<DOC>
[110 Senate Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:33905.wais]



                                                         S. Hrg. 110-98

                                                        Senate Hearings

                                 Before the Committee on Appropriations

_______________________________________________________________________


                                                     Agriculture, Rural

                                                  Development, Food and

                                                    Drug Administration

                                                   and Related Agencies

                                                         Appropriations

                                                            Fiscal Year
                                                                   2008

         th CONGRESS, FIRST SESSION                                110 

                                                      H.R. 3191/S. 1859

DEPARTMENT OF AGRICULTURE

DEPARTMENT OF HEALTH AND HUMAN SERVICES

    Food and Drug Administration

NONDEPARTMENTAL WITNESSES
   Agriculture, Rural Development, Food and Drug Administration and 
       Related Agencies Appropriations, 2008 (H.R. 3191/S. 1859)



                                                         S. Hrg. 110-98
 
   AGRICULTURE, RURAL DEVELOPMENT, FOOD AND DRUG ADMINISTRATION AND 
          RELATED AGENCIES APPROPRIATIONS FOR FISCAL YEAR 2008

=======================================================================

                                HEARINGS

                                before a

                          SUBCOMMITTEE OF THE

            COMMITTEE ON APPROPRIATIONS UNITED STATES SENATE

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                                   on

                           H.R. 3191/S. 1859

 AN ACT MAKING APPROPRIATIONS FOR AGRICULTURE, RURAL DEVELOPMENT, FOOD 
 AND DRUG ADMINISTRATION, AND RELATED AGENCIES PROGRAMS FOR THE FISCAL 
         YEAR ENDING SEPTEMBER 30, 2008, AND FOR OTHER PURPOSES

                               __________

                       Department of Agriculture
 Department of Health and Human Services: Food and Drug Administration
                       Nondepartmental witnesses

                               __________

         Printed for the use of the Committee on Appropriations


  Available via the World Wide Web: http://www.gpoaccess.gov/congress/
                               index.html



                                 ______

                    U.S. GOVERNMENT PRINTING OFFICE
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                               __________

                      COMMITTEE ON APPROPRIATIONS

                ROBERT C. BYRD, West Virginia, Chairman
DANIEL K. INOUYE, Hawaii             THAD COCHRAN, Mississippi
PATRICK J. LEAHY, Vermont            TED STEVENS, Alaska
TOM HARKIN, Iowa                     ARLEN SPECTER, Pennsylvania
BARBARA A. MIKULSKI, Maryland        PETE V. DOMENICI, New Mexico
HERB KOHL, Wisconsin                 CHRISTOPHER S. BOND, Missouri
PATTY MURRAY, Washington             MITCH McCONNELL, Kentucky
BYRON L. DORGAN, North Dakota        RICHARD C. SHELBY, Alabama
DIANNE FEINSTEIN, California         JUDD GREGG, New Hampshire
RICHARD J. DURBIN, Illinois          ROBERT F. BENNETT, Utah
TIM JOHNSON, South Dakota            LARRY CRAIG, Idaho
MARY L. LANDRIEU, Louisiana          KAY BAILEY HUTCHISON, Texas
JACK REED, Rhode Island              SAM BROWNBACK, Kansas
FRANK R. LAUTENBERG, New Jersey      WAYNE ALLARD, Colorado
BEN NELSON, Nebraska                 LAMAR ALEXANDER, Tennessee

                  Terrence E. Sauvain, Staff Director
                  Bruce Evans, Minority Staff Director
                                 ------                                

     Subcommittee on Agriculture, Rural Development, Food and Drug 
                  Administration and Related Agencies

                     HERB KOHL, Wisconsin, Chairman
TOM HARKIN, Iowa                     ROBERT F. BENNETT, Utah,
BYRON L. DORGAN, North Dakota        THAD COCHRAN, Mississippi
DIANNE FEINSTEIN, California         ARLEN SPECTER, Pennsylvania
RICHARD J. DURBIN, Illinois          CHRISTOPHER S. BOND, Missouri
TIM JOHNSON, South Dakota            MITCH McCONNELL, Kentucky
BEB NELSON, Nebraska                 LARRY CRAIG, Idaho
JACK REED, Rhode Island              SAM BROWNBACK, Kansas

                           Professional Staff

                             Galen Fountain
                        Jessica Arden Frederick
                             Dianne Preece
                      Fitzhugh Elder IV (Minority)
                       Stacey McBride (Minority)
                        Graham Harper (Minority)
                         Brad Fuller (Minority)

                         Administrative Support

                             Renan Snowden


                            C O N T E N T S

                              ----------                              

                       Tuesday, February 27, 2007

                                                                   Page
Department of Agriculture: Office of the Secretary...............     1
Department of Health and Human Services: Food and Drug 
  Administration.................................................   479
Nondepartmental Witnesses........................................   721


   AGRICULTURE, RURAL DEVELOPMENT, FOOD AND DRUG ADMINISTRATION, AND 
          RELATED AGENCIES APPROPRIATIONS FOR FISCAL YEAR 2008

                              ----------                              


                       TUESDAY, FEBRUARY 27, 2007

                                       U.S. Senate,
           Subcommittee of the Committee on Appropriations,
                                                    Washington, DC.
    The subcommittee met at 10:02 a.m., in room SD-192, Dirksen 
Senate Office Building, Hon. Herb Kohl (chairman) presiding.
    Present: Senators Kohl, Harkin, Dorgan, Feinstein, Nelson, 
Reed, Bennett, Specter, and Craig.

                       DEPARTMENT OF AGRICULTURE

                        Office of the Secretary

STATEMENT OF HON. MIKE JOHANNS, SECRETARY
ACCOMPANIED BY:
        CHARLES CONNER, DEPUTY SECRETARY
        W. SCOTT STEELE, BUDGET OFFICER
        DR. KEITH COLLINS, CHIEF ECONOMIST


                 opening statement of senator herb kohl


    Senator Kohl. Good morning. Today we will begin hearings 
for the fiscal year 2008 budget. Our first panel will include 
Secretary Johanns and other distinguished guests from the 
Department of Agriculture, and following that we'll hear from 
FDA Commissioner von Eschenbach on that agency's budget.
    This is our first hearing for the year and it will be the 
only general hearing on the fiscal year 2008 budget. The other 
hearings that we'll have will focus more on issue-specific 
areas such as food safety, conservation, and food aid. I hope 
this is a change in format that will allow us to study certain 
issues in more detail.
    As everyone knows, the fiscal year 2007 appropriations 
process was finished only a few weeks ago. While we understand 
the President's request for 2008 is not changed by that action, 
our bills by necessity build on previous year's action, and so 
we'll need specifics as soon as possible regarding how the USDA 
and the FDA will carry out this year's programs. I hope you 
will all work as quickly as you can to make sure that that 
information is available to us.
    The President's budget includes fiscal year 2008 
discretionary spending levels of more than $16 billion for USDA 
and more than $1.6 billion for FDA. This includes an increase 
of $43 million for the Food Safety and Inspection Service, an 
increase of more than $260 million for the Farm Service Agency, 
and an increase of $180 million for WIC. However, the budget 
also proposes the elimination of the Commodity Supplemental 
Food Program, which was proposed last year and which was 
rejected by this subcommittee.
    I would note that while the budget does include some new 
fee proposals, they are presented in such a way that there is 
little effect on 2008 funding levels. This is an improvement 
over previous years. However, there are a few legislative 
proposals, such as those regarding WIC and other programs, that 
will cause us some concern. So, Mr. Secretary, I look forward 
to your comments on those.
    There are a number of other issues in the budget that we 
will need to discuss, for example, eliminating the direct 
single family housing program, and a number of other rural 
development programs which are problematic.
    This has already been a busy year, with much yet to come. 
As we move through the appropriations process, I pledge to you 
that we will maintain a constructive dialogue with USDA and 
FDA. I can tell you that we intend to send our bills to the 
President well in advance of September 30, so we all need to 
work together so we can come to an agreement on administration 
priorities and congressional prerogatives as easily and as 
swiftly as possible.
    Having said that, I'd like now to turn to my good friend 
and the ranking member, Senator Bennett. As I've said many 
times, I want to publicly thank him and his staff for the 
helpful and bipartisan manner in which he has guided this 
subcommittee over the past few years, and I assure him and 
everyone else on this subcommittee that I intend to continue 
that very admirable practice.
    So, Senator Bennett, I would ask if you have any opening 
comments, and then we will turn to other members for their 
opening statements before we ask the Secretary to share his 
thoughts with us. We'll recognize members in turn based on 
their arrival, and in moving from majority to minority for the 
first round of questions I ask that we use the 5-minute rule. 
So, Senator Bennett.


                 STATEMENT OF SENATOR ROBERT F. BENNETT


    Senator Bennett. Thank you very much, Mr. Chairman, and I 
congratulate you on your assuming again the chairmanship of 
this subcommittee. I tried to follow your lead in the way that 
we ran things, and I am very grateful to you for your kind 
words. I believe we have an excellent working relationship on a 
bipartisan basis and I'm sure it will continue.
    I want to welcome Senator Nelson and Senator Reed, new 
members of this subcommittee. I think they will add a great 
deal to our deliberations. We are<greek-l>ntering a very busy 
time for USDA and the FDA because in the next few months 
Congress will consider and, one hopes, pass the farm bill, the 
Prescription Drug User Fee Act, and the Medical Device User Fee 
Modernization Act. These are some of the most important 
reauthorizations that the Congress will deal with, and while 
it's the responsibility of the authorizers to address these 
issues, naturally that will strongly influence the work of this 
subcommittee.
    Now that the fiscal 2007 appropriations are in fact finally 
behind us and we focus on 2008, I'm delighted, Mr. Chairman, 
with your commitment to get this bill done in a timely fashion. 
We've done it before, and either the full committee or the 
House was unable to follow our excellent example and get things 
done in a timely fashion, but I know you will do that and I'll 
do everything I can to help you.
    So this morning I welcome Secretary Johanns and those 
accompanying him, and look forward to his testimony, and I also 
look forward to the second panel with Dr. von Eschenbach and 
those who will accompany him.
    This is a unique subcommittee. The life of every person in 
this country comes in direct contact with some of the product 
regulated or the programs carried out as a result of the 
appropriations we made in this subcommittee, and I don't think 
any other subcommittee can say that. Every single American is 
affected here, so that's how we will evaluate the budget 
proposals of USDA and FDA.
    Now, taking advantage of this opportunity, I want to offer 
some praise to three USDA employees in Utah, so that the record 
will show that I recognize their contribution: Bruce 
Richardson, who is the Farm Service Agency State Executive 
Director; Jack Cox, the Rural Development State Director; and 
Sylvia Gillan, the Natural Resources Conservation Service State 
Conservationist. Mr. Secretary, these are all three good 
people, and I wanted to make that comment for the record.
    Thank you very much for your courtesy, Mr. Chairman.
    Senator Kohl. Thank you, Senator Bennett. We'll turn to 
Senators for their comments, starting with Senator Dorgan. Then 
we'll recognize Senator Craig, then Senator Nelson, then 
Senator Reed, and then Senator Feinstein. Thank you.


                  STATEMENT OF SENATOR BYRON L. DORGAN


    Senator Dorgan. Mr. Chairman, thank you. Thank you and the 
ranking member, and let me say that I sure do support the 
notion of getting this bill done, getting it done on time, 
getting it through the Senate, in conference, and getting to 
the President for signature. The mess that was created last 
year, it cannot be repeated, and the mess doesn't belong to any 
one person certainly, but we've got to finish all of these 
appropriations bills on time.
    I'm going to be asking Secretary Johanns some questions 
about disaster relief, as he might well expect. The three times 
I've gotten it through the Senate Appropriations Committee, 
twice through the full Senate, twice have gotten to conference, 
and it was blocked in conference. And I know the President at 
that point had opposed disaster relief. I'm going to ask 
Secretary Johanns about that today.
    I also want to ask some questions about the issue of 
opening the market to live Canadian cattle above 30 months of 
age, which will I'm told result in about 1.3 million head of 
Canadian cattle coming in this year, at a time when we have 
just heard of the ninth--I guess actually tenth case, if you 
consider the Canadian cow in the State of Washington--the tenth 
case of BSE in Canada. I just held a hearing on that subject in 
North Dakota last week, and I am very much opposed to the 
proposed rule offered by the USDA. I hope we can overturn that 
rule. I guess I hope the comment period will persuade the 
Secretary not to proceed.
    But both of these are very important issues. I want to 
especially focus on the issue of disaster relief, and I will 
wait until I question Secretary Johanns. Let me thank the 
Secretary and the other members of USDA who have come here.
    And, Mr. Collins, we had a discussion in North Dakota about 
you, as a matter of fact. Someone was quoting the USDA 
Economist, and I asked who, and they told me your name. I said, 
``Well, I know him.'' And I used to teach economics, but I was 
able to recover and move on. So we had a discussion about you. 
But let me thank you for being here again, as you have for many 
years, and being willing to visit with us about the agriculture 
economy.
    Secretary Johanns, welcome.
    Senator Kohl. Thank you, Senator Dorgan.
    Senator Craig.


                    STATEMENT OF SENATOR LARRY CRAIG


    Senator Craig. Well, Mr. Chairman, because I certainly want 
to hear from the witnesses, and we have a lot to cover, I will 
be brief. But let me join with my colleague, Senator Bennett, 
in welcoming you to the chairmanship of this committee. We do 
cover a lot of areas of major importance to a good number of 
citizens in our country.
    We come to Ag Appropriations at a time when the business of 
crafting a new farm bill--and, Mr. Secretary, we're pleased 
that the work you have done puts you into the middle of that 
process. That's where a Secretary of Agriculture ought to be, 
and frankly, some of our Secretaries have not been there, and 
Congress has been doing the work in part on its own.
    But I think it is a cooperative kind of shaping of policy 
that is going to be extremely important for American 
agriculture and U.S. consumers in the future; and, I must also 
say, and the role agriculture is increasingly playing in the 
production of energy. That is where I spend a fair amount of my 
time these days, on that issue, and it is exciting for me to 
see a future in which agriculture becomes an increasingly major 
contributor to energy independence in this country, and policy 
is certainly going to reflect that, loan guarantees, the whole 
combination of things.
    Mr. Chairman, I recently said before a hearing that I felt 
that maybe we ought to take DOE's authority under Title 17 of 
the Energy Policy Act and give it to USDA. They seem to know 
how to get loan guarantees done, know how to do them, and 
that's not a criticism as much as it is an observation of where 
we are on that issue. That's important, and of course we'll 
hear from FDA in a few moments. That, too, is critical to us.
    I would hope that as we look at policy--and here is where 
my friend from North Dakota and I oftentimes agree more than 
disagree--Mr. Secretary, and as we shape policy that will be 
reflected in the new farm bill, that we be as much focused on 
our domestic needs as we are to our international trade 
obligations. I know there are certain pressures there as it 
relates to where we may or may not be in the discussion of 
trade with our neighbors from around the world.
    At the same time, I find it increasingly difficult to give 
and not get in return. And, having said that, the ability of 
American agriculture to produce is tied in part with trade. I 
know there needs to be balances, but there also needs to be 
balances.
    Mr. Chairman, thank you very much. I look forward to the 
testimony of you, Mr. Secretary.
    Senator Kohl. Thank you, Senator Craig.
    Senator Nelson.


                    STATEMENT OF SENATOR BEN NELSON


    Senator Nelson. Thank you, Mr. Chairman.
    Mr. Secretary, panelists, good to have you here today. The 
future of agriculture I think is not only based on what we want 
in terms of food, but also what we need in terms of fuel. 
You've already heard me suggest changing the name of the bill 
from a farm bill to the Food and Fuel Security Act of 2007, to 
focus more on what it is we intend to do with American 
agriculture as we move forward.
    I'm hopeful today that you will be able, as a result of 
this hearing, to establish that the planning in this bill is 
based on the contingencies of everything going okay as well as 
if everything goes bad. All too often we look at the current 
market situation, we see $4 corn, the countercyclical payments, 
they're not what they have been, so we therefore don't need the 
money. If everything--as my dad used to say, the problem is, 
when everything is going bad you never think it will go good; 
when everything is going very, very well, you never think it's 
going to go bad again.
    And I'm hopeful that this bill doesn't constitute that kind 
of a bill, so that we are in a position, if things do change 
and the market changes dramatically and things are going 
downhill, that this bill will protect American agriculture. 
Because if we continue to import at the level we are and we 
can't export at the level that we're unable to export to right 
now, I don't know whether we're close, but maybe you can 
enlighten us on this in your testimony, whether we are right at 
becoming net importers of our food. And if that's the case, I 
have said if you like importing 70 percent of your oil, you'll 
love importing 70 percent of your food.
    So that's why I think it has to be about food security, 
produced here at home, and fuel security. Thank you, Mr. 
Chairman.
    Senator Kohl. Thank you, Senator Nelson.
    Senator Reed.


                     STATEMENT OF SENATOR JACK REED


    Senator Reed. Thank you very much, Mr. Chairman. I'm eager 
to hear the testimony of our witnesses, and welcome them here 
this morning. Thank you.
    Senator Kohl. Senator Feinstein.


                 STATEMENT OF SENATOR DIANNE FEINSTEIN


    Senator Feinstein. Thank you, Mr. Chairman. I have just a 
brief comment.
    Mr. Secretary, I want to thank you for your prompt 
declaration of a secretarial emergency in the California frost 
situation. The Governor has submitted costs of approximately 
$1.3 billion so far. It is a very major frost problem for the 
State, and of course we don't know how many of the trees are 
going to be taken out or crops prevented for the next 3 years 
because of the absence of bud wood, so it's an ongoing 
struggle.
    I wanted to mention one point, and that one point, and I'm 
going to ask you some questions about it, is that since USDA 
transferred responsibility for port inspections to the 
Department of Homeland Security, the number of inspections has 
gone down seriously in California. I just sent my staff to the 
State, and the number one problem they came back with is the 
concern over the absence of adequate inspections and the belief 
that next year is going to be a very bad year, with 
infiltrating pests coming through the borders.
    My information is that 60 percent of agricultural 
inspection specialists indicated they were doing fewer 
inspections since the transfer, and there's a problem. They 
don't believe that Customs and Border Patrol respect their 
work.
    As you know, Mexican fruit fly larvae have been picked up, 
and it took 4 months for it to be identified, is what it was. 
And of course the problem is that a resulting quarantine, 
quarantines vast areas of the State, so I'm going to ask you a 
little bit about that when my time for questions comes up.
    Thank you very much for being here. Thank you, Mr. 
Chairman.


                           PREPARED STATEMENT


    Senator Kohl. Thank you very much, Senator Feinstein.
    And now we turn to the Secretary for your remarks.
    The subcommittee has received a statement from Senator 
Cochran which will be placed in the record.
    [The statement follows:]

               Prepared Statement of Senator Thad Cochran

    Mr. Chairman, thank you for holding this hearing on the fiscal year 
2008 United States Department of Agriculture and Food and Drug 
Administration budgets. I welcome Secretary Johanns and Commissioner 
von Eschenbach back to the Committee.
    An important aspect of the Agriculture Appropriations bill is the 
funding it provides for agriculture research. This research is a 
critical part of ensuring that U.S. producers remain the leaders in 
food and fiber production. The funding this bill invests in agriculture 
research is a small sum compared to the economic benefit it has on a 
farmer's bottom line. I am concerned about the Administration's 
proposal to combine the Agricultural Research Service and the 
Cooperative State Research, Education, and Extension Service into a 
single agency. The current structure of the Agriculture Research 
Service is working well and I believe it is important for the 
Agriculture Research Service to maintain its independent role in the 
Department of Agriculture.
    I was pleased that the fiscal year 2007 Senate Agriculture 
Appropriations bill fully funded the Wetlands Reserve Program. It is 
unfortunate that Congress was unable to complete this bill. The 
Wetlands Reserve Program has taken 1,750,000 acres of marginal 
croplands out of production and converted to more beneficial uses of 
enhanced flood protection, carbon sequestration, improved water 
quality, and wildlife habitat. Many of these acres are located in the 
Lower Mississippi River Flyway, the Nation's largest waterfowl flyway 
for wintering habitat.
    Last year, the Natural Resource Conservation Service adjusted the 
method it uses to appraise land for consideration under the Wetlands 
Reserve Program. I have heard from many constituents in my State and 
conservation organizations that this change would shift acres away from 
this important flyway to areas with significantly higher appraisal 
value. I would like to work with the Department to find a solution that 
would ensure this important program is implemented the way Congress 
intended.
    The Food and Drug Administration has the important role of 
protecting the public by ensuring the safety and efficacy of drugs and 
our Nation's food supply. Commissioner von Eschenbach, I look forward 
to your comments on the FDA's plan and priorities for the upcoming 
fiscal year. One example of the FDA's commitment to protecting the 
public is the Center for Food Safety and Applied Nutrition's research 
on the safety of natural products used as dietary supplements by many 
Americans. The National Center for Natural Products Research at the 
University of Mississippi is a partner with the FDA to provide 
research-based information on plant-derived products. With many new 
dietary supplements coming to the market, this research is increasingly 
important.

                  STATEMENT OF SECRETARY MIKE JOHANNS

    Secretary Johanns. Thank you very much. Mr. Chairman and 
distinguished members of the committee, it's an honor to be 
here. I am joined today by some gentlemen that can assist me in 
answering questions. To my right is our deputy, Chuck Conner; 
to my left, Scott Steele, who is our budget officer; and of 
course you all know Dr. Collins, our chief economist.
    I am happy to report over the past year we've made a lot of 
progress in meeting the needs of the Nation by improving the 
rural economy and strengthening U.S. agriculture. Based on our 
conversations with Americans on the farm and off the farm, we 
developed a comprehensive list of farm bill proposals to 
strengthen the farm economy in rural America, and those were 
announced on the last day of January this year.
    My primary focus of course will be on the budget, but I 
would like to take just a few minutes to give an overview of 
the proposals. The 2007 farm bill proposals and the 2008 budget 
were developed on parallel tracks. The administration's farm 
bill proposals represent the final phase of what was a 2-year 
process. We listened to producers and stakeholders all across 
the country, and we took a reform-minded and a fiscally 
responsible approach to making farm policy more equitable and 
predictable and protected from challenge in the world trade 
arena.
    While I firmly believe that the current law was the right 
policy for the time, times do change and times have changed. 
When the 2002 farm bill was passed, commodity prices were low, 
exports had declined for several years, and the debt-to-asset 
ratio was nearly 15 percent.
    Today we see a different economic picture. Commodity prices 
are strong for most program crops. Exports have set records now 
several years in a row, including a record of $68 billion in 
2006, and projections suggest we will reach another record of 
$77 billion in 2007. We are experiencing the lowest debt-to-
asset ratio actually in recorded history. It's at about 11 
percent for 2006.
    Add to all of this the enormous impact of renewable energy 
on the economy, and it's clear a lot of things have changed 
since 2002. The time has come to move forward with a farm 
program that's market-oriented and considers more than 
commodity prices when determining the appropriate level of 
support.
    Our farm bill proposals bolster this administration's 
commitment to conservation, with an additional $7.8 billion 
over 10 years for conservation purposes. We propose an 
additional $1.6 billion over 10 years to advance the 
development and production of renewable energy. This will help 
to achieve the President's goal of reducing our dependence on 
gasoline by 20 percent in 10 years.
    We propose funding to support $1.6 billion in loans to 
rehabilitate over 1,200 rural critical access hospitals. 
Another $400 million would be focused on trade, making sure 
that our producers have a level playing field.
    These are just a few highlights. When combined, we spend 
about $10 billion less than what was spent under the 2002 bill 
over the last 5 years, excluding the ad hoc disaster 
assistance. It would be about $18.5 billion less if you include 
that. But, importantly, we uphold the President's plan to 
eliminate the deficit in 5 years. On the other hand, looking 
forward, our proposals would provide about $5 billion more than 
the projected mandatory spending if the 2002 farm bill were 
just simply extended.
    And this brings me to a quick review of the budget. The 
2008 budget accommodates the farm bill proposals by including 
an additional $500 million per year in the total for the 
Commodity Credit Corporation. That was put there as a place-
holder, anticipating the release of our proposals, the 
discretionary appropriation request pending before this 
committee, which does not include the Forest Service, is $16 
billion. It funds the highest priorities while exercising 
necessary fiscal discipline.
    I would like to note that the President's budget was 
developed prior to congressional action on funding for the 
remainder of fiscal year 2007. Therefore, our printed materials 
reflect an estimate for 2007 under terms of the Continuing 
Resolution that provided funding through February 15.
    Now that action has been taken on funding the balance of 
2007, I do want to thank the committee for addressing some 
really critical needs. Key among these resources are resources 
to ensure our meat and poultry inspection system can meet the 
demand for inspections, support for the Census of Agriculture, 
and funding to permit the Department to participate in 
reconstruction efforts in Iraq and Afghanistan.
    Utilizing $91 million in emergency supplemental funding, 
USDA has significantly increased our efforts relative to avian 
influenza overseas. The 2008 budget requests $82 million to 
continue and enhance ongoing efforts to fight AI, an increase 
of $32 million over the 2007 level. This funding will be used 
for surveillance and diagnostics work, preparedness, response 
efforts, international veterinary capacity-building, and 
research relative to poultry vaccines.
    The budget proposes $341 million for USDA's part of the 
President's Food and Ag Defense Initiative. This includes $325 
million, an increase of $148 million, to enhance our ongoing 
efforts to detect and respond to food emergencies and threats 
to agriculture. To keep USDA in the forefront of avian disease 
research, the budget also requests $16 million to complete the 
planning and design of the Consolidated Poultry Research 
Facility in Athens, Georgia.
    We are making considerable progress in ensuring the safety 
of meat, poultry, and egg products. The Centers for Disease 
Control and Prevention has reported significant declines in 
foodborne illnesses. In order to continue protecting the 
Nation's supply of meat and poultry and egg products, this 
budget meets the demand for inspection services. The budget 
also requests funding to expand the Food Emergency Response 
Network, to increase the capability of State and local labs to 
handle large volumes of testing that would be needed in the 
event of a widespread food emergency.
    Moving on to energy, renewable energy supported by American 
agriculture and forestry does hold tremendous promise for our 
country. The budget proposes $397 million in loans, grants, and 
research, an increase of $161 million for our renewable energy 
programs. This amount includes $70 million for energy research. 
The majority of this will be focused on cellulosic energy. In 
addition to this research, the budget makes available over $320 
million in grants and guaranteed loans to assist efforts to 
support the commercialization of renewable energy.
    In the farm program area, our discretionary budget supports 
$3.4 billion in direct and guaranteed farm loans, which 
reflects the actual usage in recent years. The budget also 
requests $1.5 billion for the Farm Service Agency to deliver 
our farm programs. The level of funding is necessary to support 
approximately the same number of staff as we had in 2007.
    In 2008, crop insurance is expected to provide coverage for 
nearly $68 billion in agricultural production, double the 
amount of coverage provided in 2000. Recognizing the needs of 
all partners in the crop insurance system, the 2008 budget 
fully supports activities to ensure the integrity of the crop 
insurance program. These efforts have achieved savings of more 
than $456 million since the 2000 crop year, and program abuses 
have been curbed.
    Expanding access to global markets is essential for 
agriculture. Our budget proposals for 2008 support our 
continued commitment to trade expansion activities. Increased 
funding is proposed to permit FAS to maintain its overseas 
office presence and continue its representation and advocacy on 
behalf of U.S. agriculture.
    The budget includes $100 million for the McGovern-Dole 
International Food for Education and Child Nutrition Program. 
Additionally, we request funding in the Office of the Secretary 
to support the department's efforts in Afghanistan and in Iraq. 
In order to respond to emergency food needs during 2007, 
supplemental appropriations of $350 million are requested for 
the Public Law 480 Title II donations program.
    The 2008 budget includes discretionary funding for 
conservation technical assistance to meet high priority natural 
resource concerns. It supports about $4 billion in mandatory 
funding to continue implementation of the conservation 
programs. In aggregate, funding in the budget will support 
enrollment of an additional 17.8 million acres in conservation 
programs, bringing total enrollment to 215 million acres. 
That's the highest enrollment in history.
    For rural development, the 2008 budget provides a $15 
billion program level of activities to improve the economic 
opportunities and quality of life in rural America. The 
assistance will be used to finance home ownership, rural 
business, renewable energy, electric, telecommunications, water 
and wastewater disposal, other community facilities, and it 
will also support revitalization of our multifamily housing 
portfolio.
    In the research area, the 2008 budget funds the highest 
priority research. It also increases the use of competition to 
improve the quality of research, including a total of $257 
million for the National Research Initiative. The budget 
includes $104 million in increases for high priority research 
in areas such as food and ag defense, avian influenza, 
bioenergy, animal genomics and genetics.
    Finally, the budget includes an increase of $25 million to 
support the 2007 Census of Agriculture.
    The budget does fully fund the expected requirements of our 
three major nutrition programs: WIC, food stamps, and the 
school lunch program. For WIC, which is our largest 
discretionary program, the budget proposes $5.5 billion in 
program level to support the estimated 8.3 million 
participants. For food stamps, the budget includes resources to 
fully fund the estimated food cost inflation and participation, 
and provides a $3 billion contingency in case costs exceed the 
estimated level. We expect an increased level of school lunch 
participation due to the increased number of school age 
children, so we include an additional $632 million for our 
Children Nutrition Programs.
    We have had tremendous response to MyPyramid, and I'm 
confident the awareness of eating a nutritious diet and being 
active will improve the health of Americans. So in order to 
continue this success, the budget includes a small increase to 
make enhancements to MyPyramid.

