
so where do we view the company has any liability here? Kate.
Ms. Houston. Madam Chairwoman, I think not only is it out
of the scope of the Food and Nutrition Service to comment on
the issue of the liabilities, but I think it's also important
for us all to remember that there is ongoing investigations
underway and we need to wait for those investigations to
conclude until we have all of the information to be able to
make a full and accurate assessment.
We are working closely with our sister agency, the
Agricultural Marketing Service, to address the reimbursement
issues, and I know that AMS will be pursuing all available
avenues and legal options that are available to them in terms
of seeking funds to cover their costs.
Ms. DeLauro. This is what my hope is, is that when we do
have some conclusion of a legal investigation about which you
don't want to comment, that we might have a perspective from
the agency and maybe from the Congress on what the liability of
the company ought to be in this regard, or any company that is
engaged in this effort. And after we find out what the
investigation is----
Speaking of AMS, I want a quick question with regard to
services, both from AMS and FSIS--from the commentary already,
well let me put the question this way: How satisfied are you
with the services you receive from AMS? And what could they
have done to prevent this recall from happening?
Ms. Johner. Madame Chair, I'll just give you my comments
and then turn it over to Kate, since she was much more involved
in that. I know from where I sat, we worked very closely
together with AMS and FSIS. We had daily meetings. I mean there
was true collaboration and I know at several levels there was
a, you know, a strong working partnership.
Ms. DeLauro. That was after the fact. That was after the
fact.
Ms. Johner. Right. As soon as we----
Ms. DeLauro. What's your view with regard to before, in
terms of this happened under AMS's watch, it happened under
FSIS's watch? You know, obviously it should not have. Was FNS
served well by either FSIS or AMS in this regard?
Ms. Houston. I think we have had a long-term positive
working relationship with our sister agency, the Agricultural
Marketing Service, and we've worked collaboratively with them,
both before this incident occurred, and even closer afterwards.
Obviously, as Under Secretary Johner has previously said, we
will be taking a close look at all aspects of this recall to
identify ways in which we can improve upon what we----
Ms. DeLauro. Do you have a process in place to check
whether AMS is meeting your specifications for purchases again
on such as testing requirement?
Ms. Houston. We look to the Agricultural Marketing Service
and rely upon them.
Ms. DeLauro. Oh, you don't. And I don't know whether or not
that's going to be part of your consideration in terms of what
you have learned from this effort. It ought to be that both
with regard to FSIS and AMS in this sisterly relationship, or
brotherly relationship, whatever the characterization of the
relationship is, that quite frankly that--what are they doing
and how could this have been avoided both by AMS and FSIS? I
think that that is crucial to what you need to know and what
your oversight of these efforts has to be in order to carry out
your mission.
Ms. Johner. Thank you.
WIC BUDGET REQUESTS
Ms. DeLauro. I want to move on to WIC, if I can, and the
2008 request. I'll make a couple of comments and then a
question. In 2008 the Department requested $5.4 billion for the
WIC program. Participation food costs saw dramatic increases
between the time the President's budget was submitted and the
bill was enacted. Congress provided over $6 billion for WIC,
which was about $633 million more the Department requested for
the program. The Administration failed to acknowledge the
increased participation in food costs for the WIC program. The
President threatened to veto any bill that increased total
spending levels above the ones set in the budget. Long and the
short of it, the Administration was probably--everyone but the
Administration really acknowledged that--of money that was
there was not adequate to deal with 2008. Why did the
Department not submit a revised budget request for 2008 when it
became apparent that the request was not adequate to maintain
participation in the program?
Ms. Johner. Madam Chairwoman, our process is that we work
off the projections, and at the time the projections and
numbers that we had we believe is sufficient for WIC to be able
to meet the need in WIC.
Ms. DeLauro. In 2008 it was pointed to an increase. I
understand the projections. My question is why when we had the
facts before us that this was not going to be enough,
satisfactory, then in fact what we would--any reason why you
didn't ask for a revised budget request?
Ms. Johner. Because we believed that the funding that----
Ms. DeLauro. You thought it was going to be adequate.
Ms. Johner. It was going to be adequate.
Ms. DeLauro. Well, then let me get to the 2009 request. The
2009 request again proposes to cap the amount available for
grants and state agencies, nutrition service and administration
expenses--are to the 2007 level. That's $145 million. The
request also proposes to use the contingency reserve of $150
million to cover estimated participation and--costs program.
Your testimony states $150 million is requested to replenish
the contingency reserve to ensure that the essential food,
nutrition education and health service remained available to
all eligible women, infants, and children who need them.
It's hard for me to understand--you're saying that you are
replenishing the contingency reserve, if you anticipating using
it in fiscal year 2009 to meet expected participation in food
costs. You say, ``Should our estimates of program participation
or costs prove too low, we have continued to protect program
access for all eligible persons, a key objective of the
President's contingency reserves.'' And ``this flexibility is
essential to our ability to deal quickly and effectively with
unexpected increases in food costs or participation as were
experienced in fiscal year 2007.''
Yet you are proposing to use the contingency reserve to
deal with expected participation and food costs. If you were
going to deal with unexpected costs, that would be another $150
million. So I don't understand how you can say that we're going
to be able to meet unexpected costs.
Ms. Johner. We're going to have Kate give you a little bit
more details on that.
Ms. Houston. One of the advantages in this budget cycle to
having use of the $150 million and the contingency fund up
front is that it provides us some additional flexibility in
getting targeted money to those who need it, in particular
states, more quickly than we could otherwise if we had to go
back and seek permission to use the contingency fund. The
contingency is not subject to the standard allocation formula
if we have it up front. So if we can identify specific needs in
specific areas of the country, we can get money quickly to
those state agencies. We see that as an advantage in a time
when we know that there are pressing needs in terms of
increased participation in the program and some fluctuations in
food costs.
Ms. DeLauro. But you're not providing any administrative
costs, as well. So I mean the states are in a real fix here. So
you got $145 million and no administrative costs occurring.
Ms. Houston. We do have funding for administrative costs,
Madam Chair.
Ms. DeLauro. But contingency you don't pay administrative
costs with your contingency. Is that correct? Or is that wrong?
I mean I don't know, is that correct?
Ms. Houston. Those funds can be used both to cover caseload
and to the NSA cost, that's correct.
Ms. DeLauro. What is your view of the word ``can''? They
can. So it could just for food costs? It could be for both--it
just seems that once again we're looking at how----
Ms. Houston. There's flexibility in the use of those
contingency funds. So based on the specific circumstances of
the State agency, whether they need to have additional funding
support, either on the NSA side, or on the participant, the
caseload side, that money can be used for either area of
providing services.
WIC PARTICIPATION
Ms. DeLauro. I will say this. It sounds a bit like--I'm
hoping that you won't be offended by this, but it sounds like
it's a bit of a shell game here, you know, we're just moving
the pieces. Ultimately we're coming down to the potential of a
real short fall--if the costs go up, the participation rates go
up.
And also with regard to participation, I don't know how you
explain the participation in WIC program will decrease in
fiscal year 2009 from the October 2007 participation data.
We're not looking--we had an increased rate from 2006 to 2007--
2.4 percent, 2.8 percent projected, averaging 2.9 percent for
2009. We've got information or at least looking at the
expectation of a rise here, but--it doesn't seem to make sense
that we don't have some sort of a contingency fund available
for 2009, if participation--as you currently--you expect
participation to decrease. I don't see any----
Ms. Houston. I don't believe we expect participation to
decrease. I think that our budget projects there to be a slight
increase in participation in WIC, and the budget that we've
submitted would cover all projected participants based on our
current estimates.
Ms. DeLauro. For October 2007 actual--and I'm just--was 8.
2009, it's 8.
Ms. Houston. I think it's also important to recognize that
there are fluctuations in participation levels across various
months and quarters.
Ms. DeLauro. And I understand that. And you know, it goes
down, then it spikes, it goes down, and then it spikes again.
We're in the down side and it would appear that the next
tranche here is a spike, if you're looking at current patterns,
or as I look at the chart.
Ms. Houston. And our projected planning in terms of
expected participation and funding requests does account for
that.
Ms. DeLauro. Will you provide a revised budget request if
you find that your submitted request will not be adequate to
cover participation, food costs for FY 2009? You did not do
that in 2008.
Ms. Johner. Madam Chair, we will continue to work closely
with Congress and will continue, I assure you, to monitor this
closely and when we find something, we will be working closely
with----
Ms. DeLauro. Will you provide a revised budget request for
us?
Ms. Johner. At this point I can't tell you that.
Ms. DeLauro. You can't say whether or not you're going to
provide me with a revised budget request if the--what you don't
have is adequate to deal with the increase of participation in
food costs?
Ms. Johner. We'll continue to work with you and we will
continue to monitor this very closely, and we----
Mr. Steele. Well, Madam Chair, that we will have to work
closely with OMB. We unilaterally cannot send up a budget
amendment on our own.
Ms. DeLauro. So it's an OMB problem here?
Mr. Steele. Well, it's a combination of us sharing our
estimates with OMB and OMB deciding. The President submits a
budget amendment, not the Department of Agriculture.
Ms. DeLauro. Right.
Mr. Steele. So we will----
Ms. DeLauro. So it's OMB and the reason why we didn't get
an increase, you know, we didn't get another budget request the
last go-round in 2008 was OMB said no.
Mr. Steele. Well, we will communicate our feelings to OMB.
Ms. DeLauro. Communicate our feelings, as well, Scott.
Mr. Steele. Okay.
Ms. DeLauro. Communicate our feelings as well.
Mr. Steele. I got the message.
Ms. DeLauro. Well. Mr. Farr.
FRESH FRUITS AND VEGETABLES IN THE NUTRITION ASSISTANCE PROGRAMS
Mr. Farr. Thank you, Madam Chair, thank you for having this
hearing. Food, Nutrition, and Consumer Services ought to be at
the top of the triangle, the pyramid of the Department of
Agriculture because it is what it's all about. And I think this
committee has expressed over the years the real concern we have
with obesity occurring particularly in children in America, and
then this kind of warped concept of creating a distribution
system for our commodity programs, but not for our specialty
programs. And I'm pleased to see that in the newly updated WIC
food packages, you'll soon provide vouchers for fruits and
vegetables. Madam Chair, we're going to put some vouchers for
food and vegetables, this is for the WIC program--for the past
30 years only carrots and fruit juice were included in WIC food
packages. Now they're going to give an $8 voucher per month for
women and $6 voucher per month for children to provide WIC
recipients for any fruits and vegetables of their choice.
What percentage of the entire voucher is then allowed to be
spent on fruits and vegetables? One--question. Let me get an
answer to that one first.
Ms. Johner. That would be the entire, the voucher that's to
be used for fruits or vegetables. And it's $10 for breast-
feeding mothers.
Mr. Farr. And when will that all be implemented?
Ms. Johner. We're hoping, in, I think, in 2009? August 5 of
2009. And it's the latest date that they've given us. We just
met with, or we kicked off a meeting with the WIC Association
that were here this week, and they're working very hard
together in partnerships at all levels to try and make sure
that they can implement this.
Mr. Farr. Do you have any incentives--here because she'd be
asking this question--some of our farmers' markets are
receiving, using WIC vouchers at the market, but there has to
be a distribution of the vouchers on site. So if you show up in
my area in Watsonville, California, you show up at the farmer's
market and there's a little card table there with the people
that give out the vouchers, and they--if your name's there, you
get your voucher and you can use it in the farmer's market. I
don't know whether the Department has done any active outreach
to try to encourage that kind of process.
Ms. Johner. Well, we do want to encourage our participants
to----
Mr. Farr. Have you done anything like that with farmers'
markets?
Ms. Johner. Farmers' markets--but we are working on
improving that, and we can probably get you something as to
what we are doing.
Mr. Farr. Yeah. I'd like----
Ms. Johner. Because that's an important component for us.
Mr. Farr. Would you also include how you could receive food
stamps at farmers' markets?
Ms. Johner. They can use their EBT----
Mr. Farr. That seems to be an issue, so how we could----
Ms. Johner. We could also add that in there too of what
we're doing.
[The information follows:]
FNS supports multiple options that allow farmers' markets to accept
food stamp EBT benefits efficiently and securely. Between 2006 and
2007, the number of farmers' markets participating in the Food Stamp
Program increased by 22 percent from 436 to 532. Farmers markets
redeemed more than $1.6 million in food stamp benefits in 2007.
Promising practices related to the use of food stamp EBT are available
at http://www/fns/usda.gov/fsp/ebt/ebt_farmers_markstatus.htm.
There are no legal hurdles associated with placing EBT machines
into farmers markets; however, there may be logistical hurdles.
Specifically, many farmers' markets do not have electricity and/or
phone lines necessary to support regular EBT Point-of-Sale (POS)
devices.
To help farmers' markets adapt to the EBT environment, alternative
redemption systems were developed. FNS approves demonstration projects
that use alternative forms of food stamp benefit issuance, including
scrip, tokens, and receipts, in conjunction with EBT. Recipients
exchange EBT food stamp benefits for scrip or tokens to purchase
produce and other eligible food products at individual farmer stalls in
a farmers' market.
Additionally, as wireless technology has improved, more markets are
taking advantage of it. The major hurdles to using wireless technology
are equipment and maintenance costs and transaction fees. Often, these
costs are born by the markets themselves or by the organizations that
sponsor the markets. Markets leverage grants (such as Agricultural
Marketing Service grants or those from private foundations such as the
Kellogg Foundation) and their affiliations with organizations such as
the State Farm Bureau to reduce costs. The added advantage of wireless
POS for farmers is that they run commercial debit and credit as well as
EBT transactions. Commercial transactions help justify and off-set the
cost of equipment and processing.
Mr. Farr. Okay.
Part of the food stamp nutrition education program
encourages education about fruits and vegetables, but I
understand that this focuses only on the underserved
population. In fresh fruits and vegetables--in some schools
offer free produce to students so that they can be exposed to
fresh fruits and vegetables. The Farm Bill is going to
determine how many schools in the future--the schools are now
requiring--in California they required each school district to
come up with a nutritional program for feeding their schools.
It's sort of getting rid of all the coke machines and trying to
get other kinds of vending machines--fruits and vegetables,
fresh fruits and vegetables can be now sold in vending
machines.
But these wellness policies receive some USDA lunch
reimbursements. I just wondered what progress has been made on
the fronts at the local level, given the important role of
fruits and vegetables can play in reducing the risk of obesity
and other chronic diseases. Do you have any outreach or
education program at the entire population level through
expanded work with the media and health professionals?
Ms. Johner. Actually we're doing, Congressman, we're doing
quite a bit out there with Center for Nutrition Promotion and
Policy. We have a national, well, pyramid--we have Dr. Brian
Wansink who has just joined us a few months ago and he is
working very hard in promoting the My Pyramid, and coming up
with other Federal tools that the schools and others can use. I
do know in the school nutrition programs, they have many things
that they use to help train the menu planners, the nutrition
directors on how to use more fruits, vegetables, and whole
grain.
Mr. Farr. Would you share that outreach program with us?
Ms. Johner. Sure.
[The information follows:]
Mr. Farr. And is it done bilingually?
Ms. Johner. Yes. They do have--I'm sure they have something
that's done in some Spanish, especially for the instructors.
Mr. Farr. What--I mean what I'm really curious the bottom
line here is what is the Department doing to take--I mean
we've--this obviously the nation knows we need to have a diet
of more fresh fruits and vegetables, and as the leading
advocate for the United States Government Food and Nutrition
program, you're the lead advocacy agency, and I'm very
interested in what is the agency doing? What is the Department
doing to really encourage consumptions of fruits and vegetables
in all populations? Not just WIC and mothers----
Ms. Johner. Congressman, we have in our proposal for our--
in our Farm Bill we have $500 million over ten years for
increasing fruits and vegetables through the school lunch
programs because we serve 31 million school children a day. So
we thought that that infrastructure was already in place to be
able to get that out there.
Mr. Farr. $500 million and what do you use that money for?
Ms. Johner. For fruits and vegetables--in the school----
Mr. Farr. To buy them?
Ms. Johner. Through the domestic nutrition assistance
programs. But we would have 2.7--I'm sorry let me just go
back--$2.75 billion through the nutrition assistance programs,
and that would go through TEFAP and food banks and others. And
then the $500 million was separate, that would go through the
schools. And that would be money that they would be able to buy
fruits and vegetables to be able to serve that in the school
breakfast and the school lunch program.
Mr. Farr. That's not a lot of money for all the schools in
the United States.
Ms. Johner. Well, it was in addition to what we already
have in place.
Mr. Farr. Well, could you pull out those budgets they're
used for?
Ms. Houston. Mm-hmm. Mr. Farr, we have obviously fruit and
vegetable increasing fruit and vegetable consumption is a key
priority of the nutrition and consumer services, particularly
given that the 2005 dietary guidelines recommended increased
fruit and vegetable consumption. We have a comprehensive
strategy that combines work both in the Food and Nutrition
Service working through our nutrition assistance programs,
where we have an opportunity to target information, nutrition
education, as well as benefits to millions of Americans every
day, as well as information and nutrition education that is
targeted to the general population through the Center for
Nutrition Policy and Promotion. And we'd be happy to provide
you a list of the full range of efforts that are ongoing within
FNCS to develop plans for promotion of fruits and vegetables.
Mr. Farr. The Committee would like that very much.
Ms. Houston. It's an extensive list and we'd happy to
provide it.
Mr. Farr. Who buys the food? We have a--as I understand it,
the food that is provided for school lunch--breakfast is all
bought through a military depot in Philadelphia. Because the
military buys the most food and we piggyback on those
resources. Who in the Department of Agriculture is responsible
for deciding to be involved in that acquisition program? Is it
your department?
Ms. Houston. About 15-20 percent of the food that's
provided for the school lunch program is acquired through the
Department of Agriculture in the form of commodity
entitlements. Of our commodity entitlements, we are required by
law to spend not less than $50 million for the purchase of
fresh fruits and vegetables, and not less than $50 million per
year. What FNS has done is contracted with Department of
Defense through the procurement division in Philadelphia. They
are then responsible. We give them the $50 million----
Mr. Farr. So it's your services, your agency that does
that?
Ms. Houston. Correct. We contract with the Department of
Defense who then procures fresh fruits and vegetables and
provides delivery to state agencies, who have chosen to receive
a portion of their commodity entitlement in the form of fresh
fruits and vegetables.
Mr. Farr. Could you give the percentage of breakdown
compared to the commodities of how much of that fresh fruits
and vegetables is the percentage of the total acquisition?
Ms. Houston. We'd happy to get you that information.
Mr. Farr. Because I believe it's going to be very, very
small.
Ms. Houston. It is a relatively small amount of the total
of commodity purchases. It is not--however I will also make the
comment that we're just talking about the fresh fruits and
vegetables in terms of the DOD procurement angle, not all
fruits and vegetables. Eighty percent of food is procured at
the local level directly by schools, and there are additional
fruits and vegetables that are also secured in that manner.
[The information follows:]
Based on 2007 levels, we estimate the USDA will make over $350
million in direct purchases of fruits and vegetables for distribution
in the nutrition assistance programs under the President's 2009 budget
request, including over $50 million purchased through the DoD Fresh
program. This represents 40 percent of the funds budgeted for commodity
purchases in FY 2009.
In addition, we anticipate that program providers will use over $3
billion to purchase fruits and vegetables for the Child Nutrition
Programs, and that nearly $8.5 billion in funding for Food Stamps, WIC,
and the Farmers' Market Nutrition Programs will support participant
purchases of fruits and vegetables in the marketplace. All told, we
project that under the President's budget, FNS programs will provide
over $11.5 billion in 2009 in support of fruit and vegetable
consumption.
But we are taking additional action to maximize the results of this
investment in increasing consumption for children and others, such as:
Updating the WIC food packages to better reflect the
needs of current participants--including the addition of
fruits, vegetables and whole grains;
Offering free fresh and dried fruits and vegetables
to students in 8 States and in 3 Indian tribes as part of the
Fresh Fruit and Vegetable Program;
Publishing Fruit and Vegetables Galore, a Team
Nutrition guide that helps schools offer and encourage
consumption of a variety of fruits and vegetables through the
school meals programs;
Conducting national nutrition campaigns such as
USDA's Team Nutrition and Eat Smart. Play Hard. that promote
fruits and vegetables as part of a healthy lifestyle through
motivational and behavior-oriented messages and materials,
including the new MyPyramid for Kids; and
Expanding the HealthierUS Schools Initiative, which
supports and recognizes schools that seek to improve their
nutrition environment with better school meals, nutrition
education in the classroom, and more healthful eating and
physical activity choices throughout the school day. To date,
about 200 schools have been recognized.
Proposals offered by USDA in the Farm Bill reauthorization process
to further strengthen the nutrition assistance programs in delivering
and promoting consumption of fruits and vegetables:
$100 million, 5-year competitive grant program to
address obesity through the Food Stamp Program, including a
test of the impact of food stamp incentives to encourage fruit
and vegetable purchases;
An increase of $50 million annually for the purchase
of fruits and vegetables for school meals; and
An increase in the overall Section 32 fruit and
vegetable purchase minimum to $2.75 billion over 10 years.
Mr. Farr. And schools can't get food from the food banks, I
understand.
Ms. Houston. That is correct.
Ms. DeLauro. Mr. Farr, just an addendum, and I won't--but
to let you know that the President's budget does not request
funding for the state management information systems. That has
to do with how we do implement the new food package changes. My
understanding is that is where the states are going to get
those funds to deal with those changes--packages, especially if
the cap is enacted as requested in the budget. And again, those
MIS funds in my view, are needed.
Mr. Kingston.
FOOD STAMP PROGRAM
Mr. Kingston. Thank you, Madam Chair. Madam Secretary, are
food stamps intended to be the difference between what a
recipient household can afford for food out of their own pocket
and what they need?
Ms. Johner. It's supplemental.
Mr. Kingston. It is a supplemental?
Ms. Johner. It's a supplemental.
Mr. Kingston. Now, we've had a number of people take the
food stamp challenge, and it's a little bit misleading when
they say this lasts for 2\1/2\ weeks out of the month. What are
you doing to educate people that the intent is a supplemental?
And I know that, you know, like social security is supposed to
be a supplemental, but it is not a supplement for all people.
So I mean you know somewhere between the real world of--some
people are using it for their higher budget of food, and yet
the intention is different. So what are you doing to engage in
that discussion?
Ms. Johner. Well, Madam Chair and Congressman, one of the
things that again we try to look at what is out there. When I
talk about the community and the state partnerships, I know
people get tired of hearing me say this, but it truly is again
going back into their backyard. We work with--we ran into this
organization that's really great, it's called Angel Food
Ministry. And again, that's partnering with this, is a non-
government entity, 501(c)(3). They serve over 550,000 a month,
and they have a food box like you wouldn't believe. And they
focus a lot on protein because they know like food banks and
sometimes families can't afford meats, cuts of meats. And for
$30, you can buy this box that can last up to a month for an
elderly person, or up to a week for a family of four. And they
also take food stamps. And that's one of the things we're
working very closely with them, and how do we partner with
other folks like that, to be able to help with the needs of the
community.
Mr. Kingston. But when people take the food stamp challenge
and they go, you know, telling folks that it's not enough, I
don't know that the USDA is saying, ``You're correct, it is not
enough, because that's not the intention of it.'' Are you doing
that?
Ms. Johner. Supplemental.
Mr. Kingston. Are you doing that?
Ms. Johner. Yes. We try to do that. It doesn't get out as
much as we would like for it to get out, but we do have
different programs. We have--like in the food stamp program,
the nutrition education, loving your family and feeding their
future. It's to help people learn how to cook and to stretch
that dollar, and still make nutritious meals, and . . .