                          PREPARED STATEMENTS

    Let me just wrap up and say I want to emphasize that the 
budget before you strengthens agriculture and rural economies. 
It protects our food supply. It builds on our conservation 
efforts, and provides for the neediest of our citizens. With 
that, those of us at the table would be happy to respond to 
your questions verbally or to submit answers in writing where 
appropriate. Thank you, Mr. Chairman.
    [The statements follow:]

                   Prepared Statement of Mike Johanns

    Mr. Chairman and distinguished members of this Committee, I am 
pleased to appear before you to discuss the fiscal year 2008 budget for 
the Department of Agriculture (USDA).
    I am joined today by Deputy Secretary Chuck Conner; Scott Steele, 
our Budget Officer; and Keith Collins, our Chief Economist.
    It is a pleasure to come before the Committee to discuss U.S. 
agriculture and our efforts to make it stronger. I want to thank the 
Committee again this year for its support of USDA and for the long 
history of effective cooperation between this Committee and the 
Department in support of American agriculture. I look forward to 
working with you, Mr. Chairman, as well as the other Members to make 
progress on these issues during the 2008 budget process and to ensure 
strong programs for our Nation's farm sector and many other USDA 
programs.
    Over the past year, USDA has worked with and heard from people 
throughout the Nation about the importance of agriculture to the 
economy and the everyday life of all Americans. I am happy to report 
that we have made much progress in meeting the needs of the Nation, 
improving the rural economy, and strengthening U.S. agriculture. I 
would like to point out that:
  --Under President Bush's economic policy, rural America and U.S. 
        agriculture has prospered.
  --Renewable energy production has grown dramatically and is 
        contributing to the energy security of the United States as 
        well as improving the farm economy.
  --Utilizing $91 million in emergency supplemental funding, USDA 
        significantly increased its efforts to prepare for a potential 
        influenza pandemic and participated in the worldwide effort to 
        stop the spread of the H5N1 virus overseas.
  --We are making considerable progress in ensuring the safety of meat, 
        poultry, and egg products. Recalls of meat and poultry and 
        processed egg products have been cut in half during the last 4 
        years due to improved oversight and the downward trend is 
        continuing.
  --U.S. agricultural exports again reached a record level in 2006, and 
        are forecast to set another record in 2007. The 2007 forecast 
        level represents an increase of more than 50 percent since 
        2000.
  --We have continued our efforts to open new markets. During the past 
        year, Trade Promotion Agreements were signed with Colombia and 
        Peru, and negotiations were completed with Panama.
  --We remain committed to our objective of achieving fundamental 
        reform of agricultural trading practices through the Doha Round 
        of multilateral trade negotiations. Although no major 
        breakthroughs have been achieved, we are actively engaged in 
        discussions with our trading partners on technical aspects of 
        each of the three pillars in the agricultural area. We continue 
        to believe a successful outcome is achievable.
  --We are continuing to regain our beef export market. Markets have 
        been reopened or maintained in the countries that closed their 
        borders to U.S. beef products after the first detection of BSE. 
        Recent progress has been made in such countries as Russia, 
        Columbia, Peru, and Panama.
  --We have had tremendous response to MyPyramid, and I am confident 
        that as awareness of the importance of eating a nutritious diet 
        and being physically active increases, so will the health of 
        Americans.
    On January 31, 2007, I announced a comprehensive set of 2007 Farm 
Bill proposals for strengthening the farm economy and rural America. 
The 2008 budget is based on the current Farm Bill. However, beginning 
in 2008, the budget incorporates a $500 million increase each year in 
the Commodity Credit Corporation (CCC) estimates to accommodate the 
cost of new Farm Bill proposals to be allocated among the various 
titles of the bill.
2008 Budget
    The President and the Congress are facing many challenges. The 
President's 2008 budget meets these challenges by funding our highest, 
most important priorities, while exercising the fiscal discipline that 
is absolutely necessary to achieve the President's goals of 
strengthening the economy and balancing the budget.
    Today, I will be focusing on the proposals contained in the 2008 
budget. Let me take a moment to briefly point out how this budget 
supports our highest priority programs--programs that achieve results. 
This budget:
  --Fulfills our commitment to reduce trade barriers and expand 
        overseas markets;
  --Supports the President's vision for energy independence by 
        significantly increasing funding for biofuels;
  --Continues programs vital to the protection of agriculture from 
        disease, pests, and human threats, including avian influenza 
        and BSE;
  --Supports policies that ensure Americans continue to enjoy a safe 
        and wholesome food supply;
  --Provides sufficient resources to fully fund expected participation 
        and food cost inflation in our major nutrition assistance 
        programs;
  --Enhances the environment by providing a record level of funding to 
        enroll a record number of acres into conservation programs;
  --Builds a strong rural economy by supporting policies that enhance 
        job creation, improve rural infrastructure, and increase 
        homeownership opportunities; and
  --Supports on-going basic and applied sciences that provide the 
        technology and information necessary for the development of 
        innovative solutions facing American agriculture;
    USDA also shares the responsibility of controlling Federal 
spending. This means doing more with less, eliminating programs that 
are not getting the job done, cutting out wasteful spending, and 
reforming the earmark process. We are pleased that the House Joint 
Resolution for 2007 continuing appropriations significantly reduced 
USDA's earmarks, and hopes that the Committee will continue those 
worthy efforts. So, you will see throughout the 2008 budget proposals 
that terminate or reduce spending. These proposals will produce real 
savings in both mandatory and discretionary spending.
    The President's 2008 budget, which was released on February 5, 
2007, proposes to increase USDA's total budget authority from $88 
billion in 2007 to $91 billion in 2008. For the Department's 
discretionary budget, the overall request is $20 billion, about the 
same level as in 2007 level. The discretionary appropriation request 
pending before this Committee, which does not include the Forest 
Service, is $16 billion.
    I would now like to focus on some specific program highlights.
Pathogenic Avian Influenza (AI)
    The infrastructure developed in response to outbreaks of highly 
pathogenic AI has enabled the Department to strengthen its global 
leadership in combating its spread and keeping it from entering the 
United States. Utilizing the supplemental funding provided in fiscal 
year 2006, the Department has worked closely with international 
agencies and other countries to enhance the international capacity and 
technical skills necessary to keep AI at bay. Domestic efforts have 
built upon USDA programs that have been in place for more than two 
decades to prevent an outbreak of dangerous strains of AI in our 
country.
    The 2008 budget requests a total of approximately $82 million to 
continue and enhance on-going efforts related to AI, an increase of $32 
million over the amount estimated for 2007, not including supplemental 
funds. Of the increase, $20 million is related to continuing activities 
related to highly pathogenic AI, including: surveillance and 
diagnostics work; preparedness and response efforts; and international 
veterinary capacity building. An additional increase of $6 million is 
requested for the development of methods to detect AI in the 
environment and further AI research, including development of poultry 
vaccines. Another $6 million increase is requested to expand activities 
related to the on-going program for low pathogenic AI. Low pathogenic 
AI is of concern for its potential costs to the poultry industry and 
potential ability to mutate into highly pathogenic AI.
Food and Agriculture Defense Initiative
    USDA continues to be vigilant in ensuring the safety of 
agriculture. The Department is a strong partner in the Administration's 
efforts to prepare for any potential bioterrorist attack. We have 
established effective working relationships with other Federal agencies 
to ensure an appropriate Government response to a wide array of 
threats.
    To protect American agriculture and the food supply from 
intentional terrorist threats and unintentional introductions, the 
budget proposes $341 million for USDA's part of the President's Food 
and Agriculture Defense Initiative. Funding for ongoing programs is 
$325 million, an increase of nearly $148 million from the 2007 level. 
Of the total amount for on-going programs, an increase of about $36 
million for Food Defense would enhance the Food Safety and Inspection 
Service's (FSIS) ability to detect and respond to food emergencies and 
for USDA research agencies to conduct related research. For Agriculture 
Defense, the budget includes an increase of about $39 million for 
research on emerging and exotic diseases to, among other things, 
improve animal vaccines and facilitate rapid response to agricultural 
threats. An additional $72 million would be used to improve USDA's 
ability to safeguard the agricultural sector through enhanced 
monitoring and surveillance of pest and disease threats, improved 
response capabilities, and other efforts, such as an expansion of the 
National Veterinary Stockpile.
    In order to keep USDA in the forefront of avian disease research, 
the budget requests an increase of $16 million for planning and design 
of the Consolidated Poultry Research Facility in Athens, Georgia. This 
facility is critically needed to conduct research on exotic and 
emerging avian diseases that could have devastating effects on animal 
and human health.
Food Safety
    Americans enjoy one of the safest food supplies in the world. Data 
from the Centers for Disease Control and Prevention shows improvements 
based on historical reductions in the incidence of foodborne illness. 
The continued reduction in illnesses from pathogens associated with the 
consumption of meat, poultry, and egg products is a tremendous success 
story. These results demonstrate that we are moving in the right 
direction. USDA is committed to continuing this positive trend in the 
future. We will continue to pursue the development and implementation 
of risk-based inspection systems that are grounded in science. These 
systems will make us smarter about where we focus our resources and our 
expertise to make the most difference.
    The 2008 budget requests record funding of nearly $1.1 billion, an 
increase of $104 million over 2007, for FSIS to protect the Nation's 
supply of meat, poultry and egg products. This includes $930 million in 
appropriated funds. About 80 percent of the increase in funds is for 
pay, including monies required for Federal and State inspection 
programs to meet the demand for inspection services. The budget 
requests an increase of $21.7 million to expand the Food Emergency 
Response Network (FERN and strengthen food and agriculture defense. 
With this funding, FSIS will continue to develop the network of food 
laboratories and the result will be an increase in the capability of a 
network of coordinated Federal, State and local laboratories to handle 
large volumes of testing that would be needed for biosurveillance or in 
the event of a widespread food emergency.
    The budget estimates that $135 million in existing user fees for 
voluntary inspection will be collected. For 2008, we will be submitting 
authorizing legislation to Congress to collect an additional $96 
million in user fees. The budget does not assume the use of these fees. 
Discretionary funding to cover the total cost of the program is 
included in the request. This includes legislation to authorize a 
licensing fee to collect $92 million from meat, poultry, and egg 
products establishments. In addition, it would also authorize the 
agency to recover $4 million for the cost of providing additional 
inspection services from establishments as a result of performance 
failures, such as sampling violations, recalls, or an outbreak of 
foodborne illness.
Energy
    Another priority for the Department and the Administration is a 
continued focus on expanding renewable energy. I sit before you today 
with the belief that renewable energy, supported by American 
agriculture and forestry, holds tremendous potential for the Nation's 
future. We are starting to see that the benefits of renewable energy 
are far-reaching and will continue to grow as energy production from 
renewable sources continues to expand in the near future. Renewable 
fuels reduce our dependence on foreign oil, which contributes to our 
Nation's security. Renewable fuels are environmentally friendly and 
produce fewer emissions of greenhouse gases than fossil fuels. 
Furthermore, renewable fuels are often produced in rural areas, 
providing a source of income for farmers, ranchers and rural Americans.
    USDA is committed to ensuring that renewable fuels production 
continues to help meet the Nation's energy and security needs. The 
budget includes $396 million, an increase of $161 million, for the 
Department's energy initiatives. Part of USDA's commitment is 
demonstrated through research activities. The 2008 budget includes $70 
million, an increase of $29 million, for energy research supported by 
ARS and CSREES. A majority of this research will focus on improving 
cellulosic ethanol production by improving feedstock growth potential 
and introducing new ways to harvest, handle, and transport the 
feedstock to production facilities. In addition, USDA is working to 
improve the conversion efficiency of biomass feedstocks into biofuels 
and bioproducts. This research will lead to new opportunities to expand 
renewable fuel's potential to meet the Nation's energy needs, while 
creating significant opportunities for farmers, ranchers, and rural 
communities.
    In addition to this research, the budget would make available 
nearly $320 million in grants, guaranteed loans, and other efforts to 
support the commercialization of renewable energy production. Through 
the Rural Development mission area, USDA is making financial support 
available to leverage private sector funding for small and large-scale, 
renewable energy generation activities. This financial support provides 
incentives for individuals and cooperatives to choose renewable energy 
production methods. USDA has also encouraged the development of various 
renewable energy projects, including ethanol plants and wind farms. We 
remain committed to expanding these opportunities to improve the 
Nation's energy security and environment, while providing additional 
possibilities to U.S. agricultural and rural communities.
Farm Commodity and Agriculture Credit Programs
    Rising crop prices, particularly for corn, has had a major impact 
on farm program costs, which is due to the rapid growth in ethanol 
production. As a result, farmers are relying more on the market for 
revenue rather than payments from the Government. As such, net outlays 
for the farm commodity programs funded through the Commodity Credit 
Corporation (CCC) are expected to decline significantly in 2007 and 
2008 as rising prices for corn and other major commodities are reducing 
outlays. Compared to estimates made when the 2002 Farm Bill was 
enacted, actual spending for CCC funded programs, which excludes some 
conservation programs, has been about $17 billion below the 2002 
projections when ad hoc disaster assistance is excluded. Beginning in 
2008, the budget incorporates a $500 million increase each year in the 
CCC estimates to accommodate the cost of the new Farm Bill proposals. 
This additional funding will be spread among various titles of the Farm 
Bill.
    USDA's farm credit programs provide an important safety net for 
farmers by providing a source of credit when they are temporarily 
unable to obtain credit from commercial sources. The 2008 budget 
supports about $3.4 billion in direct and guaranteed farm loans. The 
2008 budget proposes loan levels that generally reflect actual usage in 
recent years.
    The budget requests $1.5 billion for the Farm Service Agency to 
deliver farm programs. This level of funding will support approximately 
the same number of staff years as in 2007 and includes the funding to 
support ongoing operational needs based on current programs and the 
current delivery system. Once the parameters of the new Farm Bill are 
known, we may need to re-evaluate resource needs for program 
implementation, including staffing and information technology (IT).
Crop Insurance
    Crop insurance is designed to be the primary Federal risk 
management tool for farmers and ranchers. In 2008, crop insurance is 
expected to provide coverage for nearly $68 billion in risk protection, 
double the amount of coverage provided as recently as 2000. This growth 
has been accomplished, in part, through the development of new and 
innovative plans of insurance. These innovations have expanded coverage 
to new crops or improved the coverage available under existing 
policies.
    Over the years, Congress has challenged USDA to expand the 
availability of crop insurance to under-served commodities, in 
particular, to livestock and pasture, rangeland, and forage. I am happy 
to say that USDA is meeting that challenge. Currently, the crop 
insurance program offers protection for swine, fed cattle, feeder 
cattle; and, new for 2007, lamb. Also new for 2007, the crop insurance 
program is offering two innovative programs covering pasture, 
rangeland, and forage.
    In order to build on these successes, Risk Management Agency's 
(RMA) aging information technology (IT) system needs to be modernized. 
The existing IT system has been in service for more than a decade and 
needs to be upgraded to address evolving programmatic needs. That 
system was designed for a much smaller and simpler program. As a 
result, RMA must use numerous manual over-rides and work-arounds to 
support the new insurance products. This manual intervention increases 
the costs to maintain and operate the system. It also increases the 
risk of data errors that could jeopardize the integrity of the crop 
insurance program. The 2008 budget includes a legislative proposal to 
initiate a small participation fee in the Federal crop insurance 
program to fund modernization and maintenance of a new IT system. The 
fee would generate about $15 million annually, which would initially 
supplement the annual appropriation to modernize the IT system. 
However, in future years, the fee would replace appropriated funding 
for IT maintenance.
    In addition, the 2008 budget includes about $79 million in 
discretionary funding to administer the Federal crop insurance program, 
compared to about $76 million for 2007. The increase would accommodate 
pay costs and inflationary increases. The budget also includes a 
general provision to fund data mining and the common information 
management system through the crop insurance mandatory account.
International Programs
    Expanding access to global markets is essential for U.S. food and 
agricultural products, and plays a critical role in our efforts to 
provide a prosperous future for America's farmers and ranchers. In this 
regard, we must ensure that our producers and exporters have the tools 
they need to compete for a greater share of the benefits flowing from 
trade agreements and the resulting expansion in global markets.
    Our 2008 budget proposals support our continued commitment to trade 
expansion activities. Increased funding is provided for the Foreign 
Agricultural Service (FAS) to maintain its overseas office presence and 
continue its representation and advocacy activities on behalf of 
American agriculture.
    The FAS budget includes funding to restore the Cochran Fellowship 
Program to its traditional annual appropriated level of $5 million and 
also provides funding for FAS trade capacity building activities. Those 
activities assist developing countries to strengthen their agricultural 
policy making and regulatory systems adhere to internationally 
recognized standards and become better trading partners. By assisting 
them to adopt policies that meet World Trade Organization standards and 
adopt regulatory systems that are transparent and science-based, we 
improve access for U.S. products to their markets.
    For the foreign food assistance programs, the budget continues to 
place the highest priority on meeting emergency and economic 
development needs of developing countries. Appropriated funding for the 
McGovern-Dole International Food for Education and Child Nutrition 
Program is increased to $100 million, which will allow USDA to extend 
school feeding and educational benefits to about 2.5 million women and 
children during 2008. The program is helping children in countries with 
severe educational and nutritional needs. In recent years, more than 13 
million children throughout the world have received benefits from the 
McGovern-Dole program and its predecessor, the Global Food for 
Education Initiative.
    In order to respond to emergency food needs during 2007, 
supplemental appropriations of $350 million are being requested for the 
Public Law 480 Title II donations program. The additional funding will 
be used to address urgent humanitarian needs in the Darfur region of 
Sudan, including for refugees and others in Chad and surrounding areas 
who are affected by the violence. The funding will also assist in 
meeting other critical food needs, particularly in the Horn of Africa, 
southern Africa, and Afghanistan.
    For 2008, the budget requests appropriated funding of $1.2 billion 
for the Public Law 480 Title II program, which is expected to support 
the donation of 2.5 million metric tons of food commodities. In 
addition, to help improve the timeliness, efficiency, and effectiveness 
of the U.S. Government's response to emergency situations, increased 
flexibility is requested in the purchasing of Title II commodities.
    In addition, the budget requests funding in the Office of the 
Secretary to support the Department's efforts to assist in agricultural 
reconstruction activities in Afghanistan and Iraq. USDA is providing 
technical advisors assigned to the Ministry of Agriculture in Iraq who 
are assisting in agricultural planning, extension, and food safety and 
inspection. Other agricultural advisors are serving on the Provincial 
Reconstruction Teams (PRTs) working in the rural provinces of 
Afghanistan and Iraq on activities such as irrigation system 
rehabilitation, post-harvest loss reduction, marketing system 
improvements, and livestock health. These advisors are providing much 
needed, valuable assistance in addressing a wide range of problems 
brought on by years of neglect and mismanagement in the agricultural 
sectors of these two countries.
Conservation
    USDA also fosters environmental stewardship through conservation 
programs supported with mandatory CCC funding. The 2008 budget reflects 
an unprecedented commitment to conservation and includes nearly $4 
billion in mandatory funding to provide conservation financial and 
technical assistance on a cumulative total of 215 million acres, the 
greatest amount of conservation assistance provided in the Nation's 
history.
    Within the total amount of mandatory funds, the budget proposes 
over $455 million for the Wetlands Reserve Program (WRP), an increase 
of $191 million, or nearly 72 percent over 2007. The projected WRP 
enrollment for 2008 would be the largest ever, involving up to 250,000 
acres, and will bring the total acreage enrolled in the program to 
2,275,000 acres, the maximum level authorized by the 2002 Farm Bill. 
The WRP is the principal supporter of the President's goal to restore, 
protect, and enhance 3 million acres of wetlands by 2009.
    The Conservation Reserve Program (CRP) accounts for more than half 
of the mandatory funds with total funding of just over $2 billion. 
Enrollment in CRP is expected to decline by about 9 percent to 33.6 
million acres in 2008. Although continuous sign-ups will be maintained, 
no general signups are assumed for 2007 and 2008 due to the increase in 
corn production to meet the demand for ethanol. Funding for the 
Environmental Quality Incentives Program will be maintained at $1 
billion to treat more than 170 million acres in 2008. The budget 
requests an increase of $57 million for the Conservation Security 
Program for total funding of $316 million. This level of funding will 
continue support to the more than 19,000 contracts signed in prior 
years.
    The 2008 budget includes $825 million in discretionary funding for 
on-going conservation work, a decrease of $94 million below the 2007 
level. This level of funding supports programs that provide the highest 
quality technical assistance to farmers and ranchers and address the 
most serious natural resource concerns. The budget includes a proposal 
to reduce the number of Federal coordinator positions funded under the 
Resource Conservation and Development (RC&D) program, for a savings of 
$36 million. Under this proposal, the number of authorized RC&D areas 
would be maintained at the current level of 375, but coordinators would 
provide assistance to multiple areas by focusing on programmatic 
oversight.
Rural Development
    Through Rural Development (RD) programs, USDA improves the economy 
and quality of life in all of rural America by supporting essential 
housing and public facilities, such as water and sewer systems, health 
clinics, and electric and telecommunication systems. In addition, RD 
promotes economic development by providing guaranteed loans to 
businesses in coordination with the private sector.
    The 2008 budget supports $14.9 billion for the RD programs. This is 
about $985 million more than the amount estimated to be available for 
2007. At the requested level, most key rural development programs would 
be maintained at their historic operating levels.
    The 2008 budget does, however, contain some important changes in 
policy and funding priorities. In particular, the 2008 budget 
significantly increases funding for single-family guaranteed loans. 
Guaranteed loans, which are unsubsidized, have accounted for almost all 
of the growth in USDA's homeownership assistance. Due to the success of 
guaranteed single-family loans in meeting the needs of rural citizens, 
the budget does not include funding for direct single-family loans, a 
reduction of nearly $1.2 billion. While not funding direct loans is a 
change in policy for USDA, it is consistent with Federal housing policy 
as reflected in the programs administered by the Departments of Housing 
and Urban Development and Veterans Affairs. Moreover, it reflects 
recent changes in the home mortgage market that allow more low-income 
families to qualify for private sector loans. USDA's single family 
guaranteed program is expected to provide 39,000 homeownership 
opportunities in 2008.
    With regard to multi-family housing, the 2008 budget includes $567 
million for rental assistance payments. This funding is needed to 
provide for a higher rate of renewals due to recent action to reduce 
the renewal period from 5 to 1 year. The 2008 budget also includes 
$27.8 million to continue the Administration's initiative to revitalize 
USDA's portfolio of multi-family housing projects, which are home to 
close to half a million low-income families. A recent Supreme Court 
decision allows project sponsors to prepay their loans and convert 
their projects to uses other than low-income housing, putting tenants 
at risk of higher rents and potential loss of housing. The 
Administration's initiative includes providing housing vouchers to 
protect the rents of tenants of projects that are withdrawn from the 
portfolio, as well as the restructuring of existing loans in exchange 
for the project sponsor's agreement to stay in the program and make 
improvements to their projects. A pilot program, as authorized by the 
2006 Appropriations Act is already underway. The Administration plans 
to resubmit to the Congress draft legislation to authorize debt 
restructuring and other revitalization incentives.
    For the on-going electric and telecommunications programs, the 2008 
budget supports about $4.8 billion in direct loans, of which $4.1 
billion would be for the electric programs. Most electric loans would 
be at interest rates that are currently comparable to the direct 
municipal and direct Treasury rate programs. Combined, these programs 
would simplify the overall program with essentially no adverse impact 
on borrowers. The electric program would focus on financing the 
distribution and transmission of power and the improvement of existing 
generation facilities. The commercial sector should be relied on for 
financing new power generation. For the water and waste disposal 
program, the 2008 budget provides for $349 million in grants and almost 
$1.1 billion in direct loans. This reflects a lower grant-to-loan ratio 
than the current program because the Administration is re-proposing its 
plan to reduce interest rates in exchange for a reduced amount of 
grants. For most rural communities, which receive a combination of loan 
and grant assistance, the reduction in interest rates would be of 
greater benefit because it would reduce the overall debt servicing 
costs of their projects.
    The 2008 budget includes additional funding for the renewable 
energy and energy efficiency loan and grant program. It includes $15 
million for grants and supports $195 million in guaranteed loans, 
compared to $11 million for grants and $175 million in loans estimated 
to be available for 2007.
    The business and industry guaranteed loan program would be 
increased to $1 billion, which is the historic funding level for this 
program. This program and the intermediary re-lending program have been 
an important source of job creation in rural communities.
Research
    Over the last century, productivity has been a major focus of 
agricultural research. Driven by advances in plant and animal genetics, 
nutrition, and health, this research has paid off with major gains. 
Agricultural research is taking on the challenges of a new century and 
USDA's leadership will continue through innovative research in 
bioenergy production, obesity prevention, and food and agricultural 
defense.
    Advances in science have opened new frontiers in agricultural 
research that have put solutions to national challenges within our 
reach. It is important that we seize the opportunity by focusing our 
resources and efforts on the highest priority work relevant to the 
needs of producers and consumers of agricultural products. Our budget 
requests over $1 billion for the Agricultural Research Service. The 
proposed level includes $104 million in increases for high priority 
research on food and agricultural defense, bioenergy, plant and animal 
genomics and genetics, and human nutrition and obesity prevention. 
These lines of investigation have great potential to benefit producers 
and consumers; assure an abundant, safe, and inexpensive supply of 
food; and ensure the preservation of our natural resource base. The 
budget proposes elimination of $293 million of earmarked research and 
facility projects in ARS.
    A key factor in the success of agricultural research has been our 
continuing partnership with the land-grant universities and other 
performers of agricultural, natural resource and food research. These 
institutions provide a unique set of expertise in the range of 
scientific disciplines needed to address complex issues facing the 
food, agriculture and natural resource communities. Further, these 
partnerships foster the transfer of knowledge through higher education 
and the unique system of Extension that has been so successful in 
America. Our budget continues our support for university-based 
research, higher education and extension programs and addresses the 
need to focus those resources on the highest priorities. Under our 
proposal we are placing a greater emphasis on merit-based, peer-
reviewed grants to achieve the highest quality research from taxpayer 
dollars. In addition, $157 million of earmarked Cooperative State 
Research, Education, and Extension Service research grants and lower 
priority projects would be eliminated.
    A major element of the research budget is an increase of $68 
million, for total funding of $257 million, for the National Research 
Initiative--the Nation's premier competitive, peer-reviewed research 
program for fundamental and applied sciences in agriculture. This 
increase includes funding for bioenergy and biobased fuels, one of the 
Department's highest priority initiatives. It also supports integrated 
projects that focus on water quality, food safety, organic transition, 
and pest management. In total, $29 million would be added to CSREES 
programs for research in bioenergy.
    A longstanding part of USDA support for the university research 
partnership has been through the Hatch Act and McIntire-Stennis Act 
formula grant programs. As stated above, the budget continues funding 
for these programs with a proposal to emphasize funding for 
competitively awarded multi-state research programs to ensure the 
highest quality research proposals are supported. We will be working in 
close consultation with our university partners to craft the details of 
these modifications.
    The budget includes an increase of $25 million to support the 2007 
Census of Agriculture, the most comprehensive source of statistically 
reliable information regarding our Nation's agriculture. With 
information collected at the national, State, and county levels, the 
Census provides invaluable, comprehensive data on the agricultural 
economy which are relied upon to keep agricultural markets stable and 
efficient.
Nutrition Assistance
    The budget contains sufficient resources to fully fund expected 
participation and food cost inflation for the Department's three major 
nutrition assistance programs--Food Stamps; Women, Infants and Children 
(WIC); and Child Nutrition. Participation levels fluctuate with 
economic conditions and the budget keeps pace. WIC participation is 
expected to grow slowly in 2008 to a total of 8.3 million participants, 
while Food Stamp participation is estimated at 26.2 million, roughly 
the 2007 level. School Lunch participation is estimated to grow about 2 
percent to keep pace with the growing student population, as it has in 
recent years, to a new record level of 31.5 million children per day.
    For Food Stamps, legislation will be proposed that would exclude 
all retirement and education savings accounts from eligibility 
determinations regardless of how other programs treat them. By 2010, 
this would allow about 98,000 additional people to participate who, 
otherwise, would have been ineligible unless they spent down their 
retirement and education savings. This would add an estimated $44 
million in costs for 2008 and about $138 million in 2010 when fully 
implemented. The 2008 budget also reproposes legislation to restrict 
participation among certain households with incomes or resources above 
normal eligibility thresholds. Affected households are those that do 
not receive cash Temporary Assistance for Needy Families (TANF) 
benefits, but become categorically eligible for food stamps because 
they receive a TANF-funded service, such as a one-time referral. This 
change would reduce costs by an estimated $65 million in 2008, with 
additional savings in subsequent years.
    The WIC request provides full funding for all those estimated to be 
eligible and seeking services. At the same time, the Department will 
work with stakeholders to contain costs and continue to improve the 
program's performance. WIC legislative proposals include limiting 
administrative funding to the 2006 per participant level and limiting 
categorical eligibility to those with incomes under 250 percent of 
poverty.
    The 2008 budget reproposes elimination of the Commodity 
Supplemental Food Program (CSFP), which is not available nationwide and 
duplicates two of the Nation's largest Federal nutrition assistance 
programs--Food Stamps and WIC. Eligible women, infants and children 
participating in CSFP will be encouraged to migrate to the WIC Program. 
Eligible elderly CSFP recipients will be encouraged to migrate to the 
Food Stamp Program, where most are believed to be eligible. The budget 
includes temporary transitional benefits for CSFP participants 60 years 
of age or older equaling $20 per month for the lesser of 6 months or 
until the recipient starts participating in the Food Stamp Program.
    As I mentioned earlier, we have had a great deal of success in 
promoting healthy eating habits and active lifestyles with MyPyramid. 
The MyPyramid website has received 2.6 billion hits since it was made 
available in April 2005. In order to continue this success, the budget 
includes an increase of $2 million to make enhancements to MyPyramid 
and to begin planning for the 2010 Dietary Guidelines for Americans. 
This supports two pillars of President Bush's HealthierUS Initiative, 
to eat a nutritious diet and to be physically active, and will help 
reduce obesity in America.
Department Management
    The 2008 budget continues our progress in improving the overall 
management of the Department. Increased funding is being sought for 
selected key priorities including:
  --Replacing the Department's outdated, core financial system and 
        supporting systems that no longer meet all Federal standards 
        for financial reporting and management. The budget requests 
        funding to begin a multi-year implementation of a replacement 
        system that will provide consistency and increase efficiencies 
        for financial reporting across the Department. The new system 
        will strengthen internal controls, eliminate material 
        weaknesses, and diminish improper payments, which will improve 
        the Department's overall financial management.
  --Expanding Civil Rights compliance reviews of agency hiring 
        practices and program activities. These reviews allow the 
        Department to identify and address issues of inequality and 
        unfairness in personnel decisions and the delivery of its 
        program benefits.
  --Continuing capital improvements to USDA facilities to ensure that 
        employees and customers have a safe and modern working 
        environment.
    In closing, I want to emphasize that the USDA budget fully supports 
the President's goals to strengthen the economy, increase security, and 
restrain spending. The budget before you addresses these goals by 
funding our highest priorities. These funding priorities strengthen 
agriculture and rural economies, protect our food supply, build on our 
conservation efforts, and provide for the neediest individuals.
    That concludes my statement. I look forward to working with Members 
and staff of the Committee and will be glad to answer questions you may 
have on our budget proposals.
                                 ______
                                 

   Prepared Statement of Boyd K. Rutherford, Assistant Secretary for 
              Administration, Department of Administration

    Mr. Chairman and members of the Subcommittee, thank you for the 
opportunity to submit this statement supporting the President's budget 
proposal for fiscal year 2008 for the Department of Agriculture's 
(USDA) Departmental Administration.
    Departmental Administration (DA) is at the core of USDA's 
management initiatives. Through a strong commitment to the President's 
Management Agenda, we have realigned our services to provide continued 
leadership and better program management, resulting in greater 
efficiencies, enhanced internal controls and effective customer 
service. DA enhances Department-wide strategies by ensuring appropriate 
administrative policy and by providing essential management to all 
agencies and staff offices. This is accomplished through our 
Department-wide management services, which include: human capital 
management; facilities operations; security services; procurement and 
property management; small business utilization; Administrative Law 
support; and ethics guidance.

                      FISCAL YEAR 2008 OBJECTIVES

    DA has the following objectives for fiscal year 2008 that 
contribute to the Department's ability to successfully fulfill its 
mission:
  --Ensure USDA has a diverse, ethical, results-oriented workforce able 
        to meet mission priorities and work cooperatively with USDA 
        partners and the private sector.
  --Ensure USDA has a trained acquisition workforce with the 
        procurement policies and systems needed to ensure 
        responsiveness, high quality, cost-effectiveness, and 
        accountability using an increasingly diverse vendor pool and 
        range of products.
  --Promote the efficient and economical use of USDA's resources to 
        support customers, promote organizational productivity, and 
        ensure accountability.
  --Provide the policies, technical guidance, and operating environment 
        that enhance the safety and security of USDA personnel, 
        information and facilities, and the continuity of its vital 
        programs and operations.
  --Provide formal adjudicative support.
  --Expand the implementation of the BioPreferred<SUP>SM</SUP> Program 
        within USDA and other Federal agencies. The 
        BioPreferred<SUP>SM</SUP> Program, authorized in the 2002 Farm 
        Bill, is a Federal procurement program that requires that 
        Federal agencies provide a preference for the purchase of USDA 
        designated biobased products. In fiscal year 2008 DA will be 
        jointly focused on establishing USDA as a leader in biobased 
        purchases and providing support and guidance to other Federal 
        agencies and to biobased manufacturers.

                        FISCAL YEAR 2008 REQUEST

    DA's fiscal year 2008 budget request is divided into three separate 
appropriations: DA Direct; Agricultural Building and Facilities and 
Rental Payments; and Hazardous Material Management.

                               DA DIRECT

    The DA Direct fiscal year 2008 budget is $24,608,000, which funds 
personnel and office operations costs. The increased request will 
address the following:
  --An increase to cover personnel costs for 2007 and 2008. This 
        appropriation funds administrative support in the National 
        Capital Area and on-going programs in human capital management 
        and small business utilization across the Department.
  --An increase for Continuity of Operations (COOP) for the Office of 
        the Secretary, providing guidance and training to the mission 
        areas, and providing support and training to USDA's National 
        Emergency Preparedness Team. These efforts will ensure USDA is 
        compliant with Executive Orders and Presidential Directives 
        associated with Emergency Preparedness and requirements for 
        Executive Branch COOP.
        agriculture buildings and facilities and rental payments
    The fiscal year 2008 budget request for Agricultural Building and 
Facilities and Rental Payments is $216,837,000, of which $156,590,000 
is for rental payments to the General Services Administration (GSA) and 
Department of Homeland Security for security payments and $60,247,000 
for Building Operations and Maintenance.
    The increased request addresses the following:
  --An increase for the Central Rent Account is needed to fund the 
        estimated cost of GSA space assignments and physical security 
        costs payable to the Department of Homeland Security, increased 
        lease expenses, maintenance services, and preventative 
        maintenance services of the fire alarm and switchgear systems 
        located at the USDA Headquarters Complex.
  --An increase for repairs and maintenance projects for the USDA South 
        Building. The South Building of the Headquarters Complex was 
        built between 1930 and 1936 and houses approximately 4,600 
        employees. It is in much need of repair and maintenance. 
        Repairs are needed to bring several major systems up to current 
        code requirements and to generally improve employee safety. 
        Providing a safe and healthy work environment for our employees 
        supports our Human Capital Objective.
  --An increase to cover the rising cost for steam and electric 
        utilities for the USDA Headquarters Complex. GSA has notified 
        USDA to expect significant increases in 2007 and 2008 utility 
        costs. In 2005, the price of GSA's district steam increased by 
        22 percent. Paying utility costs from current Building 
        Operations funding will reduce funding available to address the 
        existing maintenance and repair needs for the facilities and 
        possibly contribute to future system failures.
  --An increase for annual contract increases due to the Fair Labor 
        Standards Act and collective bargaining. This request is needed 
        to pay mandatory increases for payroll and other fixed and 
        discretionary costs associated with operating USDA facilities. 
        This request supports DA's continuing efforts to provide high 
        quality services so that USDA personnel have the space, 
        facilities, mail and property services, personnel support and 
        resources needed to deliver their program services in a timely 
        and effective manner.
  --An increase to support the Building Operations and Maintenance 
        staffs in performing preventive and routine maintenance and 
        repairs in the USDA Headquarters' Complex, including the George 
        Washington Carver Center. This increase will cover rising 
        general operating costs and preventive maintenance repairs to 
        major systems within the Headquarters' Complex. The lack of 
        funding in previous years for major repairs has led to a series 
        of system failures which includes: repairs for building roofs 
        and major plumbing, electrical, heating, and air conditioning 
        systems. Instead of being able to address these matters before 
        they fail, the Department is often patching and repairing 
        damage resulting from the failure of systems long past their 
        useful life. Routine maintenance and minor repairs to major 
        systems, when done on a timely basis, prolong the life of 
        equipment and avoid costly repairs and replacement if the 
        equipment is allowed to fail.
  --An increase for the 2007 and 2008 pay costs. This increase is 
        necessary to be able to maintain this office's current staffing 
        levels without compromising its efforts to provide a safe 
        workplace for USDA Headquarters and the George Washington 
        Carver Center.

                     HAZARDOUS MATERIALS MANAGEMENT

    The fiscal year 2008 budget request for Hazardous Material 
Management is $12,200,000. The increase represents pay costs. This 
request will fund clean-up activities under the Comprehensive 
Environmental Response, Compensation, and Liability Act (``CERCLA'') 
and the Resource Conservation and Recovery Act (``RCRA''). The purposes 
of the Hazardous Materials Management Program are to cleanup and 
restore USDA-managed lands.

                               CONCLUSION

    The goal of DA is to provide the tools necessary for USDA to 
accomplish its mission of providing effective leadership on food 
safety, agriculture, and natural resources. Accordingly, we 
respectfully ask for your support in this effort.
    Thank you for this opportunity to present Departmental 
Administration's fiscal year 2008 request.
                                 ______
                                 

    Prepared Statement of David M. Combs, Chief Information Officer

                              INTRODUCTION

    Mr. Chairman and members of the Subcommittee, thank you for the 
opportunity to share with you our progress on using information 
technology (IT) to improve service delivery to the customers of the 
Department of Agriculture (USDA), while implementing Enterprise 
Architecture (EA) principles and Electronic Government (eGovernment) 
throughout the Department.
    USDA participates in 22 of the 30 government-wide President's 
Management Agenda (PMA) eGovernment initiatives and eight of the nine 
lines-of-business. At the same time, under the framework of the 
Department's EA, the Office of the Chief Information Officer (OCIO) is 
managing USDA IT investments to promote collaboration across common 
lines-of-business, reducing duplication through our internal Enterprise 
Shared Services, and finding savings by leveraging the USDA's size/
economies-of-scale in Department-wide IT acquisitions.
    The President's fiscal year 2008 budget request for OCIO is $16.4 
million to continue to guide the Department's IT Strategy. We are 
requesting approximately $663,000 to cover pay costs.
   usda's fiscal year 2008 information technology investment summary
    During the fiscal year 2008 USDA budget preparation process, OCIO 
staff scrutinized agency IT investment plans to ensure alignment with 
USDA program delivery plans as well as the USDA EA. In fiscal year 
2008, the Department is requesting about $2.1 billion for IT. 
Components of the IT portfolio include:
  --$816 million (39 percent of fiscal year 2008 IT spending) for 
        transfer to the States for the development and maintenance of 
        automated systems to support Food Stamps, WIC, and related 
        programs.
  --$1.3 billion in IT discretionary funding as broken down, includes:
    --$467 million (36 percent) for support services (e.g. architects, 
            design engineers, project managers, and consultants). The 
            Department seeks to use small businesses, especially 
            disabled veteran owned businesses for these services.
    --$373 million (27 percent) for Federal IT personnel costs.
    --$170 million (13 percent) for computer and network equipment, 
            such as routers, servers, workstations and printers.
    --$188 million (15 percent) for out-sourced services (e.g. 
            telecommunications, help desk services, technical design 
            and architect services).
    --$93 million (7 percent) for software to support our data centers, 
            desktops, helpdesks and other hardware.
    Overall, the IT related proposals in this request represent about 3 
percent of the total $67 billion proposed for IT investments for the 
Federal Government in fiscal year 2008.
            service center modernization initiative--(scmi)
    The Common Computing Environment (CCE) initiative is managed by 
OCIO working in collaboration with the Service Center Agencies' (SCA). 
CCE supports over 36,000 Federal employees from the SCA and Information 
Technology Services (ITS), volunteers and partners in the delivery of 
over $55 billion in programs through our field office delivery system. 
The infrastructure is flexible and built around maximizing information 
sharing both within USDA and with other Federal, State and local 
agencies, the private sector, and USDA customers.
    The CCE is the commonly defined, commonly acquired, and commonly 
deployed IT infrastructure for the USDA county-based SCA, namely the 
Farm Service Agency (FSA), Natural Resources Conservation Service 
(NRCS), and Rural Development (RD). CCE was established to maximize 
data sharing, leverage investments and support true ``one-stop 
shopping'' for customers of the county-based agencies, and is managed 
by the ITS of OCIO. ITS serves as one unified organization dedicated to 
supporting both the shared and the diverse IT requirements of the SCA 
and their partner organizations.
    Several of ITS' significant accomplishments in 2006 include:
  --Deployment of database management systems in support of several FSA 
        applications was completed.
  --Completion of the Software Update Service (SUS) migration for large 
        offices was completed. SUS keeps computers up-to-date with the 
        latest critical updates, security updates, and service packs. 
        To date, a total of 89 security patches have been tested, 
        certified and deployed since SUS went live on August 2004.
  --Completed and awarded a Blanket Purchase Agreement (BPA) for 
        operational contract support. This allows for the consolidation 
        of many existing legacy contracts resulting in cost savings and 
        increased operational efficiency. Another BPA was awarded that 
        allows for the SCA to purchase hardware such as workstations 
        and certain peripherals as their need dictates and as their 
        funds allow. Over $13.7 million was spent on workstations at 
        the end of fiscal year 2006.
  --Deployed the Encrypted File System (EFS) to all laptops and tablet 
        personal computers (PC) in the end user computer environment. 
        EFS provides for the encryption of files, thus reducing the 
        risk of compromising sensitivity data in the event of a lost or 
        stolen laptop or tablet PC.
  --Conducted a disaster recovery test to simulate a loss of the Kansas 
        City Web Farm; one major FSA financial application was 
        successfully restored in St. Louis. Participated in the Kansas 
        City Regional Inter-Agency Continuity of Operations Plan (COOP) 
        Exercise. The Federal exercise tested COOP essential functions 
        in the Greater Kansas City metropolitan area and their ability 
        to efficiently perform their duties during emergency 
        situations. More than 600 officials representing over 30 
        Federal agencies participated in the exercise. This was the 
        third annual exercise and it exists as the largest interagency 
        COOP exercise outside of Washington, DC.
    ITS management of CCE is maturing into a fee-for-service activity, 
while still supporting the ``one-stop shopping'' aims of the SCMI. This 
support includes contract consolidation, BPAs, and negotiating with the 
SCA for needed levels of service, while at the same time researching 
and implementing ways to achieve economies of scale. Because of the 
establishment of ITS as a fee-for-service entity, funds necessary to 
maintain the SCA shared IT infrastructure will be based upon the level 
of service delivery the SCA choose to effect.
    To that end, the fiscal year 2008 CCE budget is requesting no 
funds. For fiscal year 2008, the funds normally requested in the CCE 
appropriation can be found in the individual agencies' budget requests.
    ITS provides unified management of the shared IT infrastructure of 
the SCA, including CCE but also non-CCE legacy technologies, and 
manages the use of the CCE funds. While the responsibility for 
developing IT applications remains with the agencies with little or no 
involvement from ITS, ITS does deploy the applications, provides the 
platforms they run on, and provides those components of the 
infrastructure that make them available, reliable, and secure.
    The organization measures its success against service level 
agreements with each of the SCA that define performance metrics and 
customer expectations. This provides openness to the agencies regarding 
the costs of IT infrastructure, maximum leverage for large-scale system 
management techniques and technologies, and a basis for continuous 
improvement. To implement these agreements, ITS and the SCA negotiated 
the service lines, the appropriate metrics, and acceptable levels of 
service.
    Going forward in fiscal year 2008 and beyond, ITS will determine 
the agency obligations based on the service usage. This will be a more 
equitable method that can also provide the agencies with the 
information they need to reduce costs by effectively managing their IT 
infrastructure use.
    Congressional support for the CCE initiative has been key to its 
success. As we move forward with ITS, Congressional support will remain 
critical.

                           TELECOMMUNICATIONS

    USDA continues to evolve its telecommunications services to meet 
customer needs and provide secure infrastructure for the President's 
expanding eGovernment initiatives. Following the successful deployment 
of the Department's enterprise telecommunications network, the 
Universal Telecommunications Network (UTN), all USDA agencies are 
accessing the Internet via the UTN. USDA agencies continue to move 
their existing networks to the UTN. Agency network migration and 
optimization activities are achieved through a UTN Technical Review 
Board that is aligned with the Department's IT governance methodology.
    We are also developing a Department-wide strategy for Voice over 
Internet Protocol (VoIP). During fiscal year 2007, we will complete an 
enterprise ``roadmap'' for USDA agencies to use in their businesses 
cases for VoIP investments. Additionally, USDA is heavily engaged in 
the General Services Administration (GSA) Network acquisition (which we 
expect will help further reduce our costs) and transition activities as 
well as migration activities for the transition to Internet Protocol 
version 6.

       NATIONAL INFORMATION TECHNOLOGY DATA CENTER (NITC) HOSTING

    NITC continues to be USDA's centralized source for IT services 
offering 24/7 operations and customer support. The organization began 
fee-for-services operations in July 1973. NITC serves the needs of over 
25 USDA agencies, and more than 15 non-USDA agencies. Our customer 
portfolio grew by 10.5 percent in fiscal year 2006 to a total of $85.6 
million.
    Certified by GSA as a Level 4 Facility, as delineated in the 
Department of Justice Security Level standards, NITC operates as a Tier 
IV Electrically and Tier III Mechanically data center. An electrical 
upgrade has been completed that eliminates any single point of failure, 
increases availability, and adds redundancy.
    Recently NITC received an Office of Inspector General Unqualified 
Opinion in 2006 for Internal Controls, the Commissioner's Special 
Citation from the Food and Drug Administration for software development 
work, the Office of Small and Disadvantaged Business Utilization Award 
for Service Disabled Veterans, an ePermits Award, and a customer survey 
response of 85 percent satisfied or highly satisfied.