Mr. Kingston. Okay.
Ms. Johner. So we try to get the word out as much as we
can.
FOOD STAMP PROGRAM CATEGORICAL ELIGIBILITY
Mr. Kingston. All right. And something else that you can
answer for the record, but in terms of the automatic
eligibility on food stamps, some people receive TANF and yet
there really are different eligibility requirements. But often
some states if you're on TANF you can be on food stamps, where
there's really a different threshold. What are you doing to
address that? And you may want to answer that for the record
if--because you have some questions, right? Okay. That would be
one of--that's a question that I'd like you to examine for the
record. And then--I don't want to deny you; I can answer that.
Ms. Houston. Well, we can provide you more information for
the record, certainly. But under current rules, individuals who
are participating in the TANF program are categorically
eligible to receive food stamps. We have proposed to the
Administration to say that those participating in TANF must be
receiving cash benefits in order to be categorically eligible
for food stamps. Other TANF participants who are not receiving
cash benefits would of course be able to apply for the benefit,
that's for the food stamp program----
Mr. Kingston. Yes.
Ms. Houston. And if they were eligible for the benefits,
they would be able to participate.
Mr. Kingston. How much money do you think you're losing
because of that automatic eligibility? Do you have any idea?
You can answer that----
Ms. Houston. I don't have the estimate in front of me, but
we'd be happy to provide that projection.
[The information follows:]
The cost of allowing participation in a non-cash TANF funded
program to confer categorical eligibility for the Food Stamp Program is
estimated to be $1.3 billion over 10 years.
HEALTHIER U.S. SCHOOLS CHALLENGE
Mr. Kingston. That's fine. But let me ask you, Ms. Johner,
Mr. Farr's question about school nutrition and fruits and
vegetables, as you may know, Ms. DeLauro and I on a really
bipartisan basis put in some report language last year about
USDA school nutrition programs and the Department of Education,
physical education program, better tracking and better
communication and tying into exercise with the proper dieting.
Do you have something to report to us on that?
Ms. Johner. And that's what I think we're talking about the
HealthierUS School Challenge and things. So again, Kate was
over that program and I know she'll have more details for you
on that.
Mr. Kingston. Do you want to answer that for the record,
because we would love to hear some good progress.
Ms. Houston. Sure, I'd be happy to provide information for
the record, but I will tell you that we have reached out to
other departments with some jurisdiction over education and
physical activity. We have been in the process of updating our
standards for the HealthierU.S., which is a voluntary school
challenge for improving both the nutrition environment and
physical activity in schools. We've been working closely with
the Centers for Disease Control and Prevention on those revised
standards.
[The information follows:]
FNS supports efforts to improve the health and fitness of our
program participants consistent with the Dietary Guidelines for
Americans. While the agency's education and promotion efforts focus
primarily on healthy eating in alignment with its nutrition mission,
FNS's policy is to integrate physical activity into nutrition education
materials and initiatives for the nutrition assistance programs at both
the national and State levels. As a result, FNS program-based nutrition
education efforts also encourage physical activity for program
participants from preschoolers to older adults as part of an overall
``healthy lifestyle''.
FNS supports and encourages its program partners to integrate
physical activity into program operations and settings. For example,
through the HealthierUS School Challenge and technical support for
school wellness policies, FNS encourages schools to voluntarily
implement policies and programs that promote both healthy eating and
physical activity. In the same vein, competitive grant awards have been
used to develop and support replicable strategies to better promote
healthy behaviors in WIC.
FNS also works in partnership with other Federal and non-
governmental groups to address barriers to physical activity including
program, policy and environmental issues. For example the agency is a
part of the Centers for Disease Control and Prevention's Nutrition and
Physical Activity Work Group, a team of national, State, and local
public health and education partners that seek to advance
implementation of comprehensive nutrition and physical activity
programs. FNS has also collaborated with other Federal agencies to
formulate a Memorandum of Understanding to Promote Public Health and
Recreation such as Kids in the Woods and outdoor activities in the
Nation's parks. FNS also participates in activities coordinated by the
Department of Health and Human Services in support of development of
the Physical Activity Guidelines for Americans.
Mr. Kingston. Yeah. Tell us some good stuff, and I think we
would like to put that language back in the bill this year, and
we're going to continue to push that. I don't want to speak for
the committee, but I think that would probably be their
consensus.
Ms. DeLauro. I think we would.
I'll make a quick comment, and I'm going to try to do one
or two very short questions because we have to vote.
FOOD STAMP PROGRAM
On the food stamp program, the eligibility, as I understand
it, is 130--poverty. That's people probably making about
$12,500-something, around that amount of money. The average
first-quarter benefit per person per month is $101. If you just
take days or months, meals per day, meals per month, we're
talking about the average benefit per person per meal is about
$1.13. Warren Buffet is not getting the benefit of the food
stamp program. These are people that are 130 percent--poverty,
and the benefit and my hope is that in the Farm bill, if we
ever get a Farm bill--and I don't know where you think we are
on that, but that in fact what we can do is to raise that
standard benefit, and also to be able to index that food stamp
benefit to inflation, which ended in 1996--and Jack, in terms
of being bipartisan under a democratic Administration, I might
add, to cut out the indexing to inflation with regard to the
food stamp benefit. $1.13 per person per meal. The Farm bill,
the nutrition title--the House and Senate had passed a Farms
bill. Where do you think we're going to end up on this?
Ms. Johner. Well, I think we got word yesterday that there
was an extension on that, and so we're still hoping that----
Ms. DeLauro. Well, my hope on that----
Mr. Kingston [continuing]. Only until April 15th.
Ms. DeLauro. Yeah.
Mr. Steele. No, it's a 33-day extension.
Ms. Johner. Thirty-three days.
Ms. DeLauro. Well--my hope on that. I'll be very clear. And
Jack I hope you--this as well, is that we asked for over the
ten-year period $11.4 billion. That would include this fruits
and vegetables snack program. It includes TEFAP, it includes
the food stamp program, it increases the benefit, and it also
starts to talk about the indexing and the asset levels. In
comparison with everything else in that Farm bill, this is
probably one of the smallest areas.
I'm asking you to advocate, to really advocate for that
money not to be dropped as we move through this process of a
conference. The House put it there, the Senate has been less
generous on nutrition, but I'm hoping that the Administration,
as they are requiring and demanding some other efforts, will
demand that the nutrition levels stay where they are. And I'd
like your commitment on helping us to do that, Madame
Secretary.
Ms. Johner. Well, this nutrition title is an important
program. Obviously it's the safety net for the Americans who
are hungry. So this is an important for us. An important piece
of legislation that . . .
Ms. DeLauro. Aggressive advocacy is what we need at this
time.
Mr. Kingston. I have to say this to my good friend, Rose,
and my good friend----
Ms. DeLauro. We have four minutes.
Mr. Kingston. I think she's far more in your camp than mine
on some of these issues. So let me just say----
Ms. DeLauro. Amen, brother. [Laughter.]
Mr. Kingston [continuing]. With affectionate suspicion----
Ms. Johner. Hey, I'm coming to see you after this. Thank
you so much.
Ms. DeLauro. Can't run off. We're going just to recess here
for the moment.
[Recess.]
Ms. DeLauro. I'm waiting to have another member. We had Mr.
Kingston--had to just step out earlier, which was what allowed
me to move forward without there being enough members, but we
left. Can you hear me now? Oh. Okay. Thank you, my friend. We
make you crazy!
We will reconvene the hearing. And I want to say a thank
you to the Madam Secretary and to our other guests for your
patience. As Mr. Farr just pointed out to me, the same thing is
going on pretty much in committees all over, just trying to get
through a number of these hearings at the same time. Let me
yield to you, Mr. Farr.
FRESH FRUIT AND VEGETABLE PROGRAM
Mr. Farr. Thank you. I apologize. Across the hall the same
thing is happening. Only two people are there, and you can't
have a hearing without at least three people. In 2008 we
provided authority for the funding to expand the fresh fruit
and vegetable growth program to all states, and many of those
states were not already served by the authorized prior. I
wonder if you could tell the committee what is the timeline for
implementation of the national fresh fruit and vegetable
program?
Ms. Johner. Yes. We can provide that.
[The information follows:]
FNS is committed to implementing the expansion of the Fruit and
Vegetable Program (FFVP) authorized under the fiscal year (FY) 2008
Consolidated Appropriations Act (P.L. 110-161). FFVP was first
authorized as a permanent program under the Child Nutrition and WIC
Reauthorization Act of 2004 (P.L. 108-265) with annual funding of $9
million for 8 States and 3 Indian Tribal Organizations. The FY 2006
Appropriations Act (P.L. 109-97) appropriated $6 million to expand the
program to 6 additional States. The FY 2008 Consolidated Appropriations
Act provided $9.9 million to expand the program to all remaining
States, and also allocated $3.4 million of recovered FFVP funds to
allow the non-permanent States to continue their FFVP operations.
Funds for operation of the FFVP will be made available to new
States on July 1, 2008, and will be available through September 30,
2009. This will allow all States to begin operation of the program in
School Year 2008-09. Beginning in early February 2008, USDA conducted
regional conference calls with State agencies to provide information on
FFVP procedures, operations, and oversight responsibilities and
provided a question and answer session during the calls.
Each new State received a written summary of the information
provided through the FFVP calls, including guidance materials and
sample forms. In addition, all FFVP general information, guidance
materials, sample forms, and resources for participants are available
on the Child Nutrition Programs Website at: http://www.fns.usda.gov/
cnd/FFVP/FFVPdefault.htm.
Mr. Farr. And getting it implemented in all states?
Ms. Houston. We have already begun our implementation
efforts to make the program nationwide. We've held a series of
conference calls with the state agencies who have not currently
participated, who have not previously participated in the
program. We are also working to establish some technical
assistance between states that have previously participated in
the program and new states, so that we can do some information
exchange on best practices.
Mr. Farr. I mean what is your priority here? I mean just,
personally, in the committee this is the thing I think that
frustrates us all. That we read the title of being nutrition,
and then we find that we're really essentially have a way of
dispensing commodity products, which are not fresh fruits and
vegetables. They're the products that distort them, or put in
silos. Grains, beans, corn. Commodity program--also rice. For
instance cotton. We don't eat cotton. But then we have these
other support programs for peanuts that are in sugar.
And so it seems to me that what we unload in our feeding
programs is all those things, because we're involved with
supporting those commodities. We package them; we store them;
we own these things, and we have to get rid of them. We have
never provided any kind of subsidy for fruits and vegetables,
so it's just market-driven. And yet all the advice we get here
in this committee is that we need to shift the dietary eating
habits. I mean it's very hard for people to change their ways,
but with all the dietary programs and concentration on the
healthy person is changing the diet of America.
And people are demanding these things. And fresh fruits and
vegetables have learned how to package their goods; they should
keep lettuce in a bag for considerable amount of time; you can
put carrots and things like that, and they serve them as
packages on airlines. And the fast food chains are now putting
all in salad bars, because that's what the customers want.
What seems to be lacking here is a voice in the Department
of Agriculture, because you don't really deal with the politics
of fresh fruits and vegetables. It's just outside the system.
And yet the one area that claims to be responsible for them is
the department that has the title nutrition on it. And I think
that this frustration is that there's no advocacy out there,
strong advocacy to say that we ought to equalize the
consumption of the whole gamut of fresh fruits and vegetables
with what we've done initially with the commodity program.
We're going to have to do it. It's what has to be in the diets
of other persons.
Why can't the government be this advocate and be more of a
promoter of getting--rather than having it mandated by Congress
on a piecemeal basis award? I mean you got to point out as part
of your nutrition evaluation of what's happening. And we're the
program. We spend a lot of money determining on what is
nutritious to eat, and then we don't buy what we tell people
they should eat. And that's the frustration that I have with
this committee. And you're the agency that comes here every
year with the responsibility to get nutritional into all the
public places.
Ms. Houston. I think we are working extremely hard to
increase consumption of fruits and vegetables in our programs.
We're currently spending over $10 billion a year in our
nutrition assistance programs on fruits and vegetables.
Mr. Farr. Out of 52 billion, about?
Ms. Houston. In addition, we have some aggressive farm bill
proposals to increase fruit and vegetable 2.7 billion over 10
years. We're proposing to increase spending in Section 32 for
distribution of fruits and vegetables to our nutrition
assistance programs. Additionally, we are proposing to spend an
increase in $50 million a year on fruits and vegetables for
distribution through the National School Lunch and Breakfast
Programs.
COMMODITY ENTITLEMENT PURCHASES
Mr. Farr. Can you explain why last year you spent $70
million on mozzarella cheese and about $6 million on lettuce
and tomatoes?
Ms. Houston. There are about 180 different commodity
entitlement foods that are available for schools, and it is the
school that makes the decision as to what commodity entitlement
they select to purchase from the department. So while we make a
variety of foods available that include fruits and vegetables,
we are working with schools to try to encourage them to select
some of those more healthful options that are available to
them. But I think it is important to recognize that the
decision in terms of what commodity entitlements are selected
are done at the school level, not at the department level.
Mr. Farr. But there are advantages to selecting the
commodities, because they are--we have them. Right? I mean when
it's cheaper, and it's traditional, and the delivery service is
there it's easier to serve pizza then it is to serve fresh
fruits and vegetables or salad.
Ms. Houston. We have nutrition standards for school meals
that are required to be met at the local level, so whether--
depending on whatever the meal that's served is and the
composition of the foods that make up that meal, combined they
must meet those nutrition requirements. So it is incumbent upon
schools at the local level to be selecting a wide range of
foods, including fruits and vegetables that would make up a
nutritional meal pattern.
Mr. Farr. Right. But my point, and you'll see it when you
start putting the data together, that the percentages of fresh
fruits and vegetables compared to everything is really low and
paltry. And so the voice is loud; the action in buying and
implementing and distributing is very weak. Thank you, Madam
Chairwoman.
DIETARY GUIDELINES FOR AMERICANS/MYPYRAMID
Ms. DeLauro. Thank you, Mr. Farr. Ms. Johner, if you don't
mind, let me just follow that up on that, because I think--the
budget request includes $2 million for data collection and
analysis of the fourth nutrition and dietary assessment. Now
the third assessment was released in November of 2007 and found
that many schools are still not serving lunches that meet
current USDA standards. Our USDA began working with the
Institute of Medicine, IOM, last November on recommendations
for updating the meal pattern based on the 2005 dietary
guidelines.
Let me just--if you can answer--let me lay out these three
or four questions. Why did it take the USDA two years to begin
working with the IOM on updating meal pattern based on the 2005
dietary guidelines? When do you think the IOM will issue a
recommendation for the child nutrition program? What guidance
are you providing the schools that need time for updating meal
patterns based on the 2005 dietary guideline? What percentages
of schools are currently serving meals based on the 2005
dietary guidelines? And to get to Mr. Farr's comment, what
enforcement does FNCS have to make sure schools serve meals
based on those 2005 dietary guidelines. If we can, why did it
take two years? When do we think we're going to get their
recommendation?
Ms. Johner. Given the complexity of what we needed to
produce--we wanted to make sure that we had it at the end. We
had started with it, and yes, it did take two years because of,
again, I have to go back that it was very, very--it's a balance
that we have to find, that we want to make sure that we have
the best product, but at the same time we want to know that
it's going to impact the children and the school system. So
that's when we decided that we probably needed to have IOM come
in and give us recommendations, because they did such a great
job with the WIC we packaged. We probably should have done that
sooner, but, you know, we didn't. And so, but we decided that
this--I don't think we knew how complex it was going to be when
we first began.
Ms. DeLauro. When will they issue their recommendation?
Ms. Johner. Well, we're looking at 18 to 24 months from the
time we contracted with them in November. That's the timeframe,
so about 2010. And the guidance--I know that we're doing some
guidance on that, and I will let Kate give you a little bit
more detail on that.
Ms. DeLauro. Kate, with the guidance, what guidance are you
giving folks at the moment? What percentage of schools are
currently serving meals based on the 2005 dietary guide?
Ms. Houston. Recognizing that there is going to be some
time delay until we can issue the new meal pattern requirements
we did think it was incumbent upon the agency to provide as
much guidance and technical assistance as we could to school
districts so that they could do the best that they could to
meet the new 2005 dietary guidelines. What we have initiated,
and the first of these pieces of guidance went out I believe
last week, is to do a series of facts sheets for school food
service authorities at the local level on how they can
incorporate the dietary guidelines into their existing meal
patterns.
Ms. DeLauro. Can we get copies of that?
Ms. Houston. We can send those out in short order. The
first one that I just released is on low fat milk. We plan to
follow up with fact sheets on a host of issues, including
incorporating more whole grains, reducing sodium, reducing fat
levels, et cetera.
[The information follows:]
Ms. DeLauro. Do you have any sense of what schools are
currently serving meals based on the 2005 guidelines?
Ms. Houston. I don't have the information, but we can get
you that, unless--Phillip, pass that up to me, please.
According to our SNDA study we do have some work to do to make
sure that all schools are meeting the existing meal pattern
requirements.
Ms. DeLauro. Do you have any data there that tells you what
the percentages are at the moment? And if you can't, please get
it us?
Ms. Houston. Sure. Why don't we send you a comprehensive
report of our SNDA results.
[The information follows:]
Based on information from the 2004-2005 school years, most schools
(over 70 percent) served meals in the National School Lunch Program
(NSLP) that met standards for many nutrients that contribute to healthy
diets, including protein, iron, calcium, and vitamins A and C. NSLP
participants consume more of 6 key nutrients at lunch than
nonparticipants. But very few schools (6-7 percent) met all nutrition
standards. This is primarily because most meals served contained too
much fat, too much saturated fat, or too few calories.
Significantly, most schools offered the opportunity to select
balanced meals, but few students made the healthful choice. In 9 of 10
schools, a knowledgeable and motivated student could select items for a
low-fat lunch, but most students took such lunches in only 2 of 10
schools.
A summary of the School Nutrition Dietary Assessment-III is
available on the FNS Web site at http://www.fns.usda.gov/oane/MENU/
Published/CNP/FILES/SNDAIII-SummaryofFindings.pdf.
Ms. DeLauro. Okay. What enforcement do you have to make
that schools are serving meals that meet guidelines?
Ms. Houston. Certainly we work with our state agencies on
doing random reviews.
Ms. DeLauro. What's the enforcement mechanism?
Ms. Houston. Well, the first thing that we do is we provide
technical assistance. If we have persistent problems and
schools are not working with us, obviously those meals are not
eligible for reimbursement. But before we would go down that
route we would----
Ms. DeLauro. Have you ever done that?
Ms. Houston. Yes. We have.
Ms. DeLauro. And you were saying before you go down that
route you will?
Ms. Houston. We provide technical assistance working
through our regional offices, and also in coordination with the
state agencies, so that we can help school food service to
improve the nutritional quality of meals. And of course there
are the standards that they are required to meet by law.
Ms. DeLauro. How many times have you denied reimbursement?
Ms. Houston. A handful.
Ms. DeLauro. One hand?
Ms. Houston. We can get you follow up information of the
specific circumstances.
[The information follows:]
FNS is committed to administering the nutrition assistance programs
at the highest standards for program integrity. State agencies are
responsible for evaluating compliance with National School Lunch
Program (NSLP) meal element requirements (food items/components, menu
items or other items, as applicable) during Coordinated Review Effort
(CRE) administrative reviews, and, potentially, for recovering any
improper reimbursements. NSLP regulations require State agencies to
review every School Food Authority (SFA) at least once during a five
year review cycle. State agencies observe meals being served on the day
of the review to determine if meals are complete, and review menu and
production records for a prior review month to determine if meals
claimed for that month contained all required meal elements. State
agencies must establish a claim for recovery of reimbursement paid for
any incomplete meals served on the day of review or during the review
month.
During School Year 2005-2006 (the most recent data available) 1.2
percent of meals observed on the day of a CRE review and 0.15 percent
of meals served in a CRE review month were found to be incomplete. The
total reimbursement associated with these incomplete meals was
approximately $211,000 resulting from reviews conducted in 6,170
schools (an average of about $34 per school). The actual amount
recovered by States was likely less than this, as State agencies are
allowed to waive recovery when the total claim from a CRE review for
all non-reimbursable meals identified in an individual SFA totals less
than $600.
Ms. DeLauro. That would be great. Mr. Hinchey.
SIMPLIFIED SUMMER FOOD SERVICE PROGRAM
Mr. Hinchey. Thank you very much, Madam Chairwoman. I
appreciate all the attention that you bring to this issue. And
I thank you very much for being here and giving us the
opportunity to work with you and find out a little bit more
about what's going on with some of these important issues.
The Simplified Summer Food program is something that we
were able to incorporate in the OMNIBUS appropriations bill
last year, to provide additional funding for a program that is
very much needed. And just to give an indication of what it is
and how much is needed, this food program has been around since
2001, and in those states where it has been operating
effectively the number of people participating in it, children
participating in this summer food program, has grown by almost
45 percent.
And the several states that were not included the number
that are participating in it has been reduced, cut back by
almost 15 percent. So you have approximately 17 million
students who are served by free and reduced lunch during the
school year. That's how many get it during the school year. But
when the school year ends that number is cut back to 3 million.
So the reason the simplified summer food program is so
important is because you have 14 million kids who are not
getting the breakfast, and particularly the lunches, at least,
that they normally would get during the course of the school
year.
Now this is something that we need to focus our attention
on. One of the things that we know is the amount of people who
are living in poverty in this country is growing. It's up now
around 27 million. And the number of young people who are
suffering as a result of malnutrition, even the loss of life in
this country as a result of malnutrition among young people--
and I'm starting to get so excited about it as I mention it,
but I just can't help it. You know, it's just something that is
very serious. So I'm wondering what we're doing, what is the
USDA doing through regions or through the national office,
locally or nationally, to educate about the program and to
attract sponsors into it. How many people have been notified?
Ms. Johner. That's an excellent question. And I know that
the summer food service program is also an area of emphasis of
mine. One of the things that I have done last year is we tried
to get top level officials to go out and kickoff the summer
food program to get more attention to, more media attention.
But our regional folks are starting to work on this, usually in
the December/January months, because you have to have these
people sign these sites, ready to go, so when school's out it's
ready to go. But I know on the simplified piece, we've issued
notification and guidance to all states' agencies regarding the
process. That was done in January, January 2nd of this year.
All seven regional conference calls we've had with our seven
region offices. We've had conference calls with the state
agencies making sure we're explaining the process or the
change. We want to answer any question, and again working in
partnership and collaboration with them. And then we also want
to share best practices, because I think some areas are a lot
stronger than others.
Mr. Hinchey. Okay.
Ms. Johner. And so we've also updated our handbooks and our
Web site. And this is a big area of concern of ours too,
because that is a stark--it's a difference between when the
school year is going on and the summer needs, so we know that
those kids are not getting----
Mr. Hinchey. Well, I appreciate that very much. And I
appreciate your background and history this. You know, the
Health and Human Services back in Nebraska, you had a lot of
good work to do. So I don't doubt that you're really focused on
this. But we're just facing a situation now where the President
has recommended dramatic cuts in his budget on this program. So
I'm wondering--you probably can't give us the number now, but
I'd like to know how many people have been notified. How many
people have been notified? How effective is this outreach
program that you just talked about? And when we know how many
have been notified then we'd like to know who remains to be
notified. Who is it out there that hasn't been notified who
needs to be paid attention to? And what can we do to do a
better job to get this word out? This is something that I'm
sure that our Chairwoman is going to paying attention to, as
she always does on these critical issues. But we'd like to have
your advice on this too, because you're directly involved in it
on a daily basis. Has the web site--you said the web site has
been updated?