                          INFORMATION SECURITY

    For many years USDA has been slow to meet all Federal information 
security requirements. To address this situation, we have significantly 
improved the posture of our security program by shifting funds and 
developing policies and procedures. But there is still a tremendous 
amount of work to be done. The Federal Information Security Management 
Act (FISMA) and the Office of Management and Budget (OMB) Circular A-
130 require all Federal agencies, to certify and accredit (C&A) their 
systems. Through this effort we have improved our security plans, 
updated and corrected our security documentation, tested our networks 
and applications for security weaknesses, and successfully engaged our 
business organizations in the discipline of security management.
    USDA IT security staffs are now in the process of addressing 
security issues that arose through our C&A activities. Action plans 
have been established to mitigate specific security weaknesses and 
implement improved controls, and to meet the FISMA performance measures 
designed by OMB. These plans also support the remediation of 
information security weaknesses identified during the Department's 
implementation of the Circular A-123 review. Within the OCIO, we have 
established a rigorous process to track agencies in these corrective 
actions and to ensure they are completed in a timely and efficient 
manner.
    In order to eliminate the root causes for our security weaknesses, 
we must mature our information security processes. Automated tools are 
necessary to quickly and efficiently address cyber security risks. We 
must improve our ability to secure our data with monitoring devices and 
automated processes that assist in preventing disruption by intrusion 
or the introduction of malicious programs. During fiscal year 2006, we 
deployed an improved incident tracking system to help us better manage 
and report detected breaches. We will continue to maintain a rigorous 
security training and awareness program which requires annual 
participation by all USDA and contract personnel.
    Through good preventative planning, such as system C&A combined 
with improving the Department's overall operational response to 
security challenges, we are reducing the risk associated with the 
electronic use and delivery of USDA information and services. 
Congressional support for the initiatives we have planned is critical 
to their achieving the desired outcome.

                         ELECTRONIC GOVERNMENT

    We continue to move aggressively to implement inter-agency and 
inter-Departmental services to support common needs. The primary goals 
of our approach are to reduce costs and improve the quality of 
interactions with our customers.
    USDA, along with our partners in the other Federal agencies, has 
worked hard over the past 5 years to simplify citizen's access and 
interaction with their government. The results of these efforts are 
remarkable. As part of our support of the PMA's promise of easy access 
to the government, customers may now easily locate USDA's online 
information and services at www.usda.gov, and with ``MyUSDA'', visitors 
can customize USDA's Web-site to provide immediate access to the 
information they regularly want to see. Currently, 59 Web-sites have 
moved to the Department's Web standards, and another 31 agency sites 
are in the process of doing so. Our efforts reduced the burden on 
citizens, partners, and employees by simplifying access to the 
Department's information and services and streamlining internal 
processes. In addition, USDA is a partner in 30 inter-Departmental 
projects to improve citizen access to government. All fourteen USDA 
rulemaking agencies migrated in 2006 to the Federal Docket Management 
System which provides citizens easy access to USDA regulatory action. 
As a result, the public can review and comment on USDA regulatory 
actions through Regulations.gov.
    USDA posts all discretionary grants to Grants.gov which provides a 
single location for citizens to find funding opportunities and the 
ability to apply online for them using common forms, processes, and 
systems.
    USDA is a major geospatial data producer and contributor to the 
Federal Government's www.geodata.gov. USDA's partnership with the 
initiative allows cross-Departmental sharing of geospatial information 
and the opportunity for reducing costs.
    Through the USDA eAuthentication Service all USDA employees and 
over 130,000 customers use a secure, single sign-on to access 
applications, thereby reducing our customer support needs through 
improved security and usability. In addition to the 230 USDA 
applications, users can also use their eAuthentication credentials to 
access any of the 24 systems integrated with the Federal E-
Authentication Federation. The eAuthentication Service is a component 
of the streamlined implementation of Homeland Security Presidential 
Directive 12 (HSPD-12.
    AgLearn is USDA's implementation of the E-Training initiative. The 
consolidation of training and learning management functions within 
AgLearn allows agencies to cooperate in developing, tracking, and 
purchasing training. Training that has proved successful for one agency 
can easily be made available for others, eliminating redundant costs 
for course development and sharing subject matter expertise to a 
broader audience and the coordination of agency purchases of online 
courseware provides volume discounts. USDA provides its mandatory 
training through AgLearn including the annual Ethics, Security 
Awareness, and Privacy Basics. In an average month, more than 16,000 
AgLearn users complete nearly 27,000 training events. This has 
significantly reduced the overall USDA training costs normally 
associated with courses that require travel.

        ENTERPRISE ARCHITECTURE (EA) AND IT MANAGEMENT PROGRAMS

    USDA is managing its EA as a high-level roadmap to achieve our 
organizational and business needs within an efficient IT environment. 
USDA's EA program identifies similar processes and opportunities to 
improve and when possible share and reuse IT solutions across our 
agencies. We continue to assemble and refine the data needed, at both 
the Departmental level and within individual agencies, to better 
organize and analyze our business processes, information needs, and 
supporting technologies. The USDA EA Program is fully integrated with 
the Department's IT Capital Planning and Investment Control (CPIC) 
process. USDA's central CPIC body reviews, monitors and approves all 
major IT investments to ensure alignment with the Department's 
strategic goals and objectives. The EA provides a formal basis for 
evaluating a single investment against other investments in terms of 
its contribution to enhanced delivery of customer services and 
opportunities for collaboration and reuse. In addition to strengthening 
the CPIC process, EA enables USDA to improve key Department-wide 
enterprise hardware, software, and service agreements.
    The quality of this work is supported by an IT Project Management 
Program. USDA has trained 480 project managers who have helped us keep 
our IT projects on schedule and within budget.

                               CONCLUSION

    Mr. Chairman, we are always looking for creative ways to improve 
our services, reduce our costs and be good stewards of the tax payers 
dollars. With the continued support of this Subcommittee and the 
Congress, I am confident that we will continue to be successful in 
achieving our objectives.
                                 ______
                                 

 Prepared Statement of Charles R. Christopherson, Jr., Chief Financial 
             Officer, Office of the Chief Financial Officer

    Mr. Chairman and members of the Subcommittee, I am pleased to 
present the fiscal year 2008 budget request for the United States 
Department of Agriculture (USDA), Office of the Chief Financial Officer 
(OCFO) and the Department's Working Capital Fund (WCF).
    The myriad of programs at the Department of Agriculture create a 
large financial organization. If compared to companies in the private 
sector, USDA would be both the ninth largest company and the ninth 
largest bank in the United States. Under the Chief Financial Officers 
Act of 1990 (CFO Act), the Chief Financial Officer (CFO) is responsible 
for the financial management of the Department including financial 
policy, personnel, systems, and budget execution. First, this testimony 
will address the key areas of my responsibility under the CFO Act and 
then proceed into the specific budget of the OCFO and WCF.
    The President's budget for the Department of Agriculture is a 
comprehensive effort that involves the input of each mission area and 
staff office. The budgeting office does an exceptional job at managing 
and compiling the vast amount of financial information from each of the 
agencies within the Department. Over the years, the budget of the 
Department has remained relatively flat. The budget for fiscal year 
2008 is lean and focused on the highest priorities of the Department.
Summary of Financial Operations and Processes
    In the area of financial operations and policy, the Department of 
Agriculture continues to make vast improvements in business processes, 
improper payments, and internal controls. For fiscal year 2006, the 
Department of Agriculture attained another clean opinion on its annual 
financial statements.
    Also during 2006, USDA achieved compliance with OMB Circular A-123, 
Appendix A by completing the assessment of Internal Controls over 
Financial Reporting in a single-year. This effort involved over 1,000 
USDA employees from 29 agencies and staff offices. These employees 
documented over 5,000 controls within 13 financial cycles, 76 
processes, and 92 financially significant systems. A significant number 
of the controls documented during this process were also tested. The 
assessment resulted in identifying four materials weaknesses which are:
  --Obligations--Forest Service and Commodity Credit Corporation
  --Management Estimates and Accruals--Forest Service and Commodity 
        Credit Corporation
  --Producer Payments and Commodity Loans--Commodity Credit Corporation
  --Information Technology Controls--All Organizations
    Software Change Controls
    Disaster Recovery
    Access Control--Logical
    Access Control--Physical
    To manage the internal controls and eliminate material weaknesses, 
the Department has instituted a Senior Management Control Council, 
Chaired by the Deputy Secretary and Co-Chaired by the CFO with its 
committee members comprised of the highest ranking officials in each of 
our agencies and staff offices. The members of this committee are 
dedicated to the proper management and safe keeping of the funds of our 
Nation's tax paying citizens.
    In order to provide the most effective and efficient financial 
operations, this last year we started a dedicated effort of refining 
several of our processes and are actively moving to uniform processes, 
procedures, and systems across USDA. For example, this year we formed a 
grants committee to document the grants process across all mission 
areas of the Department. In the near future, a formal USDA process, 
with all of the correct internal controls, will be formally documented 
and we will start reducing the 13 grant systems into one. This will not 
be a new system, but one developed from a system currently in use in 
one of the agencies. The agency that currently operates that system 
will retain the management of the system while OCFO will manage the 
policy, process changes, and approve system modifications. We are also 
moving toward uniform processes for loans, contract invoices, and 
insurance.
    For all processes, we are moving toward solutions that provide 
electronic interfaces with the customers, automate document flow and 
approvals, and automate payments. The majority of the work will be 
accomplished with USDA employees and software that we currently own.
    Over this last year, we strengthened our policy on measuring 
improper payments to be in better alignment with the Improper Payments 
Act. Under the Act, agencies are required to measure both incorrect 
payment amounts and incomplete qualifying paperwork. Under this new 
policy, the Department continued to reduce incorrect payment amounts, 
but incomplete qualifying paperwork increased. The majority of the 
paperwork errors are in the Farm Service Agency. So as not to 
misinterpret the outcome of the information and to show the 
Department's commitment to correcting the paperwork problem, we met 
with House and Senate Committees. During these meetings we communicated 
both the results and the corrective plan. The agency continues to move 
forward with the corrections and we expect to see a vast reduction in 
paperwork issues in this year's review.
Financial Systems
    The Department's current primary financial systems were developed 
in the late 1970's and early 1980's. For the 2008 OCFO budget, includes 
a request to continue the replacement of financial systems that are 
critical for payments, reporting, and fiscal management.
    Two financial systems are in need of replacement at USDA. The first 
is the core financial system; the second is the farm payments system. 
Currently the core financial system is comprised of nine general ledger 
systems which have not been supported by the vendor for several years. 
The systems do not meet Federal financial system requirements, and are 
showing the early signs of failure. The primary objective of the 
Financial Management Modernization Initiative (FMMI) is to replace this 
20 year old, outdated mainframe technology providing for Department-
wide expanded functional capability, full integration of critical 
system components and high-quality production and customer support. 
FMMI also addresses a critical and growing need for better integration 
of program, financial, and budgetary information to support more 
efficient and effective management of USDA's missions and improved 
delivery of programs against established performance goals and 
objectives. Based on both the risk and the savings, we have accelerated 
the implementation timeline of this system to a 3 year implementation.
    The farm payments system is in critical need of modernization 
through replacement. This system manages the requirements and 
interactions of over 120 farm programs to create producer payments. The 
systems are homegrown, in an outdated programming language, and on 
hardware that is no longer manufactured. In addition, the systems 
cannot be modified to meet current Federal IT security requirements. 
Over the years, core financial software vendors have improved their 
products to support broader operational flexibility and requirements. 
Included in the request for proposals (RFP) for FMMI are the 
requirements and business cases to address the basic requirements of a 
modern farm programs system. We believe that the new financial system 
will provide a strong foundation to a modern and upgradeable payment 
system to support the farm programs.
    These critical systems are in the early phases of failure and 
require a multi-year implementation cycle. It is very important that 
the funds for these systems are approved at their requested fiscal year 
2008 budget levels.
Financial Personnel
    Employee turnover in the Department for fiscal year 2005 equaled 
8.36 percent. The majority of this turnover is related to retirements 
in the Department (4.6 percent). I believe that it is also safe to 
speculate that USDA turnover is impacted by promotions due to 
retirements in other government entities. We project that turnover due 
to retirements will increase by approximately 1 percent each year which 
equals approximately 8 percent (at least 12 percent with other elements 
of turnover) by fiscal year 2009. This high level of turnover places a 
significant amount of responsibility on our management teams, as they 
must transition knowledge based jobs. To address the transition and the 
shrinking workforce, the Office of the Chief Financial Officer is 
training the financial workforce, standardizing and documenting 
processes, and competing work skills that are available in the private 
sector.
    Employee Training.--Office of the Chief Financial Officer has 
started training employees in the skills of Lean Six Sigma, which is 
characterized as an improvement methodology because it uses data to 
identify waste and non-value added activities; reduce them, while 
improving service delivery. Through the Lean Six Sigma process, 
employees' document current business processes and then refine the 
process for a zero tolerance for errors; while using fewer resources 
and improving customer service. In addition, the Office of the Chief 
Financial Officer holds various training sessions every year in order 
to address the knowledge gap in financial and USDA knowledge due to the 
high turnover rate.
    Competitive Sourcing.--Competitive sourcing provides a resource to 
supplement skills and resources of the Department's workforce. The 
Center for Naval Analysis conducted a study titled Long-run Costs and 
Performance Effects of Competitive Sourcing, and found that competition 
drove costs down over 30 percent while improving performance. The 
process is designed to select the competitor who can provide the most 
cost effective service delivery methodology to the Department and 
ultimately the taxpayers. Returns on investment are even greater for 
the activities that agencies have identified most frequently from 
competition: IT, maintenance/property management, logistics, HR/
personnel servicing and education, and financial management. Two-year 
savings per Full-Time Equivalent studied in these categories generally 
range from $25,000 to $33,000. As required skill sets and technology 
change, the Federal sector, by using an external firm, can be flexible 
in the knowledge skill sets of technology teams by adjusting the 
requirements of the vendor's contract. Our veteran owned companies, 
small and disadvantaged businesses, as well as other private companies 
have been important to the past success of our government and will 
continue important technical skills in the future.
    Recruitment.--Last, we need to continue to recruit employees from 
our nation's universities into the Federal workforce. These young 
employees bring excitement to the work environment and complementary 
technical skills to our knowledge based employees. Since the Federal 
requirements for accounting are slightly different than those taught in 
the universities, we will partner with the USDA Graduate School to 
provide the additional Federal knowledge.
    This comprehensive approach to address the high turnover in the 
financial workforce should provide the Department with the employees 
required for the management and safeguarding of the assets appropriated 
by the Congress.
National Finance Center
    Before we move to the budget request, I would be remiss if I did 
not discuss the National Finance Center. The National Finance Center 
(NFC), located in New Orleans, provides payroll processing and related 
services for approximately 33 percent of the Federal civilian workforce 
in more than 175 government entities. In fiscal year 2006, the NFC 
processed $30 billion in payroll for approximately 595,000 Federal 
employees. The NFC provides a human resources suite of services to 
approximately 150,000 employees of which 72,000 are USDA employees in 
Farm Service Agency, Rural Development, Natural Resources Conservation 
Service, and Forest Service; and 69,400 Department of Homeland Security 
employees in Transportation Security Administration (TSA), Coast Guard 
and Headquarters. The NFC services the Office of Personnel Management 
performing health benefit reconciliations and health care premium 
processing on a Government-wide level. Finally, the NFC provides 
personnel transaction processing services for several agencies 
including TSA, Coast Guard and Federal Emergency Management Agency 
(FEMA).
    The National Finance Center continues to prove the efficiencies and 
effectiveness of a very focused shared services operation. The payroll, 
human capital, and data center operations continue to be a low cost 
provider with a very high level of customer satisfaction. During fiscal 
year 2006, the NFC operations returned to New Orleans after relocating 
due to Hurricane Katrina. At the time of the return, the New Orleans 
area was still in the early stages of rebuild. The NFC employees have 
endured long lines at the limited number of grocery facilities, the 
constraints of living in FEMA trailers, slow payments of insurance 
proceeds, inflation in the cost of property insurance, and other 
hurdles. In addition, employees have increased workload as the employee 
vacancy rate has increased due to separations and retirements. Even 
with all of these hurdles, the work from the three CFO operations at 
the NFC is exceptional. We are very proud of these employees and 
consider them pioneers in the rebuild of New Orleans. Last year's 
significant results for the National Finance Center include:
  --Reduction of backlogs to pre-Katrina levels.
  --Implementation of the Department of Justice to the payroll system 
        (30,000 employees).
  --First stage implementation of Forest Service to the Human Resource 
        Line of Business suite of services.
  --Selection of and significant progress on the Primary Computer 
        Facility (PCF). As disclosed in our report to Congress, the 
        Primary Computer Facility is located at the Denver Federal 
        Center. The project is on target to complete the relocation of 
        the systems from the temporary disaster recovery facilities to 
        the PCF by June 2007.
Budget of the Office of the Chief Financial Officer
    The OCFO is responsible for the financial management of an 
enterprise with almost $75 billion in annual spending, over 106,000 
full time equivalents (staff years) and over $134 billion in assets.
    Areas of focus for fiscal year 2008 include supporting shared 
services that reduce the cost to USDA mission areas and the Federal 
Government; strengthening the financial operations of the program 
areas; completing uniform processes and procedures; creating efficient 
IT solutions; remediation of deficiencies in internal controls, and 
progressing in the implementation of the systems in critical need of 
replacement.
    Our fiscal year 2008 operating budget request is for $30.8 million, 
which includes increases for 2007 and 2008 pay costs as well as the 
replacement of the core financial system. Approximately 90 percent of 
the OCFO's obligations are for the salaries and benefits of the OCFO 
employees. OCFO is a labor intensive staff office with very little 
ability to absorb pay cost increases without holding a large number of 
positions vacant for the entire fiscal year; thereby adversely 
affecting its ability to lead the Department in the areas of financial 
management, oversight, and guidance necessary to prevent fraud, waste, 
and abuse; reduce risk of improper payments, plan for financial 
systems, and to institute proper internal financial controls. The pay-
related increases requested are necessary for us to accomplish key 
outcomes and to successfully meet our goals for fiscal year 2008.
    OCFO is requesting an increase in funding to partially fund the 
implementation of the system used to replace our core financial 
management systems and provide a foundation to the farm payments 
system. These systems are in critical need of replacement. As I stated 
above, this core system is replacing nine general ledger systems 
currently operating in USDA and provides the foundation system for the 
modernization of the farm payment system. Currently these systems do 
not meet the requirement of financial systems as required by the 
Federal Financial Management Improvement Act, are showing early signs 
of failure, and are no longer supported by the vendor. If the current 
systems fail, the Department will not be able to report required 
financial information, manage receipts, or produce payments. This 
system will also replace the four general ledger systems and five 
payment modules currently contained in the farm payment systems (all of 
which are no longer supported by the vendor). Continued reliance upon 
this old technology poses unacceptable risks to USDA financial 
operations and data. I greatly appreciate your support in the 
replacement of these key systems.
USDA Working Capital Fund
    The CFO is responsible for the budget of the Department's Working 
Capital Fund (WCF). The WCF serves as the Department's principal 
investment engine to achieve progress in developing and implementing 
new corporate systems.
    Unobligated Funds.--Under the authority of Congress, USDA is 
allowed to transfer unobligated balances from discretionary accounts 
into the WCF. For fiscal year 2005 the transfer was approximately $2 
million and for fiscal year 2006 the transfer was approximately $4 
million. During that same period we have received capital project 
requests for unobligated funds in excess of $30 million. While all of 
the requests appear to be very important, we have placed a priority to 
statutory obligations. The first obligation is for the capital required 
to meet the reporting requirements of the Transparency Act passed by 
Congress in this fiscal year. The next priority is to meet a small 
amount of the capital requirements of the PCF. As previously reported 
to Congress, the PCF will be operational by June of this year. The 
information concerning the transfer of unobligated funds and the 
capital requests for these funds will be reported to the Committees on 
Appropriations in the near future.
    Working Capital Funds--Capital.--For fiscal year 2007, request for 
the hardware to support corporate systems and facilities equaled $84.5 
million. The Department's available balance for allocation was $24.8 
million. The Department graded the investments with statutory, 
security, and disaster recovery receiving the highest scores for 
funding. Statutory investments include NFC's PFC, NFC's backup 
facility, and Homeland Security Operation Plan system. We are grateful 
for the support and look forward to working with the Committee as we 
repair and improve our corporate systems.
    Working Capital Funds--Operations.--In addition to the investments 
in corporate systems, the WCF supports the operations of our shared 
service activities. These services include financial management, 
information technology, payroll, human capital systems, communications, 
administration, as well as record keeping and item processing. It is 
our objective to use this financing mechanism to provide to the mission 
areas and the Federal Government the most effective cost-efficient 
services available.
    The President's fiscal year 2007 budget estimates that total costs 
for recurring operations in the WCF in fiscal year 2008 will be $534.3 
million, a 3.7 percent increase over the fiscal year 2007 estimate. The 
majority of this increase is to move the Department to a uniform human 
resource system hosted at the National Finance Center and an increase 
in the cost of services at the National Information Technology Center. 
Also included in the fund are such services as: video and 
teleconferencing production services provided by the Broadcast and 
Media Technology Center in the Office of Communications; personal 
property, mail, duplicating, and acquisition system provided by 
Department Administration.
    I would like to point out that the WCF financing mechanism, as a 
reimbursement for goods and services provided, gives us an opportunity 
to refine our estimates as newer and better information becomes 
available regarding customer demand and costs. Our office is working 
with activity centers to review fiscal year 2008 estimates with the 
goal of reducing the cost of individual services that are provided to 
USDA agencies. It was with this objective in mind that we were able to 
submit an operating estimate for fiscal year 2008 that is consistent 
with expected inflation.
    One thing we have done to impose more discipline on costs is to 
require individual activities to begin compiling and reporting costs 
for specific business lines within their respective activities. This 
method is being developed and refined as we move forward in fiscal year 
2007 and will be a critical element as we revisit fiscal year 2008 cost 
estimates. As we begin development of the fiscal year 2009 budget this 
spring, we will be reexamining fiscal year 2008 estimates for more 
economies and savings. As has been the practice for the last 2 fiscal 
years, we will establish spending targets for WCF activities that take 
into account the Department's spending priorities among its agencies 
reflected in the President's budget.
    Last year, we expressed to the Committee our appreciation for all 
of the assistance and support provided to the Department in the wake of 
Hurricane Katrina. It was a critical ingredient in our ability to 
resume normal business operations and recover from that event. We have 
continued to strengthen our business continuity practices, and we are 
working to ensure that in the event of the need to respond to a similar 
natural disaster in the future we are positioned even better to respond 
and ensure uninterrupted service to our customers. For your continued 
support in that effort, we are grateful.
    Thank you, Mr. Chairman, for the opportunity to share the results 
we have achieved and our fiscal year 2008 budget request with the 
Subcommittee. We have very dedicated employees that are passionate 
about nature and conservation, food assistance and the Nation's health, 
rural America and renewable energy, food production and safety, and the 
vast benefits of scientific research. The budget for such a large 
Department is an effort based on the goals of our 5 year strategic 
plan, the highest priorities of each mission area, and replacing 
critical support infrastructure. We look forward to working together 
with you and the Subcommittee in fulfilling the vision for financial 
management and accountability we all have for USDA.
                                 ______
                                 

  Prepared Statement of Margo M. McKay, Assistant Secretary for Civil 
       Rights, Office of the Assistant Secretary for Civil Rights

    Mr. Chairman and members of the Subcommittee, thank you for the 
opportunity to submit this statement supporting the President's fiscal 
year 2008 budget proposal for the United States Department of 
Agriculture's (USDA) Office of the Assistant Secretary for Civil Rights 
(ASCR).
    The Office of the ASCR provides policy guidance, leadership, 
outreach, coordination, training, and complaint prevention and 
processing for USDA. Our mission is to provide equal opportunity, equal 
access and fair treatment for all USDA customers and employees.
    The Office of Civil Rights, under the ASCR, has made significant 
progress in complaint processing and complaint prevention. Overall USDA 
experienced a 15 percent decrease in the number of new Equal Employment 
Opportunity (EEO) complaints filed during fiscal year 2006 as compared 
to fiscal year 2005. The decrease in EEO complaint filing is attributed 
to factors such as increased usage of the Alternative Disputes 
Resolution (ADR) process, improved compliance and accountability, and 
an overall decrease in the size of the workforce.
    We have also strengthened our compliance and outreach efforts. In 
August 2006, we convened our Third Annual Partners' Meeting. This is a 
principal outreach effort for organizations representing underserved 
populations, including minority, small and limited resource farmers. 
These meetings continue dialogue with USDA stakeholders, providing a 
forum through which the voices and concerns of underserved constituents 
can be heard by USDA, and avenues can be found for resolving long-
standing issues of access and accountability.

                      FISCAL YEAR 2008 OBJECTIVES

    The Office of Civil Rights (CR) has the following strategic 
objectives for fiscal year 2008 that contributes to the Department's 
success. They are to:
  --Ensure employees and applicants are provided equal opportunities in 
        all aspects of employment activities.
  --Ensure USDA employment activities are conducted in a 
        nondiscriminatory manner and agencies comply with CR/EEO laws, 
        rules and regulations related to women, minorities, and persons 
        with disabilities.
  --Ensure equal access to USDA programs.
  --Ensure Program and EEO complaints are timely processed.
  --Ensure complaints are processed in an efficient and cost-effective 
        manner.
  --Increase USDA-wide awareness and use of Alternative Dispute 
        Resolution (ADR), and resolution of conflicts through ADR in 
        the early stages of workplace and program disputes (non-civil 
        rights).
  --Establish effective outreach programs in the Department to ensure 
        equal and timely access to USDA programs and services for all 
        customers, with special emphasis on the minority and 
        underserved.

                     FISCAL YEAR 2008 KEY OUTCOMES

    CR plans to achieve the following key outcomes in fiscal year 2008:
  --Decrease in the number of individual EEO and Program complaints 
        filed.
  --Reduction in the average number of days to process Program and EEO 
        complaints to issuance of Report of Investigation and Final 
        Agency Decisions.
  --Increase in the efficiency and cost-effectiveness of processing of 
        Program and EEO complaints within the regulatory timeframes.
  --Increase in ADR usage.
  --Increase the number of minority, underserved, and socially 
        disadvantaged persons made aware of USDA programs and services.