Ms. Johner. Yes. We've updated handbooks and the web site.
Mr. Hinchey. And has that update been done in way to
reflect the change in the program, notify people about the
change in the program? And to what extent has that been done,
and how has it been done to draw attention to the change in the
program?
Ms. Johner. Yes. It has been updated, and we can add that
to the report that we'll be sending to you on the other
information.
Mr. Hinchey. Do you know?
Mr. Salazar. We take a number of best practices,
Congressman Hinchey, to ensure that both potential participants
are aware of summer sites, and well as potential sponsors.
Obviously we go through a process of recruiting both sponsors
and sites early in the year before summer starts so that those
sites can be established and identified, so that we can promote
them. We encourage the states to continue the best practice of
notifying parents and children in school before school is out
where those summer sites will be through the summer months,
because that's our best opportunity to capture that audience,
while they are still in school, before they leave.
One of the remaining challenges of feeding children in the
summer is that they are not captured everyday in one site as
they are during the school year, and so our ability to reach
them becomes a challenge in terms of congregate feeding. We
continue to see a steady increase in the number of meals served
and children served every summer because of our continued
outreach efforts.
Mr. Hinchey. Okay. All right. So I'd just thank you very
much, and I'd like to just follow up with this. If you could
provide us with that information--I'd just like to know how
this program is working. It's obviously because of the negative
results that we're receiving this is something that's very
important. Whatever you can tell us about it will be very
helpful. Thank you very much. Thank you, Madame Chairwoman.
[The information from USDA follows:]
FNS is committed to expanding the Simplified Summer provisions of
the Summer Food Service Program (SFSP) authorized through the 2008
Consolidated Appropriations Act (PL 110-161). The Act made the
Simplified Summer provisions nationwide effective January 1, 2008, by
adding the 24 States not previously authorized. The Simplified Summer
procedures enable SFSP sponsors to receive reimbursement based on the
number of meals served times the maximum combined administrative and
operations reimbursement rate. Previously, sponsors were required to
submit cost documentation used by States to determine reimbursement.
Additionally, reimbursements can now be used to pay for any allowable
operational or administrative expense, whereas previously the
reimbursements could not be intermingled.
FNS has updated the SFSP Web site and online materials, and has
asked State agencies to do the same. We have also encouraged States to
incorporate the new program flexibility into outreach efforts. Both
community sponsors and school systems see the development as a
significant reduction to administrative burden, by allowing more time
to be spent on support and outreach activities for families and
children.
The Child Nutrition and WIC Reauthorization Act of 2004 required
FNS to evaluate the Simplified Summer provisions. The evaluation,
published in April 2007, found an increase in sponsors and meals served
during 2001-2006 for the 26 States and the Commonwealth of Puerto Rico
that were then authorized to operate under Simplified Summer
procedures. States not authorized to operate under the Simplified
Summer provisions showed a decline.
In addition to the Simplified Summer provisions, the FNS has been
promoting the Seamless Summer option, which allows schools to provide
SFSP-like benefits through the National School Lunch Program and School
Breakfast Program. Although the reimbursement for a lunch is about $.50
less than under the SFSP, some schools find the convenience of
operating under the normal school program procedures meets schools'
specific summer needs and is worth the rate difference. While Seamless
Summer sponsors and meals are not reported as part of the SFSP, the
schools make an important contribution to our goal of increasing meal
service to low-income children during summer months.
FNS believes that taken together, the two different approaches
provide the flexibility schools and communities need to provide
nutrition benefits to children in a wide variety of situations during
the summer months.
Ms. DeLauro. Mr. Farr.
COMMODITY ENTITLEMENT PURCHASES
Mr. Farr. Thank you. I wanted to follow up again on this.
The way that food is purchased--it seems to me what you have is
a two-tiered system here. You have a system that says to
schools, ``You have to provide a healthy meal. And you have to
met those guidelines.'' But when it comes to what kinds of
foods you help them acquire, that the government buys and
distributes, you leave out the fresh fruits and vegetables.
Ms. Johner. No, I'll just briefly say something, then I
will let Kate answer, give you more details on that. I know
that 20 percent of the purchase, as you know, commodities come
from USDA, 80 percent of the items are purchased by the local
school districts. And I can tell you though, I just wanted to
make this comment: I visited many schools across the country as
I traveled, because I think the best way to get a pulse of how
things work is actually going to the field and talking to
people and seeing for yourself.
I have seen so many more salad bars in the schools, the
cafeterias; that has been very impressive. In fact, Arizona
just got a gold score award. And there was this beautiful salad
bar that had all this great, nice lettuce. And this was all
free, they didn't even charge it through the school program.
But there is such a--there is much more of a push for schools
to be served the fresh fruits and vegetables in their diets.
Mr. Farr. Sure, but they are having to buy that locally,
whereas you supplement. And here it is, your total commodity
entitlement last year is $1.1 billion. And those are things
like, that's just cheese, different kinds of cheese and corn,
and corn mill flower. Soy bean oil, vegetable oil, peanut
butter, rice, shortening, spaghetti--you know, I am not sure
that those are all in what we are talking about is high
nutritional values.
Ms. Johner. You know, commodities are, they are, they have
been improved, lower in fat, lower in sugar. But I am going to
let Kate give you a little more information on the commodities
aspect of that.
Mr. Farr. But do you see my point, because you have got an
entitlement program for commodities and that's what it's
called, it's called the Commodity Entitlement Program. And you
go out and the government, we buy that and then we distribute
it to school. But the makeup of the difference, which is all
those effort that we have talked about the last year is getting
other types of food in the menu. And we don't--you just say you
have to do that with the money that you have. You are not
entitled to it, so you don't get these entitlements.
And that is where the unequal playing field is. We are
distributing things that are causing the obesity, and we are
making people buy the things that prevent obesity. And that is
just a proportion unfair and unrealistic, and not defendable in
your nutritional program.
Ms. Houston. Congressman Farr, we have about 180 foods
through our Commodity Entitlement Program that are available as
a shopping list to schools. It is a demand-driven system. This
list includes fruits and vegetables.
Mr. Farr. Show me on that list, I have it right here.
Ms. Houston. Sure, right at the top of the list: apple
slices, applesauce, apricots. Going down, blueberries, carrots,
cherries, corn, peaches----
Mr. Farr. Yeah, apples, the $871,000.
Ms. Houston [continuing]. Pears, potatoes, raisins. And
this is just on the first page.
Mr. Farr. Where is the vegetables and where is the lettuce?
Ms. Houston. We have, you know we have a variety of
primarily shelf stable through our commodity entitlement list.
And then of course, the additional fresh----
Mr. Farr. Shelf-stable? The other things you are saying are
not shelf-stable?
Ms. Houston. And then we have fresh fruits and vegetables
that are available also as commodity entitlement through our
DOD program.
Mr. Farr. But the point is that your list, I have it, the
thin, green page you are looking at, both pages, because I have
the other one too. And it also shows the distribution by state.
Is that I can't find any of the things that I have been told
are necessary to be healthy to eat, particularly salads. There
is not any salads on here.
Ms. Houston. We continue to work with schools to put on our
commodity list the items for which they are requesting. And I
think it is again, important to emphasize that only about 15 to
20 percent of the foods that are part of the meals come from
the USDA commodity entitlement list, the rest we provide cash-
free ``reimbursements''. And schools at the local level are
purchasing the other foods for meals. And we have statistics
that show about 21 percent of the foods that are purchased in
total for the school lunch program are fruits and vegetables.
Mr. Farr. I mean, let's finish with this list. The two
highest items on here, the highest amount you spend was beef
bulk-coarse, $123 million. The second highest is mozzarella
cheese, $90 million.
Ms. Houston. Again, these are school-selected.
Mr. Farr. Schools want cheese, not----
Ms. Houston. These are items that are--it's a demand-driven
system. We would be happy to work with you. We have an
initiative underway to continually improve the nutritional
quality of the foods available through the commodity program.
And we would be happy to share with you our technical
assistance efforts. But I think you were correct, that we need
to get schools to be selecting the most nutritious items
available, and----
Mr. Farr. With all due respect, California has required,
and I think you ought to award states too that required, but
each school district has to come up with a nutritional plan.
This is new. Parents are starting to ask, you know they used to
want to know what is going to be teaching in the classroom, now
they want to know what you are feeding them in the lunchroom.
And what happens, you go to these school administrators and
they say yes, but we can't get those items because those aren't
part of the program. They are not given to, they are not on
this list.
Ms. Houston. Well again, we would be happy to work with you
to make sure that the foods----
Mr. Farr. Work with us?
Ms. Houston [continuing]. That schools want are on the
commodity list. We also do have a nationwide requirement for a
wellness policy, so every school district in the country, those
in California and around the country----
Mr. Farr. You put a mandate on them but you don't give them
the supplies to fulfill that mandate. That is not a way to
operate a nutritional program.
TEXAS FOOD STAMP PROGRAM
Ms. DeLauro. Let me--we are going to have to vote and I
promise you, you will not have to stay, we will--let me just
see if I can wrap up with a couple of questions here. And then
I want to do two things. I have some questions for immediate
answer and then a question--but let me just get to the program,
and we know the background. We, I want to know what has
happened,--stamps over there and what is--to get the problem
corrected.
In terms of the problem back in March 2006, the system had
a backlog of 6,000 unprocessed applications. The problem then
is the state implemented the new system and there were not
enough people trained in handling the program under the
policy--determine eligibility for 2007, experiencing backlogs
of applications and the explanation is for the workload issue.
An Austin mother of two said she has been waiting for food
stamps after applying to renew in June. I want an answer to
Texas, but I also have a question with regard to Indiana.
Ms. Johner. Chairwoman, we have been working closely with
Texas, and I know yes, there has been some concern with the
timeliness piece. And so I know our administrator was just out
there I think a few weeks ago. And we are going to be doing
even, we are going to aggressively increase our oversight in
Texas, because we have again, identified some problems. So we
have been doing regular conference calls with them, review of
state reports, the multiple site reviews, which is going to
increase.
And then I myself will be going out and meeting with the
state commissioner and their management team. We did get a
corrective action plan from them, because we did send them a
letter and so we did get one last week. So again, I agree with
you, Texas is----
Ms. DeLauro. Just in general, because I want to get on to
Indiana.
Ms. Johner. Okay.
Ms. DeLauro. When is it apparent that this is failed, I
mean, what is the tipping point? We continue with corrective
action, you know. I mean, in 2007 they canceled--I am just
saying what is it that you think that we can't go on any
longer, this is a failed process here? Do you have a construct?
Ms. Johner. Do we have something in place to be able to
measure----
Ms. DeLauro. No. I mean to say when you are the agency you
are looking at this, you are seeing what's happened, you are
seeing the progression, you see where we are now. When do you
say to yourself this is a failure, it can't work this way,
let's go back to what we were doing?
Ms. Johner. And they have, they have moved the
responsibility back to the state workers. But they are
identifying some of that lapse in Texas.
Ms. DeLauro. How much more time are we giving Texas to make
this work or not work?
Ms. Johner. Well, I think that is something I will continue
to monitor. And at this point--I understand your question in
regard that----
Ms. DeLauro. This is like when do we say enough--a never-
ending tale. Well, I mean we have got to have sense with some
banality here that this is a go, and it hasn't succeeded. Lots
of good ideas don't succeed. But did they tell us all the time
end programs that don't work. And Congress has you know has to
do that as well. Sometimes we have even been less successful
with that. But I am hoping the philosophy here is to end this
if it doesn't work.
Ms. Johner. If this is acceptable to you, I know I will be
in Texas the first week of April. When I go down there, can I
come back with----
Ms. DeLauro. Yes, absolutely.
Ms. Johner. I mean, we can get together or something.
INDIANA FOOD STAMP PROGRAM
Ms. DeLauro. But let's get an update, let's see what we
think it can go. Indiana, I know you are monitoring it, et
cetera. But look, yesterday, Indiana, a local news reported a
state house conference where leaders of three senior groups
presented their concerns. ``The situation was dire for senior
citizens, people with disabilities, other low-income clients
both had difficulty phoning in to centralized call center,
navigating web pages that were put in place to expedite the
application.''
``People being denied benefits. Wheelchair-bound mother of
two children lost food stamps. Surveys of food pantries,
nursing homes, hospitals, minister's groups, United Way and
other social service providers found demand for those private
services shot up because people have been bumped off the food
stamp rolls.'' ``. . . services, a chief who was in charge of
the . . . said that the roll-out is due to expand from its
original 12 counties to 27 or more on March 24, in about a
week's time.''
Are we going to an expanded rollout before we have
corrective action and are we going the Texas route again? Have
you seen in your oversight the issues that the senior citizen
folks are talking about?
Ms. Johner. No, I have not and I was just out there last
week to make a visit. And I can tell that it's changed from the
time I was out there last fall and then again, last week. And
what I saw when I was there was a streamlined function of the
workers. I talked to some of the family members that were in
the waiting room. They liked the new setup. I didn't see--I
guess--I walked through the process myself as coming in as
someone who needed food stamps.
We would take anywhere from six to eight days for them to
process my applications. We have two-tier systems. Our first
tier is that the call centers to be able to answer questions
that are more generic. And then when they got more specific on
the policy and programs, then you have the second tier. We were
going to ask them----
Ms. DeLauro. Did these folks just congregate and make these
claims? What is the investigative progress on these senior
citizen groups? Are you going to--are the people who are being,
do we know how many people are being denied benefits? And do we
think unless these issues are fixed, do we answer these or
investigate these efforts that we ought to move to a rollout on
the 24?
Ms. Johner. Definitely, Madam Chairwoman, we will be
looking into that. I have not read this article that you are
referencing to. The thing is that they have delayed already
once because we weren't comfortable with them moving forward on
this.
Ms. DeLauro. But do I have your word, and we would be
talking in the next several days that these issues that have
been laid out: not enough case workers to help Medicaid clients
and applicants, new eligibility system dysfunctional, wasteful,
out of sync. This is a person who manages the domestic violence
shelter for Alternatives, Inc., that she had two clients, one a
teenager in high school, another--who had lost food stamps,
other benefits.
I mean, the list goes on. What I am just saying is that you
are monitoring it, it seems to me that these questions have got
to be answered and addressed before we move to any roll-out.
Ms. Johner. You have my word that I will look into this.
[The information follows:]
NUTRITION EDUCATION
Ms. DeLauro. Okay, this is what I going to do unless there
is--there are three or four areas that I have that I really
would like immediate answers on. One is this report that is a
requirement that was laid out in a conference report directing
the department to provide monthly reports on program
performance and estimated funding requirements. I have a great
deal of respect for you Miss Secretary, but I was disappointed
with the letter that came in.
And I actually do have a list, and I won't go through it,
and we will get it to you, of what we believe these letters
ought to include. And so that we will get to you. In addition
to that, the--programs that exist within schools and what our
opportunities are to look at inspection requirements, what
enforcement authority, those kinds of issues. But we will get
that to you right away. There is also nutrition education.
There is $788 million being spent on nutrition education
promotion.
Now, we had research and education, and economics people in
here the other day. They answered that there was no correlation
between the--and obesity. But on nutrition education, when we
asked them about this, so I don't know what is happening with
$788 million----
Ms. Johner. We can give that to you.
[The information follows:]
Of the $788 million in nutrition-related expenditures reflected in
the President's 2009 budget request for USDA's Food, Nutrition, and
Consumer Services, $777 million are used for nutrition education
through the nutrition assistance programs.
Over 95 percent of this funding is provided as payments to
State agencies, including a projected $305 million to Food Stamp
Program agencies, and about $445 million to WIC agencies.
Another $19 million is used to support nutrition and food
safety education and technical assistance to schools through USDA's
Team Nutrition and the National Food Service Management Institute.
$1 million has been requested to support nutrition
education in the Food Distribution Program on Indian Reservations.
The remaining $7 million supports FNS activity to develop
nutrition education interventions and technical assistance materials.
Of the remaining $11 million in the request, about $7 million is
designated to support the Center for Nutrition Policy and Promotion in
developing nutrition guidance for all consumers, including those served
by Federal nutrition assistance programs. The other $4 million is to
support 2 nutrition-related studies--the next in our series of
assessments of the nutrient content of school meals, and an assessment
of promising practices in food stamp nutrition education.
Ms. DeLauro [continuing]. And that information. But there
may be one or two more in terms of immediate answers. The rest
we will ask for the record. We have I think five minutes,
Maurice, go ahead.
NUTRITION ASSISTANCE PROGRAMS
Mr. Hinchey. Very briefly. One of the problems that we are
facing nationally is the fact that we are in an economic
recession. And one of the most uncomforting aspects of this
economic recession that we are experiencing is the dramatic
increase in the cost of living for middle- and lower-middle
income people and people below that.
It is a very, very significant issue. And one of the most
dramatic aspects is the increase in cost of living of course,
is the increase in energy and the increase of the cost of food.
Cost of food has risen up dramatically because of the increase
in the price of energy. And that is causing a lot of problems
for a lot of low-income people.
And I am just wondering how your activities are impeded.
And I know that you are focused on this in the right way based
upon your experience and understanding. But the things that you
are dealing with are making it difficult for you. For example,
for the third year in a row, the President has proposed
eliminating funding for the Commodity Supplemental Food
Program. How has that attitude from the Administration impeded
your ability to deal with issues, because this is an issue that
on an average month provides nutrition to something in the
neighborhood of excess of 473,000 low-income mothers and
children under the age of six and senior citizens. The largest
part of that number is senior citizens.
And we also have the fact that the President now for the
last four years in a row has proposed changes that would
eliminate food stamps for more than 300,000 people. Increase in
the availability of food stamps is one of the things that some
of us tried to get in this so-called stimulus package, which
was passed here and signed. The President said no way, he
wasn't going to sign the stimulus package that provided more
nutrition to low-income people.
So I am just wondering about your ability to deal with this
issue? The issue is dramatic increase in the cost of living,
particularly the cost of food for more and more are low-income
people across the country, mothers and their young children,
senior citizens, others who are suffering from these----
Ms. Johner. Thank you for that question. One of the things
that I look at with competing priorities and again, limited
resources as we all have, is I try to look at what our largest
programs are. And they are the food stamp program, the WIC
program, the school breakfast and lunch program. And so I have
to look at is it's a very challenging job, because the CSFP
program is a good program, but it is also one of my smaller
programs.
And so what I need to do is I need to look at how do I
invest in my bigger programs that could maybe impact more
people. And so, and the other side of that is I also look at my
local community because I come from the grassroots. But I know
the power and influence of your local leadership, of your state
leadership. I am always looking at our community-based or
faith-based, and so Angel Food Ministry has been one area. And
I know I talked about that earlier, but this is a 501(c)3,
it's--they deliver food packages.
And in 35 states, they served 550,000 people a month and we
would like to help, we want to partner with them to help them
expand. And they serve a box of groceries that would last an
elderly person for up to 30 days, and a family of four for up
to a week. And they really focus on the protein piece. So it is
partnership and collaborations like that we need to continue to
work with.
Ms. DeLauro. Thank you, secretary. We probably have a
minute left in order for us to go to vote. We appreciate your
time and your patience with the delays.
Ms. Johner. Thank you.
Ms. DeLauro. And I look forward to the response of the
questions and I look forward to sitting down with you again.
Thank you all very much.
Ms. Johner. Thank you very much.
Ms. DeLauro. The hearing is adjourned.
Tuesday, April 1, 2008.
RURAL DEVELOPMENT
WITNESSES
THOMAS C. DORR, UNDER SECRETARY, USDA RURAL DEVELOPMENT
BEN ANDERSON, ADMINISTRATOR, BUSINESS AND COOPERATIVE PROGRAMS
RUSSELL T. DAVIS, ADMINISTRATOR, RURAL HOUSING SERVICE
JAMES M. ANDREW, ADMINISTRATOR, RURAL UTILITIES SERVICE
W. SCOTT STEELE, BUDGET OFFICE, DEPARTMENT OF AGRICULTURE
Ms. DeLauro. Good morning. The hearing will come to order.
And I want to welcome you, Mr. Under Secretary and the rest
of your team here, Mr. Anderson, administrator for rural
business--cooperative service; Mr. Davis, administrator for
rural housing services; Mr. Andrew, administrator for rural
utilities service, and our perennial and favorite here, W.
Scott Steele, budget officer.
Thank you all very, very much, and Mr. Secretary, I'm
really delighted that I had the opportunity to meet with you
yesterday before today's hearing to discuss this year's Rural
Development budget request.
Thank you for coming today with the team to discuss the
budget with the subcommittee.
Federal efforts to strengthen rural America and to preserve
the strength that it provides our entire nation are really
critical to facilitate growth, and soften the impact of
population loss.
Indeed, Rural Development is one of the most important
areas in USDA's broad portfolio. It touches almost every aspect
of people's lives in rural America, and I believe you share
this view, that we have an obligation to get it right.
To be sure, not all rural areas are alike culturally or
economically, and each has its own unique challenges. What is
clear, however, is that the challenges are growing.
Under Secretary Dorr, your mission could not be more
important. Our goals are straightforward. We seek not only to
sustain our rural communities, but also to create new
possibilities for growth and development in their small town
economies.
I look forward to your comments in today's discussion as we
consider how the budget should strive to meet those goals.
As the current economic downturn continues to weigh very
heavily on families in every region of our nation, I believe we
have a particular responsibility to ensure our rural
communities have the tools to survive. I believe government has
a duty to help provide the same quality of life opportunities
to rural America that are shared by other parts of this
country.
I have some concerns about the USDA's ability to meet that
task. I outlined some of those concerns I have about the
administration's rural development budget with you already. But
let me just address a few of them in a little greater depth.
Overall Rural Development funding is about $805 million
below the amount provided in 2008, excluding the increase in
the rental assistance account.
In particular, the budget request provides $24 million for
the rural community facilities program. That's a $45 million or
65 percent cut below the amount provided in 2008.
The budget request provides $30 million for the Rural
Business program, $57 million, or 65 percent below the amount
provided in 2008, and $269 million for the Rural Water and
Waste Disposal program, or $290 million, 52 percent below 2008.
It eliminates funding for Community Facility Grants and the
Rural Business and Enterprise Opportunity programs. It does the
same when it comes to housing, eliminating funding for the
direct single family housing loan program, zeroing out the
Section 515, multi-family housing direct loan program.
These programs offer interest assistance and focus
primarily on the very low and low-income borrower. At the same
time, the budget again proposes to increase fees for the
guaranteed program from 2 to 3 percent, making it even more
expensive to the borrower, while reducing the budget for its
program costs.
Ultimately, between the fee proposal and eliminating the
direct housing program, the budget request provides $21
million, or $207 million, 91 percent below the amount provided
in 2008.
These cuts to rural housing are particularly troubling in
the context of today's sub-prime mortgage crisis. Programs like
these are supposed to offer a safe alternative to sub-prime
mortgages for creditworthy low and moderate-income rural home
buyers. Now is not the time to undermine.
In addition to serious questions about the budget, I also
believe we must take a hard look at the announcement last week
that Open Range has been approved to receive a $267 million
loan to provide broadband service to 518 rural communities in
17 states.
This loan represents 90 percent of the funds provided in
fiscal 2008 for the broadband program, and I think we should
discuss the Rural Development office's ability to manage a
project of this size.
There are no easy solutions to the big challenges facing
rural America. Indeed, building a healthy rural economy
requires more than simple supports for farm products.
It means investing in entrepreneurship in rural areas,
early childhood centers, rehabilitation, medical centers,
providing infrastructure for electricity, clean water, water
treatment, and yes, Internet, broadband that connects rural
communities to the global community and the global economy.
It means harnessing innovation, pursuing energy
independence, making a bold new commitment to renewable energy.
And the list goes on.
But if we are going to make rural America as productive and
sustainable in the 21st century as it was in the last, we are
going to have to step up and use federal policy as a valuable
tool to put middle and working class rural families center
stage.
Today's hearing is about examining this budget through that
lens. Does it soften the impact of population loss and take
deliberate steps to foster new growth? Does it reflect our
priorities as a nation? And does it meet our obligation to
rural America?
I thank you again, Under Secretary Dorr, for being here,
and I now would like to recognize our ranking member, Mr.
Kingston.
Mr. Kingston. Thank you, Madam Chair.
I don't have any real opening statement, but I do want to
underscore that on the farm bill, there's a proposed increase
on mandatory rural health care facilities, and frankly, I don't
see how we're ever going to balance the budget with all the new
mandatory spending that the president has proposed on the farm
bill.
The farm bill, as you know, is 63 percent food and
nutrition, and there's a big expansion of mandatory eligibility
under that, and then you have this mandatory spending.
And I don't quite follow how the administration can spend
so much time on the commodity program of the farm bill, which I
think is 17 percent, and act like payment limitation is the
biggest problem that's out there, when, with a sleight of hand,
the remaining balance of the farm bill is getting dedicated
more and more, year after year, to mandatory spending, and, as
you know, that's just one bill of lots and lots of bills that
we have to fund.
And I think if we're going to have more flexibility, we
can't lock ourselves into all this mandatory spending.
And I just wanted to make that point.
Ms. DeLauro. Thank you, Mr. Kingston.
And Under Secretary Dorr, we await your testimony, and
obviously, everyone's testimony will be part of the record, the
official record, so I'll ask you to commence and to summarize
your remarks in any way that you so choose.
Thank you.
Opening Statement
Mr. Dorr. Thank you, Madam Chairwoman and Ranking Member
Kingston, members of the subcommittee. I do appreciate the
opportunity to again appear before you to discuss USDA Rural
Development's budget for fiscal year 2009.
Before beginning, I would like to once again pay tribute to
the 6,100 men and women across the country who together are
USDA Rural Development.
We are an agency in transition. That is both a challenge,
but I believe an opportunity. And I am proud to report that our
associates have risen to both, all across the country.
We are now implementing new business plans in every state.
We have already reached our new FTE, full-time equivalent
target of 6,100. We are completing our office realignments,
which will bring our field structure to 448 offices. These are
reductions of 13 percent and 44 percent, respectively, since
2001.
At the same time, we are investing in training and
technology to support a leaner staff in a restructured
technologically intensive environment. We are reaching out to
new partners and seeking to engage untraditional lenders. We
are simplifying and streamlining program delivery to accelerate
this process.
We continue to shift our emphasis from grants to loans and
loan guarantees in order to leverage our resources and serve
more people, and at the same time, we are developing new tools,
such as SEBAS, the Socio-Economic Benefits Assessment System,
which enables us to improve program evaluation as well as help
us do a better job of targeting our investments in the future.
These things ultimately will make us a leaner, more
efficient, more responsive partner for rural businesses, rural
families, and rural communities.
So as I come before you for the last time to present the
budget on behalf of the Bush administration, I would like to
say simply that I am immensely proud of the way our employees
have met these challenges.
Change is hard. It takes good people to get it done. We
have good people, and they are in fact getting it done.
The President's fiscal year 2009 budget proposes $2.1
billion in budget authority to support a program level of $14.9
billion for USDA Rural Development.
As was the case last year, this budget request does not
include significant additional funding contained in the
President's separate Farm Bill proposal.
Mandatory funding for rural health care facilities,
renewable energy loans and grants, rural water and waste water
disposal systems, broadband access loans, distance learning,
and telemedicine grants are all in the Farm Bill, and
obviously, those we'll not be discussing today.
The fiscal year 2009 budget is not, though, a status quo
proposal. It accommodates the institutional and programmatic
transformation which I've just noted. It recognizes the
opportunities inherent in distributed computing and broadband,
and renewable energy, and in an ever more diversified rural
economy.
It recognizes the need to engage rural America's wealth in
a transparent, responsible, and fiduciarily sound manner, to
not just create wealth, but to actually capture and leverage it
for sustainable growth in rural communities.
And it recognizes that we cannot remain a static provider
of traditional programs via traditional methods and hope to
remain relevant in this new, dynamic, and ultimately
increasingly competitive environment.
The budget protects the most vulnerable rural residents by
fully funding multi-family housing rental assistance, while
allocating $100 million for a new pilot program of rental
assistance vouchers, and at the same time, it shifts funding
for both single and multi-family housing construction to
guarantee platforms to serve more people more efficiently.
The budget funds critical infrastructure priorities, while
focusing electric program lending on transmission,
distribution, and system improvements along with environmental
improvements rather than solely on baseload generation, and it
seeks a $49 million budget authority to support $738 million in
direct and guaranteed loans and grants for Rural Business and
Cooperative programs.
Without question, the budget does make hard choices. It
recognizes and accepts the challenges of this budget cycle and
focuses resources on new challenges and opportunities.
I appreciate the support of the subcommittee for rural
America. We look forward to working with you to carry on this
important work. And I thank you for the opportunity to work
with you.
[The information follows:]
Ms. DeLauro. Thank you very, very much, Mr. Under
Secretary.
Let me just begin the questioning with something that I
said in my opening remarks.
And the budget request proposes--it's also something you
said in your testimony, that this is, it's a budget that is
very, very similar to what we saw last year, so maybe I would
characterize it as ``deja vu all over again'' plus more, and in
this context.
ELIMINATION OF PROGRAMS
The budget request proposes to eliminate the following
programs: community facility grants, rural business opportunity
grants, rural business enterprise grants, Section 502 direct
single family housing loans, Section 515 direct multi-family
housing loans.
New to be eliminated are the multi-family housing
revitalization loans, mutual self-help housing grants, farm
labor housing loans, farm labor housing grants, rural economic
development loans, rural economic development grants, value
added agricultural product marketing development grants--that's
new, rural empowerment zones and enterprise communities--that
was there last year, new renewable energy loans, renewable
energy grants--same as last year, broadband telecommunication
grants.
Also, the budget request proposes to significantly cut the
following programs: Section 504 direct housing repair loans,
rural electric loans, distance learning and telemedicine
grants, and water and waste grants.
This year, you're proposing to rescind prior new year funds
for multi-family housing revitalization and broadband loans.
The list grows every year on the direct loan and grant
programs you are proposing to eliminate or significantly cut in
your evolution from grants and direct loans to loan guarantees.
It will take almost $670 million to restore these programs
to the 2008 levels.
Now, last year, most of the increase that we had in the
bipartisan bill that this subcommittee produced put back much
of this money.
And let me just ask you about the program elimination.
Aren't the eliminations, cuts, are they more about the fact
that you were not given the dollars from the OMB sufficient to
fund these programs rather than, in my view, an indefensible
policy decision to shift from grants to loans; and how will the
farm bill offset all of these loan and grant program
eliminations; and what are your contingency plans if--I don't
know any piece of legislation in this institution that gets all
that it asks for, what you will not get from the farm bill, if
we produce a farm bill at all.
Mr. Secretary.
Mr. Dorr. Well, I appreciate your concerns, and I realize
that this is a budget that is in transition.
Number one, resources are tight. When you look at the
aggregate amount of grants that are directed in this budget, as
opposed to a year ago, we're at nearly the same amount of
money.
We have worked very hard to make sure that, in the multi-
family housing portfolio, that we aggressively work to protect
those who need the greatest protection, and that is the tenants
of our multi-family portfolio.
As a result, we've put several hundred million dollars of
assistance back into rental assistance, as well as added
another $100 million to the voucher program.
Obviously, we had to take it from somewhere. We had to look
at what was working and what wasn't.
We, I believe, in our housing efforts, have done a
marvelous job, our staff has done a marvelous job of fixing a
multi-family portfolio that had a lot of challenges, and so
that when we're done, ultimately, we will have a portfolio that
has been restructured, that will have nearly maintained upwards
of 90 percent of all the available units, and that will have
maintained housing for those who need it the most in rural
America.
Probably 55 to 60 percent of our tenants are single,
elderly, female and single parents.
And in so doing, if we continue on this path that we are
on, I believe we will get it done.
We will have also restructured the portfolio so that we
will have rehabilitated the majority of these properties so
they have another 20-year life span at a cost of something in
the neighborhood of $26,000 to $30,000 a unit, as opposed to
rebuilding them at a cost of in excess of $100,000 to $125,000.
That obviously required making changes.
In the process of doing that, we looked at our other
programs, and you alluded to the value added producer grant
program, which I believe we put into the Farm Bill proposal as
a discretionary funding item, not a mandatory funding item. We
did not attach funding to it.
We also have substantive grants added in the Farm Bill
proposal. We obviously don't know where the Farm Bill is going
to be at at this point.
But in that context, we have also recognized that once we
begin to effectively engage the equity that is in rural
America, and I believe I've stated this in my testimony
submitted earlier, over the last five years, farmer and
rancher-enforced private properties have increased an aggregate
of about $1 trillion in value. There is an inordinate amount of
investment capital in rural America.
And we think that one of the most effective things that we
can do is engage the owners, the private property owners, the
community bankers, the farm credit systems, to essentially put
skin in the game, and if we can provide loan guarantees,
whether it is in housing, whether it's in multi-family housing,
whether it is in energy or other developmental projects, the
likelihood of success, extraordinary success, is much greater.
So yes, we've made some decisions. We've made some choices.
We may have some philosophical differences on the choices
that we made. But we do believe that, long-term, this is a good
direction and an appropriate direction to go.
Ms. DeLauro. Thank you.
My time is up.
Mr. Kingston.
RURAL ECONOMY
Mr. Kingston. Thank you, Madam Chair.
Mr. Dorr, in terms of the rural situation in America right
now, the rural economic situation, commodities are going up,
and I guess let me ask you this, in terms--we all know corn has
gone up.
Haven't other commodities, as well, as evidenced by the
fact that I think you're not paying that many counter-cyclical
payments?
Mr. Dorr. I believe in general commodities have gone up,
yes.
Mr. Kingston. And in general, land is going up?
Mr. Dorr. That's correct.
Mr. Kingston. How does that--is that benefitting the
farmers?
Do you have statistical data to show that the economic
picture in rural America is perhaps better than it's been in 10
years or whatever?
Mr. Dorr. Well, probably the two easiest numbers, our net
farm income was a record last year, is projected to be another
record this year. Net farm exports were a record.
I believe that net farm equity, as I just alluded to, is an
all-time high, and the debt to equity ratios are I believe 8 or
9 percent debt to the equity.
So I believe those, as two basic figures, would indicate
the rural economy, from an agricultural standpoint, is in
pretty good shape.
Mr. Kingston. Can you get me those specifics?
Mr. Dorr. Certainly.
We can--we will work with our Office of Chief Economist,
who pulled together the latest numbers.
Mr. Kingston. And since those are statistics, it's a fact,
then, that the rural economy is strong?
Mr. Dorr. Well, I mean, there are obviously always
particular situations where you might challenge that, but
generally speaking, yes, I think the rural economy is very
strong.
Mr. Kingston. The reason why I'm asking that is, the
Federal Government is always quick to find something that's
broken and say, ``We need a new program, we need new money,''
and I say the Federal Government, meaning each branch, the
executive and the legislative branch.
Do you agree with that?
Mr. Dorr. Well, I would agree that appears to be the
tendency.
I don't know that I agree with that approach.
Mr. Kingston. Well, that being the case, though, is there
something if the economy is strong that you can back off from?
And I know you're backing off on the labor program, but are
there things that maybe we don't need to be doing in this
economy that we've done in other economies?
Mr. Dorr. I guess I'm not--I mean, are you talking about
agriculturally, rural, in the general sense?
Mr. Kingston. No, on rural development.
Mr. Dorr. In rural development?
I mean, I think we have--if you look at our numbers, when
we started, when this Administration came to town in 2001,
Rural Development was investing about $9 billion annually in
rural America at a budget cost of around $2.1 or $2.2 billion.
This year, we are in a position to invest in fiscal year
2008 about $17.5 billion at a budget cost of about exactly the
same as it was in 2001.
The thing that we have done more than anything else is
taken an approach that it is appropriate for the Federal
Government to provide loan guarantees, if that's what's
necessary to facilitate the startup of these new economic
opportunities in rural America.
Consequently, I think that's been a reasonable shift. I
think it's appropriate.
I believe I've said this in the past, but I'll repeat it.
For 75 years, we in the Federal Government have literally
financed most everything in rural America, and consequently--
and for good reason. I'm not being critical of that.
I mean, everything from beginning to wire rural America
with electricity to running the telephone lines, to digging the
ponds, to tiling it, to building the terraces, subsidizing
agribusiness through Title I.
As a result, I think what we ultimately have done is
stifled the innovativeness and the entrepreneurial activity in
rural America in ways that we didn't anticipate. We didn't do
any of this maliciously.
Loan guarantees actually facilitate your traditional
lenders, your farm credit system and others, to really step up.
And you have bright, entrepreneurial, innovative people who
say, ``We want to start an ethanol plant, we want to start a
wind farm, we want to start some sort of a food processing
system.''
Historically, there was not really many places to go to get
some additional assistance to assure these lenders, who
typically weren't used to working in this environment, to
engage, and that is now happening on a more regular basis, and
I think that is an appropriate policy approach in the direction
that we're going.
Mr. Kingston. I just want to give you a chance to make that
point, because I think it is important for these people to
hear.
$2 billion used to leverage out to 9, and now it leverages
out to 17, perhaps because of the strong economy, but in
recognition of the programs that you've initiated.
Mr. Dorr. You know, I appreciate that, and one of the
comments that I frequently make is that our budget is roughly
$2 billion in Rural Development, net farm equity is over $2
trillion. That essentially tells you who is the dog and who is
the tail.
Mr. Kingston. Okay. Well, I'll yield back.
But I really do want to get those numbers on net export and
equity----
Mr. Dorr. We will certainly get those numbers to you.
[The information follows:]
Mr. Kingston. Thanks.
Ms. DeLauro. Mr. Jackson.
Mr. Jackson. Thank you, Madam Chair, and thank you, Mr.
Secretary.
ASSISTANCE FOR LOW-INCOME SUBURBAN COMMUNITIES
The second congressional district of Illinois that I
represent is very unique.
I represent both Chicago, the urban metropolis, and
suburban communities with populations ranging from 4,000 to
40,000.
One of the suburban communities I represent is Fort
Heights.
In 2001, Fort Heights was in desperate need of new drinking
water. Their system was producing unsafe water that was
literally brown.
And because of the small population of Fort Heights, USDA
Rural Development was able to come into the community through
loans and grants and installed a new water system for the
community, including a new water tower.
At the completion of the project, I toasted, alongside with
Illinois Rural Development staff, clear, cool, drinking water.
This was a great day for the residents of Fort Heights. I
appreciated the help of the Illinois Rural Development
department, and I look forward to working with them, as well.
But there are many other communities that need the same
help.
With that said, what programs exist to help other low-
income suburban communities like Fort Heights that are caught
between large municipalities, not quite rural areas, but just
beyond their borders, enormous and vast pockets, if you will,
or parts of our country that are rural?
The suburbs I represent are obviously eligible for help
from Rural Development because their population is under
50,000, but does their proximity to big cities sometimes
prevent them from getting help?
And I want to close with just a small anecdote.
When I first got here, and I was trying to get fresh water
for Fort Heights, many of my colleagues, even my colleagues on
the Democratic side of the aisle, kept referring to me as the
congressman from Chicago, the congressman from Chicago.
And in their minds, whenever they were helping Mayor Daley
or helping Chicago, they were helping members of the Illinois
Chicago delegation.
But between Chicago and the congressional district that I
specifically represent, Chicago at one level of another has
much representation here in the Congress, but it's these small
rural communities that fit your definition, that fit the other
elements of my congressional district's definition, that have
absolutely nothing to do with the municipality of Chicago.
And so when I would make arguments for these small
municipalities that fit the definition of rural and therefore
qualified for Rural Development activities, I might as well
have been talking to a wall, because many Members of Congress
could not recognize or did not see me as representing a rural
area. They see me as urban is what it is.
Your thoughts, please, about what these communities can do,
what Rural Development can do, and does their proximity to big
cities prevent them from getting necessary help?
Mr. Dorr. Well, let me say at the outset that when the
Washington Post was writing their series of articles on Rural
Development, I wish they would have discussed this with you,
because you've clearly identified one of the significant
challenges that we're engaged in, the population definitions of
rural, and what happens to those small communities that somehow
find themselves positioned adjacent to or too close to a large
metropolitan area to qualify for a variety of Rural Development
programs.
Mr. Jackson. I'm sure the Washington Post saw me as
representing Chicago, and not rural areas, but thank you, Mr.
Secretary.
Mr. Dorr. Well, nevertheless, there was a great deal of
discussion about that very issue.
And quite honestly, it's been my experience, for the short
term that I've been here, that defining rural is becoming a,
and has always been, a significant challenge.
All I would suggest is that we are in the process of
working through the Farm Bill to try to streamline to make a
more effective definition of rural, one that would allow us to
then have the authority to prioritize certain components of
this, particularly when it gets to the things like water and
environmental programs and other things that are very
essentially to these small communities.
I don't know that that's a good answer. It is a difficult
issue, one that we deal with all the time, and we're fully
aware of it.
We're continually trying to do what we can to not only
streamline and better define, but to shoehorn, where we have
to, communities in to fit programs when there are these defined
needs.
Mr. Jackson. Thank you, Mr. Secretary.
Thank you, Madam Chair.
Ms. DeLauro. Thank you.
FARM COMMUNITY VERSUS RURAL COMMUNITY
I just would take a second to say, and hopefully we can get
into it later, that there really is a difference in the farm
economy versus the rural economy, and often those two things
get elided as to what is happening, and I think there is a real
distinction there which we ought to probe in terms of the
statistics, if you will, in terms of the wealth of rural
America versus the wealth of a farm economy.
Mr. Latham.
Mr. Latham. Thank you, Madam Chairman, and you just took
the words out of my mouth.
But first of all, I want to--this is your last hearing
before the subcommittee.
I want to thank you for your service, and as a fellow
Iowan, I really do appreciate what you've done in thinking
outside the box, and made rural development something that is
really developing rural America, and it's a big change from
what it used to be.
And I appreciate the activity, the being visible, being
available, that the department has been.
And the chairwoman really hit on what was my point. At
Alexander, Iowa today, when land was three, four years ago,
$2,500 maybe, an acre, today $6, 7, 8,000 an acre, you've got
commodity prices, corn is well over $5 a bushel, soybeans
probably $12, 13 a bushel, cash.
But Alexander, my, you know, home town, is--you can't buy a
gallon of gasoline, you can't buy a gallon of milk there.
So there is all of this new-found wealth in rural Iowa, and
rural America, but for a lot of people, the communities are
dying, yet.
We've had a real change with the energy production,
ethanol, wind energy, like you mentioned before, biofuels.
There's some real problems on the horizon, I think.
We've got in my district today a $60 million new biodiesel
plant that they did a test run and they have never started it
up because of the cost of soybean oil today.
I think we've got some real challenges.
I just, not really a specific question, but what do you see
as far as the opportunities and challenges that are out there?
Because there is this division, like the chairwoman said,
between, well, how the farmers are doing and how the
communities are doing.
Mr. Dorr. Well, I don't think there's any question that
that's the brain drain, the out-migration in rural areas,
disassociated with the aggregating increase in size of farms.
There's always been a challenge.
I do believe that there are some fundamental things that
are changing, and they're not going to be perhaps self-evident
overnight.
But, for example, when the highways, when the interstates
and the railroads bypassed the community, it was effectively
redlined, and that precipitated its demise.
We are, in many respects, doing a better job, but I would
be the first to admit we're still struggling with trying to
figure out how to use government to effectively deploy
broadband access to rural communities.
But if we do that, you essentially give these rural
communities the opportunity to engage in a global economy in
ways that they've never had prior to this time.
That being the case, broadband, in and of itself, in my
view, mitigates a lot of the traditional redline issues.
Secondly, alternative energy, renewable energy, and I know
you collectively are aware that I have focussed a lot on that,
but I read an interesting article just a couple of days ago
where T. Boone Pickens made the observation that he had
historically not supported renewable biofuels and now thought
it made a significant amount of sense, given where the industry
has migrated to.
And the real simple fact is that right now today we're
exporting well over $500 billion, maybe $600 billion annually
to import oil.
Most of that money ultimately could slosh around right back
in rural America in ways that I don't think we've ever thought
about in the past and would not require a quid pro quo in a
foreign policy arena. We could just keep it here.
If we get to the president's 20 and 10 initiative by 2022
of 36 billion, that's almost a billion barrels of oil
equivalent. That's the same as greater than net farm income.
When you do that, all at once a number of other things
happen. These create high-value jobs, but it's not just the
jobs at the plant.
They create a whole host of changes in regard to how do you
integrate legacy, or how do you integrate distributed energy
systems into these legacy systems?
The bottom line is that all of these things that are going
on in rural America are largely a function of distributed
computing.
You can put up a price competitive 100 million gallon
ethanol plant as opposed to a 400,000 barrel a day refinery,
and you can make them cost effective in rural America.
That's going to require policy change, it's going to
require state public utility commission change, it's going to
require a whole host of distribution and logistics management
issues.
These are all going to be dependent upon jobs that are very
intellectual in nature. They're going to give young people an
opportunity to return to these rural areas if they so choose.
And I think that, in the front end of this, it's probably
difficult to try to ascertain what exactly they're going to be.
But in the long run, I just look at it in the context of a
half a trillion dollars.
A half a trillion dollars that we could perhaps keep in
rural America over a long period of time is obviously going to
create a lot of opportunity, and I think that probably is the
sum and substance of it.
Mr. Latham. Does that filter down, though, I mean, outside
of the landowners and the farmers themselves? That, to me, is--
--
Mr. Dorr. Well, I think it can.
Mr. Latham. Okay. Thanks.
Obviously, our timer is not working very well.
Mr. Jackson. It told me to stop.
Ms. DeLauro. Interesting that median income is 25 percent
lower and the poverty rate is 28 percent higher than in the
metro areas, so your point is well taken.
Mr. Bishop.
HELPING SMALL COMMUNITIES
Mr. Bishop. Thank you, Madam Chairman, and welcome to you
and I thank you for your service.
Mr. Dorr, you may know my district has some of the poorest
counties in the entire state of Georgia on a per capita basis,
including Chatahoochie, Baker, Calhoun, Clay, Randolph,
Stewart, Carroll, Clipman, and Webster Counties.
Over the past several years, my staff has attempted to work
with your agency to provide much-needed assistance in these
communities, particularly in the areas of housing,
infrastructure development, including water and sewer
improvements, as well as economic development and job creation.
And this is particularly true in Chatahoochie City County,
which is now a consolidated city county, which has a base
population of approximately 3,000 or 4,000 if you exclude the
military population that is stationed at Fort Benning, and this
community is in desperate need of a water tank as well as sewer
improvements.
Last year, the subcommittee report directed the department
to take a closer look at this and other needs in the district,
including the Zion City housing project and America Sumter
County, Georgia, and we haven't seen very much movement on it.
We haven't seen much cooperation or assistance in this regard.
Tell me, where can some of our poorest rural communities
turn if they can't get help from USDA, can't navigate the
bureaucratic maze that USDA has, and they can't afford the
matching requirements for grants, and most of the other
challenges?