                    FISCAL YEAR 2008 BUDGET REQUEST

    The fiscal year 2008 Appropriation request for CR is $23.1 million. 
The funding request includes increases for the following:
  --Civil Rights Enterprise System Improvements.--Funds for the Civil 
        Rights Enterprise System are requested to continue the 
        expansion of the complaints processing system. Funding is 
        necessary to support the President's Management Agenda 
        initiative of expanding electronic government by improving 
        complainant/customer access to information about the complaints 
        and providing a more accountable mechanism for EEO and Program 
        complaint filing. USDA agencies will be able to interface on a 
        Web-based system that will provide customers and employees 
        real-time data regarding their discrimination complaints. The 
        system encompasses a planned multi-year phased approach 
        projected through fiscal year 2009. After fiscal year 2009, the 
        implementation of the system will be complete and funds will 
        only be needed to support operation and maintenance.
  --Compliance Monitoring Activities.--Funding is needed to meet new 
        requirements designed to meet the affirmative employment goals 
        of the Equal Employment Opportunity Commission's Management 
        Directive 715. In addition, CR will undertake significant 
        compliance activities in the field offices. Compliance reviews 
        will result in civil rights complaint prevention and new 
        complaint reductions.
  --Pay cost.--Funding is needed for the 2007 and 2008 pay raises.
    I would like to emphasize the importance of the Subcommittee's 
approval of the President's $23.1 million budget for CR. The proposed 
budget will help ensure that USDA continues to make substantial 
progress toward providing fair and equitable delivery of our services 
and programs to our customers and protecting the civil rights of USDA 
employees.
                                 ______
                                 

 Prepared Statement of Terri Teuber, Director, Office of Communications

    Mr. Chairman and members of the Subcommittee, I am pleased to 
discuss the fiscal year 2008 budget request for the Department of 
Agriculture's Office of Communications (OC).
    When Congress wrote the law establishing the U.S. Department of 
Agriculture in 1862, it said the Department's ``. . . general designs 
and duties shall be to acquire and to diffuse among the people of the 
United States useful information on subjects connected with agriculture 
in the most general and comprehensive sense of the word.'' OC 
coordinates the implementation of that original mandate.
    OC coordinates communications with the public about USDA's 
programs, functions, and initiatives, providing vital information to 
the customers and constituency groups who depend on the Department's 
services for their well-being. For example, OC is coordinating the 
Department's communications efforts relating to the threat of avian 
influenza (AI) and is prepared, if necessary, to activate a Joint 
Information Center (JIC) funded through the Supplemental Appropriation, 
which would support the Department in meeting its obligations in the 
event of an AI detection and/or outbreak. This effort is a follow-on to 
efforts OC has undertaken in the past to inform the public of the 
Department's actions taken to protect animal and human health. OC 
assisted in addressing such serious issues as bovine spongiform 
encephalopathy (BSE), which have been of interest to consumers around 
the world. In addition, OC also coordinates the communications 
activities of USDA's seven major mission areas and provides leadership 
for communications within the Department to USDA employees.
    OC is adopting new technologies to meet the increased demands for 
the dissemination of accurate information in a timely manner. Using the 
Internet, radio, television and teleconference facilities, we are able 
to ensure that the millions of Americans whose lives are affected by 
USDA's programs receive the latest and most complete information. As 
the continuing concern over AI and BSE incidents demonstrate, these 
technologies are a critical resource used by the Secretary and the 
agencies to provide timely information, which helps to maintain 
consumer confidence and stabilize agricultural markets.
    OC's 5-year strategic goal is to provide maximum support to all 
mission areas of the Department in the development of programs and in 
creating awareness among the American public about USDA's initiatives 
and services. This is essential to providing effective customer 
services and efficient program delivery. As a result, we expect more 
citizens, especially those in underserved communities and geographic 
areas, to access helpful USDA services and information. A central 
element of this support is OC's active participation in the 
Department's eGovernment initiative as part of the President's 
Management Agenda. OC plays a key role in ensuring that the 
Department's eGovernment implementation results in the public's 
improved access to more current, accurate, relevant, and organized USDA 
products, services, and information. The USDA.gov portal, managed by 
OC, is customer- or citizen-centric, allowing OC to target information 
by audience preference, subject and personalization. On average, 1.5 
million citizens access the site weekly. The demand by citizens and 
other constituencies for information, via USDA.gov, Web casting, 
electronic mail distribution, teleconferences, and publications, is 
expected to continue to increase.
    OC will continue to take an active role in policy and program 
management discussions by coordinating the public communication of USDA 
initiatives. We will continue to provide centralized operations for the 
production, review, and distribution of USDA information to its 
customers and the general public. Also, we will monitor and evaluate 
the results of these communications. Our staff is instructed to use the 
most effective and efficient communications technology, methods, and 
standards in carrying out communications plans.
    Also, we are focusing on improved communications with USDA 
employees, especially those away from headquarters, which will enhance 
their understanding of USDA's general goals and policy priorities, 
programs and services, and cross-cutting initiatives.
    Our office will continue to work hard to meet our performance goals 
and objectives. We will work to communicate updated USDA regulations 
and guidelines, conduct regular training sessions for USDA 
communications staff about using communication technologies and 
processes to enhance public service, foster accountability for 
communications management performance throughout USDA, and continue to 
work to create a more efficient, effective and centralized OC.
    Increasing availability of USDA information and products to 
underserved communities and geographic areas through USDA's outreach 
efforts is integral to our performance efforts. OC will continue to 
provide equal opportunity for employment and promote an atmosphere that 
values individuals.

                    FISCAL YEAR 2008 BUDGET REQUEST

    OC is requesting a budget of $9,720,000, which includes an increase 
to cover fiscal year 2007 and fiscal year 2008 pay costs.
    As more than 89 percent of OC's obligations are for salaries and 
benefits, the requested increase is vital to support and maintain 
staffing levels for current and projected demands for our products and 
services. While OC has realized some cost savings by replacing high 
grade employees who have retired with lower grade employees, our 
current budget leaves little flexibility for absorbing increased costs. 
In fact, OC would not be able to absorb the increased salary costs in 
fiscal year 2008 without placing considerable constraints on daily 
operations or affecting staff size and therefore the timely delivery of 
information to the public.
    Our central task is to ensure the development of communications 
strategies, which are vital to the overall formation, awareness and 
acceptance of USDA programs and policies. OC has led the adoption of 
content management software which speeds the addition of new material, 
improves our quality control measures to ensure the accuracy of the 
information available through USDA.gov, and reduces the staff time 
required for overall maintenance of the site.
    This improved control greatly reduces the time necessary to post 
important information to the media and the public while providing a 
greater ability to ensure the accuracy of the information. This allows 
OC to use a large document and Web repository, sharing resources and 
information with mission areas and agencies as well as the public.
    OC looks forward to continuing our commitment to the American 
public by providing timely, accurate information about our programs and 
services.
    This concludes my statement, Mr. Chairman. I will be pleased to 
respond to any questions.
                                 ______
                                 

          Prepared Statement of Keith Collins, Chief Economist

    Mr. Chairman and members of the Subcommittee, thank you for the 
opportunity to discuss the general economic situation in U.S. 
agriculture as background for the Subcommittee's review of the 
Department of Agriculture's (USDA) fiscal year 2008 budget submission. 
I will review the major factors affecting agricultural markets in the 
coming year and their implications for financial conditions in U.S. 
agriculture.
    U.S. agriculture continues to prosper following the economic 
slowdown at the start of this decade. With solid growth in domestic and 
export demand, large crop harvests, and record-high cattle, broiler and 
milk prices, net cash farm income reached a record high $81.5 billion 
in 2004. In 2005, net cash farm income was nearly as high and the 
second highest on record despite a large increase in crop stocks which 
reduced crop prices; multiple hurricanes that shut down the central 
marketing infrastructure of the country; sharply higher energy prices 
that raised production, marketing and processing costs; continued loss 
of Asian beef markets; and the emergence of global Avian Influenza (AI) 
concerns. In 2006, net cash farm income is estimated at $66.7 billion, 
down from the previous 2 years, reflecting lower milk prices and 
government payments, smaller crop harvests, plus higher production 
expenses, especially energy costs.
    In 2007, global economic growth and food demand is expected to 
remain strong. However, growing demand for biofuels is expected to be 
the key factor driving crop prices. Markets for most major crops will 
experience stronger prices as stock levels decline. In addition, 
continued expansion of livestock production following several years of 
profitable returns could lead to slightly lower market prices for 
cattle and hogs. Weather, energy costs, higher interest rates, and a 
slow recovery of foreign markets due to animal health concerns are also 
likely to be factors affecting economic performance. Together, these 
factors suggest that net cash farm income will rise modestly in 2007. 
Rising expenses will cause financial stress for some farming 
operations, particularly livestock and poultry producers, but the 
overall farm economy is expected to perform above long-term average 
levels with net cash farm income forecast at $67.2 billion, farm 
household income remaining strong, and farm net worth continuing to 
increase.
Global Economic Growth and Farm Product Demand
    The U.S. economy grew at 3.4 percent in 2006, up from 2005's 3.2 
percent but below 2004's 3.9 percent. For 2007, U.S. Gross Domestic 
Product (GDP) growth is expected to be slightly less than last year. 
The decline in the rate of growth in 2007 from last year is expected to 
be due to slower growth in consumption, weak housing, and tight energy 
markets. Increased tightness in labor markets is likely also to be a 
factor. As the unemployment rate remains low, productivity growth and 
output growth usually remain at or just below trend.
    Real foreign economic growth accelerated in 2006 to 4.0 percent 
from 2005's strong growth rate of 3.7 percent, with many areas 
improving, particularly Western Europe and Asia. This year, Western 
Europe is expected to grow at above 2 percent for the second 
consecutive year, the first time this has happened since 1999-2000. 
Growth in Japan, Canada, and Mexico are expected to be slightly below 
2006. Asia, excluding Japan, will likely grow at 7 percent in 2007, 
above trend for the 4th consecutive year. Foreign economic growth is 
expected to be 3.7 percent in 2007, down slightly from 2006, but well 
above trend, as has been the case beginning in 2004.
    With the U.S. economy expected to have another year of steady 
growth, consumption expenditures on food continue to rise, although the 
rate of growth is likely to decline to near 4.4 percent from the 
unusually high 6 percent growth in 2006. Growth was less than 2.5 
percent during the economic slowdown in 2001 and 2002. This year, 
slower growth in consumer spending on food is likely, as consumers face 
heavy debt loads and high energy costs and are less likely to use 
household assets to finance consumption. Consumer spending, which 
accounts for two-thirds of GDP, increased by 4.4 percent in the last 
quarter of 2006, well above the third-quarter, but a slowdown is 
expected in the first quarter of 2007.
U.S. Agricultural Trade
    Turning to foreign demand for U.S. agricultural products, our 
latest quarterly forecast for farm exports in fiscal year 2007, 
released in March, is a record-high $78 billion, up $9.3 billion from 
fiscal year 2006's record. Gains are expected across the board in 
grains and feeds, livestock, and horticultural products.
    U.S. agricultural imports are forecast at a record $70 billion, $6 
billion more than in fiscal year 2006. The agricultural trade surplus 
for fiscal year 2007 is forecast at $8 billion, up from $4.7 billion in 
fiscal year 2006.
    While the agricultural export-weighted value of the dollar 
appreciated in the first half of 2006, it has depreciated steadily 
since July, continuing its declining long-term trend from 2001. The 
current period of strong foreign economic growth and continued effects 
of the decline in the value of the dollar from several years ago should 
result in higher U.S. agricultural exports in the future and a modestly 
improving trade balance. However, strong consumption growth in the 
United States and consumers' desire for year-round fruits and 
vegetables, as well as more variety, suggest the trade surplus in the 
future will be smaller than in the past. USDA's long-run projections 
issued February 14, 2007, forecast U.S. agricultural exports rising to 
nearly $94.8 billion by fiscal year 2016 and imports rising at an even 
faster pace to $92.7 billion, leaving a trade surplus of $2.1 billion.
Major Crops: Supply, Demand, and Price
    The 2005/06 marketing year began with relatively ample world crop 
supplies. Thus, despite declines in production of grains and cotton, 
stocks remained relatively stable year-to-year. Global oilseed 
production was record high in 2005/06, boosting stocks to record 
levels. As a result of these generally plentiful supplies, market 
prices were relatively flat. In 2006/2007, global wheat and coarse 
grain production declined as weather problems affected output. World 
oilseed production set another record and world cotton production rose 
slightly. Global total use this year is expected to rise for rice, 
coarse grains, oilseeds, and cotton. Global wheat use is expected to 
decline modestly, reflecting tighter supplies and higher prices. With 
generally lower production and rising consumption, global stocks of 
most major commodities, except oilseeds, will decline in 2006/2007, and 
grain (wheat and coarse grain) stocks will fall well below last year's 
levels. In the United States, supplies for feed grains, cotton, and 
rice are well below their record levels in 2005/2006. U.S. wheat 
supplies are down sharply from 2005/2006, but soybean supplies set 
another record.
    With world grain consumption during 2006/2007 expected to exceed 
last year's record high and again exceed world production, world grain 
stocks as a percent of total use are expected to fall to 15.5 percent, 
compared with 19.5 percent in 2005/2006. The picture for oilseeds is 
quite different as global soybean production is forecast to be record 
high for the third consecutive year, exceed consumption, and result in 
higher global stocks. For soybeans, global stocks as a percent of use 
is forecast to exceed the high set in 1986. World cotton stocks are 
expected to decline slightly as consumption exceeds production for the 
second consecutive season.
    For the United States, good grain and oilseed harvests and strong 
demand have supported above average farm income in recent years. 
Current market prospects look even brighter as growth in demand, 
particularly for producing biofuels, has pushed grain prices to 10-year 
highs. High grain prices and demand for vegetable oil have also pushed 
soybean prices higher, despite the higher soybean supplies.
    U.S. soybean stocks are expected to be record high at the end of 
2006/2007, rising 132 percent above the level of 2 years ago. This jump 
reflects the bumper harvest this past fall and the highest beginning 
stocks in 20 years. This stock buildup is projected despite expected 
record soybean crush and exports. Still, U.S. soybean prices this 
winter have been strong in the face of the prospective stock buildup, 
reflecting higher corn prices, purchases by index funds, and strong, 
biodiesel-driven soybean oil prices. For the year as a whole, the farm 
price received for soybeans is expected to average $6.30 per bushel 
compared with $5.66 last marketing year. Despite prospects for record 
production in the Southern Hemisphere and the increase in U.S. stocks, 
soybean prices will likely remain strong in the second half of the 
year, reflecting relatively high corn prices.
    For 2007/2008, high corn prices relative to soybeans likely will 
cause a sharp swing away from soybean planting. We expect a reduction 
in soybean planted area of about 5 million acres. Lower planted area, 
combined with trend yields, would result in production below expected 
use; consequently, carryover levels would decline significantly. 
Reduced production, lower stocks, and high corn prices should keep 
soybean prices strong into 2007/2008.
    The U.S. corn market in 2006/2007 is expected to see a second year 
of declining carryover as ending stocks fall markedly from 2005/2006. 
Corn prices have risen sharply since September 2006 when the market 
began to reflect the extraordinary ongoing expansion in corn-based 
ethanol production capacity. Additional factors supporting the rapid 
rise in corn prices have been the decline in 2006-crop corn acreage and 
yield and strong export demand. Farm-level corn prices are expected to 
average $3.20 per bushel this marketing year, up substantially from 
$2.00 per bushel last year. The increase in prices nearly eliminated 
loan deficiency payments (LDPs) and marketing loan gains (MLGs) for 
2006-crop corn. As of March 2007, LDPs and MLGs totaled only $3 million 
on 2006-crop corn with all of these payments occurring in the first 
weeks of the marketing year. For the 2005 crop, LDPs and MLGs totaled 
$4.6 billion, with 97 percent of that year's production receiving an 
average payment of $0.42 per bushel.
    Biofuels is now the most important influence on corn and other crop 
markets. Ethanol production this marketing year is expected to account 
for 20 percent of U.S. corn production. The USDA's long-term 
projections to 2016, released on February 14, 2007, project ethanol 
production will account for 30 percent of corn use by 2009/2010 and 
drive corn prices to $3.75 per bushel. Biodiesel production has 
increased from less than a half million gallons in 1999 to over 225 
million in 2006, equivalent to 8 percent of soybean oil production.
    In 2004, ethanol accounted for about 2 percent of motor gasoline 
use in the United States on a volume basis. Under the Department of 
Energy's Annual Energy Outlook 2007, ethanol use is expected to grow to 
over 7 percent of motor gasoline use by 2010. The USDA projections to 
2016 put corn-based ethanol production at 11 billion gallons by 2010/
2011. This would be a 3-fold increase in corn ethanol production since 
2004/2005.
    As a result of higher prices and returns for corn fueled by the 
expansion in ethanol use, corn area is expected to expand by about 9 
million acres in 2007. Much of this increase will come from soybeans. 
Additionally, area for cotton, hay, and other crops are all expected to 
decline to meet the demand for more corn production. Even with higher 
acreage and production, corn ending stocks are likely to tighten again 
in 2007/2008 and remain at relatively tight levels in the coming years 
as ethanol demand continues to be strong.
    The 2006/2007 wheat market reflects tighter world supplies, but 
continued strong demand. U.S. wheat stocks at the end of this marketing 
year are projected to decline from their levels in 2005/2006 as a 
result of weather problems that reduced yields in 2006. Farm prices are 
forecast to average $4.25 per bushel, up from $3.42 in 2005/2006 and 
$3.40 in 2004/2005. Prices in 2006/2007 have been boosted by weather 
problems in the United States and in Australia that reduced this year's 
production. Wheat prices have also benefited from rising corn prices.
    For 2007/2008, wheat acreage, which has been trending downward over 
the past 25 years, is expected to increase by nearly 3 million acres 
due to higher prices last fall that encouraged more seeding of winter 
wheat. Heavy fall rains limited seeding in the eastern Corn Belt, but 
the area is up for all classes of winter wheat. Yield prospects for the 
2007 crop remain favorable at this time as winter storms have brought 
much needed precipitation to the Central and Southern Plains. Global 
wheat production prospects are also good with most major wheat 
producing countries expected to expand acreage in 2007 because of 
strong prices. Weather in most of the major-producing countries has 
remained favorable for winter seeded crops. This suggests global wheat 
production will rise in 2007/2008. Based on trend yields, U.S. wheat 
production is expected to rebound in 2007, hitting its highest level 
since 2003. Despite higher expected demand, especially for feeding, 
ending stocks are expected to increase. Prices, however, are expected 
to be higher than in 2006/2007 as higher corn prices put a floor under 
wheat feeding value.
    U.S. cotton production fell 9 percent in 2006/2007 from the 
previous year's record, however, carryover stocks are still expected to 
rise for the third consecutive year and reach nearly 9 million bales. 
The increase is the result of declining domestic textile mill use and 
cotton exports. U.S. cotton mill use continues to trend down as textile 
mill activity continues to move offshore. Mill use this year is 
forecast at 5 million bales, compared with 5.9 million last season. 
Exports are forecast to decline by over 20 percent from last year's 
record to 14.0 million bales. Lower exports are due mainly to reduced 
import demand by China, the largest U.S. customer. Farm prices of 
cotton have been running about the same as year-ago levels. For 2007/
2008, lower acreage and production are expected to support prices. With 
the prospect of stronger exports due to rising world demand, ending 
stocks will likely decline.
    Tighter domestic rice supplies and higher global prices have helped 
to boost U.S. farm prices in 2006/2007. The global rice market is a 
major factor contributing to strong U.S. farm prices as global ending 
stocks are expected to be the lowest since 1983/1984 and the lowest 
stocks-to-use ratio since 1981/1982. The season-average-farm price is 
forecast at $9.85 per cwt, over $2 per cwt above the year earlier 
average price and the highest since 1996/1997. Rice ending stocks are 
forecast at 31 million cwt, down from carry-in stocks of 43 million 
cwt. Medium and short grain stocks, at about 8 million cwt, are the 
tightest since 1998/1999.
    A reduction in area in 2006 led to a decline in production. Higher 
fuel and fertilizer prices, difficulty acquiring bank loans, and 
weather-related problems in some areas--especially Louisiana and parts 
of Arkansas--accounted for much of the area decline in the South. A 
second consecutive cold, wet spring prevented California growers from 
boosting rice acreage, despite high prices and expectations of tight 
global supplies of medium-grain rice.
    On the demand side, impact in some markets from the discovery of 
trace elements of a genetically engineered strain of rice--Liberty Link 
Rice 601 (LL601)--in U.S. long-grain supplies and reduced production 
are behind expectations of weaker U.S. exports in 2006/2007--forecast 
at 102 million cwt, down 12 percent from the year earlier. Despite an 
expected drop in exports to Europe due to the European Union's 
rejection of U.S. rice due to LL601, U.S. exports to markets in the 
Western Hemisphere, Northeast Asia, and the Middle East are expected to 
be strong.
    For 2007/2008, U.S. farm prices of rice are expected to strengthen 
on continued tight domestic supplies and firm global prices. Planted 
area is expected to be about the same as 2006 with a rebound in 
California, but a reduction in area in the South. Higher net returns 
for competing crops--mostly corn, restrictions on the planting of 
Clearfield CL131 seed and low government payments could lead to reduced 
rice planted area in the South. Total use and ending stocks are 
expected to be about the same as 2006/2007.
    Farm program costs for the 2006 program crops are sharply lower due 
to higher grains and oilseeds prices. Counter-cyclical payments are 
projected at $1.5 billion, down from $4.7 billion from the 2005 crops. 
Outlays for 2006-crop marketing loan benefits are projected at $900 
million, down substantially from $6.3 billion for the 2005 crops. 
Program crop producers also receive more than $5.2 billion annually in 
direct payments.
    The 2006/2007 sugar market has differed from other crops this year 
as prices have declined, returning from the extreme highs attained when 
hurricanes drastically reduced supplies in 2005/2006. To meet this 
year's demand and help relieve market tightness, USDA increased import 
quotas above the minimums established under the World Trade 
Organization. However, 2006/2007 sugar imports, forecast at 2 million 
tons, would be down from 3.4 million tons last year.
    Farm sales of fruits, nuts, vegetables, and nursery and greenhouse 
products are expected to remain steady at $53 billion in 2007, 
accounting for 40 percent of all crop cash receipts. Fiscal year 2007 
U.S. horticultural exports are forecast at $18.4 billion and imports at 
$31.2 billion, indicating a continuing widening of the sector's 
traditional trade deficit.
Livestock & Livestock Products: Production, Demand, and Price
    Turning to livestock and poultry markets, U.S. red meat and poultry 
exports are expected to reach a record high in 2007. Pork exports are 
forecast to lead the way, increasing for the 17 consecutive year and 
exceeding 3.1 billion pounds carcass weight or 14.6 percent of 
production. After depressed sales in early 2006, poultry sales 
increased as foreign concerns about AI abated and United States broiler 
meat prices declined. Broiler exports likely will increase to 5.4 
billion pounds in 2007, but fall short of the record 5.6 billion pounds 
exported in 2001. Beef exports are expected to increase with the 
gradual expansion of exports to Japan and Korea. However, Korea's 
import restrictions and Japan's age limits on imported beef from the 
United States continue to limit growth. Although total beef exports are 
expected to increase 17 percent to 1.3 billion pounds in 2007, the 
level of exports will remain below the 2003 pre-bovine spongiform 
encephalopathy level of 2.5 billion pounds.
    Total U.S. production of meat and poultry is expected to be record-
high in calendar year 2007, but nearly flat growth in supplies of 
broiler meat are expected to support higher broiler prices and help 
maintain cattle and hog prices near last year's levels. For livestock 
and poultry producers, feed prices will be an important component of 
producer production decisions in the upcoming year.
    Beef production is currently forecast to increase 1.6 percent in 
2006 as both slaughter numbers increase. Slaughter weights could 
decline in 2006 due to higher feed prices. Steer prices will likely 
remain near last year's $85.41 per cwt and average $84-$89 per cwt. 
Poor forage conditions resulted in higher cow slaughter during 2006 as 
many producers lacked sufficient forage resources to support their 
herds. Herd expansion is expected to be slow as the January Cattle 
report indicated a small calf crop and producers expected to retain 0.5 
percent fewer heifers for addition to the beef breeding herd.
    Pork production in 2007 will expand about 2.6 percent, marking the 
7 year of expansion as producers continue to respond to favorable 
returns over the last several years. Given farrowing intentions 
reported in the most recent Hogs and Pigs report, inventories will 
continue to expand, albeit at slower rates. The increase in 2007 
production primarily will reflect increased slaughter as weight gains 
will be limited as producers respond to higher feed prices. Hog prices 
are expected to reflect the increased production, declining from 2006's 
$47.26 per cwt to average $45-47 per cwt.
    Broiler producers have endured several periods of low returns due 
to relatively low broiler prices in 2005 and 2006 and higher feed 
costs. Consequently, producers reduced chicks placed in 2006, resulting 
in the lowest rate of production growth since the early 1980s. 
Production growth in 2007 is expected to be even slower. With tighter 
broiler meat supplies, prices are expected to average 72-77 cents per 
pound in 2007, up 16 percent from 2006.
    Milk producers are expected to respond to higher feed prices and 
lower 2006 milk prices by modestly reducing cow inventories and as a 
result, the rate of growth of milk production in 2007 will be slower 
than in 2006. Production in 2006 increased almost 3 percent and the 
all-milk price declined to $12.90 per cwt from $15.15 per cwt in 2005. 
Output per cow in 2006 was affected by abnormally high temperatures in 
much of the country during the summer, but growth is expected to follow 
a more normal pattern in 2007. Demand for dairy products, both 
domestically and for export, is expected to remain relatively firm in 
2007. Commercial exports of nonfat dry milk and whey are likely to 
remain strong, reflecting limited supplies from competing exporters. 
Domestic demand for cheese and butter is also likely to remain firm, 
thus, prices of cheese, butter, nonfat dry milk, and whey are all 
forecast higher in 2007 and will support the all-milk price at $15.05-
$15.65 per cwt. With product prices above support, no Commodity Credit 
Corporation net removals are forecast.
Implications for the Financial Situation of U.S. Agriculture
    Net cash farm income declined to $66.7 billion in 2006 from the 
record and near record levels of 2004 and 2005 but is expected to be 
slightly higher at $67.2 billion in 2007. This year strong crop prices 
and a modest increase in livestock receipts are expected to lead to a 
$16 billion rise in cash receipts to a record-high $258.7 billion. This 
large increase in cash receipts is not translating into a large 
increase in net cash farm income because much of the increase in market 
receipts is expected to be offset by higher cash expenses and declining 
government payments.
    In 2005, government payments to producers were a record high $24.3 
billion, declined to $16.3 billion in 2006, and are expected to fall to 
$12.4 billion in 2007. In 2005, increased marketing loan costs, higher 
counter-cyclical payments, ad hoc disaster assistance, and tobacco 
program buyout payments, all contributed to higher government payments. 
Lower ad hoc disaster payments, marketing assistance loan outlays, and 
counter-cyclical payments will combine to reduce direct government 
payments in 2007, as they did in 2006.
    Cash production expenses are expected to rise 6 percent, or $12.2 
billion, in 2007 following increases of 5 percent in 2006 and 7 percent 
in 2005. Energy-related inputs (fertilizer, lime, fuels, oils, and 
electricity) increased by $1.9 billion in 2006 and are expected to rise 
by nearly $1 billion in 2007. Fuels and oils expenses are expected to 
moderate in 2007 as the Department of Energy projects that diesel 
prices in 2007 will fall by 1.8 percent from 2006.
    Farm household income is also expected to recover in 2007, after 
its first decline in 7 years in 2006. At over $80,700 in 2006, farm 
household income would still be 20 percent higher than in 2003 and well 
above the average of all U.S. households.
    Farm real estate values are expected to rise again in 2007, 
following a 7.5 percent gain in 2006. Another land value increase would 
continue the recent strong improvement in the farm sector balance 
sheet. The ratio of real estate value to net cash farm income, a 
concept similar to a price-to-earnings ratio, is forecast to remain 
high in 2007, near the highest level since the early 1980s. Between 
2003 and 2006, farm net worth went up by $510 billion or about $170 
billion per year, which is far more than the annual increase in farm 
income and farm debt. In 2007, increases in farm real estate values are 
expected to slow to 4.7 percent and farm net worth is expected to 
increase by $66 billion. Farm net worth is expected to reach another 
record high at $1.76 trillion by the end of 2007, and the debt-to-
equity ratio is forecast to remain at 13.4 percent, which would be the 
lowest on record.
    A return to slightly above average national farm income, for the 
second consecutive year, is likely to keep U.S. agriculture on a 
sustainable foundation. Most production sectors in U.S. agriculture are 
expected to see net cash income the same or higher in 2007, with hogs 
being the main exception. Farm prosperity in the coming year will be 
influenced by the durability of the United States foreign economic 
growth, oil prices, the value of the dollar, the ongoing biofuels 
production expansion and its impacts for feed costs, and trade-related 
animal health issues. The outcome of trade and farm bill negotiations 
will also be crucial determinants of the future direction of U.S. 
agriculture.