I was struck by the movement, particularly in your
appropriations, to guaranteed loans as opposed to direct loans,
and of course small and disadvantaged communities, particularly
those communities that have minority populations, they're not
going to have the relationships with those financial
institutions that will give them the guaranteed loans, and
historically, they've always had to come directly to USDA.
You're abandoning a program which is the last and the only
hope of small, disadvantaged communities and farmers, for that
matter, to this guaranteed program, which is really shifting
responsibility, which I would think that rural development
would want to assume and to discharge very, very zealously,
because historically, it has not been done by the private
sector otherwise, and it's still not being done, even with the
guaranteed program, because you don't get the participation,
particularly from the people who need the help.
Mr. Dorr. We will certainly follow up on this particular
issue.
I appreciate the concerns that you've outlined and the
challenges.
We are and have worked with a group called the Southern
Foundation, I believe it is, out of Helena, Arkansas, that has
established a series of banks that are largely being developed
to work with minority communities to effectively provide these
kinds of assistance and services with, I think, some very,
very, the leader of that organization, a fellow by the name of
Joe Black, I would suggest that perhaps we could work out
something with Mr. Black to have an opportunity to work with
some of the folks in these communities.
I do believe that, longer term, to the extent that--and our
state directors do have the flexibility to shift some of these
grants around and to leverage them more or less as certain
circumstances warrant.
But I do believe, in the long run, that direct loans and
grants from the Federal Government tend to stifle
entrepreneurial activity and innovative activity in these
communities.
I realize that some of them have greater challenges, and I
think we need to try to do what we can in a straightforward and
honest way to work with them, and I'd be more than willing to
do it.
But again, as I indicated at the very outset, one of the
big challenges that we----
Mr. Bishop. Mr. Dorr, I don't mean to interrupt you, but it
seems to me that you're just adding another layer of
bureaucracy when you do the guarantee.
That does more to stifle entrepreneurship, except for the
banking end of it.
The entrepreneur that wants to do something in a rural
community, that can go directly to USDA and get a loan and go
to work with his investment of capital directly from USDA, that
cuts out a whole lot of that bureaucratic red tape.
And I don't know about the entrepreneurial creation, but it
seems to me like it's just creating activity for financiers, as
opposed to the people who really are going to be doing the
nitty gritty, where the rubber meets the road, work.
Mr. Dorr. In our B&I program, the direct loan had a, the
direct loan program in 2001 had a default rate of 47 percent.
Our guaranteed portfolio has a default rate of about 5\3/4\
percent today.
Mr. Bishop. That's because they don't make the loans to the
people who need them. That's exactly, that underscores the
point.
Ms. DeLauro. Mr. LaHood.
BROADBAND IN RURAL AMERICA
Mr. LaHood. Mr. Dorr, thank you for your service.
I want to be one of those who also thanks the staff that
you have in Illinois. They've done an extraordinary job.
Doug Wilson heads up the operation there, and he and his
staff have done a terrific job.
We've taken advantage of about every program that rural
development has offered.
I hope you'll convey to Doug our sentiments, that at least
in the 20 counties that I represent, almost all rural, we are
involved with new water supplies, new sewers, and lots of
opportunities for different alternatives. So we appreciate the
work that you all do.
I agree with you 1,000 percent on the way to make rural
communities relevant is through broadband.
I would have hoped that, and I know it's something that
you're interested in, I would have hoped it would have been the
priority of this administration, I hope it's the priority of
the next administration, if we're going to keep people in rural
communities, we have to connect them to the world. The only way
to do that is through broadband.
I mean, many of these communities, as you've said, were
redlined, either by the elimination of a road or a railroad or
whatever, and that's where rural areas are losing, because
there's a disconnect between them and the world.
And, you know, some of them have computers, many of them
don't, but I'd like to know, you know, your feeling in this
budget on where we're going with broadband and if it--what kind
of a priority it is for the remainder of your term and the term
of this administration.
Mr. Dorr. Well, I think we can state unequivocally that the
administration and those of us involved in rural development
are very, very supportive of deployment of broadband
accessibility wherever we can possibly get it.
I would also, as I have in the past, be less than
forthright if I didn't say that it has been a distinct
challenge.
I think when policymakers in general envisioned deploying
broadband to rural America, it was envisioned in the context of
how we were able to do it with rural electrification or
deployment of rural telecom, and had it been that way, I think
it would have been far less complicated.
The problem that we've run into is that we have a number of
competitors, and where we have absolutely no service or maybe a
very underserved environment, we have difficulty developing a
business model or a business plan for those that come in and
desire to provide service that will ultimately fly.
And so consequently, trying to build this out in that kind
of a competitive or semi-competitive environment has been a
much more challenging issue than we had anticipated.
As I know that you're probably all aware, we just recently,
as a matter of fact last week, announced an award of a
broadband loan to a company called Open Range. It was a $266
million loan.
The company put up $109 million of their own equity. It is
using WiFi or Wimax technology in conjunction with low Earth
orbit satellites, so that there will be a terrestrial
component, as well as a satellite component. They're going to
deploy broadband in 17 states.
Their original five-year plan addresses nearly 500
communities, potentially a half a million recipients.
It's an interesting one, because I think in the long run
we're going to get questions from anyone, regardless of how we
do it, but the fascinating part of it, as far as I'm concerned,
is that, for the first time, we have people bringing a
scaleable model to something that looks like it has a very good
chance of working.
Our people started working on this loan two years ago. It
is much different than when it started out.
That loan process wasn't static. It's very definitive, and
I think it's a good business plan.
We're going to closely monitor it, and hopefully it works,
and if it does, I think it will give us some good indicators of
how we can better deliver these broadband services down the
road.
Mr. LaHood. Thank you.
Ms. DeLauro. Mr. LaHood, I'm going to get you a copy of an
article that was in the International Herald Tribune, which
talks about the European Union taking the lead in broadband
growth, and where the various countries are, because I think I
know that this is an area that is very, very important for you,
and it makes some description of the kinds of things that they
are doing.
Mr. Farr.
Mr. Farr. Thank you, Madam Chair.
COMMUNITY FACILITIES IN CALIFORNIA
I have three questions, one about a loan guarantee and the
other about farmworker housing, and I'll try to get to them,
because I can't stay for a second round.
I represent a very rural area of California, the central
part of California.
We have a hospital in the southern end of my county called
Memorial in King City, and it's about 70 miles from any other
hospital.
It serves a rural population, a lot of farmworkers, and
from time to time, the large military training base there, that
has no medical facilities, other than just a check-in clinic.
And this hospital has gotten into some financial problems
and has applied for a loan guarantee, and the guarantee that
they've applied for has worked out a waiver of a tangible
balance sheet equity requirement for $8.5 million in the
business and industry loan guarantee.
The USDA's California rural development office has
apparently approved all of this, has submitted it to
Washington, and here is where it's got stuck in the
bureaucracy.
I wrote a letter to Mr. Anderson last month asking him to
get it unstuck, and I understand that the national office
executive loan committee convened on March 17th to consider
this request.
It was determined by them that the OGC, the Office of
Attorney General, or of General Counsel was necessary to
further consider the request, and it was promised that the OGC
approval would be sought in very short order.
Well, it seems that nobody can find the papers, OGC has not
received any request, it remains unclear, after multiple
conference calls from the folks in the district and in Region
9, and e-mails and dialogues, that the rural business
cooperative services has not even made the determination of
whether to present this to OGC.
Can you get unstuck for me and get it done? The office, you
know, is very good, they put out about $100 million worth of
loan guarantees, they're solidly behind this, and this
hospital, without this loan guarantee, will go bankrupt.
Mr. Dorr. I am aware of the situation, and I will assure
you that we'll look into it.
I understand that there has been a new management team
recently brought into this hospital, and my understanding was
that there was some revisiting of some of these plans and the
numbers.
Mr. Anderson, do you have any other comments?
Mr. Farr. Just whatever it is.
Mr. Dorr. Right.
Mr. Farr. Can we get it done, so we can get some
information back to them?
Mr. Dorr. We will certainly take a look at it. We will get
back to you, and we will get back to them.
[The information follows:]
Rural Development National Office staff met with Congressman Farr
in person to discuss the Hospital's application on April 17, 2008. The
agency provided details on its analysis of the Hospital's financial
status and discussed various prospects for improving that status. Rural
Development indicated it was receptive to participating in a meeting
with the hospital, hospital financial advisors, and potential lenders
to discuss the application further and explore options for further
consideration of the proposal.
Mr. Farr. Thank you. I mean, hopefully, in a very timely
fashion.
FARM LABOR HOUSING
The second issue I have is the followup on this discussion
of rural development.
An example, the city of Salinas. We have city centered
growth, because we want to have people live in the cities, not
on top of ag lands. You know, protect the ag lands, have people
commute out to the fields.
And so we get down to a couple of questions.
One is, what is a farmworker community? We've had to have
waivers, and those have happened before to get farmworker
housing.
But the other problem is really one of just a definition of
what is a farmworker. California has a different definition
than USDA.
And what we would like to do, and I don't know how we're
going to solve this, but I'll have to meet with you to get a
waiver or to work out some new language.
We have people that are in the processing sheds, and
they're known as processors, but they're not like--you know,
they're not really processing.
The food doesn't change its status. It's essentially still
raw food when it comes in and raw food when it goes out. It's
just packaged.
Lettuce is put in a bag, a lot of that--that's the
processing of kind of the shipping and preservation of it, and
these, mostly women, in these processing places, don't qualify
as farmworkers, although they are. They're under the same wages
and contracts and are working for the same ag growers.
So I'd like to see if we could get a waiver using the
state's definition of farmworker or language change that
includes the processing of raw vegetables, and I want to meet
with you to see if we can work that out, as soon as possible.
Mr. Dorr. We'll be delighted to sit down with you.
Mr. Farr. And maybe to bring to us what your difficulties
are with that kind of change.
And lastly, I don't think there's anybody in the Congress
that's more interested in affordable housing. We're in the
coast of California.
The future is that if we--we're in, you know, what I call
the in and out economy.
I live in an area where you got to get fresh produce out.
We sell $3 billion worth of crops. We harvest 85 crops.
They're all fresh crops. They got to get on trucks. Pick
today, out--and they're out tonight, and in the stores tomorrow
or the next day.
Our roads are all rural, they're two lane, they're going to
get clogged with everybody now commuting to work, and so what
happens is that what we need to do is what I call inclusionary
housing. We got to build the jobs' housing balance.
If you provide a job, and we're making companies do that
now, you move in as a corporation to our area, which we love to
have you, but you have to provide the housing close to where
you work. So we include affordable housing.
The difficulty is that that is usually all done through
HUD, the HUD stuff, not with farmworkers, because that's your
jurisdiction.
So what I really want to do is to get a greater outreach in
the rural communities as to what you can do to help for
farmworker housing.
And what we ask here is essentially to find out exactly
what you're doing to promote the farmworker housing, whether
the state rural development offices are promoting it through
community meetings, encouraging applications to industry
groups, and asking if there are any plans to do a portfolio
assessment similar to the assessment done for multi-family
housing loan portfolio to find out what population and housing
needs are for the rural labor housing program.
I can tell you it's keen in California, and we'd like to
have you, the department, being as aggressive in this field as
HUD is working with the county housing authority.
Mr. Dorr. We will certainly look into that.
Russ, do you have any----
Mr. Davis. Sure.
If I could just say that farm labor housing new
construction is something actually where we no longer have a
monopoly.
The largest builder is the low-income housing tax credit
program, and in fact, the developers have found it to be, being
a younger, newer program, it is more flexible and is very
attractive to the developers.
Our program has just become too expensive. We're spending
$150,000 per unit on average to build one apartment unit,
essentially, plus we're adding rental assistance to it.
We could help far more people with the same amount of
money.
We're finding it's much more efficient to leave that
construction to market rate housing, the tax credit use of
vouchers, which is one thing we are proposing----
Mr. Farr. But I tell you, the combination works best of
all, and I put together the first time that we'd ever worked
with a housing authority and HUD on property owned by you in
Soledad, California where we brought and dedicated for
farmworker housing.
Because we brought the whole gamut of loan portfolios and
incentives together, we were able to build twice as much
housing----
Mr. Davis. Oh, it is very nice for the people who get the
funding, because there is a lot of concentrated grant money,
essentially.
The problem is that it doesn't go very far. We only built
17 properties last year in the whole country.
Mr. Farr. Well, let's get together and figure out how to
make this work.
Mr. Davis. We'd be happy to talk about updating it.
Mr. Farr. Thank you.
Ms. DeLauro. Mrs. Emerson.
Mrs. Emerson. Thank you, Chairwoman.
Thanks for being here, Mr. Dorr.
HOUSING LOAN CRISIS
I think it was in your testimony that you referred to rural
development as an investment bank for rural America. And given
the state of the nation's investment banks, that comparison
alone may be cause for some concern.
Tell us a little bit about what rural development's risk
exposure, in your home loan programs, might be, and what steps
you all take to protect homeowners as well as taxpayers from
the lending crisis.
Mr. Dorr. Actually, our risk exposure is really quite good,
and I think maybe it would be best to turn it over to Mr. Davis
and let him explain this.
But the bottom line is that, in our single family housing
programs, we essentially have never offered ARMs, we have not
offered teaser rates.
We have made it very clear at the get-go, whether they were
direct or whether they were guaranteed loans, exactly what
would be the homeowner's payment, and in the environment when
interest rates were dropping and home values were escalating
and homeowners had considerable equity, we actually urged folks
to get out of our program, to go to private financing, to lock
in the lower rates, to mitigate the fact that if they had a
direct loan, in which case if they stuck with it, or wanted to
get out on their own, a lot of that appreciated equity would go
back to the government, and we felt it was important to try to
get them to end up with as much of that equity as possible.
Russ, do you have anything else?
Mr. Davis. If I can just say that 100 percent of our loans
are not sub-prime, 100 percent loan-to-value. We've never had a
lower delinquency rate in our history.
And a large part of that is because we didn't have the
automatic ARM resets, but also because rural America really
never got the bubble.
There's a lot of outmigration, there's a lot of economies
hurt by manufacturing pullback and so forth.
And so we really are providing what the private sector has
pulled out of.
Our volume has almost doubled in the past year. Private
sector lenders are leaving, we're coming in. We'll go up about
25,000 loans in volume this year.
And one thing that is really important, and that is how
careful we are to try to get the low credit borrowers into the
program.
Twenty-three percent of our borrowers have a FICO score of
under 619, or no FICO score at all, so a quarter of our
borrowers are locked out of the private sector, anyway.
So we're doing our job as lender of last resort in a big
way, and that's why we're really focusing on the guarantees.
Mrs. Emerson. That's good news.
Fortunately, in my very rural area, people just don't
have--we don't have that housing crisis that St. Louis or even
Kansas City might have.
PERSISTENT POVERTY COUNTIES
Last year at this hearing, Mr. Dorr, we discussed what
rural development was doing for persistent poverty counties,
and I'm very sad and distressed to say that so many of mine
happen to fall into that category.
And I had mentioned at that time that there was a need for
an increased focus on the roughly 340 non-metro persistent
poverty counties, and we did hear what rural development does
to target these counties.
However, about a month after this conversation, I read in
the Washington Post this article that I know you all are aware
of, that quotes, since 2001, quote, ``more than three times as
much money went to metropolitan areas with populations of
50,000 or more, $30.3 billion, as to poor or shrinking rural
counties, $8.6 billion. Recreational or retirement communities
alone got $8.8 billion.'' So I have a few questions.
Number one, is this a reasonable ratio?
Two, does rural development need new or different tools to
reach into these communities?
According to your testimony, since 1999, rural
development's budget authority has increased by $100 million,
and the program level has nearly doubled to $18.5 million.
Is there any relationship between this increase in the
program level and the apparent lack of investment in persistent
poverty counties?
So I'd like you to answer those questions, but with the
caveat that believe me, I understand that you all are only a
partner with local communities, and I need you to help us with
the answers to those questions, but also help us figure out
what I and my colleagues and other local leaders could be doing
to help these communities who are persistent poverty
communities capitalize on USDA rural development resources.
Sorry, that's a long question with some----
Mr. Dorr. No, it is, and it's a tough question, and I
frankly would be disingenuous if I told you I had an answer for
it.
I do believe that our approach, one of the things, for
example, that we're doing in our B&I program is making a very,
and that's the business and industry loan guarantee program in
conjunction with a number of our renewable energy, or the value
added program or other things, is we are taking I believe 20 or
22 states in which we historically have not had aggressive
relationships and B&I development relationships with the local
lenders, and we are actually going out and making an effort to
contact every rural lender in those 20 states.
Giving you one example, we had one state that, about two-
and-a-half years ago, made about $20 million in annual loan
guarantees to the B&I program.
This year, through a very aggressive outreach effort, they
will, presently six months into the year, have $120 million of
loan guarantees on the books.
I believe that the only way we ultimately get through this
persistent poverty issue is that we have to generate economic
activity in those communities based on whatever the structural
strengths of them are.
The long-term infrastructure issues will be addressed if
you have strong economic activity, and whether or not we can
address it in every one of these counties, whether or not, as
the Post articles point out, we can redirect how that occurs,
is an ongoing challenge.
Rural definitional issues, there are a number of challenges
that we have historically dealt with, and we're trying to
redefine our rural definition to give us greater flexibility in
identifying those priority areas.
If we're successful at getting that done, we can, and
better define those priority areas, perhaps we can do a better
job of targeting the resources that we have in some of these
areas.
But a lot of it has to do with the way in which we
historically have been structured.
Historically, we were structured such that we waited for
people to come into our offices. We're not doing that any more.
What we have done through our restructuring process is
specifically designed to get our people cross-trained to be
able to deliver more than one program, and we have great
expectation that they will spend a great deal of their time out
looking for business, working with constituents, exploring
opportunities with local lenders, local developers, local
councilmen, whatever the case might be.
And to the extent that we're able to carry through on that,
I believe we'll begin to generate a lot more interest and
activity in these areas that you're talking about.
Mrs. Emerson. Thank you.
Ms. DeLauro. Ms. Kaptur.
Ms. Kaptur. Thank you, Madam Chair.
Welcome, Mr. Secretary, and your associates. Glad to have
you here today. And thank you for the special effort you made
to stop by and see members prior to your testimony today.
Thank you. We deeply appreciate it.
OPEN RANGE COMMUNICATIONS BROADBAND LOAN
Just for the record, the Open Range communications proposal
that you've been heavily involved in includes 17 states.
I take it Ohio is not one of those states. Am I correct in
that understanding?
Mr. Dorr. I believe it is.
Ms. Kaptur. It is one of the states? So any part of Ohio
that's rural would qualify?
Mr. Dorr. There are--the loan application and the approval
process specifically designated certain counties and certain
communities.
Ultimately, as this plan is built out and they attain the
build-out designated in their plan, my expectation is that they
will wish to expand to other areas that are underserved
adjacent to the areas that they're presently serving.
Ms. Kaptur. If there's any information about Ohio, I would
greatly appreciate that as part of the record.
Mr. Dorr. Sure.
Mr. Andrew indicates that we are--they are going to be
building out in 50 communities in Ohio, they'll be investing
about $24 million of this project in Ohio.
Ms. Kaptur. Do we know--Ohio has 88 counties. Do you know
how many counties that may touch?
Mr. Dorr. I don't, but we can get that information to you.
Ms. Kaptur. All right.
Mr. Dorr. We would be delighted to.
[The information follows:]
Ms. Kaptur. Thank you for your leadership on that.
RENEWABLE ENERGY
I agree with the statement that you made not so long ago.
Renewable energy is the biggest opportunity for economic growth
and wealth creation in our country. I totally agree with that.
The facts are that since this president has assumed office,
America is importing a billion more barrels of oil per year
than at the beginning of this decade.
Whereas in the past, we had about a third of our trade
deficit was comprised of petroleum imports, today it is 51
percent. So it's getting worse.
So all of us have an enormous role to play in that. I'm
glad you see the Department of Agriculture's in that, Mr.
Secretary.
And I'm very interested in the fact that in the budget
submission, and I realize we have a farm bill out there, but in
the budget submission, the administration, in terms of energy,
zeroed out rural economic development loans, value added
grants, renewable energy efficiency grants, renewable energy
efficient loans.
I know your interest and your deep commitment to energy
independence. Could you sketch for this committee how you view
your role in that, as a result of this budget submission.
And also in answering that question, in last year's
appropriation bill, we had specifically identified wind
production as a priority area for the utilities program. Could
you address that, as well, as you respond to this question?
And I thank you so much.
Mr. Dorr. Well, certainly.
Yes, you're correct, in terms of what is in the 2009 budget
submission.
I also, however, wish to point out that the Farm Bill
proposal that was presented by the president and Secretary
Johanns now well over a year ago clearly had a large component
committed in what we call a new platform structure for energy
programs.
I believe the request was for a budget authority that would
support a $2.1 billion loan guarantee program for biofuels,
particularly in cellulosic refining, enviro-refineries.
We had submitted a budget request for $500 million for the
research title.
We had included another, I believe, $500 million for what
was the old energy efficiency and renewable energy portfolio,
and I believe there was another $150 million submitted in that
for research in the old 9008 biomass research and development
portfolio.
Clearly, we don't know where the farm bill is at this
point. I sincerely hope we have a bill that will support what
the president has laid out in this.
The thing that I think is also important to point out, and
obviously we're on different sides of the aisle, but I believe
the President has had an extraordinarily strong commitment to
renewable energy, and in that vein, early on, we got very
engaged at USDA working collaboratively with the Department of
Energy, and I believe that the relationship that we have
developed with the Department of Energy using their technical
and research assistance in the implementation of our energy
efficiency and renewable energy program, or the 9008 biomass
R&D program, has been extraordinarily beneficial. We're not
duplicating things that they do and vice versa.
So that collaboration has actually evolved now to a greater
extent through the biomass R&D board in which we have co-
chairs, and the Secretary of Agriculture and the Secretary of
Energy co-chair that committee.
I'm the designee from Agriculture. Alexander Karsner is the
designee from Energy.
But we also meet monthly with representatives from EPA,
CEQ, and all the other agencies very much involved with this
entire issue, and I think it's bringing a lot of focus to the
entirety of the efforts.
In response to your last question about wind, clearly, wind
is a large component of renewable.
Mr. Andrew's programs allocate $200 million a year to
renewables as a set-aside. Jim, do you want to address that
issue?
Mr. Andrew. It is not specifically designated. I mean, we
did specifically designate for renewables.
We have done several wind projects. We have several that
we're looking at right now with at least 500 megawatts of power
that will be incorporated--$200 million out of our budget set
aside for renewables----
Ms. Kaptur. Are those mostly west of the Mississippi
rivers, sir?
Mr. Andrew. No. Two of them are in Missouri, one of them is
in North Dakota, one is going to be in parts of South Dakota.
Ms. DeLauro. Thank you, Ms. Kaptur.
We will move to a second round, and obviously, more
questions. Just a couple of points, I think, for clarification.
And I'm not going to ask you to do this now, Mr. Secretary,
but I think that there's over-reliance on what is going to come
from the farm bill, and we are going to be in very, very
serious shape if the extent to which you are hoping that the
farm bill is going to provide you with all of these resources.
As I said earlier on, there isn't any request that is 100
percent, and I haven't yet heard anything about contingencies
as to what we do with all of these programs if there is no farm
bill.
ELIMINATION OF PROGRAMS
But let me move to a couple of other areas.
This is--the Economic Research Service was here about three
weeks ago. I want to just give you this quote.