                    FISCAL YEAR 2008 BUDGET REQUEST

    The Office of the Chief Economist (OCE) advises the Secretary of 
Agriculture on the economic implications of USDA policies, programs and 
proposed legislation. OCE serves as the focal point for the Nation's 
agricultural economic intelligence and projections, risk analysis, 
global change issues, and cost-benefit analysis related to domestic and 
international food and agriculture, provides policy direction for the 
Department's bioenergy and biobased product programs, and is 
responsible for coordination, review and clearance of all commodity and 
aggregate agricultural and food-related data used to develop outlook 
and situation material within the Department.
    The OCE budget request for fiscal year 2008 is $11,347,000, which 
includes an increase of $360,000 for 2007 and 2008 pay costs. The 
budget request also includes an increase of $500,000 for the Methane-
to-Markets Initiative. The Methane-to-Markets Partnership is designed 
to promote cost-effective, near-term methane recovery internationally 
through partnerships with fourteen other countries, including Russia, 
China, the United Kingdom, Italy, Mexico, and Brazil. Under this 
initiative, USDA will promote the international adoption of 
technologies to reduce methane emissions from animal waste systems and 
demonstrate United States leadership in reducing methane emissions.
    USDA support for the Methane-to-Markets Partnership will be used 
to: identify and promote areas of bilateral, multilateral, and private 
sector collaboration on methane recovery and use; develop emissions 
estimates and identify the largest relevant emission sources to 
facilitate project development; identify cost-effective opportunities 
to recover methane emissions and potential financing mechanisms to 
encourage investment; improve the legal, regulatory, financial, 
institutional and other conditions necessary to attract investment in 
methane recovery and utilization projects; identify and implement 
collaborative projects aimed at addressing specific challenges to 
methane recovery, such as raising awareness in key stakeholders, 
removing barriers to project development and implementation, 
identifying project opportunities, and demonstrating technologies; and 
develop and implement a process for evaluating progress and reporting 
results.
    That completes my comments and thank you. 

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Prepared Statement of Phyllis K. Fong, Inspector General, Office of the 
                           Inspector General

    Thank you for the opportunity to submit testimony to the 
Subcommittee about the Office of Inspector General's (OIG) recent and 
ongoing audit and investigative work, and our fiscal year 2008 Budget 
Request.
    My testimony presents the highlights of our audit and investigative 
work for the period of March 2006-March 2007. OIG conducted extensive 
work in 2006 on important issues and USDA activities regarding food 
safety, the risks posed by plant and animal-based diseases, fraud that 
impairs vital nutrition and hurricane-relief programs, and financial 
management accountability within USDA agencies.
    To ensure that OIG devotes its resources to the most pressing 
issues and challenges facing USDA agencies, stakeholders, and 
consumers, we have formally prioritized our work and organized our 
resources according to three Strategic Goals. They are improving 
Safety, Security, and Public Health in USDA operations; enhancing 
Program Integrity in the many USDA benefit programs that touch the 
lives of your constituents; and oversight work regarding USDA's 
Management of Public Resources. This statement presents the key 
elements of our recent and current work to the Subcommittee under the 
framework of these three strategic priorities.