``Analysis shows that poor rural counties generally receive
more grants and fewer guaranteed loans than rural counties in
general. Poor communities often lack the ability to repay
loans, given their limited tax base.
This problem is exacerbated in small communities where the
per person costs of providing public services are high.
Consequently, the recent shift from rural development grants to
direct or guaranteed loans may make it more difficult for low-
income rural communities to finance local environmental
infrastructure, telecommunication services, and community
facilities.''
ERS, sitting where you are not three weeks ago.
The rural development budget proposes to eliminate most of
the grant programs, some of the direct loan programs, in favor
of guaranteed loan programs.
But budget justifications say more communities can take on
debt to address needs in this low interest rate environment.
How do you plan to assist the other communities that cannot
afford to take on debt, the more impoverished communities that
need environmental infrastructure, telecommunication services,
and community facilities?
Mr. Dorr. I was not aware of that document until after the
fact, and had I been asked to edit it, I probably would have at
least asked where they pulled all of that together.
Again, we all know that there are certain communities that
have significant problems.
We have limited resources. We have aggressively tried to
address many of the housing issues that we felt we could
address within the context of this budget.
Our grant levels are nearly, including the rental
assistance, nearly at the same level that they were a year ago,
and we will continue within the framework of the limited
resources we have to try to mitigate those, but also try to
facilitate mechanisms to create opportunities that historically
haven't been looked at.
Ms. DeLauro. Without rental assistance, which you're
correct about that, but you also talk about your mission as to,
and first priorities, as to dealing with the most vulnerable
and the lowest-income areas, and clearly, I'm going to have you
talk to ERS as to where they got their data, but that's data
that they provided us here.
LOW-INCOME HOUSING
In terms of rural housing, again, a proposal to eliminate
direct Section 502 single family housing, direct Section 515
rural rental housing.
The budget says that we will receive a legislative proposal
to increase the guarantee from 2 to 3 percent.
Budget request is also proposing to remove the subsidized
interest authorization and the fee component of the Section 538
guaranteed multi-family housing loan program.
How will these guaranteed programs provide the same home
ownership or rental opportunities that are provided through the
direct Section 502 single family housing, direct Section 515
rural housing loan programs that you propose to eliminate?
Also, you are also going to increase fees in the guaranteed
programs. It would seem that you have given up on helping very
low-income achieve housing assistance.
Mr. Dorr. I'm actually going to ask Mr. Davis to respond to
that, but before he does, I just want to say at the outset, I
don't think there is, we have not given up at all.
As a matter of fact, I believe that our housing programs
have been extraordinarily aggressive and successful over the
last few years.
We know that we can clearly reduce costs and access a lot
more potential homeowners, even in these very low-income
categories, as we have already been doing through the guarantee
portfolio.
We believe that, properly structured, we can continue that
trend with perhaps some more level of enhanced subsidy.
But, for example, just to access that market, you have
2,300 bankers that are involved in our programs, as opposed to
448 offices.
Just merely to be able to contact people and to get them
into the program alone through these kinds of marketing
strategies makes a big difference in the number of people you
can contact, plus we----
Ms. DeLauro. Before we move to Mr. Davis, let me just add,
on February, I believe it was February 28th, the secretary
wrote to the president of the Senate, the vice president, ``I'm
submitting--Rural Housing Section 502 Guaranteed Loan
Enhancement Act of 2007.''
In the letter itself it says that the average income of a
direct home ownership customer 2007 is approximately $25,000,
because you've got--it says that we're going to deal with
direct home ownership programs targeted to very low-income home
owners.
Now, the data that is then presented indicates that the
average income of a guaranteed home ownership customer in
fiscal 2007 was approximately $45,000, and the majority of
customers are in the moderate income range.
The statute allows USDA to guarantee only fixed rate 30-
year term loans to ensure long-term affordability.
Through the proposed new subsidized guaranteed home
ownership program, USDA anticipates helping families with an
income of approximately $35,000 at a lower cost than providing
direct loans.
You're not going to deal with the people who are at the
lower income people. This is the recent legislation sent up
here to deal with this 502 program.
So one more time, you are not going to be dealing with the
low-income people, the lowest-income people that you lay out as
your first and foremost responsibility.
Mr. Dorr. Well, and I appreciate your concerns on this. I
think therein lies the crux of this entire sub-prime issue.
Obviously, there are all kinds of debates about whether or
not, in a general sense, we were placing people into homes who
couldn't afford homes, who would have been better off in
apartments, and consequently, whether we're going from 25 to 35
thousand, but we are in fact funding rental assistance in a way
that would make affordable multi-family housing----
Ms. DeLauro. My time has expired.
Mr. Dorr. Okay.
Ms. DeLauro. We're going to get to that, and we're going to
get to the sub-prime before this hearing is concluded.
Mr. Kingston.
DEFAULT RATE FOR BUSINESS PROGRAMS
Mr. Kingston. Mr. Dorr, you had mentioned earlier that
there was a default rate on the direct loan of 47 percent and
5.75 percent on guarantee?
Mr. Dorr. That was on the business and industry loan
portfolio, not the housing portfolio.
Mr. Kingston. That statistic caught my attention, anyhow.
Can you talk about that, why the default rate is so high?
Mr. Dorr. Well, I think this is anecdotal and subjective on
my part, but it would appear to me, as a farmer and a
businessman, that what was occurring, obviously, were well-
intended people presenting opportunities in which government
employees were making a determination as to whether or not a
business opportunity was viable, and so it was a decision that
was made between a government lender and a private investor as
opposed to a decision that's made between the private investor
enticing an originator, his local banker, and perhaps other
investors to look at the project, to really flesh it out, make
sure that it's viable, and then ultimately, if they concurred,
to originate a loan that they ultimately bring to Rural
Development to lay off some of the risk through the guarantee.
Clearly, what you do, it's much like the Open Range loan.
It took two years to make the Open Range loan, and in that
process, it effectively got scrubbed--more technology, more
refinements in the business plan, and a whole host of other
things took place.
That's essentially what happens in the guarantee process,
and I believe that because you've got local investors, local
business people, and local originators involved in the process,
there's a much higher level of chance of success, and
consequently, the long-term benefits are substantively reduced
default rates.
Ms. DeLauro. Mr. Kingston, can you yield for a second?
Mr. Kingston. Yes.
Ms. DeLauro. I will give you the additional time.
I think there's a--isn't this a product of an administrator
who was pushing bad loans against staff advice, and my
understanding was that he subsequently has resigned, but he
even had asked staff, when they began to find out about what he
was doing here, that he asked to have the documents shredded.
He has subsequently resigned.
But I mean, part of what you're saying in terms of this
rate was an administrator who was in fact pushing bad loans.
I'll increase your time, and I'm sorry to take away, but I
think this is an appropriate time to mention this.
Mr. Dorr. Well, I believe that occurred prior to this
administration.
I'm not aware of a staffer who was doing that during this
administration, and we are still working through those loans--
--
Ms. DeLauro. Wasn't B&I killed after that, though, wasn't
that the case?
Mr. Dorr. No. No, I mean, we still have the business and
industry loan program going forward aggressively.
Ms. DeLauro. But the direct piece, the direct piece.
Mr. Dorr. We, when we got there, we made a decision that we
would disengage from making direct loans, as a result of the
portfolio that we had.
I was not aware of the prior activity of the prior staff
people.
RENEWABLE ENERGY WEALTH IN RURAL AMERICA
Mr. Kingston. Okay. Mr. Dorr, on a different subject, you
had mentioned that there would be a half a trillion dollars in
wealth moving to rural America?
Mr. Dorr. What I was indicating was that, if we're
importing roughly 5\1/2\ to 6 billion barrels of crude oil a
year, at $100 a barrel is a half a trillion to 600 billion, if
we can displace a billion barrels of that, or over a period of
decades, much larger percentage of that, that's income that can
be largely generated from rural resources.
I mean, biomass, wind is generally cited in rural areas,
photovoltaics can frequently be put on buildings, large solar
generation projects are rural in origin. So yes, a lot of that
would be originated in rural areas.
Mr. Kingston. Well, in terms of the money that's going
there now, the new wealth, how much money actually gets to the
hand of smaller farmers and the general population versus large
corporate players?
Mr. Dorr. That's a terrific question. It's one that I've
spent a lot of time thinking about.
I'm not sure we have enough time here at the committee to
go through it.
But I will give you one very quick example.
Mr. Kingston. I want to say, Ms. Kaptur, I think, would
probably be interested in this answer, as well, so if it is
something that you can----
Mr. Dorr. I'd be delighted to--I'll give you one example.
My home town of Marcus, Iowa, started development of an
ethanol plant in 2001 about the time I left. I was not in a
position to participate in it. It went on line in 2003.
The original shares, of which they raised locally about $15
million, they needed some investors to put in some additional
money, local shares were sold for $1,000 a share.
Today, more or less, they've split, but back to the old
basis, they're now worth something in the neighborhood of
$9,000 to $10,000 a share.
The company has now doubled its capacity to 100 million
gallons.
I believe that they have paid out nearly, at least 10 and
maybe more thousand dollars in dividends against those original
shares, so everybody has got their money back more than once.
Land values have obviously escalated in the area. The
community has built a new truck stop. They're building a new
motel. They're building several new homes in the community.
That plant has, I believe, probably in excess, nearly four
dozen jobs, all high-value jobs.
That plant was built at the very outset, at the front end
of the ethanol, the dry mill process.
To raise $80 million of capital in a rural community is a
very cost-prohibitive thing, when you have to go out and do
that many transactions.
And so now, when you have technology and a business model
that works, it's easier to go to Sioux City or Omaha or Des
Moines or Washington or Toledo or wherever. You can raise the
money in four or five or six transactions.
My concern is not that rural Americans can no longer invest
in this.
What we have to do in the context of policy makers is
figure out ways to make it less onerous for local people to
invest in funds that developers can go to so that ultimately,
20 or 30 or 40 percent of these funds can actually be local
funds, but run through a local investment vehicle.
Those are going to be state issues as well as investment
and security regulatory issues at the Federal level.
I think we need to address those and ultimately, if we do,
we can keep a lot of this wealth in these rural areas if we're
creative about how we do it.
Mr. Kingston. Thank you.
Ms. DeLauro. Mr. Bishop.
Mr. Bishop. Thank you very much.
Mr. Dorr, I know you're a short-timer, but I would like
very much if you or some of your staff could come and visit my
district and actually sit down with some of the communities
like Chattahoochee County, to work through some of these
issues, so that we can have--their basic need is just a well,
so they can provide water and sewer.
BUSINESS AND INDUSTRY LOAN GUARANTEES
But let me turn to the loan guarantees and the rural banks,
following up on some of what was alluded to earlier.
The rural development business and industry loan guarantee
program guarantees loans for banks in rural communities and the
businesses that will provide economic growth for our rural
communities.
There have been several instances where USDA has been
accused of hanging these small banks out to dry, and where you
have actually defaulted on the guarantee.
One example, which of course makes small banks reluctant to
participate in the guarantee program, the example is in the
First State Bank of Blakely, Georgia.
The complaints in my office have been that the program
regulations placed all the responsibility on the lender to
determine the eligibility of a proposed borrower and a loan for
a guarantee, and in short, once the lender has certified that a
loan is eligible, the agency must issue a guarantee, and it has
no discretion to undertake its own review to refuse a
guarantee.
Shouldn't the agency have some of that responsibility?
We've got a First State Bank participating in the guarantee
loan program. There was a default.
And of course, when they turned to USDA to make them whole,
USDA said, ``No, you shouldn't have made the loan.'' And so
they were left hung out to dry.
And of course, we tried to intercede to assist them, to no
avail.
They went all the way up through the process, but still,
you know, it left a very, very--a real chilling effect on local
community banks getting involved in a guarantee program when
they're worried about, if they do participate, being left out
to dry in case they need the guarantee that's supposed to be
brought out as a backup for them.
Mr. Dorr. Well, I'm not familiar with this particular
situation. I also know that there have been some of these kinds
of cases that have arisen over the years.
We have, at least I have aggressively tried to institute
processes and oversight in a way that would preclude these
sorts of things from happening, but I would be glad to sit down
and review it with you or, you know, get into this.
I do know that it is, historically, it has been the
requirement in the guarantee program that the banks provide
servicing of these guaranteed loans. They originate them.
We know that they can sell off part of the loan. But we
also know that by servicing, they can also generate revenue.
But we do expect them to service the loan, because we don't
have people out there next door to whomever this new company
might be.
I suspect in this particular case there were probably some
disagreements as to, you know, how the servicing was handled. I
don't know.
But I do know that we're doing everything we can to try to
make certain that those kinds of issues don't occur on a
regular basis----
Mr. Bishop. Do you understand then the concern that the
subcommittee has with the shift of the guarantee program away
from the direct programs which seem to be backing away from
providing the service to the people who actually need it, and,
you know, it's almost passing the buck, and not really actually
grabbing the bull by the horns to help our rural communities
that need the help, where there is the poverty, where there's
the greatest need for economic development, the greatest need
for the broadband and the Internet to try to equalize that
playing field, but it seems as if the policies that you're
putting in place are actually doing the opposite to what you
profess to be your objective.
Mr. Dorr. These issues that you raise relative to this
First State Bank of Blakely are, in all sincerity, rather rare,
and so I mean, I understand your concerns, but I do believe
that, in the long run, and it takes some time to transition
into these, but in the long run, the wealth that we create,
that's created by this partnership of local participants, the
local banks, the local entrepreneurs, that the loan guarantee
from the Federal Government in the long run pay pretty
substantive dividends.
We certainly would be delighted to come down and spend some
time, even in the short time we have, to see if there is
something that we can do that would address some of these
issues.
Mr. Bishop. Thank you. But may I just make one statement,
Madam Chairman?
The problem is that, and when you look at rural
communities, you don't have a lot of rural banks, and they all
know each other and they all are aware when one of their
brother banks, brother or sister banks gets burned, and they
try to learn from those experiences, and if they don't trust
USDA, the guarantee program, they're not going to participate,
because they don't want to be stuck like their neighbor was
stuck.
Ms. DeLauro. Mr. Lahood.
Mr. LaHood. Thank you, Madam Chair.
BROADBAND FUNDING
Let me go back to this broadband issue.
The chairwoman brought to my attention, that you had the
authority to provide broadband loans at 4 percent, but none of
those funds have been requested for this program, and so we're
curious as to your explanation why these funds have not been
requested for these broadband loans at 4 percent to rural
communities.
Mr. Dorr. I believe in the budget that we proposed we were
also, excuse me, in the Farm Bill proposal, we had added, I
believe it was about 375 million as proposed infrastructure
issues that would have been utilized in the broadband area in
conjunction with the anticipated carryover funds that we had in
the existing program.
Mr. LaHood. So are you saying that because you were
writing--participating in the writing of the farm bill, you
decided to use this money and lop it over into that program, or
lop it over into the new farm bill, or what?
I don't understand----
Mr. Dorr. We were, we have embarked on something called the
Delivery Enhancement Task Force, which could get pretty muddy,
but essentially what it is is a process to, and I may have
mentioned this last year, but we historically say we have
somewhere between 40 and 50 programs in rural development.
Essentially what we have are grant programs, direct loan
programs, and loan guarantee program.
They were so convoluted and complex that it seemed to make
sense that we ought to look at how we could mitigate the
delivery, the ease of delivery, both for our constituents and
for our associates and their ability to deal and roll out these
new programs.
What we've done essentially is aligned them, what we call
platforms, a loan platform, a direct loan platform, a loan
guarantee platform, and a grant platform.
In the Farm Bill proposal, as we laid this out, we
delivered, we developed a grant platform approach, and in that,
we put, and a loan guarantee approach, and we plugged in a
number of these new options and new approaches in the context
of the Farm Bill proposal with the budget authority, what I
believe in the overall president's proposal was about $4.8
billion over baseline. That obviously is a subject for debate
that's still going on.
So no, we did not displace funds. In fact, we enhanced our
rural development programs with the way in which we approached
that and layered on the 2009 budget approach.
Mr. LaHood. Well, you're from Iowa and I'm from Illinois. I
just want a simple answer to the question.
Why didn't you request the funds? Why weren't the funds
that were a part of your budget at a 4 percent rate, why
weren't they requested?
Just give me a simple answer. Don't do bureaucracy speak to
me here.
Mr. Dorr. We thought we had adequate funds and we thought
it was appropriate the way we budgeted them into the Farm Bill
proposal.
Mr. LaHood. So you didn't want to spend them under the
current program, you wanted to put them into the new farm bill?
Mr. Dorr. We had authority under the current program with
carryover dollars, and we felt that, in conjunction with what
we would get through the Farm Bill proposal, would be more than
enough to take care of that program.
Mr. LaHood. So rather than requesting the money, you
decided to take that money and include it as a part of the new
farm bill? Is that right?
Mr. Dorr. I believe that's probably one way of viewing it,
yes.
Mr. LaHood. Look, if your previous answer to my question
earlier under the first round was that you're committed to
broadband, which I believe you are, coming from Iowa, I know
you know the value of it, and you expressed that, I don't
understand why, you know, if there are--I know in Illinois
there's some broadband proposals out there. Senator Durbin has
been leading the charge on this with our delegation.
I don't quite understand why, when you know there are
proposals out there, you wouldn't make the request for the
money for those states that are ready to go or at least want to
get this program started, rather than moving it into a new farm
bill. I don't get it.
Mr. Dorr. That was the decision that was made. That's----
Mr. LaHood. By the secretary or who?
Mr. Dorr. It was a decision that we made as we put together
our budget in the context of the entire budget proposal for
both the 2009 budget and obviously what we felt was an
appropriate and a progressive Farm Bill proposal that was
submitted in January of 2007.
Mr. LaHood. I'll be honest with you.
You know, your answer in the first round showed a strong
commitment to broadband.
Mr. Dorr. That's correct.
Mr. LaHood. This mechanism, by transferring the money,
shows no commitment to broadband.
You had money. It was never requested. There are states out
there that are ready to go with broadband. And yet you're
lopping it over to a new farm bill, which we can't get
agreement on.
You know what? I don't understand the logic of that, at
all.
Was that your decision or was that--I'm asking, was that
your decision or the decision of somebody higher up?
Mr. Dorr. It was a decision that we worked out within the
department.
Mr. LaHood. Did you agree with it?
Mr. Dorr. Yes. I mean, it was a decision that we concurred
on.
Mr. Bishop. Will the gentleman yield?
Mr. LaHood. of course.
Mr. Bishop. You're saying that when you were working out
your budget, Mr. Dorr, for that particular project's programs,
you didn't consult with OMB at all?
OMB had no part in your decision not to request it and the
decision to carry it over rather than request it?
Mr. Dorr. Certainly there are a number of people involved
in these decisions.
Mr. Bishop. I'm talking about the agency, OMB, Office of
Management and Budget----
Mr. Dorr. Certainly.
Mr. Bishop [continuing]. White House.
Mr. Dorr. Mr. Steele's office, the Office of Management and
Budget, a number of us worked together on these projects, and
when we get down working through them, we clearly come to a
conclusion.
I think that there was--wait a minute, what's this?
Mr. Steele. Excuse me.
In the budget, we have $298 million of direct loan activity
for broadband.
Mr. Dorr. Right.
Mr. Steele. In the budget.
Mr. Dorr. Right.
Mr. Steele. We're not eliminating anything, we're trying to
continue----
Mr. Dorr. Exactly.
Mr. Steele [continuing]. The broadband direct loan program.
Mr. LaHood. Madam Chair, can I just ask my question again?
I'm going to just read this to you.
You have authority--you have authority to provide broadband
loans at 4 percent to rural communities where broadband
services do not currently exist, yet you have not requested
funding for this program.
It would seem this subsidized program would help get
broadband to rural, underserved areas, so why are you not
requesting funding?
And your answer is, because you took the money--well, fine.
Shake your head no. Give me a better answer, then. If you--
are you telling me there's $270 million in the current budget?
Ms. DeLauro. But it is at Treasury rate. It's at Treasury
rate. It is not at the 4 percent rate.
You're using the Treasury rate dollars and, the Treasury
rate, and not the 4 percent rate.
Mr. Dorr. That's right. And the Treasury rate money is
very, very close to the 4 percent money.
Mr. LaHood. Well, look, please don't tell me that you're
committed to broadband when you haven't requested the money and
you took the money and lopped it over into a new farm bill that
we haven't passed yet.
So please, sir, don't tell me that you're committed to
broadband when you haven't requested the money, and there are
states out there that are ready, including Illinois.
The silence is deafening. Thank you.
[The information from USDA follows:]
Ms. DeLauro. Thank you, Mr. LaHood.
Ms. Kaptur.
Ms. Kaptur. Thank you, Madam Chair.
DEFINING RURAL AREAS
In last year's questioning, Mr. Secretary, I asked you
about certain dysfunctions inside of the rural development
budget where you have agricultural enterprises that are
operating within cities, and obviously cities aren't eligible
for agriculture funds.
For example, greenhouses. I represent the two largest
greenhousing, floriculture, nursery counties in Ohio.
The response of the agency last year to me when I said,
``Can you look at site specific agricultural enterprises that,
through no fault of their own, are inside city limits and are
neglected enterprises,'' the answer the administration
submitted back to me was that, ``Rural development is aware
that, for example, greenhouses are among those entities that
have been feeling the effects of population growth and
increasing density in formerly rural areas. We are hoping we
can complete our research and consider alternatives to our
current methods of determining location-based eligibility
issues.''
Could you tell me, or someone from the agency, have you
made any progress on that research, and what do we have to
offer rural enterprises that, through no fault of their own,
end up being inside a city or inside an urban county?
Mr. Dorr. We've actually laid on the table in the Farm Bill
debate a proposal that would make available B&I loan guarantees
to a city or town with a population of 50,000 or more, that
would exclude communities of 50,000 or more, and the urbanized
area that is contiguous and adjacent to it.
To the extent that these communities of 50,000 with
urbanized areas contiguous to it are where these operations are
located, then, frankly, we are precluded statutorily from
making loans to them.
Ms. Kaptur. But if they are under the IRS Code in every
other measure an agricultural enterprise, all I'm asking you to
do is to look at their conundrum.
Most of our small truck farmers and our orchard producers,
our greenhouse growers, are near their market, and I'm not
asking you to make a major change in the way that you deliver
programs, but if you look at these struggling enterprises that
are the major farms that feed our--that give donations to our
food banks, that operate without any government subsidy--these
are unsubsidized, they're not necessarily row crop producers,
but they are growing vegetables, they're growing fruits,
they're growing herbs, they're operating their greenhouse
floriculture nursery--there's some dysfunction within USDA.
I understand the definition, and I heard what Congresswoman
Emerson said about all this money goes to urban areas.
Well, there's quite a bit of money that goes to rural areas
for row crop producers. But if you are an unsubsidized farmer
and you are out there in the market and USDA ignores you,
that's not right. That's not right.
There ought to be some kind of way to make a, we used to
just call it nonconforming use in city planning. If they're
operating as agriculture, see them as agriculture.
Mr. Dorr. We are precluded by statute from making these
loans. If the statute is changed, then we could address this
issue.
But if they are statutorily precluded, I'm not certain what
either Rural Development or anyone else in USDA can do to
mitigate--
Ms. Kaptur. But there ought to be a waiver, there ought to
be ability for a waiver. I would appreciate any advice.
We don't want to mess up your operations, but it's unfair
to these people, most of whom are small businesses, small
family run enterprises, to treat them any different than
somebody who is outside, you know, the border of the city
limits or the county limits, when they're in the same business.
So I would really, I'm urging you, please, give me ideas.
Mr. Dorr. Well, I think it is an, it requires some sort of
statutory fix.
I suspect if I waived statutes that you and your members
put in place, I would be spending time someplace else.
So we can waive a reg, but I'm not aware----
Ms. Kaptur. Maybe you need a waiver authority is what I'm
saying. I can't believe that other members don't have this
issue.
And it's come up time and time again, if a greenhouse is
located five miles down the road, they're eligible, if they
live in a town of 5,000, but if somebody happened to end up in
the city next to this area, and they're stuck there with all
the other--I mean, hey, I got farmers with tractors being
stolen inside the city limits.
I mean, there's all kinds of issues these people face, and
yet USDA turns their back on them.
I think there ought to be some type of waiver authority.
Maybe we have to write it into law.
I know my time has expired, Madam Chair, but this is really
frustrating. And America today has over 300 million people.
When I was born, they had 146 million people. We're just
getting more and more--we'll have 500 million people by 2050 in
this country.
And, you know, our objective is so help the farmers that
want to stay in business, so something is not right there, and
I was just looking for any suggestions you might have.
We'll write legislation up here, but your vast experience
might help us tailor it in a way that would not be terribly
difficult for you to implement. That's what I was----
Mr. Dorr. I would be delighted--if you would send a request
to us, we would be delighted to provide whatever assistance we
could in drafting.
Ms. Kaptur. Thank you.
Ms. DeLauro. Ms. Kaptur, let me just say as well, that when
we get the information, we ought to sit down and have committee
members and so forth take a look at this and see what might
make sense, because your point is well taken that there's
probably a lot of communities that are facing the difficulty.
BUSINESS AND INDUSTRY PROGRAM
Let me make a point about the guaranteed business and
industry loan program that's been talked about a lot today. The
President's budget proposes to reduce funding for the
guaranteed business and industry loan program by $300 million.
The budget also proposes to eliminate rural business enterprise
grants, rural business opportunity grants, renewable energy
loan and grant program, the value-added producer grants.
I continue to say that given that the farm bill may not be
passed before fiscal year 2009, though we all hope it will be,
I have not seen any indication, any information, and I suppose
what I'd like to do is to understand from you and for the
record, if you will, if you will lay out for us how do we plan
to fund all of these programs while reducing the guaranteed
business and industry loan program? So if you could provide
that information for us, it would be helpful.
[The information follows:]
Rural Business Program Funding
When the President's FY09 budget was formulated, we anticipated
that a new Farm Bill would be in place by FY09. The Administration's
Farm Bill proposal includes provisions and funding for the Renewable
Energy loans and grants program. The Farm Bill also proposes authority
for a business grant platform. If mandatory funding does not
materialize for the programs proposed in the Farm Bill, they can be
operated with discretionary funding at the levels that Congress
appropriates.
RENTAL ASSISTANT PILOT PROGRAM
Let me ask about the rental assistance pilot program. The
President's budget request is for a new $100 million pilot
program for rental assistance vouchers to target rental
assistance to low-income tenants rather than the property
owners. Why is the pilot program necessary? Wouldn't the
existing voucher program allow you the same flexibility that
you are seeking?
Mr. Dorr. Russ, do you want to deal with that one?
Mr. Davis. Yes. You've asked two questions. First of all,
why is it necessary? And two, could the current program handle
it? The necessity is that there have been great changes in the
population in rural America, and where we built the houses 40
years ago is not necessarily where the people or the need is
any more.
We're asking that about a tenth of our portfolio have the
flexibility essentially to have the subsidies follow the people
instead of being stuck in--nothing against Western Kansas, but
there are places in the country that have had serious
migration. So there's a flexibility aspect of that.
Also, there's a cost aspect, that there are markets where a
voucher would be cheaper than the property that is there,
particularly the older, obsolete properties that have high
energy costs and so forth. So, more flexible and cheaper.
As to whether we could use the current voucher program, we
only have a one-year demonstration, and we thank the committee
for that. We're actually saving, we saved 1,700 families last
year from eviction or loss of their home by having those
vouchers. But right now their only protection vouchers. They
can only be used for somebody who is in a property that's being
lost to the program. So we can't use those vouchers for
anything greater.
Ms. DeLauro. So what will--the properties that are there,
what will happen to those properties?
Mr. Davis. According to our engineering study, about a
tenth of our portfolio is economically or physically obsolete.
Properties get old, and we have properties----
Ms. DeLauro. And you don't have the current tools to put
those properties in shape?
Mr. Davis. Well, the biggest tool we have right now is the
revitalization program. Again, that's a demo that this
committee has given us, and we're saving about a hundred
properties a year with that, so that's a great program. But
there are properties that they're just too old, and it would
cost too much to fix them.
Ms. DeLauro. So you would raze them? R-a-z-e.
Mr. Davis. Well, we wouldn't do that. We would sell them
off into the private sector essentially through whatever
mechanism, foreclosure or whatever. The private sector would
take those and we would use the vouchers to----
Ms. DeLauro. Can you get for us, you know, examples of the
properties that you are describing, and----
Mr. Davis. Sure.
Ms. DeLauro [continuing]. You know, where they are, what
they're----
Mr. Davis. We would be happy to. And--go ahead.
[The information follows:]
Rural Development's primary priority is to protect tenants, either
through provision of the affordable rental housing itself or through
vouchers that will make it easier for tenants to have access to
affordable housing.
A small percentage of Rural Development's Multi-Family Housing
properties have come into disrepair and require substantial funding to
rehabilitate in order to make them decent, safe and sanitary. We are
uncertain of the exact scope of this type of property within our
portfolio at this time. Sometimes, the cost of rehabilitation far
exceeds the cost to build new housing, or it is not economically viable
to rehabilitate a property due to economic conditions impacting demand
for rental units in a particular market.
The following are several recent examples of properties where it
was determined to be more practical to provide alternatives through the
use of vouchers than repair existing units.
A property in Alaska suffered structural damages. Alaska's harsh
weather and negligence by the owner combined to create serious physical
problems that made the units uninhabitable. This is a 40-unit property,
currently less than half filled. The estimated cost to bring this
property to acceptable condition was $6.5 million, or $163,000 a unit.
USDA Rural Development has executed foreclosure and plans to sell the
property to mitigate losses. The tenants will be provided Rural
Development vouchers when the foreclosure is finalized.
In Oregon, a 38-unit property which had suffered from years of
neglect resulted in USDA Rural Development taking the property into
inventory through receivership. As the Receiver, Rural Development has
worked to find an acceptable owner to take over the debt and pay the
cost of repairs to this property, which is estimated to be $2,965,000
or about $78,000 a unit. No such buyer who will operate the property
under federal standards can be found. Since a viable owner cannot be
identified, USDA Rural Development has executed foreclosure and plans
to sell the property to mitigate losses. Tenants are eligible for Rural
Development vouchers which may be used elsewhere to obtain affordable
housing.
In Louisiana, a 16-unit property was severely damaged by Hurricanes
Katrina and Rita. Insurance proceeds were minimal. While waiting for
the insurance appeal to be resolved, the property suffered additional
damage from mold that was not covered by insurance. The pervasive mold
could only be mitigated by tearing down the structure. The owner was
unable to obtain tax credits to help finance rebuilding the property.
The new construction cost of this property is estimated to be
$1,733,000 or $108,000 a unit. Cited by the town because the property
was a health and safety hazard, the owner has demolished the property.
Rural Development vouchers for displaced tenants have been provided
that may be used to secure other affordable housing.
Ms. DeLauro. No, no. You go ahead.
Mr. Davis. I was just going to say that there's two
preservations problems we face. One is preservation of the
subsidies, but preservation of properties. Properties get old,
roofs fall in, there's fires. And we're trying to, it's that
second category that actually has a bigger risk to us. Ninety
percent of our properties have inadequate reserves to last
another 20 years. We're very concerned about the physical
protection of the program.
Ms. DeLauro. I will just express our concern here is that
are we looking at a proposal to reduce the amount of rental
assistance necessary in future years? And that is truly what
concerns me with this effort, because as I take a look at what
happened with HUD, with the Housing and Urban Development, we
did move from project-based contracts, and then we moved to
tenant-based focus, and now what we have seen is the scaling,
drastically scaling back of those tenant-based vouchers and
Section 8, et cetera. Are we looking at a similar trajectory
here of a project tenant moving downward to less rental
assistance?
Mr. Davis. Absolutely not. Our policy is to renew contracts
and to protect all of our low-income tenants. Our budget
increase is I believe $500 million for rental assistance.
Ms. DeLauro. It's $518 million. So let me just add this for
a second and have my colleagues bear with me. You say that
that's to renew 82 percent of the 2009 expiring RA contracts.
Are you proposing to not renew 18 percent of the expiring
contracts in 2009?
Mr. Davis. Well, the dollar amount is sufficient to handle
100 percent of the subsidized units. What we're saying is that
there is a portion of the portfolio that we can house those
people cheaper and more flexibly with vouchers. But this is not
a major drastic change. This is for the small part of our
portfolio, 10 percent that we think is obsolete, misplaced,
overpriced. And this is a fix, not a change.
Ms. DeLauro. But one-tenth is about 18 percent.
Mr. Davis. I'm not sure about the 18 percent.
Ms. DeLauro. I mean, no, there's the one-tenth that--18
percent----
Mr. Davis. The difference is that there is about 10 percent
of the portfolio has long-term contracts. They had five or 20-
year contracts, and those don't need to be renewed. They have
enough cash in the bank to go for another 5 or 20 years. So
we're talking about just a small portion of the portfolio.
Ms. DeLauro. Mr. Kingston.
FARM LABOR HOUSING
Mr. Kingston. Thank you, Rosa. Mr. Davis, you had mentioned
earlier about you found that it was costing $150,000 a unit for
apartments. Do you want to expand on that?
Mr. Davis. Well, this is the farm labor housing program.
There are a couple of things that add to the cost. Number one,
it's subject to Davis-Bacon 515 isn't. There are a lot of
things like that. But also farm labor housing has to be made
stronger. There's a lot more turnover in the units, and so we
have to use heavier materials and just build them stronger
because people are in and out of there with boots, mud,
whatever. It has to be built tough to last.
Mr. Kingston. How much extra does Davis-Bacon cost?
Mr. Davis. I could get you numbers on that. I'm not--I know
that there are a series of different provisions for new
construction of farm labor that we don't have in 515.
[The information follows:]
The section 516 Farm Labor Housing (FLH) grant program requires
that all projects utilizing grant funds must certify that laborers
building or rehabilitating the property must receive prevailing wages
as required under Davis-Bacon. Projects that utilize only the section
514 Farm Labor Housing loan program do not have this requirement, nor
does the section 515 Multi-Family Housing new construction or
rehabilitation programs. However, the majority of the FLH projects
financed by Rural Development utilizes a combination of both section
514 FLH loans and section 516 FLH grants, and consequently must abide
by Davis-Bacon wage determinations.
USDA Rural Development does not have precise figures on the
additional costs the prevailing wage requirement adds to the overall
costs of the FLH projects. It is estimated that labor is approximately
30 percent of the cost of building a FLH project and that the
prevailing wage requirement adds approximately 20-30 percent to the
cost of the labor. With the average cost of building a FLH unit at
approximately $150,000 based on the 2006 data, the labor component is
estimated to be approximately $45,000 per unit. The impact of Davis-
Bacon is estimated to add approximately $10,500 per unit or
approximately 7.5 percent of the cost per unit.
Mr. Kingston. And when you say that they have to be built
stronger, stronger than what? What are you comparing it to?
Mr. Davis. Well, I'm comparing it to our Section 515 new
construction. But a lot of it is just the type of the units
have changed. We used to build a lot of dormitories. You could
put four bunks in a room. Now we're building four- or five-
bedroom units because we're seeing large families instead of
single migrant workers, we're seeing a lot of families who have
large numbers of children and then the parents go work farther
out. It's just a different product.
Mr. Kingston. Are these for H2A workers or for anybody?
Mr. Davis. We have--and Section 514 and 516 of the Housing
Act restricts us to only citizens or permanently admitted
aliens with green cards. H2A doesn't fall under that, and so
we're limited.
Mr. Kingston. Do you have any other problems that you want
to bring up on it?
Mr. Davis. On farm labor housing?
Mr. Kingston. Yeah.
Mr. Davis. You know, obviously, we support the idea of farm
labor housing. It's just in its current configuration, we can't
put the money out responsibly and in a way that we think is--we
can do it other ways a lot cheaper. Let me put it that way.
Mr. Kingston. Okay. Let me yield back.
Ms. DeLauro. Let me just take--well, Mr. Bishop.
RURAL COOPERATIVE DEVELOPMENT GRANTS
Mr. Bishop. Thank you very much. Rural cooperative
development grants program is small, but it's very effective in
funding co-op development centers that provide critical
technical assistance to co-ops that are revitalizing rural
communities. Despite annual demand, which more than doubles the
amount that's been given out annually, the program has never
received more than around $6 million or $6.5 million.
Given this fact, given the fact that the program has
leveraged millions of dollars for cooperative development in
rural areas, created hundreds of jobs and businesses, and
providing grants to far fewer centers that are seeking to be
funded, wouldn't it make sense for you guys to be requesting
more money for this program by rural areas?
Mr. Dorr. I believe that the way the program is presently
operating, we are addressing the majority of the needs.
Mr. Bishop. You're saying that you didn't have a greater
demand than you were able to fulfill?
Mr. Dorr. We always have greater demands than we can
fulfill, on virtually any program at a particular point in time
or in whatever set of unique circumstances.
Mr. Bishop. Isn't this acute? I mean, don't you always have
that repetitively every year? A greater than demand than you
have funds? And wouldn't that suggest in your planning that you
would ask for more money?
Mr. Dorr. There is always an acute demand for grants.
There's no question about that. Grants are obviously something
that people look at a great deal. What we have tried to do with
this Rural Development grant program is foster an appropriate
utilization of those funds to build out other economic
opportunities, and I am certain that if we had more grant
funds, there would undoubtedly be requests for them. We believe
this is an appropriate level for that program.
Mr. Bishop. But if you run out, and if the program is
delivering the desired results, wouldn't that magnify your
results if you asked for more money and you were able to
magnify your output? Wouldn't that give you greater results?
Mr. Dorr. If that was the result, yes, that would.
Mr. Bishop. Are you saying that they're not working?
Mr. Dorr. No. I'm not saying that they're not working. I'm
saying that there are challenges to any grant program, and we
believe that, I think we've requested this year about $5
million for the program. We work closely with those that are
engaged in the program. We're actually trying to work on a
couple of agendas, not agendas, but a couple of projects that
enhance the productivity from producers that are involved in--
--
Mr. Bishop. Isn't that a drop in the bucket, though,
compared to many of your other programs? This is a small amount
of money that has the capacity and the potential and has
apparently proven to be exponential in the results that it
gives. So why would you cut back on that when--I mean, it's
like being penny wise and pound foolish.
Mr. Dorr. Well, certainly there are challenges for
resources, and this was a decision that we made, and we may
disagree on it, but we believe that this is--this is a program
that continues to function pretty well the way we have it, and
we continue to work with the participants.
Mr. Bishop. I just--I'm just baffled that you have such
lofty goals and objectives, yet you, when it comes to acting on
them, you seem to be actually doing the opposite. You know,
you're cutting back your requests for resources to deliver on
the programs that you say are so important and that are so
workable. It sounds like doublespeak.
Mr. Dorr. Well, Mr. Anderson just sent me a note, and he
indicated, because he administers the program, but he had
indicated that this is pretty consistent with the demand. And I
believe that's true. We have not had substantively greater
demand for that program than, I think we've got $5 million in
the budget for that this year.
Mr. Bishop. And last year it was six, six and a half?
Mr. Dorr. No. I think it was five. What was it, five last?
Okay. It was $9 million last year. Excuse me.
Mr. Bishop. You reduced it 40 percent.
Ms. DeLauro. Ms. Kaptur.
RENEWABLE ENERGY OPPORTUNITIES
Ms. Kaptur. Thank you, Madam Chair. Mr. Secretary, again I
repeat your quote, which I really like, ``renewable energy is
the biggest opportunity for economic growth and wealth creation
in our lifetimes.''
And I'm glad my colleague, Congressman Kingston, has
returned, because I wanted to follow up on his excellent
questioning a little bit earlier, and our mutual desire to keep
wealth and grow wealth so that those who are most involved in
agriculture and in production benefit. And I don't believe we
have the financial structure yet. It's evolving, but we don't
have it yet, that permit them to buy in and to benefit.
We've had several, for example, in Ohio, that have tried to
raise the capital you talked about and found themselves unable
to do this so some of the big players in the market come and
get involved and are moving forward.
I want to share a quote. You mentioned the Anderson Company
in our discussions yesterday. And there was a great--one of the
Andersons was Bob Anderson, who is no longer living. And he
said to me, you know, Marcy, he said--and they've been involved
in agriculture and farming in our community for generations--he
said where we went wrong in farming years ago is, he said we
didn't allow the farmer to buy up the chain of production.
We didn't have the financial means for them to do that, and
so now we face an agriculture in America where two or three
companies own the ability to control the chicken market, the
poultry market, three or four the beef market. I mean, if you
really look at the way this is structured. And in many cases,
our farmers are becoming sharecroppers again rather than--this
may not be happening in Iowa, but I think it is to some
extent--where people become contract farmers rather than
freeholders.
And this is a system I personally do not like, especially
with East European background, I know what that system feels
like at its worst, and it's not a good system. We always--our
country was founded on freeholding. This was the idea. And what
I am concerned about in the energy market and where I think you
are in a unique role, because of your combination of farming
and business background, we need a mechanism to permit farmers
and others who support the development of this energy industry
across rural America to buy in.
I think back to the old Roosevelt model of postal savings
stamps. This will sound a little strange. But we found a way to
get a denomination that people could buy, no matter what their
income, and they ended up buying into that security, that bond.
We need something that will permit individuals, perhaps
even communities that want to come together and help, to buy
into this industry that is just growing at such a fast rate it
sort of scares me sometimes, because I think maybe this is
going to go the route of the dot.coms. And because we don't
have the financial mechanism in place, we're going to have a
lot of collapses. Bad things are going to happen, because we
don't have the financial architecture in place.
We've had situations where foreign companies are coming
into Ohio and trying to strike deals with our Farm Bureau, for
example, to just lease, say to our farmers, you know, well,
we'll lease a corner of your acreage there. You know, we'll pay
you fifty bucks a month or a hundred. You know, it sounds
great, right? No. Because they don't own it.
So my question to is, in your meetings, are you thinking
about a way of creating a financial mechanism so that
individuals and farmers can--and those who would want to help
this industry grow, where we could either securitize or bond or
find a means for them to buy in to create that financial
platform? We had a biodiesel plant just blow up in our region.
Thank God nobody was killed. But they were scraping pennies to
try to make this thing work. It shouldn't be that hard. USDA
should be there. And they actually got one of those 900----
Mr. Dorr. Six.
Ms. Kaptur [continuing]. Six? Five hundred thousand dollar
grants, you know. They got used equipment. They were trying to
do this, and I think, you know, these are inventive people.
They shouldn't have to go through--it shouldn't be this hard
when they want to do this.
Our counties, that our urban counties want to buy some of
what they're producing to power, let's say our downtown civic
center, there's no means to connect the city to the producers
out there, to take the biomass material and bring it in. It's
too hard. It's too hard to--we've got to find ways to connect
rural to urban procurement, and we've got to find a financial
means to help them invest and to let these deals go forward.
You have guarantee authority. You have some loan authority.
I know you're thinking about this already. Can you share any of
that with us at a big enough level where it would make a
difference in communities that are trying to bring up these
new, and invest in these new wind farms and solar fields and so
forth?
Mr. Dorr. Well, we have given a lot of thought to it. I
think these are of statutory and ultimately regulatory issues
that probably have to be addressed at some point. The reason
largely--and I've said this earlier--the reason that many of
these distributed energy systems are cost effective is because
you have distributed computing. That means that in a general
sense, the size and the scope of these various projects will be
considerably smaller, yet they'll be multi-million-dollar
projects than if you were dealing with a 400 megawatt nuclear
or coal-fired generation plant or a more traditional fossil
fuel refinery of some sort or a coal mine.
Once they begin to work, then it becomes very easy to
finance them. The transaction costs involved in trying to get
local investment in small sums is a dealbreaker. It kills it.
So what you have to try to do in the bigger sense, in the
bigger picture, is figure out ways to mitigate the transaction
cost, to mitigate the business model and regulatory issues to
aggregating those resources so that you can allow local
ownership or local participation in these projects.
And that, frankly, in many cases, is as much a state issue
as it is a Federal issue. For example, how do you integrate a
20 megawatt wind farm into a legacy REC or investor-owned
utility transmission system? They react and say, you know, we
can't put this in our net metering basis because we already
have contracts. We already have commitments. And they're right.
Does that mean that they're wrong or that they're nasty because
they won't let you in? No. It does mean that we have to sit
down and get realistic and sensitive about what do we have to
do to develop new regulations and new business models that
acknowledge the kind of consistent demand in electric growth
that occurs in Toledo or wherever and that part of that can be
met by these community-owned wind projects or these other
distributed owned energy opportunities in ways that make that
sense. I think it can be done, but it's just going to take a
lot of hard regulatory and public policy work to develop the
mechanisms to do this.
Ms. DeLauro. Thank you. I just have two or three questions
to finish up. I don't know if my colleagues do. If we do, we
will get these questions answered. I think Mr. Kingston doesn't
have any more questions. But if one should come to your mind,
Mr. Kingston. And we are over the time, but we won't take your
time much longer, Mr. Secretary.
BROADBAND PROGRAM
On the broadband issue, just a couple of comments. It
looks--the OIG in their audit in September 2005 found that the
program had not maintained its focus on rural communities
without preexisting service. Eight hundred ninety-five million
dollars in loans, grants, funded at the time are reviewed--OIG
reviewed 599 million and questioned the use of over 340
million, almost 57 percent of the approved funds reviewed.
I'm still concerned that RUS is not focusing the loan
program on unserved communities, and there is going to be
another OIG review, as I understand it. Publishing the final
rule that would incorporate changes recommended in the 2005 OIG
report has been delayed by the Department to incorporate
additional changes made to the program once again in the farm
bill.
Will you move forward and publish the final rule if the
farm bill is not signed into law by April 30th, 2008?
Mr. Dorr. We will certainly proceed, depending upon what
happens with the Farm Bill, to get the final reg out, yes. I
believe that is incumbent upon us to do that.
I would like to just for a moment go back to the discussion
that I had with Mr. LaHood.
Ms. DeLauro. Yeah. Let me just----
Mr. Dorr. Sure. Certainly. Go ahead.
OPEN RANGE LOAN
Ms. DeLauro. Could you have made the open range loan under
the new rule as the loan is currently structured?
Mr. Dorr. In all likelihood, it may have been very
difficult. And therein again gets to the issue of why this
program is so difficult to administer. Because trying to
identify those areas that could stand on their own or they're
completely unserved and underserved is very difficult.
Ms. DeLauro. Well that is--it would appear that your answer
is a no in that respect or it would have been more difficult.
So I don't know what additional modifications would be
necessary to make the loan agreement meet the requirements of
the final rule, which is more unserved areas, less competitors
allowed into underserved areas.
And I'm going to submit for the record, which is one of the
reasons why in terms of the vigilance and the monitoring of
this loan is something that I believe that this committee has
an obligation to look very, very carefully at, and in terms of
what would be useful to us in terms of that monitoring and the
reporting requirements on this loan, because I think we have--
are within a month of a new rule with regard to this, and then
we have just negotiated the largest loan in the history of this
project--of this program that will not conform to a new rule.