                  SAFETY, SECURITY, AND PUBLIC HEALTH

    One of OIG's top priorities is conducting independent and 
professional audits and investigations to protect the safety and 
security of USDA entities and the many agricultural stakeholders and 
consumers who benefit from USDA operations each day. In fiscal year 
2006, we issued 12 audit reports involving safety, security, and public 
health issues related to USDA programs and operations. During the 
fiscal year, OIG referred a total of 120 cases for prosecution.
Assessing the Performance of Consumer Safety Inspectors in Meat and 
        Poultry Establishments
    In our prior audits we determined that the Food Safety and 
Inspection Service's (FSIS) management control system needed 
strengthening to ensure accountability of consumer safety inspector 
performance. A key component of the FSIS management control system is 
the In-Plant Performance System (IPPS), which was established to 
strengthen supervision and improve inspector accountability. In 
response to several OIG audits, FSIS has cited IPPS reviews as a 
critical measure to improve monitoring of food safety at meat and 
poultry establishments.
    In our most recent audit of this area, issued in 2006, we evaluated 
the adequacy of agency policy and procedures related to preparing for, 
executing, and monitoring IPPS reviews. FSIS did not require 
supervisors to complete and/or document the completion of all IPPS 
review procedures when evaluating inspectors. In 84 percent of the 
inspector assessments OIG reviewed, certain elements of inspector 
duties--some of which could be considered critical \1\--were not 
addressed. We found that FSIS did not have a system to schedule and 
track the completion of IPPS reviews and supervisors were not required 
to use the extensive guidance available to help them prepare for the 
reviews. As a result, supervisors had not used significant segments of 
the guidance to enhance their onsite review of consumer safety 
inspectors.
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    \1\ Such as hazard analysis and critical control point system 
procedures.
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    FSIS agreed to closely monitor field managers and supervisors 
involved in the IPPS process, analyze IPPS review data, and 
periodically evaluate the IPPS review process. FSIS also agreed to 
revise its guidance to require supervisors to examine specific data 
sources and system reports before performing an IPPS review and 
complete and provide narratives for all IPPS review elements during an 
inspector's performance rating period.
Improving Pathogen Reduction Testing in Meat and Poultry Establishments
    The Pathogen Reduction Enforcement Program (PREP) is a system used 
to support FSIS' pathogen reduction efforts by scheduling 
microbiological product sampling at FSIS-inspected meat and poultry 
establishments and generating automated reports that allow FSIS 
managers to monitor both the sampling process and the results of 
laboratory tests.
    OIG evaluated the effectiveness of FSIS' process for scheduling and 
conducting microbiological testing of meat and poultry products. We 
found that in the testing programs for the adulterants E. coli 0157:H7 
and Listeria monocytogenes, FSIS had developed procedures to transfer 
establishment data from the Performance Based Inspection System (PBIS) 
to the PREP (two separate systems) and was selecting the identified 
meat and poultry establishments for testing within reasonable 
timeframes.
    However, we found that Salmonella testing program controls needed 
strengthening to ensure that all applicable establishments are included 
in the universe for microbiological testing. A significant number of 
establishments were excluded from Salmonell a testing due to 
ineffective processes for identifying establishments eligible for 
testing. FSIS district office personnel did not fully understand the 
process for inserting/updating establishments into the testing 
database. In one district we visited, 28 percent of the establishments 
subject to Salmonella testing were excluded from testing. We also found 
that establishments whose slaughter or processing activity falls below 
a specific threshold or produces non-intact beef products (such as raw 
ground beef sausages and meatballs) were also excluded from the 
universe for testing.
    We recommended that FSIS strengthen its procedures to ensure that 
all establishments subject to Salmonella testing are identified and 
modify PBIS to allow PREP to draw establishment information for testing 
from PBIS rather than depend on manual updates. The agency should 
develop a risk assessment to support its policy for excluding low-
volume establishments from Salmonella testing or conduct testing in all 
plants. Further, FSIS should obtain scientific advice to evaluate 
whether its policy of not testing certain raw ground beef products for 
E. coli O157:H7 contamination should be continued. FSIS officials 
generally agreed with OIG's findings and recommendations.
Assessing FSIS Oversight of State Meat and Poultry Inspection Programs
    FSIS has oversight responsibility for State meat and poultry 
inspection (MPI) programs to ensure that meat and poultry products sold 
intrastate meet inspection standards ``at least equal to'' \2\ Federal 
laws and regulations. OIG initiated a review to examine the 
effectiveness of FSIS management controls and procedures to ensure that 
State MPI programs were ``at least equal to'' Federal inspection 
programs.
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    \2\ As established by the Federal Meat Inspection Act and the 
Poultry Products Inspection Act.
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    We determined that FSIS was not providing timely oversight of State 
MPI programs. From October 2003 through June 2005, FSIS had conducted 
only 8 initial onsite reviews from a total of 28 State MPI programs. 
After our fieldwork began and since July 2005, FSIS initiated reviews 
of 16 more State MPI programs and developed plans to conduct the 4 
remaining reviews prior to the end of fiscal year 2006. Completing the 
review process is important, especially since four of the eight 
programs initially reviewed needed corrective actions to achieve ``at 
least equal to'' Federal standards.\3\
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    \3\ FSIS issued a report in January 2007 that contained the results 
of all 28 reviews.
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    Moreover, FSIS had not performed timely onsite fiscal reviews and 
reviews of new programs and did not timely implement its year-end grant 
closeout procedures to ensure that State MPI programs promptly returned 
any excess Federal funds. FSIS had not recovered $260,201 in excess 
Federal funds from one State for fiscal year 2004. In this State, 
during fiscal year 1997-2004, unnecessary interest costs of 
approximately $100,000 were incurred by the Federal Government because 
the State retained unused Federal funds.
    OIG made numerous program improvement recommendations based upon 
this audit. We recommended that FSIS establish criteria to determine 
how deficiencies in meat processing establishments affect State 
acceptability determinations. FSIS should analyze the staffing 
requirements of State MPI programs and confirm that laboratories adhere 
to standards ``at least equal to'' Federal requirements. The agency 
needs to eliminate the backlog of onsite fiscal reviews and perform 
timely, year-end grant closeouts of State MPI programs and seek prompt 
recovery of $260,201 from the identified State MPI program. FSIS 
responded positively to OIG's recommendations, and management decision 
was reached on 6 of the 12 recommendations.
The USDA Response to Avian Influenza
    The emergence of highly pathogenic Avian Influenza (HPAI) as a 
potential pandemic has rapidly changed the environment in which the 
Animal and Plant Health Inspection Service (APHIS) operates. The 
November 1, 2005, issuance of the President's strategy for the 
preparation, detection, and response to a pandemic accelerated APHIS' 
actions in dealing with AI. The strategy recognizes roles for all 
segments of society, including Federal, State, local and Tribal 
governments, private industry, international trade partners, and 
individual citizens.
    In our June 2006 review of APHIS' oversight of Avian Influenza 
(AI), we concluded that APHIS has made commendable progress in 
developing plans and establishing the networks necessary to prepare 
for, and respond to, outbreaks of AI. However, APHIS had not yet 
developed a comprehensive approach for surveillance and monitoring of 
AI in domestic poultry. APHIS relies on a variety of voluntary State 
and commercial programs to monitor and test domestic poultry and wild 
birds. Because these programs are voluntary, APHIS did not know the 
extent of surveillance activity in place and was not gathering 
consistent data to properly detect changes in epidemiological 
parameters (e.g., subtype of AI or rate of prevalence) or to report 
incidents of AI in accordance with new international trade 
requirements.
    In regard to USDA's National AI Preparedness and Response Plan, OIG 
found that APHIS needed to provide additional guidance on preparing and 
responding to HPAI or notifiable AI outbreaks in live bird markets or 
other ``off farm'' environments.\4\ APHIS also needed to clarify 
actions that employees should take in obtaining and administering 
necessary vaccines and anti-virals in the event that a culling 
operation for HPAI occurs. Finally, APHIS needed to finalize 
interagency coordination on the process and procedures for notifying 
owners of susceptible animals of the current infectivity risks and the 
necessary protective actions they should take when an outbreak of AI 
occurs. In its response, APHIS described a number of initiatives 
planned and in process to address our concerns.
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    \4\ The plan is intended to complement regional, State, and 
industry plans that are written to be more specific to local issues and 
needs. States should continue to develop plans that are specific to 
their poultry industries and requirements. The USDA/APHIS plan will 
evolve as additional information and experience is gained.
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    OIG currently has a related audit underway. We are evaluating the 
effectiveness of APHIS' implementation of the Homeland Security 
Council's National Strategy for Pandemic Influenza (issued May 2006). 
We will also follow up with the agency on its corrective actions 
responding to our prior audit.
Targeting the Smuggling of Animals and Plant Products
    The smuggling of animals and animal/plant products into the United 
States is of significant concern. The smuggling of these products 
presents both a human health risk and a risk to the United States' 
animal and plant populations because of the potential for the 
transmission of disease.
    OIG works closely with USDA regulatory agencies such as APHIS and 
FSIS that enforce standards for the importation for meat, poultry, and 
live animals into the United States. As stated in our testimony before 
the Subcommittee last year, OIG works with USDA agencies to achieve a 
balance among risk mitigation efforts, regulatory investigations, and 
criminal investigations when such products are smuggled into the United 
States. To achieve this goal, we have been working to establish 
protocols to clarify each USDA agency's role in response to smuggling. 
We anticipate the Department will issue these protocols this summer.
    One of the groups in which OIG is participating is an interagency 
working group comprised of both regulatory and law enforcement agencies 
from the Department of Homeland Security (DHS), the Department of 
Justice, and the Department of Interior. While the initial objective of 
this working group was to improve smuggling investigations concerning 
HPAI, OIG's participation has also improved our investigative 
capabilities to respond to smuggling investigations involving any type 
of prohibited product. The inter-agency working group fostered 
productive relationships and communications between OIG and those 
departments and more clearly defined our respective roles.
    OIG participated in a joint investigation at the Port of Newark 
known as ``Operation Fowl Play.'' The investigation led to the seizure 
of approximately 1 million pounds of prohibited poultry, fowl, meat, 
pork, vegetables, fruit, and other merchandise over several months. The 
investigation, which began in 2005, involved several New York based 
companies responsible for importing these products from China.
Preparing for Agricultural Emergency Situations and Wildland Fire 
        Fatalities
    OIG's Emergency Response Team (ERT) and Wildland Fire Investigation 
Team (WFIT) engaged in training and were both actively deployed in 
fiscal year 2006. The ERT has the capability to safely and effectively 
respond to criminal acts that could threaten or compromise the United 
States' food supply, agricultural infrastructure, or USDA facilities. 
The WFIT is responsible for conducting an independent investigation 
into the deaths of any Forest Service (FS) firefighters who are killed 
as a result of a burnover or entrapment. We thank the Members of the 
Subcommittee for your continued support of these important programs.
    During 2006, ERT members participated in several tabletop exercises 
concerning AI and Foot and Mouth Disease, attended Food Defense 
Exercises, and State and local emergency preparedness meetings. Our ERT 
works with various Federal, State, and local agencies to educate them 
about the assistance and resources OIG can provide when an agriculture-
related incident occurs. Coordination with and outreach to our 
counterparts at the State and local level is vital to build the skills 
and partnerships necessary for effective, multilevel government 
responses to agricultural emergencies.
    During the execution of a search warrant in one investigation in 
2006, the ERT assisted with the identification and depopulation of game 
fowl at an illegal cockfighting pit in Oklahoma. Birds utilized in 
animal fighting competitions present a health risk to humans and 
animals because the birds may carry infectious diseases such as Exotic 
Newcastle Disease and AI.
    Our WFIT members undergo extensive training to gain the skills and 
experience necessary to conduct wildland fire-related 
investigations.\5\ The OIG agents comprising the WFIT attend the FS' 
Basic Fire Academy that incorporates training in Incident Command, 
Basic Wildfire Suppression Orientation, Firefighter Training, 
Introduction to Wildland Fire, and Interagency Serious Accident 
Investigation Training. In October 2006, WFIT members responded to the 
Esperanza Fire that claimed the lives of five FS fire engine crew 
members near Cabazon, California. WFIT members arrived at the site 
within 24 hours of the fatalities to begin organizing their 
investigation. OIG's investigation of the circumstances leading to the 
Esperanza Fire deaths is ongoing.
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    \5\  Public Law 107-203, enacted July 24, 2002, established the 
statutory requirement for a USDA-OIG investigation of FS fatalities 
occurring due to wildland fires.
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The Bovine Tuberculosis Eradication Program
    APHIS administers the Bovine Tuberculosis Eradication Program 
(BTEP) that was established in 1917 to eliminate bovine tuberculosis 
(TB) in the United States. Because of concerns we previously identified 
regarding the agency's systemic classification and testing of relevant 
TB cases in one State, OIG conducted a more comprehensive audit of 
APHIS' administrative controls over BTEP. We found that APHIS had made 
improvements to BTEP since the Secretary's Emergency Declaration in 
October 2000,\6\ but weaknesses in oversight made it difficult for the 
agency to timely detect and eradicate the disease. APHIS' status 
system--important because it dictates the extent of Federal testing and 
movement controls for cattle in each State or zone--did not capture 
most TB cases. From fiscal year 2001 through 2005, 272 TB-infected 
cattle were detected through slaughter surveillance, but APHIS excluded 
96 percent from the status system because it could not locate the 
source herd or find an additional infected animal in that herd. 
Approximately 75 percent of the TB-infected cattle detected through 
slaughter surveillance originated in Mexico, and these animals spent 
months at U.S. farms and feedlots with no restrictions to prevent 
commingling with domestic cattle. Mexican cattle are tested before 
entry, but APHIS had not established controls to compensate for the 3- 
to2 month TB incubation period.
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    \6\  The emergency declaration authorized the transfer of $44.1 
million from emergency contingency funds to APHIS to expand the TB 
eradication program.
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    We recommended that APHIS perform program reviews periodically; 
review and approve States' annual and monthly reports and use them to 
assess/minimize areas of highest risk; enhance its two key BTEP control 
functions (the status classification and slaughter surveillance 
systems); and strengthen movement/testing controls to address the 
disease's incubation period. The agencies agreed to take corrective 
actions based on our findings and recommendations.
Agricultural Inspection Efforts on the U.S. Border
    With the creation of DHS in March 2003, U.S. Customs and Border 
Protection (CBP) assumed responsibility to inspect agricultural goods 
arriving at U.S. ports while APHIS retained responsibility for 
agriculture related policies and procedures. We issued a report in 
February 2007 from our joint review with DHS-OIG of border inspection 
issues. We assessed selected agricultural inspection activities that 
were transferred to CBP.
    Our joint review found that CBP generally complied with 
agricultural inspection requirements at the ports we visited. However, 
improvements are needed regarding risk identification activities. CBP's 
sampling for Agricultural Quarantine Inspection Monitoring (AQIM)--
which helps USDA predict future risks to agriculture from pests/
diseases--did not meet sampling requirements for 13 of 18 pathway 
activities at four ports.\7\ CBP also lacks a current staffing model 
for agriculture specialists and performance measures for many 
activities that would ensure personnel are used effectively.
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    \7\ Such as air passengers and truck cargo AQIM inspections.
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    APHIS officials agreed to develop a risk assessment process for 
incoming rail cargo. However, agency officials cite operational 
difficulties (such as obtaining timely cargo manifests) as a barrier to 
developing a workable system. APHIS has not yet issued policies and 
uniform procedures to clearly define how transportation/export 
shipments will be monitored. We also found that APHIS needs to issue 
instructions to CBP clarifying APHIS policy on labeling and packaging 
seized agricultural products.
        protecting and improving the integrity of usda programs
    OIG's second strategic priority is audit and investigative work to 
protect the integrity and efficiency of USDA programs and benefits. A 
substantial amount of OIG's audit and investigation resources in fiscal 
year 2006 were focused on Farm Service Agency (FSA) and Risk Management 
Agency (RMA) programs and operations. OIG continues to work to combat 
fraud and deter criminal activity in farm programs, such as payment 
limitations, crop insurance, and conversion of mortgaged property.
    Food and Nutrition Service (FNS) programs providing food assistance 
to needy Americans is a major portion of USDA's annual budget--the Food 
Stamp Program helps over 26 million people each month, and 15.5 million 
children receive a free or reduced-price school lunch. Fraud in FNS 
programs such as the Women, Infants, and Children (WIC), Food Stamp, 
and the Children and Adult Care Feeding Programs remains a high 
priority for OIG.
USDA Compliance with the Improper Payments Information Act
    Within USDA, the Office of the Chief Financial Officer (OCFO) is 
designated as the lead agency for coordinating and reporting on the 
Department's efforts to implement the Improper Payments Information Act 
(IPIA). OCFO has designated IPIA compliance as a top priority for 
fiscal year 2007.
    To determine the Department's compliance with IPIA, OIG initiated 
audits of four USDA agencies in fiscal year 2006--FSA, FS, Rural 
Development's (RD) Rural Housing Service (RHS), and the Natural 
Resources Conservation Service (NRCS). Our objectives included 
reviewing agency efforts to quantify improper payments for high risk 
programs, assessing agency corrective actions related to our previous 
audits, and substantiating agency results reported in USDA's 
Performance and Accountability Report for fiscal year 2005.
    Our audits revealed significant findings on agency compliance with 
IPIA. OIG found that valid statistical samples had not been performed 
for three of the four agencies reviewed. Improper payments reported in 
fiscal year 2005 were not properly calculated and the estimated 
improper payments reported in fiscal year 2005 did not always include 
payments made to ineligible recipients. We determined that corrective 
actions were too narrow in scope and ineffective in addressing our 
prior findings. OCFO generally agreed with our recommendations to 
correct these conditions and we are working with agencies to improve 
their implementation of IPIA requirements. OIG is currently auditing 
several USDA agencies to assess their efforts to quantify improper 
payment error rates for high risk programs.
Farm Programs--Improving Agency Controls to Prevent Loans to Ineligible 
        Recipients
    When farmers and ranchers are unable to repay their Farm Loan 
Programs (FLP) loans in full, Congress requires that FSA consider them 
ineligible for future loans. Using data-mining techniques, we reviewed 
the approximately 139,000 loans active in FSA's database (as of the 
beginning of fiscal year 2005) to isolate 239 borrowers who were 
potentially ineligible for having received prior debt forgiveness. Our 
detailed review of six potentially ineligible borrowers revealed that 
three were, in fact, ineligible and should not have received FLP loans. 
FSA subsequently reviewed all 239 borrowers and ultimately found 113 
loans totaling over $7.5 million, issued during 1999-2004, were 
ineligible. In general, we determined that the unauthorized assistance 
occurred because FLP loan officials did not follow established 
procedures for determining applicants' eligibility and FSA's automated 
management tools lacked the applicants' complete debt history.
    FSA took action to collect the 113 ineligible loans as appropriate. 
Further, FSA issued guidance to help employees determine whether 
applicants have received prior FLP debt forgiveness and is developing a 
new automated system that will automatically display applicants' 
complete debt histories. FSA is currently pilot testing the new system 
at two State offices and plans to implement it nationwide.
Improving the Integrity of the Crop Insurance Program
    Due to continuing concerns about costs incurred by the Federal crop 
insurance program, OIG conducted an overview of the program. In 
collaboration with FSA and RMA, OIG identified conditions that are 
often associated with fraud, abuse, and mismanagement.
    We identified two major factors that must be in place to enhance 
the integrity of the crop insurance program: effective management 
controls to ensure program operations are meeting program objectives 
and aggressive enforcement through criminal investigations and agency 
compliance reviews.
    Based on this overview and our discussions with FSA/RMA about the 
current state of the crop insurance program, we presented a series of 
recommendations that are consistent with OIG's prior work. Among other 
recommendations, we found that agency officials should accelerate plans 
to create a single comprehensive information system for crop insurance, 
conservation, and farm programs; increase coordination and 
communication between RMA and FSA to ensure more effective growing 
season inspections; and strengthen RMA's oversight and monitoring of 
the private sector's application of the quality control review system.
Investigating Fraud in USDA Farm Programs
    A recent OIG investigation resulted in a Montana producer and a 
former loan officer being sentenced for a scheme in which the producer 
filed false claims with FSA in order to receive program payments. The 
producer circumvented program payment limitations to fraudulently 
receive $1.4 million. The private loan officer provided false financial 
documents to FSA regarding the other partners' participation in the 
farming operation. In July 2006, the producer was sentenced to serve 10 
months in Federal prison and ordered to pay $226,035 in restitution. 
The former loan officer was sentenced the following month to a period 
of home confinement and probation.
    Another OIG investigation into potential farm program fraud 
resulted in orders to repay the Government over $1 million and the 
sentencing of two individuals and three corporations in 2006. Our 
investigation revealed that two individuals and three corporations in 
the Texas panhandle fraudulently obtained approximately $400,000 in RMA 
crop insurance indemnity payments and FSA disaster program payments by 
shifting their unreported cotton production for program payment 
purposes. The producers assigned their hidden cotton production to 
other established accounts at a cotton gin owned by one of the 
individuals. A producer and two corporations were sentenced in August 
2006. The producer was sentenced to 12 months' imprisonment, followed 
by 36 months' supervised release, and was ordered to pay approximately 
$331,000 in restitution. The corporations each received sentences of 60 
months of probation and were ordered to pay restitution totaling 
approximately $331,000. In September 2006, the second individual and 
the remaining corporation were both sentenced to 60 months of probation 
and were ordered to pay restitution of $362,775, severally and jointly.
    A third OIG investigation involving farm program fraud resulted in 
the repayment of $1,085,000 to FSA. The Idaho producer involved 
received 3 years of probation and 80 hours of community service. The 
producer's son was also sentenced to 3 years probation and was fined 
$4,000. The sentence included a joint restitution order of $1,085,000 
imposed on the two defendants. The OIG investigation disclosed that the 
mother and son converted 305 head of cattle pledged as collateral to 
FSA. They pled guilty in May 2006 to theft/conversion of FSA 
collateral. FSA also has a lien against their property that is valued 
at more than $1 million.
USDA Food Programs--FNS Oversight of Electronic Benefits Transfer 
        Operations
    In fiscal year 2007, FNS estimates that Food Stamp benefits of 
about $30 billion will be provided to over 25 million participants. 
State agencies now deliver Food Stamp Program (FSP) benefits almost 
entirely through Electronic Benefit Transfer (EBT) systems using EBT 
benefit cards issued to recipients. OIG has monitored and audited the 
implementation of EBT by FNS and States since the system's inception in 
the 1990s. We recently issued a follow-up audit to evaluate corrective 
actions FNS has taken in response to our prior audits and to ensure 
adequate agency oversight of EBT systems.
    We concluded that FNS oversight of EBT operations was generally 
effective. However, despite FNS requirements to safeguard EBT systems, 
inadequate control over State agency access to the system remains a 
problem. Based on our earlier work, FNS had agreed to strengthen 
procedures for controlling access to State EBT systems and directed 
States to conduct semiannual reviews of employee access. However, FNS 
did not independently confirm that States adequately controlled access.
    EBT trafficking through the illegal and unauthorized use of Point 
of Sale (POS) equipment is another system vulnerability. Unscrupulous 
retailers have circumvented the EBT security controls by fraudulently 
obtaining new equipment and/or illegally moving existing machines to 
unauthorized locations. Our September 2006 report found that in their 
contract proposals to acquire EBT systems, States were not required to 
consider equipment functionality and/or technological specifications 
that could prevent the illegal removal and unauthorized use of existing 
EBT POS equipment.
    Based on our audit, FNS agreed to take steps to ensure that States 
limit unauthorized access to EBT systems and to require States to 
implement, via the EBT contract, formal processes during POS equipment 
replacement to prevent retailers from fraudulently obtaining equipment.
    This year, we will conduct further audits regarding FNS oversight 
of EBT systems. Our work will include reviewing FNS oversight of the 
largest private EBT processor and two State agencies.
Investigations of EBT Trafficking
    OIG devotes extensive resources to investigate unscrupulous 
retailers who circumvent EBT security controls by fraudulently 
obtaining new equipment and/or illegally moving existing machines to 
unauthorized locations. In our Food Stamp Program investigative work, 
we focus our resources on high impact cases, such as those involving 
large-scale traffickers, those with potential connections to terrorist 
activity, and cases involving additional types of criminal activities 
beyond benefit fraud.\8\ Comparing our final fiscal year 2006 
investigative statistics to the prior fiscal year, the number of food 
stamp trafficking investigations we opened increased from 77 to 84; the 
number we referred to DOJ increased from 21 to 31; and the number of 
indictments resulting from OIG food stamp investigations increased from 
70 to 146.
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    \8\ Examples would be food safety concerns affecting public heath, 
such as contaminated food or black-market WIC products.
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    EBT fraud cases are very complex investigations, so OIG worked in 
2006 to develop and conduct training focused on improving methods to 
detect and analyze trends indicating fraud. OIG is creating a database 
that will capture vital information regarding EBT trafficking 
investigations to identify large scale fraud networks.
    OIG has initiated numerous investigations as a result of our 
collaborative efforts with multiple Federal and local law enforcement 
agencies. A major OIG food stamp fraud investigation resulted in a 
Chicago grocery store owner being sentenced in August 2006 to 51 months 
in prison and ordered to pay $1.4 million in restitution. The store 
owner pled guilty to wire fraud and money laundering. Two months 
earlier, the store owner pled guilty in Federal court in Florida to 
conspiracy for providing funding to the Palestinian Islamic Jihad, in 
violation of the International Emergency Economic Powers Act. The store 
owner had conspired with other persons and unauthorized stores to 
conduct thousands of illegal electronic food stamp benefit 
transactions.
Expanding Efforts to Deter WIC Fraud
    WIC is a vital Federal program to provide supplemental foods and 
nutrition education to lower-income pregnant, breast-feeding, and 
postpartum women, and infants and children who are at nutritional risk.
    The main product purchased with WIC vouchers is infant formula. 
Theft rings around the country are stealing, re-labeling, and reselling 
infant formula. When infant formula is stolen, it is taken out of the 
regulated retail system, and there can be no guarantee the formula is 
safe and wholesome. In response to this growing concern, OIG is 
expanding alliances with State and local law enforcement agencies to 
better coordinate jurisdictional investigative efforts into broader 
regional efforts. Our ultimate objective is to develop a national 
initiative that will enable OIG to track and maintain records of stolen 
infant formula incidents across the United States.
    A recent OIG infant formula investigation involved an Ohio 
furniture store owner who led a nationwide network that trafficked in 
stolen merchandise and food stamps through inner-city markets. The 
stolen merchandise included infant formula, diabetic blood glucose test 
strips, and over-the-counter medications. The stolen merchandise was 
transported to wholesalers and warehouses in States including Indiana, 
Illinois, Wisconsin, New York, Florida, and California. The store owner 
and 24 other individuals were charged with crimes ranging from food 
stamp trafficking to transportation of stolen property and money 
laundering. During 2005-2006, 21 individuals have pled guilty or were 
found guilty, including the leader of the criminal organization. 
Sentences imposed on the defendants ranged from 8 months to 11 years, 
and monetary judgments and restitutions totaled over $2.7 million. On 
February 20, 2007, two of the three store owners involved in the scheme 
in Wisconsin pled guilty to false statements and conspiracy; the third 
is awaiting trial. This was a joint investigation with the FBI and the 
Ohio Organized Crime Investigations Commission.
    A second OIG infant formula investigation determined that a 
Pennsylvania convenience store owner was trafficking in food stamps and 
operating and engaging in an unlicensed money transmitting business. 
From 2001 to May 2006, the store owner transmitted more than $7 million 
without the license required by Federal and State law. The store owner 
bought and sold stolen goods such as infant formula, drug 
paraphernalia, and counterfeit cigarettes and music CDs. The store 
owner pled guilty in Federal court in November 2006 to operating an 
unlicensed money transmitting business and agreed to forfeit over 
$252,000. This investigation was part of a taskforce that included OIG 
agents and several other Federal and State enforcement agencies (FBI, 
Immigration and Customs Enforcement, Secret Service, IRS, and the 
Pennsylvania Department of Revenue).
The OIG Response to Hurricanes Katrina and Rita: Audit Oversight and 
        Investigative Support
    During last year's testimony, we discussed USDA's role in the 
Federal recovery efforts related to Hurricanes Katrina and Rita. OIG 
continues to work with the President's Council on Integrity and 
Efficiency (PCIE) and DHS working groups to coordinate related 
investigative efforts and thereby maximize Federal investigative 
resources and prevent duplicative efforts. We coordinated efforts with 
both the Department of Housing and Urban Development's (HUD) OIG and 
DHS-OIG to develop computer matching agreements with RHS. These 
agreements facilitate the ability of the participants to identity 
improper and fraudulent disaster assistance payments. Data matching is 
a highly effective tool in disaster assistance payment investigations 
for all of the agencies involved.
    OIG special agents are working Hurricane Katrina Fraud Task Force 
investigations in the Gulf Coast region. We continue to receive 
referrals throughout the country on individuals who have submitted 
false claims or provided false statements to obtain Federal benefits 
for which they were not entitled. At this time, as hurricane 
reconstruction efforts in the Gulf Coast region continue, OIG has begun 
receiving investigative referrals from FSA and RD that involve larger 
monetary amounts of fraud or theft and more complex fraud cases.
    A recent example of our hurricane relief investigative work 
involved an Illinois woman who obtained at least $23,000 in Hurricane 
Katrina housing, food stamps, and cash assistance for which she was not 
entitled. OIG worked with the Postal Service's OIG to determine that 
the individual never resided in Louisiana or Mississippi and thus would 
not have been affected by Hurricane Katrina. The individual sought 
benefits for non-existent family members. She pled guilty in October 
2006 to mail fraud and false statements and was sentenced in January 
2007 to 48 months in Federal prison, followed by 36 months of 
supervised release, and was ordered to pay $23,982 in restitution.
    We have also committed significant audit resources to conduct 
reviews of the Department's hurricane relief efforts. In view of the 
substantial Federal funds appropriated for hurricane disaster relief, a 
continuing concern for both program managers and the Congress is the 
potential for excessive or duplicative payments to individuals in 
hurricane-affected communities.
    In the aftermath of Hurricanes Katrina and Rita, RD--through RHS--
placed 11,000 evacuees into 4,100 Rural Rental Housing (RRH) apartment 
units in 45 States and provided $2.6 million in emergency rental 
assistance. OIG evaluated RHS management controls for multifamily 
housing funds targeted for disaster assistance. We found that most 
residents placed in RRH apartments needed only adequate housing and not 
rental assistance because the Federal Emergency Management Agency 
(FEMA) was already providing financial assistance. As a result, much of 
the $2.6 million provided by RHS duplicated FEMA assistance.
    Specifically, our review determined that RHS' database system 
contained generally inaccurate/incomplete information on hurricane 
victims and the amount of rental assistance they received. Some 
property owners required tenants to pay rent even though the owner had 
already received rental assistance directly from RHS. The agency was 
also not able to identify victims who used the FEMA identifying numbers 
of other individuals to obtain housing assistance. OIG found that some 
property owners had reclassified existing tenants as hurricane victims 
even though the tenants had no change in income or other circumstances. 
This resulted in unnecessary RRH rental assistance to the tenants.
    RHS agreed to improve its information system and related management 
controls. To better prepare for future disaster situations, the agency 
is implementing corrective actions regarding coordinating its actions 
and information with other Federal agencies providing housing 
assistance.
    This year, we will continue our oversight work regarding USDA's 
response to major hurricanes. OIG currently has 11 audits in process 
pertaining to the Department's hurricane relief operations, including 
reviews of FNS' Disaster Food Stamp Program payments in five hurricane-
affected States and RMA controls to provide hurricane victims in 
Florida with timely and accurate indemnity payments.
Assessing USDA Trade Programs and Operations
    In 2002, the Farm Bill and the President's Management Agenda (PMA) 
established a number of new goals and requirements for the Foreign 
Agricultural Service (FAS), the agency charged with coordinating USDA's 
international activities. The 2002 Farm Bill's trade section contained 
13 provisions affecting FAS programs, including export credit 
guarantees, market development, export enhancement, food aid 
development, and technical barriers to trade. OIG initiated a review to 
determine the status of FAS' efforts to implement the 2002 Farm Bill's 
trade and food aid programs and to evaluate the agency's efforts to 
address problems that the PMA identified in food aid programs.
    We found that FAS took prompt action to implement 10 out of the 13 
Farm Bill trade provisions within 1 year of enactment. However, FAS has 
not developed a business process to ensure that the Farm Bill's global 
market strategy requirements--coordinating USDA resources and programs 
with other Federal agencies to identify export opportunities and remove 
trade barriers--are being met on a global basis. FAS managers have 
followed a strategy of supporting agricultural exporters (referred to 
as ``cooperators'') when implementing their individual country and 
regional market strategies. In our view, such efforts have not been 
sufficiently integrated to produce a focused, global strategy that 
would allow FAS to effectively identify and react to changing trends in 
global markets. The U.S. share of global agricultural exports declined 
from 22 percent to 9.7 percent during 1984-2005, yet FAS officials do 
not believe that a central planning process or formal global marketing 
strategy is necessary.
    The PMA cited several problems in U.S. food aid programs, including 
program duplication between FAS and the U.S. Agency for International 
Development (USAID) that wasted donated food supplies and excessive 
administrative/transportation costs. OIG found that FAS has 
strengthened its program planning and improved consultation and 
coordination with USAID, USDA's Economic Research Service, and other 
organizations to develop better outcome-oriented performance measures 
and reporting. However, we recommended that FAS develop outcome-based 
performance measures to more accurately reflect program accomplishments 
in recipient countries. OIG is assessing the agency's response to our 
draft report and we anticipate issuing a final report in April 2007.
Identifying Barriers to U.S Agricultural Exports
    OIG received a congressional request in 2006 to review certain 
aspects of FAS market development programs in fostering expanded trade 
activities for U.S. agricultural exports. We initiated an audit to 
examine the extent to which FAS conducts outreach to U.S. agricultural 
interests to identify trade constraints and foreign agricultural 
business opportunities; determine if the agency is presenting 
information on identified trade barriers to the U.S. Trade 
Representative (USTR) and FAS' private sector cooperators; and review 
whether USDA efforts to promote U.S. agricultural exports are being 
presented, with measurable benchmarks, in the National Export Strategy. 
OIG's report was issued in February 2007. We found that FAS does not 
formally track its efforts to expand trade activities or conduct 
outreach to U.S. exporters and does not have a formal process for 
summarizing and presenting trade barriers to the USTR.
Ensuring Accountability in Foreign Food Aid Programs
    FAS administers foreign food aid programs, largely through grants 
to intermediaries known as private voluntary organizations (PVOs), the 
charitable, nonprofit organizations responsible for implementing 
program objectives abroad. FAS expended approximately $400 million for 
its food aid programs in fiscal year 2006. In March 2006, we issued a 
report assessing FAS' progress in addressing management control 
weaknesses regarding the Food for Progress program identified in an 
earlier OIG audit. Our latest report also reviewed eight judgmentally 
selected PVOs, three of which were the subjects of a hotline complaint. 
The audit evaluated issues such as internal agency controls/processes 
for evaluating grant proposals and awarding grant agreements, 
monitoring compliance with grant terms and conditions, and determining 
program results.
    OIG found that many of the recommendations from our prior audit 
report had not been implemented, and therefore FAS could not provide 
reasonable assurance that PVOs were meeting their program objectives or 
spending funds appropriately. FAS lacked procedures to confirm that 
PVOs were recognized by their host governments and were able to operate 
effectively in-country. FAS did not pursue grant funds lost due to PVO 
mismanagement. Due to these internal control weaknesses, we concluded 
that FAS did not adequately follow up and determine whether there was 
mismanagement of $2.2 million in grant funds.
    We recommended that FAS strengthen its ability to monitor food aid 
agreements by implementing procedures to review PVOs' semiannual 
reports, conduct onsite reviews, and complete closeout reviews of food 
aid agreements. The agency should confirm that PVOs are viable agents 
in their host countries before shipping donated commodities to these 
private groups and aggressively seek recovery of grant funds lost due 
to PVO mismanagement. Generally, FAS agreed with our recommendations 
and stated that agency efforts were underway to implement several of 
them.
Oversight of Farm, Conservation, and Research Programs in 2007
    OIG has initiated or plans to conduct several audits to review USDA 
farm and conservation programs. Work is underway to examine RMA's 
effectiveness in monitoring private insurance providers and determine 
if its compliance activities are adequate to improve the crop insurance 
program and reduce fraud, waste, and abuse. We are planning to review 
FSA's management controls in 2007 to assess their effectiveness to 
prevent farm program payments being made to producers who have been 
disqualified due to civil, criminal, or administrative actions.
    There is considerable congressional interest in expanding USDA's 
role in our nation's efforts to develop a viable renewable energy 
program. The Department's activities include financial incentives 
(loans, loan guarantees, grants for capital equipment) for farmers to 
grow crops that can produce renewable energy products such as ethanol. 
USDA research agencies are engaged in developing and improving methods 
to produce renewable energy. In 2007, OIG will evaluate the 
Department's efforts to foster renewable energy technologies as well as 
the coordination between USDA agencies and other Federal agencies. 
These audits are currently underway.
    NRCS' Wetlands Reserve Program (WRP) is a voluntary program 
offering landowners the opportunity to protect, restore, and enhance 
wetlands on their property. NRCS provides technical and financial 
support to help landowners with their wetland restoration efforts. We 
are reviewing the legitimacy of restoration costs and the agency's 
ability to monitor restoration efforts. A related voluntary agency 
program is the Conservation Security Program (CSP), in which payments 
are provided to landowners to maintain and enhance natural resources. 
CSP identifies and rewards those farmers and ranchers who are meeting 
the highest standards of conservation and environmental management on 
their operations. The Government Accountability Office reported that 
NRCS lacked adequate controls to prevent participants from receiving 
financial assistance from multiple programs for the same conservation 
practice. OIG has initiated an audit to determine whether NRCS has 
adequately implemented provisions of CSP. We are focusing on whether 
the agency has properly handled key issues such as program eligibility, 
the calculation of program payments, and the detection of improper 
payments.
    OIG also has an audit underway to review the agency's procedures to 
assess and prioritize the rehabilitation of dams constructed with NRCS 
funding. Many of these dams are nearing the end of their 50-year design 
life. A recent survey of known rehabilitation needs in 22 States 
revealed that more than 2,200 dams need rehabilitation at an estimated 
cost of more than $540 million. The cost of rehabilitation will only 
increase with time as deterioration increases, construction costs rise, 
and more rehabilitation needs are identified. The Watershed 
Rehabilitation Program budget reported in the USDA fiscal year 2008 
Budget Summary and Annual Performance Plan is $6 million. Our primary 
objective is to review the adequacy of NRCS program controls for the 
rehabilitation of flood control dams to mitigate potential threat or 
danger to life and property.
    Congress has provided substantial resources to support Agricultural 
Research Service (ARS) research regarding a wide array of food quality 
and safety issues, nutritional needs, and our environment's natural 
resource base. ARS spends approximately $1.1 billion annually on 1,200 
research projects organized into 22 national program areas at 100 
locations and 4 overseas laboratories. We are currently evaluating the 
efficacy of ARS management controls over its intramural and extramural 
research agreements to ensure they are properly implemented. Our audit 
is examining ARS procedures to ensure that research funding is used for 
its intended purposes, research projects are adequately monitored, and 
project milestones are properly managed.