And it has been delayed because of a farm bill.
And it would seem to me that we have almost allowed
something to happen without the new set of rules and
regulations that we want to implement, and it is of a magnitude
and scope that is beyond anything else that we have done and
that we may have the ability to monitor in the way that would
ensure that federal dollars and taxpayer dollars and everybody
else's dollars are going to be safeguarded.
Mr. Dorr. You make some good points. But let me point the
following out. This loan has ultimately become, we believe, a
very strong loan. It took over two years to make the loan, as I
indicated before. It is using very unique new technology. There
are certain prescriptions that suggest that if they are, if in,
and I believe your staff has seen a copy of the letter of
conditions or the attachments that went with that loan--if
certain conditions are not met by September 1 of 2008, we
clearly have the ability to, if we so choose, rescind the
obligation of that loan. And I can assure you that we are going
to monitor this very closely.
For the first time in a loan of this nature, I have
specifically indicated that we will assign three of our general
field representatives who will do nothing but live, eat and
breathe this loan from the time they break ground, and it is a
go, until it is done. We will work with the firm and work with
our State Rural Development directors to make sure that all
rural citizens are aware of this opportunity as it's spelled
out in those states.
Again, I go back to the fact that we all want broadband
deployment, and we all realize that we are effectively redlined
without access to the Internet. And yet there are a varying
number of competitive technologies that are out there that make
it very complicated for the Federal Government to intrude in
the private sector's realm of opportunity. And whether we're
doing it, in the final analysis, right or wrong I guess history
will judge. But we're doing the best we can and our staff is
doing I think an extraordinary job of trying to pull this
together.
Ms. DeLauro. I don't deny that, but I do say this, and I
will repeat, because I think it's important to know that we
have spent how long in terms of putting together this new rule.
And the rule has been delayed, and delayed, and delayed. And
now once more delayed because of the farm bill. And in the
interim, we are not abiding by what good minds, a myriad of
diverse views and opinions felt was the direction in which we
ought to proceed in terms of achieving the goal that you want
to achieve and what this nation needs to achieve in this area.
And we may be at cross purposes with this loan and with the
final rule.
Mr. Dorr. Well----
Ms. DeLauro. And that is--I mean, I really do believe that
that is, you know, it really is, if you will, a dereliction of
what our obligations are in terms of the--what it is that we
are trying to achieve.
Mr. Bishop. Will the gentlelady yield?
Ms. DeLauro. Yes.
Mr. Bishop. To underscore what the gentlelady is saying,
isn't this loan going to usurp just about all of the authority
and capacity for this particular broadband program so that
there's nothing left for other communities that are not covered
by open range to have access?
Ms. DeLauro. It's about 90 percent of what we have
appropriated. But there is carryover money there, but your
point is well taken, because we did this when we--and I might
add, and I would just say this in compliments to this
committee, on a bipartisan basis--the review of that loan, the
review of that loan came, I believe, directly out of the
questions asked on both sides of the aisle from this
subcommittee. That loan was to have been finalized months ago,
but it was taken in for a review based on the questions that
came out of this committee.
So we are--our responsibility is to be vigilant with the
money that we appropriate. Ninety percent of the appropriated
money is being used for this loan. Yes, you have carryover. We
are concerned as to what happens to the appropriated tax
dollars. I think we have--you've stated your position. We have
stated our position, and it will--is going to be--we're taking
it on as to monitor and evaluate what happens with this loan.
Mr. Dorr. I just have one question. You indicated that
there was dereliction of our duty or responsibilities, and if
you would care to lay those out at some point, I would be most
interested in finding out where we've been derelict.
Ms. DeLauro. Well, I would just say this about--and I--
because I want to be precise in language. It seems to me not
exactly coincidental that the final rule is not enacted and you
felt a moment ago that it was the obligation if we're not
getting anywhere with the farm bill, that in fact we would
proceed to having a final rule by the end of April. And yet, in
March--in March, we granted a loan that by your words say it
would have been difficult to finalize the negotiations on
because of the new requirements that have, as I said, been
discussed for a very long time. And they have been--apparently
we have sorted it out.
Mr. Dorr. Well, let me make this observation. The number of
calls that I received from the members in this loan, I had none
that were in opposition to this loan. We probably took a
tougher look at this loan in our office than any other loan for
some of the reasons that you're laying out.
In fact, we have $700 million of existing appropriated and
carryover authority. This does not deplete the program. We will
have $395 million available next year in our telecom and
treasury programs. This is new technology. This is a way to
mitigate some of those availability issues, and we are going to
monitor it very, very closely, and we will share that
information with you on a regular basis.
Ms. DeLauro. I appreciate that, but I will also say that I
do not believe it is coincidental that the final rule was not
enacted prior to this contract being let. That's my point. If
somebody can persuade me to the contrary, it doesn't have to be
here today. Afterward, I would be happy to be persuaded, but I
do believe that this--there was someone someplace somewhere who
had in mind that, wow, we are going to have a rule that would
preclude us doing this, new technology and all. Let's examine
it. Let's look at it. Let's get it done. But we are going to
delay the final rule until this is done. Now, I don't see how
that----
Mr. Dorr. I would respectfully differ from you completely
on that matter. That was not the intent. What we were waiting
for was a number of things that we believe may come through the
legislation that would conform with the way the rule was and
would mitigate elongating the difficulty in making additional
loans. If that was an error in judgment, I'll subscribe to
that. But there was nothing at all in the discussion in our
office in the way in which we approached this that was subject
to making a loan predicated on prior to a new rule being
imposed. And, frankly, that bothers me that you would assume
that that's the way we approached it, because that was
definitely not the case.
Ms. DeLauro. Well, I hadn't approached it until this point,
till I find out that, yes, in fact we'll move forward with the
final rule by the end of April if the farm bill doesn't
generate that. But I take you at your word, and I hope that you
do understand my concern, serious concern, that it just seems--
I would be derelict in my duty if I did not ask the question,
given specifically that the size of this loan--the size of it--
and the historical size of it, I would not be doing my job, Mr.
Secretary.
Mr. Dorr. Well, I appreciate your comments, and on the
lighter side, I informed almost everyone that I was involved
with in making this loan that I anticipated the respected
chairwoman would probably have some of these concerns, so this
does not surprise me, and I anticipated your oversight.
Ms. DeLauro. Thank you. Does anyone have any further
questions? I do have one or two things I would want to--Ms.
Kaptur?
BIOENERGY AND RENEWABLE ENERGY
Ms. Kaptur. Thank you very much, Madam Chair. I just wanted
to place on the record the cross-cutting budget that we
requested in the area of bioenergy, renewable energy programs,
we estimate this year $103,975,000 in those programs. The
proposed budget is a cut of $85,436,000. I respect what you're
saying, that you're waiting for the farm bill, I don't agree
with the decision that was made in the bioenergy area. So I do
want to place that on the record.
You also mentioned in your testimony, your questioning,
that you're involved with the Department of Energy and other
agencies in interagency cooperation on the energy issue. I want
to encourage you on in those efforts.
Mr. Dorr. Thank you.
Ms. Kaptur. And make a suggestion. I've not been able to
get this done. I have a bill to do it. You know, we have a
strategic petroleum reserve, and I really react when I hear
that middle word. And I really believe America should have a
strategic energy reserve, including biofuels. I have one
mechanism to get there.
I would encourage you to perhaps take a look at that bill,
and in your discussions with the Department of Energy, consider
how the Department of Agriculture could help transform America
from a petroleum-based economy, a carbon-based economy, to a
carbohydrate-based economy, along with other alternatives that
we have before us. So I just wanted to mention that to you. And
you're in a unique position in that interagency group.
Also, I wanted to ask Mr. Andrews--Mr. Andrew--in the area
of renewables--solar, wind, geothermal--you mentioned several
proposals that you have been funding through the utility
service. Could you give me a sense of how many--the volume of
the requests that you receive in the growing market of
renewable energy, what total dollar volume you might be being
asked for versus what you're able to fund? And then could you
just very briefly describe one or two projects underway that
you consider successful that have been launched by local
consortias of farmers or farmers in cooperation with municipal
powers, for example, or rural electrics that are generating
energy through wind, through solar, through geothermal? So the
first question is on the volume of requests versus what you're
able to fund in the renewables area, and then could you discuss
a couple of projects you consider model around the country?
Mr. Andrew. First of all, the volume is picking up. The
$200 million that I mentioned earlier that we've been setting
aside for several years, we've only put out about $190-some
million. But the volume is picking up because we're pushing it
very hard through our state offices.
The wind farms I mentioned earlier, which by the way are
west of the Mississippi----
Ms. Kaptur. Thank you.
Mr. Andrew. Knowing where you're from, I just assumed you
were talking about east, but you were talking about west. They
are west of the Mississippi.
Ms. Kaptur. Some people mix us up with Iowa, Idaho----
Mr. Andrew. You're right.
Ms. Kaptur [continuing]. Ohio. We all have a lot of vowels.
Mr. Andrew. Anyway, I'm glad I had the opportunity to clear
that up. In Georgia, for example, I'll use that as an example.
We have a project there where we're taking, there's a farmer,
there's a gentleman up in north Georgia who recognized that we
had a lot of chicken manure, they couldn't get rid of it. We're
building, we have funded a process where they're going to be
burning chicken manure and wood waste out of construction to
generate electricity, that will be about 20 megawatts of power
that that will be generating, and the electric co-ops are going
to put that into their green power----
Ms. Kaptur. Will the gentleman yield? I'm glad you're
talking about that because in Ohio, we have a problem with
dairy manure. And I don't see the kind of leadership there that
you're describing in Georgia in terms of your poultry farmers.
Mr. Andrew. Well, frankly, that came from the farmer--I
mean, the individual himself, if that's what you're referring
to.
Ms. Kaptur. All right.
Mr. Andrew. In the Dakotas, we've got a dairy farm that was
down there by Dairyland Power, which is a generation
transmission co-op. They're located in Wisconsin, excuse me. My
geography is bad today. But anyway, they've got a dairy farmer
was buying the methane gas that comes out of the farm, they're
burning it and generating electricity and putting it on the
grid.
We have several projects that we're talking to now. For
example, wood biomass. There's three sites in Georgia as a
matter of fact. We'll be taking wood and burning it. It would
be renewable.
Ms. Kaptur. Sir, may I ask you, could you--could somebody
in your agency give me a little summary of those so I could
send them to some of our farmers and say, look, this is what's
being done----
Mr. Andrew. Sure.
Ms. Kaptur [continuing]. Are you aware of this program? Do
you do both grants and loans, or just loans?
Mr. Andrew. Just loans.
Ms. Kaptur. Just loans. And what is the interest rate on
those loans?
Mr. Andrew. Treasury. We'll be glad to, because we're proud
of it. And we're trying to do more and more and more. Our
outreach that Tom mentioned earlier, is going to have a great
deal to do with this, too, because we're telling more people
that we've got these things available.
Ms. Kaptur. If you're trying to urge farmers to do this,
sir, even though they may be paying Treasury rate on the loan,
they're getting a payback through energy generation aren't
they?
Mr. Andrew. Yes, if they're putting--yes.
Ms. Kaptur. Yes. You see, and they really have to--we have
to help them understand how this works so they don't feel like
they're going to lose their shirts if they get involved in
this.
Mr. Andrew. Right.
Ms. Kaptur. So I would appreciate information we could
share with Ohio farmers. I'd really appreciate that.
Mr. Andrew. The state director, Randy, has done a good job
of this. We've done a lot of work with Randy on this project.
[The information follows:]
Ms. Kaptur. Thank you.
WATER AND WASTE PROGRAM BACKLOG
Ms. DeLauro. Under Secretary, this is a question about
rural water and waste and the long-term needs. I know that the
Department has put forth a one-time funding increase proposal
in the farm bill to address this. But it doesn't close--it's
not close to meeting the need. The proposal would have only
covered about a quarter of the current backlog, as I understand
it, of the projects.
How does Rural Development anticipate lowering the water
and waste grant backlog and considering that rural development
studies show the need for the program to be in excess of $80
billion over the next 20 years, are there any proposals you're
considering to ensure this backlog will not continue to grow?
Mr. Dorr. Well, there has historically been a backlog in
this program. As you recall, the 2002 Farm Bill did in fact
give additional funds that allowed us to address about $700
million of that. And as you correctly indicate, we have
proposed some additional resources to do that in the Farm Bill.
I frankly don't know that the backlog will ever go away. We
have had an ongoing outmigration out of rural America. That has
meant that we have not sustained or invested in new water and
waste infrastructure. We are now beginning to see a
stabilization in some areas where this is changing or areas
where these systems are worn out. And it's all catching up with
us. And it's an issue that I suspect we will continue to work
on for some time.
One of the things we have clearly done, and I know you're
well aware of this, is we have adjusted our loan grant
relationship, taking advantage of the lower cost of money over
these last few years, to try to extend these funds, and yet
maintain a very affordable water and sewer rate in the
communities that participate.
We'll probably have some disagreements on the approach
we've taken on this, but we'll continue to do what we can with
the funds that we have available, and we believe that we are
addressing this as aggressively as is reasonable.
SINGLE FAMILY HOUSING LOANS
Ms. DeLauro. This is my final question. This is again about
the Section 502 guaranteed single-family housing loan program.
I think you would concur a safe alternative for subprime
mortgages, for creditworthy low- and moderate-income rural home
buyers. The subcommittee provided about $5.3 billion in fiscal
year 2008 for the direct and guaranteed section of 502 single-
family housing loan programs.
Given the unprecedented demand the guaranteed program is
experiencing, do you expect that demand will remain strong and
grow throughout the rest of the fiscal year as the market
continues to adjust from the diminished availability of
subprime loans for home purchase loans? Will you have
sufficient funds to meet this demand?
Mr. Dorr. I would turn to Russ on that. We evaluate that
monthly, sometimes biweekly. There was a period of time early
in the fiscal year when we thought we weren't, then the market
slowed down, we thought we would. Russ, where do you think we
are at this point?
Mr. Davis. Our demand is accelerating every month. We now
are using $700 million of carry forward from last year, and
Katrina money will get us just barely into September. We're
looking at options for how we get through the fiscal year, but
we are experiencing accelerating demand.
Ms. DeLauro. Well, will you then need to--are you
planning--you're transferring authority to move funds from
other housing programs to this program. What programs will you
transfer from?
Mr. Davis. Well, obviously, we'll use that as a last resort
if we can't find some other way to smooth out the demand or so
forth. But we would look to see if there are any programs that
don't have 100 percent demand. Actually, it happens that we
have programs that don't get 100 percent applications, and we
would look to those.
Ms. DeLauro. What programs are you thinking of?
Mr. Davis. Well, an example was in previous years has been
farm labor housing. Developers have been going to low-income
housing tax credits, and we've had extra money.
Ms. DeLauro. Is the direct single-family housing loan
program seeing the same unprecedented demand in 2008 over last
year's activities? And if so, how much demand has increased
over the previous fiscal year?
Mr. Davis. We're seeing pretty much flattened demand. One
thing that's interesting is that there is competition between
direct and guaranteed. And people come into our offices and
they say, oh, I can get a house today in the guaranteed program
or I can wait and get a direct loan a year from now and buy
$20,000 more house. Some people decide to wait for the subsidy
and buy a bigger house. We would prefer that they go into the
guarantee program, which is stronger and has a better record of
home ownership.
Ms. DeLauro. Mm-hmm. And maybe I know the answer to this
already, but I think you've got a request of $4.8 billion.
Mr. Davis. Mm-hmm.
Ms. DeLauro. The adequacy of 4.8, you know, with the
demand, do we see it dropping from 7 billion to 4.8? That's----
Mr. Davis. If I could throw in a commercial for the fee
increase. The entire mortgage industry has realized that it has
mispriced mortgages. And 2 percent is our fee right now, and
for 2 percent, we're taking all the risks of a hundred and two
percent mortgage. By going to 3 percent, we would have
essentially a break-even credit subsidy rate. We could do a
trillion dollars. I mean, we would be not limited by budget
authority. We really think the fee increase would make this a
program forever.
Ms. DeLauro. Well, but there again, you know, we could--and
I don't want to get back into this again because I think it--
but it bears the conversation then that you're then looking at
the inability of people to, you know, deal with an escalated
fee cost. I mean, so there you've got, you know, a market issue
as well there in terms of going to 3 percent and the inability
then of people who are at the low end to be able to deal with
that kind of an increase.
Mr. Davis. There is a tradeoff, but we view it as--the fee
increase comes out to about $5.20 a month or so. That means you
buy a house, you know, without the garbage disposal or
something. You know, it buys $600 less house. Or view it as a
loan that you would not have been able to get in the private
sector. We are doing loans that the private sector won't touch.
And that has value.
Ms. DeLauro. Well, I think that that is, you know, part of
the continued debate. And I guess in terms of a final comment
that I would make, it goes back to the beginning conversation a
couple of hours ago.
I think it's true that the more rural a place is, the more
difficult the circumstances are. And we see that borne out by
the statistics. I mentioned median income is 25 percent lower.
Poverty rate is 28 percent higher than in the metro areas.
You've got today 31 percent of food stamp beneficiaries are
living in rural areas.
When you talk about the wealth of the communities, yeah, I
concur that there are pockets where that is occurring. But I
think that that is the exception, is my view, and not the norm,
for rural communities, which gets me back to the mission and
role of this agency, which is I think substantial and one that
we all have a very, very keen interest in. And when I look to
both my colleagues who are here with me now, who are from
Georgia, and these issues are more critical in the South, and
rural poverty is probably--the South has the highest percentage
in that area, that we have to take a hard look at the programs
and the direction that we are taking these programs based on
economic research and their data, et cetera about what
direction our programs take in order to be able to meet the
needs that would state that we want to try to meet.
And I thank you all very, very much for your time and for,
you know, staying over, et cetera, and appreciate your work,
and I appreciate the committee members in hanging in there as
well.
Thank you very, very much to all of you, Mr. Secretary and
your team.
W I T N E S S E S
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Page
Anderson, Ben.................................................... 391
Andrew, J. M..................................................... 391
Davis, R. T...................................................... 391
Dorr, T. C....................................................... 391
Houston, Kate.................................................... 1
Johner, N. M..................................................... 1
Salazar, Roberto................................................. 1
Steele, W. S..................................................... 1,391
I N D E X
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Page
Food and Nutrition Service....................................... 1
Beef Quality Standards........................................... 33
Child Nutrition Programs.....................................14, 25, 82
Commodity Entitlement Purchases..................................60, 70
Commodity Purchases.............................................. 37
Commodity Supplemental Food Program...............17, 27, 140, 384, 389
Dietary Guidelines for Americans/MyPyramid....................... 61
Emergency Food Assistance Program................................18, 28
Food Stamp Program.............................14, 24, 55, 57, 152, 382
Categorical Eligibility......................................36, 56
Employment and Training...................................... 40
Enrollment and Unemployment.................................. 39
Error Rate................................................... 35
Fraud........................................................ 385
Outreach..................................................... 34
Participation................................................ 35
Food Stamp Program, Indiana...................................... 74
Food Stamp Program, Texas........................................ 73
Fresh Fruit and Vegetable program................................ 59
Fresh Produce Program............................................ 157
Hallmark/Westland Beef Recall...............................30, 42, 247
Healthier U.S. Schools Challenge................................. 56
High Performance Bonuses......................................... 167
Improper Payments...............................................22, 164
Indian Reservations, Food Distribution Program.................157, 175
Leadership and Resource Collaboration............................ 36
Nutrition Assistance Programs....................................46, 79
Nutrition Education.............................................. 79
Nutrition Programs Administration................................19, 28
Opening Remarks, Ms. Johner...................................... 3
Proposed Legislation............................................. 181
Puerto Rico and American Samoa, Funding.......................... 173
Quality Standards................................................ 359
Questions Submitted by Ms. DeLauro............................... 82
Questions Submitted by Mr. Farr.................................. 374
Questions Submitted by Mr. Latham................................ 385
Questions Submitted by Ms. Kaptur................................ 382
School Lunch Program............................................. 387
Senior Farmer's Market........................................... 383
Simplified Summer Food Service Program........................... 68
Studies, Completed............................................... 197
Studies, Ongoing................................................. 187
Toledo School Lunch and School Breakfast......................... 38
WIC.....................................................15, 26, 95, 105
WIC Budget Requests.............................................. 43
WIC Participation................................................ 45
Written Statement, Nancy Montanez Johner, Under Secretary, FNS... 6
Written Statement, Roberto Salazar, Administrator, FNS........... 21
Rural Development................................................ 391
Administration's Budget Requests................................. 480
Alternative Energy Policy and Commodity Prices................... 482
Broadband............................................437, 454, 468, 511
Business and Cooperative Programs................................ 405
Business and Industry Guaranteed Loan Program.............409, 453, 461
Community Facilities in California............................... 438
Community Programs............................................... 417
Default Rate for Business Programs............................... 450
Defining Rural Areas............................................. 459
Direct Loans and Guaranteed Loans................................ 500
Electric Programs................................................ 421
Elimination of Programs........................................425, 448
Energy Independence.............................................. 493
Evaluation of Rural Development Programs......................... 499
Expanding Rural Development's Portfolio.......................... 494
Farm Community versus Rural Community............................ 433
Farm Labor Housing........................................439, 463, 504
FY 2009 Budget................................................... 398
Helping Small Communities........................................ 435
HIV/AIDS......................................................... 480
Housing and Community Facilities................................. 402
Housing Grants and Loans......................................... 502
Housing Loan Crisis.............................................. 441
Intermediary Relending Program................................... 409
Loan Guarantees/Rural Banks...................................... 481
Low-Income Housing............................................... 449
Low-Income Suburban Communities, Assistance...................... 432
Minority Programs................................................ 484
Multi-Family Housing Programs..................................413, 414
Multi-Family Revitalization of Existing Stock.................... 506
Mutual and Self-Help New Construction............................ 507
Open Range Communications Broadband Loan......................... 444
Open Range Loan.................................................. 469
Opening Statement, Mr. Dorr...................................... 393
Overall State of the Rural Economy............................... 501
Persistent Poverty Counties...................................... 442
Population Limits................................................ 497
Promotion of Locally-Owned Development........................... 496
Questions for the Record Submitted by Mr. Bishop................. 479
Questions for the Record Submitted by Mr. Latham................. 499
Questions for the Record Submitted by Ms. Kaptur................. 493
Renewable Energy.....................................447, 451, 466, 472
Rental Assistance Funding Levels................................. 507
Rental Assistance Pilot Program.................................. 461
Role of Rural Development........................................ 398
Rural Business-Cooperative Service............................... 509
Rural Cooperative Development Grant............................409, 464
Rural Economy.................................................... 426
Rural Healthcare................................................. 479
Rural Housing.................................................... 492
Rural Utility Service............................................ 510
Rural Water Challenges........................................... 481
Rural Water Waste Project........................................ 500
Single Family Housing Programs.................................416, 476
Small Business Administration Programs........................... 499
Small, Socially Disadvantaged Producers Grant Program............ 409
Telecommunications Programs...................................... 421
Utilities Programs............................................... 404
Water and Environment Programs................................... 423
Water and Waste Program Backlog.................................. 476
Written Statement by Ben Anderson, Administrator of the Rural
Business-Cooperative Service, USDA............................. 408
Written Statement by James M. Andrew, Administrator of the Rural
Utilities Service.............................................. 420
Written Statement by Russell T. Davis, Administrator of the Rural
Housing Service................................................ 411
Written Statement by Thomas Door, Under Secretary for Rural
Developent, USDA............................................... 396