               THE MANAGEMENT OF USDA'S PUBLIC RESOURCES

Information Technology Security in USDA
    In recent years, USDA's Office of the Chief Information Officer 
(OCIO) and OIG have placed a major emphasis on the need to plan and 
implement effective information technology (IT) security for the 
Department. OIG continues to conduct various audits and reviews of the 
Department's IT security systems to assess and improve their 
performance.
    Based on our reviews in 2006, the National Information Technology 
Center (NITC) in Kansas City, Missouri, sustained its unqualified 
opinion on its general control structure, and OCFO's National Finance 
Center (NFC) in New Orleans, Louisiana, received its first unqualified 
opinion on its design of its general control structure. However, we 
issued a qualified opinion on the effectiveness of NFC's controls 
because the controls were not operating during the entire year. This 
effectiveness qualification was primarily attributed to the disruptive 
effects of Hurricane Katrina on NFC's normal operating procedures. When 
our review determined that certain controls were not adequately 
designed, OCFO NFC updated its procedures to address our concerns.
    As required by the Federal Information Security Management Act of 
2002, our annual audit of the Department's IT security program 
continued to find significant weaknesses. These included needed 
improvement in contingency planning and testing, annual risk 
assessments, and configuration management. Due to the significance of 
the issues identified in our reviews, we continue to classify IT 
security as a material internal control weakness for USDA.
    USDA's Universal Telecommunications Network (UTN) is the critical 
general support system serving the Department's data network backbone 
for telecommunications and network support services. We identified 
weaknesses in OCIO's ability to effectively manage and secure the UTN. 
OCIO had not completed required system testing, security control 
testing, and certification/accreditation of the UTN network prior to 
implementation. OCIO concurred with our recommendations and has taken 
significant actions to address identified weaknesses.
Reducing Risks From Stolen USDA Computer Equipment
    In light of the disclosure or theft of Privacy Act/sensitive 
information from several Federal agencies in 2006 and OMB's recent 
mandates on securing such information, OIG is assessing potential risks 
at USDA. We issued a report on February 27, 2007, from our review of 
stolen equipment within USDA.
    To the extent possible, we identified the information maintained on 
the stolen computers as well as sensitive information currently 
maintained on computers within the Department. OIG found that controls 
over stolen computer equipment were lacking in the four USDA agencies 
reviewed.\9\ Specifically, we found Privacy Act/sensitive information 
was stored on computers that were stolen and the agencies did not 
notify the individuals whose information may have been compromised. 
Additionally, these agencies lacked policies and procedures to 
adequately notify proper authorities and affected parties when thefts 
of computer equipment occurred. The agencies agreed with OIG's 
recommendations.
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    \9\ FSA, NRCS, RD, and OCIO.
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    To date, OCIO has provided agencies with limited guidance on what 
actions to take if computers are lost or stolen. OIG recommended that 
OCIO implement Departmentwide guidance regarding tracking and reporting 
requirements for lost/stolen computer equipment. This should include 
procedures for determining whether the subject equipment may have 
contained Privacy Act or sensitive information.
USDA Procedures to Assess Employee Civil Rights Complaints
    We have previously presented testimony to the Subcommittee about 
our audit work focusing on the Department's processes and performance 
in handling allegations of discrimination against USDA employees or in 
USDA programs. Our most recent civil rights audit \10\ assessed the 
Office of the Assistant Secretary for Civil Rights (ASCR) 
implementation of prior OIG recommendations that focused on the 
agency's management and oversight of program and employment complaints. 
In response to a 2006 congressional request, we initiated an audit to 
evaluate the Department's progress in addressing employee civil rights 
complaints and employee accountability for acts of discrimination. OIG 
will identify and evaluate the adequacy of the Department's controls to 
properly process employee civil rights complaints and its processes to 
hold employees accountable for discrimination towards employees or in 
USDA programs. We anticipate issuing this report by the end of March 
2007.
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    \10\  ``Follow-up on Prior Recommendations for Civil Rights Program 
and Employee Complaints,'' issued September 2005.
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The National Computer Forensic Division: Advanced Investigative and 
        Evidentiary Support
    As an authoritative resource in the investigation and analysis of 
network intrusions and attacks on USDA networks, OIG's National 
Computer Forensic Division (NCFD) conducts thorough and accurate 
analyses of any IT network compromise by analyzing compromised servers, 
firewall logs, Intrusion Detection System logs, and Internet Protocol 
traffic logs. The NCFD continues to provide support, training, and 
advice on evidence collection and analysis to USDA agencies. During the 
past year, the NCFD provided onsite search warrant assistance for 12 
warrants and analysis for 38 cases involving criminal activity, 
employee misconduct, and network intrusions.
    An example of NCFD's work includes an investigation that was 
requested by the Department relating to a network intrusion and two 
servers that were compromised. NCFD determined that while two computer 
servers had been compromised multiple times by hackers in June 2006, 
the database containing personal identity information for 26,000 USDA 
employees had not been compromised or transferred from USDA computers. 
OIG is working with OCIO to ensure that all USDA networks and employee 
personal information are secure.
    Another recent investigation involved a woman employed as a 
Geographic Information Systems (GIS) technician with FSA. The woman 
reproduced and sold 41 pirated copies of USDA-licensed software on two 
Internet auction websites. The woman received $7,120 from the sales of 
the pirated software although its retail value exceeded $326,000. In 
June 2006, the woman pled guilty in a Federal court in Indiana to 
copyright infringement and was sentenced to 5 years of probation, 
restitution of $7,120 to the company owning the software copyright, and 
forfeiture of all computer-related equipment seized at her residence. 
This case resulted in the first Federal criminal conviction in Indiana 
involving the illegal sale of copyrighted materials over the Internet.
    NCFD forensically imaged and analyzed the hard drives of eight 
computers in the GIS lab of FSA's Indiana State office for evidence 
that the software was copied utilizing one of the FSA computers. The 
forensic analysis produced evidence that was utilized in negotiating a 
guilty plea.
USDA Financial Management
    As defined by the Government Accountability Office (GAO), success 
in Federal financial management is an unqualified audit opinion with no 
reportable conditions and no instances of noncompliance with laws and 
regulations. In 2006, the Department's financial statements received 
unqualified audit opinions, as did six USDA entities.\11\ This is an 
improvement from previous years. However, the Department and three 
agencies had material weaknesses and reportable conditions. The 
Department and four agencies also had instances of noncompliance with 
laws and regulations.
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    \11\ Federal Crop Insurance Corporation, Commodity Credit 
Corporation, FS, Rural Telephone Bank, FNS, and RD.
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    Specifically, the Department's material weaknesses related to 
improvements needed in overall financial management across USDA and IT 
security and controls. A reportable condition existed related to 
improvements needed in certain financial management practices and 
processes. Three instances of noncompliance were identified relating to 
the Federal Financial Management Improvement Act, the Improper Payments 
Information Act, and Managerial Cost Accounting practices. OIG 
continues to work with OCFO to ensure effective financial management 
throughout USDA.
The Role of USDA and Agriculture in Protecting the Chesapeake Bay 
        Watershed
    The Chesapeake Bay Program, which is administered by the U.S. 
Environmental Protection Agency (EPA), is mandated to direct 
restoration of the Chesapeake Bay through a regional partnership of 
Federal, State, and local agencies, academic institutions, and non-
government organizations. OIG participated in a joint review of the 
program with EPA's OIG that concentrated on the agricultural best 
management practices used to address non-point nutrient and sediment 
loading to the Chesapeake Bay watershed.
    Despite significant efforts to improve water quality in the 
Chesapeake Bay watershed, excess nutrients and sediment continue to 
impair the Bay's water quality. Our joint review found that few of the 
agricultural practices in the State tributary strategies have been 
implemented because the agricultural community considers many of these 
practices to be either unprofitable or to require significant changes 
in farming techniques. We found that EPA must improve its collaboration 
with its Bay partners and the agricultural community to reduce the 
agricultural nutrients and sediments entering the Chesapeake Bay 
watershed. Members of the agricultural community have been reluctant to 
participate in this endeavor with EPA because of its regulatory 
enforcement role.
    We recommended that the Secretary or Deputy Secretary assign a 
senior-level official with commensurate authority to coordinate 
relevant USDA goals and programs with EPA and the Chesapeake Bay 
Program. USDA should consider the feasibility of targeting USDA funds 
on a regional and/or geographical basis to assist the Bay's 
environmental restoration. The Department should also direct USDA 
agencies to expedite the establishment of outcome-based performance 
measurements to properly evaluate their conservation activities. USDA 
generally agreed with our recommendations.
Evaluating Forest Service Use of Private Wildland Firefighting Crews
    As wildfire activity on National Forests (NF) has become more 
intense, FS has made increasing use of contract suppression crews to 
supplement agency resources. FS incident management personnel had 
previously noted numerous performance problems with poorly trained and 
inexperienced crews. Other reports (GAO, incident management personnel) 
have indicated similar problems. We evaluated FS' administration of 
these contracts and its coordination with other parties \12\ that also 
use these contracts.
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    \12\  Primarily State and local governments. The crews at issue in 
this report were obtained from the Oregon Department of Forestry's 
list.
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    We determined that FS needed to improve its contract oversight to 
ensure that contract employees had met both the training and experience 
requirements for the positions they held on fire fighting crews. Our 
review found that a significant number of contract firefighters may not 
have been qualified to perform the duties required under the contract. 
FS needed to address control weaknesses with wildfire suppression 
associations \13\ that provide training to contract employees. Language 
proficiency assessments should be improved to ensure contract crew 
personnel can communicate adequately with FS incident management 
personnel. Finally, we recommended that FS coordinate with other 
Federal agencies to identify undocumented workers on contracted crews. 
FS officials agreed with all of OIG's recommendations and established 
timeframes for corrective actions.
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    \13\ Private organizations that represent wildlife suppression 
contractors and provide training to their employees.
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Reducing Forest Service's Large Fire Suppression Costs: Shared 
        Responsibilities
    FS' wildfire suppression costs have exceeded $1 billion in 4 of the 
past 7 years. Our audit focused on the most significant ``cost 
drivers'' that were impacting fire suppression costs. We determined 
that the majority of FS' large fire suppression costs are directly 
linked to protecting private property--as opposed to National Forest 
System land--in the wildland urban interface (WUI). FS managers need to 
evaluate their agreements with State and local governments to ensure 
the costs of protecting the WUI are appropriately apportioned. A 
significant portion of these costs can be avoided and the safety of 
firefighters improved if the Federal Government can proactively work 
with State and local governments regarding prudent ``Firewise'' zoning 
and building codes.
    In another report focusing on wildland fire issues and the Healthy 
Forest Initiative, we determined that FS needs to change some policies 
regarding wildland fire use (WFU). Hazardous fuels such as dead 
vegetation and undergrowth in our national forests are increasing the 
size and complexity of wildland fires. FS needs to reduce these fuels, 
increase the number of qualified personnel, and expand WFU to help 
control the costs of future fires. OIG further recommended that the 
agency implement improved processes to more effectively hold managers 
accountable for the financial impact of their decisions.
    FS agreed with our findings and recommendations and initiated 
corrective actions. These include working with OIG to jointly develop 
training for FS personnel conducting reviews of large fire operations. 
FS and OIG will jointly conduct the training prior to the 2007 fire 
season.

                 OIG'S FISCAL YEAR 2008 BUDGET REQUEST

    Before concluding, I would like to briefly comment on OIG's fiscal 
year 2008 Budget Request. With your assistance and support, we are 
pleased to have built a solid record of constructive audit oversight 
and investigative accomplishment. Over the last 4 years we have 
produced a return on investment of $5.34 for each dollar of 
appropriated funds you have provided. During that period, our work has 
produced over $1.65 billion in monetary recoveries and cost avoidances, 
1,449 indictments and 1,358 convictions. In addition to our monetary 
results, we have made numerous recommendations that resulted in 
substantive management and program improvements. For example, in fiscal 
year 2006 we issued 425 program improvement recommendations and USDA 
managers agreed to implement 384 of them. These recommendations 
involved issues of congressional and public concern such as improving 
surveillance and monitoring of AI in domestic poultry, strengthening 
USDA's food inspection operations, and improving the collection of 
unauthorized farm program payments.
    In addition to the statistical accomplishments mentioned above, 
fiscal year 2006 and the first few months of fiscal year 2007 have been 
a particularly productive time for OIG in other ways as well. The 
following activities may be of particular interest to the Subcommittee.
  --OIG has devoted over $2 million and several staff years to 
        providing oversight to USDA programs supporting the Gulf Cost 
        region devastated during the 2005 hurricane season in order to 
        increase accountability in these programs and avoid waste and 
        fraud in the distribution of benefits. The $445,000 Congress 
        authorized in the fiscal year 2006 emergency supplemental to 
        support these efforts was of great assistance. Currently, we 
        have 11 audits and 11 investigations underway pertaining to 
        USDA hurricane recovery assistance programs.
  --We also directed resources to review Departmental plans to deal 
        with the threatened avian influenza pandemic, by advising the 
        Department on how it could improve its plans and programs.
  --OIG took prompt and comprehensive action to evaluate the 
        implementation of the Department's IT security system. Through 
        a coordinated program of audits, investigations, and other 
        reviews, USDA OIG is addressing the areas of highest risk and 
        providing insight and support to USDA program agencies.
  --We formed an Office of Inspections and Research (OIR) to address 
        emerging issues that may require scientific, legal, 
        statistical, or other expert competencies. Generally, OIR will 
        conduct short-term, focused reviews and inspections of USDA's 
        programs and operations. OIR projects completed in the last 
        year and currently underway include:
    A review of the Federal crop insurance program that, in 
            collaboration with FSA and RMA, identified a number of 
            fraud indicators or conditions that are often associated 
            with fraud, waste, and mismanagement.
    An inspection regarding the coordination of the Department's 
            international activities and agreements.
    An inspection of the security practices at a USDA laboratory that 
            found the laboratory had made many improvements, both 
            physical and through extensive training of personnel.
  --With the support of our congressional appropriators, we were able 
        to strengthen our ability to support USDA programs through 
        effective audits and investigations. Five years ago our 
        information technology systems were inadequate to support our 
        audit and investigative program. Thanks to your continued 
        support, our IT environment is current and able to support 
        sophisticated audit and investigative techniques. From fiscal 
        year 1996 to fiscal year 2006, OIG's staff level fell a total 
        of 21 percent--which directly translates into a commensurate 
        reduction in our audit and investigative capacity. With your 
        support, we were able to arrest that trend in fiscal year 2006 
        and have begun--in a very small way--to strengthen our 
        capacity.
    We respectfully request your support in continuing our efforts to 
maintain, and in some areas even improve, OIG effectiveness in fiscal 
year 2008. The President's request asks for the minimum necessary to 
support our staffing level and advance our ability to safely and 
effectively respond to emerging public health and agriculture security 
threats. Specifically, the President's fiscal year 2008 request of $84 
million for OIG provides for:
  --$1.9 million for 2008 mandatory pay costs.
  --$994,000 for 2007 pay costs.
  --$340,000 to fund five staff to reinforce our audit, investigation, 
        and inspection programs focusing on the approximately $20 
        billion spent annually on USDA farm programs.
  --$757,000 for necessary equipment and training updates to the 
        Computer Forensics Unit and the Emergency Response Team, and 
        implementation of an automated audit workpaper system that will 
        improve the timeliness of our audits and ensure that audit 
        evidence is kept in accordance with Department of Justice 
        standards.
    This concludes my testimony statement. I thank the Members of the 
Subcommittee for the opportunity to present information about OIG's 
activities and our fiscal year 2008 Budget Request.
                                 ______
                                 

 Prepared Statement of Nancy C. Pellett, Chairman and Chief Executive 
                  Officer, Farm Credit Administration

    Mr. Chairman, Members of the Subcommittee, I am Nancy C. Pellett, 
Chairman and Chief Executive Officer of the Farm Credit Administration 
(FCA or Agency). On behalf of my colleagues on the FCA Board, Leland 
Strom of Illinois and Dallas Tonsager of South Dakota, and all the 
dedicated men and women of the Agency, I am pleased and honored to 
provide this testimony to the Subcommittee.
    I would like to thank the Subcommittee staff for its ongoing 
assistance during the budget process, and before I discuss the role and 
responsibility of the Farm Credit Administration and our budget 
request, I would respectfully bring to the Subcommittee's attention 
that FCA's administrative expenses are paid for by the institutions 
that we regulate and examine. In other words, FCA does not receive a 
Federal appropriation but is funded through annual assessments of Farm 
Credit System (System) institutions and the Federal Agricultural 
Mortgage Corporation (Farmer Mac). We fully support the proposed 2008 
Budget Submission of the President.
Mission of the Farm Credit Administration
    As directed by Congress, FCA's mission is to ensure a safe, sound, 
and dependable source of credit and related services for agriculture 
and rural America. The Agency accomplishes its mission in two important 
ways.
    First, FCA ensures that the System and Farmer Mac remain safe and 
sound and comply with the applicable law and regulations. Specifically, 
our risk-based examinations and oversight strategies focus on an 
institution's financial condition and any material existing or 
potential risk, as well as on the ability of its board and management 
to direct its operations. Our oversight and examination strategies also 
evaluate each institution's efforts to serve all eligible borrowers, 
including young, beginning, and small farmers and ranchers.
    Secondly, FCA approves corporate charter changes, and researches, 
develops, and adopts regulations and policies that govern how System 
institutions conduct their business and interact with their customers 
and provides other necessary guidance. If a System institution violates 
a law or regulation, or operates in an unsafe or unsound manner, we use 
our supervisory and enforcement authorities to ensure appropriate 
corrective action.
Fiscal Year 2006 Accomplishments
    In 2006 we continued our efforts to achieve our Agency's strategic 
goals through (1) responsible regulation and public policymaking and 
(2) effective risk identification and corrective action. FCA has worked 
hard to maintain the System's safety and soundness. We also continually 
explore ways to reduce regulatory burden on the FCS and to ensure that 
all System institutions are able to provide agriculture and rural 
America with continuous access to credit and related services.
          examination programs for fcs banks and associations
    One of the Agency's highest priorities is the development and 
implementation of efficient and effective risk-based oversight and 
examination programs that meet the high standards and expectations of 
the Congress; investors in System debt obligations; the farmers, 
ranchers, and cooperatives that own System banks and associations; and 
the public at large. Our examination programs and practices have worked 
well over the years and have contributed to the present safe and sound 
overall condition of the System, but we must continue to evolve and 
prepare for the increasingly complex nature of financing agriculture 
and rural America.
    With the changes in the System and our human capital challenges 
within the Agency (i.e., pending retirements, normal attrition of 
staff, and the ever-increasing need for more sophisticated skills in 
the financial sector), we have undertaken a number of initiatives to 
enhance our skills and level of expertise in key functional examination 
areas. We have also realigned our organizational structure to make the 
best use of our resources. The evolving nature of agriculture and the 
Farm Credit System necessitates a flexible organizational structure at 
FCA. At the present time, the sound financial condition of the System 
also provides us a unique opportunity to prepare for the future. In 
2006 our Office of Examination completed its transition from a 
regionally based field office structure to division examination teams 
that are organized on a national basis. Office locations have been 
retained, but the examination programs are now managed nationally to 
better match examiner skills to material and strategic risks faced by 
the FCS institutions.
    On a national level, we actively monitor risks that may affect 
groups of System institutions or the entire System, including risks 
that may arise from the agricultural, financial, and economic 
environment in which the System institutions operate. Our job is not to 
forecast specific events but to understand the environment so that we 
can take steps to help System institutions take pre-emptive actions 
before adverse trends develop.
    Examiners also use a risk-based examination and supervision program 
to differentiate the risks and develop individualized oversight plans 
for each FCS institution. We set the scope and frequency of each 
examination based on the level of risk in the institution. In addition, 
we continually identify, evaluate, and proactively address risks within 
each institution. Examiners base the scope of their oversight and 
examination activities on their assessment of an institution's internal 
control environments and the ability of the institution's board and 
management to manage risks, both present and future. The frequency and 
depth of our examination activities may vary, but each institution is 
provided a summary of our activities and a report on its overall 
condition every 18 months as required by the Farm Credit Act.
    As part of our ongoing efforts, we monitor each institution's risk 
profile. The Financial Institution Rating System (FIRS) is the primary 
risk categorization and rating tool used by examiners to indicate the 
safety and soundness of an institution. The rating system is similar to 
other Federal financial regulators' CAMELS (capital adequacy, asset 
quality, management performance, earnings, liquidity, and sensitivity 
to interest rate risk) rating scale. FIRS ratings range from 1 (for a 
sound institution) to 5 (for an institution that is likely to fail). 
Throughout fiscal year 2006, FIRS ratings as a whole continued to 
reflect the stable financial condition of the FCS. The overall trend in 
FIRS ratings continues to be positive, with eighty-three 1-rated 
institutions and seventeen 2-rated institutions, and one 3-rated 
institution. Importantly, there were no 4- or 5-rated institutions. In 
addition, no FCS institutions were under enforcement action and no FCS 
institutions were in receivership. The overall financial strength 
maintained by the System remains strong and does not pose material risk 
to investors in FCS debt, the Farm Credit System Insurance Corporation 
(FCSIC), and FCS institution stockholders.
    During fiscal year 2006, FCA also performed various examination and 
other services for the Small Business Administration, the U.S. 
Department of Agriculture, FCSIC, and the National Cooperative Bank. 
Each of these entities reimburses FCA for its services. The safety and 
soundness of the System and Farmer Mac remains our primary objective. 
However, we believe the continuing use of FCA examination resources by 
other agencies is a positive reflection on the expertise of FCA 
examiners and serves to broaden their examination skills while 
increasing job satisfaction and employee retention. It also helps us 
defray some of the costs of our operations while providing a valuable 
service.

                          REGULATORY ACTIVITY

    Congress has given the FCA Board statutory authority to establish 
policy and prescribe regulations necessary to ensure that FCS 
institutions comply with the law and operate in a safe and sound 
manner. The Agency's regulatory philosophy articulates our commitment 
to establishing a flexible regulatory environment that enables the 
System, consistent with statutory authority, to offer high-quality, 
reasonably priced credit to farmers and ranchers, their cooperatives, 
rural residents, and other entities on which farming operations depend. 
This translates into developing balanced, well-reasoned, flexible, and 
legally sound regulations. We strive to ensure that the benefits of 
regulations outweigh the costs; to maintain the System's relevance in 
the marketplace and rural America; and to ensure that FCA's policy 
actions encourage member-borrowers to participate in the management, 
control, and ownership of their Government-sponsored enterprise (GSE) 
institutions.
    For 2006 and early 2007, the Agency's regulatory and policy 
projects included the following:
  --A final rule on governance of FCS institutions that provided 
        enhanced oversight of management and operations by 
        strengthening the independence of System institution boards and 
        by incorporating best governance practices.
  --A final rule that amended and updated the regulations governing the 
        termination of System status by a System institution.
  --A final rule to improve the transparency of public disclosures, 
        strengthen board and management accountability and auditor 
        independence, and increase shareholder and investor confidence 
        in the System.
    In addition, relative to Farmer Mac, the Agency finalized a rule 
updating the Farmer Mac Risk-Based Capital (RBC) Stress Test. We 
amended the RBC regulations in response to changing financial markets, 
new business practices, and the evolution of the loan portfolio at 
Farmer Mac, as well as continued development of industry best practices 
among leading financial institutions. The rule is intended to more 
accurately reflect risk in the model in order to improve the model's 
output--Farmer Mac's regulatory minimum risk-based capital level.
    The Agency has also adopted an ambitious regulatory and policy 
agenda for 2007. The agenda includes the following goals:
  --Evaluating comments received on a proposed rule to change the 
        ownership requirement for the eligibility of processing and 
        marketing entities.
  --Continuing to evaluate how System partnerships and investments can 
        increase the availability of funds to help stimulate economic 
        growth and development in rural America under a pilot program 
        initiated during fiscal year 2005.
  --Continuing to review current regulatory requirements governing 
        eligibility and scope of lending to determine if these 
        requirements are reasonable in light of agriculture's changing 
        landscape. Agency staff will identify issues and explore 
        options for the Board's consideration.
  --Developing and issuing an Advance Notice of Proposed Rulemaking to 
        solicit public input on appropriate changes to FCA's capital 
        adequacy requirements for the System in light of Basel II and 
        IA proposals by the other Federal banking agencies.

                          CORPORATE ACTIVITIES

    The pace of System restructuring remained slow in fiscal year 2006. 
Only one corporate application was submitted for FCA Board review and 
approval during fiscal year 2006, compared with four applications the 
prior year. As of January 1, 2007, the System had 95 direct-lender 
associations and five banks for a total of 100 banks and associations. 
Seven service corporations and special-purpose entities brought the 
total number of FCS institutions to 107 entities. Through mergers, the 
number of FCS associations has declined from 172 to 95 since 2000, and 
the number of FCS banks has dropped from seven to five.
Condition of the Farm Credit System
    I will now turn to the condition of the Farm Credit System. I am 
pleased to report that the System's overall condition and performance 
remained strong throughout 2006. The FCS is fundamentally sound in all 
material aspects, and it continues to be a financially strong, reliable 
source of affordable credit to agriculture and rural America. Capital 
levels continued to be strong, especially in consideration of the 
System's risk profile. Asset quality remained high, loan volume growth 
was strong, and favorable credit conditions enabled the System to 
achieve almost $2.4 billion in earnings for the 12 months ended 
December 31, 2006.
    Loan volume continued to grow at a strong pace during 2006 while 
loan quality remained high. Gross loans increased by 16.2 percent to 
123.4 billion. The level of nonperforming loans, including nonaccrual 
loans, decreased to 0.50 percent of gross loans outstanding. 
Delinquencies also remained minimal. The System has earned more than $1 
billion consistently since the early 1990s; as a result, capital 
remains strong and is made up largely of earned surplus, the most 
stable form of capital. A strong capital position will help the System 
remain a viable, dependable, and competitive lender to agriculture and 
rural America during any near-term downturns in the agricultural 
economy.
Federal Agricultural Mortgage Corporation
    FCA also has oversight, examination, and regulatory responsibility 
for the Federal Agricultural Mortgage Corporation, which is commonly 
known as Farmer Mac.
    Congress established Farmer Mac in 1988 to provide secondary market 
arrangements for agricultural mortgage and rural home loans. In this 
capacity, Farmer Mac creates and guarantees securities and other 
secondary market products that are backed by mortgages on farms and 
rural homes. Through a separate office required by statute (Office of 
Secondary Market Oversight), the Agency examines, regulates, and 
monitors Farmer Mac's disclosures, financial condition, and operations 
on an ongoing basis and provides periodic reports to Congress.
    Like the Farm Credit System, Farmer Mac is a GSE devoted to 
agriculture and rural America. FCA and the financial markets recognize 
Farmer Mac as a separate GSE from the System's banks and associations. 
Farmer Mac is not subject to any intra-System agreements or to the 
joint and several liability of the FCS banks, nor does the Farm Credit 
System Insurance Fund back Farmer Mac's securities. However, by 
statute, in extreme circumstances Farmer Mac may issue obligations to 
the U.S. Treasury Department to fulfill the guarantee obligations of 
Farmer Mac Guaranteed Securities.
    In conclusion, we at FCA remain vigilant in our efforts to ensure 
that the Farm Credit System and Farmer Mac remain financially strong 
and focused on serving agriculture and rural America.
Fiscal Year 2008 Budget Request
    Earlier this fiscal year, the Agency submitted a proposed total 
budget request of $47,482,520 for fiscal year 2008. The Agency's 
proposed budget includes an assessment on System institutions for 
fiscal year 2008 of $42,550,000. The total amount of assessments 
collected from the FCS and Farmer Mac with carryover funds equals 
$46,000,000. Since approximately 82 percent of the Agency's budget goes 
for salaries, wages, and related costs, almost all of the total budget 
amount will be used for these purposes.
    It is our intent to stay within the constraints of our fiscal year 
2008 budget as presented, and we continue our efforts to be good 
stewards of the resources entrusted to us in order to meet our 
responsibilities. The Agency has worked hard to hold down the 
assessment to the System for our operations, and I believe we have 
achieved that objective over the past several years. While we are proud 
of our record and accomplishments, I assure you that the Agency will 
continue its commitment to excellence, effectiveness, and cost 
efficiency and will remain focused on our mission of ensuring a safe, 
sound, and dependable source of credit for agriculture and rural 
America. On behalf of my colleagues on the FCA Board and at the Agency, 
this concludes my statement and I thank you for the opportunity to 
share this information.
    Senator Kohl. Thank you very much, Mr. Secretary. We'll now 
begin our rounds of questions.

                           FSIS FUNDING LEVEL

    Mr. Secretary, I was pleased to see an increase in the 
budget for the Food Safety and Inspection Service of 
approximately $100 million over the level provided in fiscal 
year 2006, but as you know, Mr. Secretary, there were some very 
serious budget problems last year, even though we provided the 
requested funding. Can you commit that this funding level will 
be adequate, in light of increasing workload and industry 
growth, for FSIS to maintain the proper amount of staff with 
the ability to do the proper testing and the work throughout 
the country?
    Secretary Johanns. Yes, we believe it will. And you're 
absolutely right, last year we were in a very tough situation 
with the budget, and about 80 percent of this area is staffing, 
so if you get in a tough situation there's not much you can do. 
It's just a very, very difficult situation. But with the 
increased funding we have requested, we believe we can cover 
the anticipated need out there and meet the needs of this 
inspection area. So we appreciate your understanding of the 
situation, but we believe this will get us there.
    Senator Kohl. All right. Mr. Secretary, the problems faced 
in fiscal year 2006 and fiscal year 2007 were the result of 
several years of FSIS being shortchanged in their pay costs, 
although Congress has always provided the full amount 
requested. We seem to have dug ourselves out of that hole. Will 
this funding level keep us above board, or is FSIS going to 
have to dig into their program levels to fully fund pay costs?
    Secretary Johanns. Well, I'll ask Scott to talk about pay 
costs, but again I think we're in good shape with this funding 
request to get the job done. But, Scott, talk about pay costs, 
if you will.
    Mr. Steele. Thank you. Yes, Senator, we have fully funded 
the on line inspection staff. We're anticipating the growth in 
the industry in terms of meat and poultry inspection 
requirements. Of course there is some uncertainty with that, in 
terms of how much demand for inspection will be out there in 
the meat industry, but this is our best estimate right now. 
Based on that, we have fully funded all the inspection 
requirements, on line inspectors, that we need.
    And of course, as the Secretary pointed out, a large part 
of the budget is for wages and benefits, so there is a limited 
amount of flexibility. But we are doing audits on the agency 
right now. We've had people come in and look at that, outside 
auditors to look at the financial balance sheets of the 
organization. We're doing a better job of tracking the 
expenditures in the agency. I think we're at this point in time 
on top of the workload and funding requirements, but we will 
keep the committee and staff informed as we move through the 
year and report to you if there are any changes to our 
estimates.
    Senator Kohl. That's good.

                          AVIAN INFLUENZA (AI)

    Mr. Secretary, the problem of avian flu, as we all know, 
has not gone away. In fact, there have been recent reports of 
an outbreak in England, and with spring weather around the 
corner there will be a lot of activity in migratory bird 
flyways. Can you tell us the total amount within APHIS that 
will be spent on avian flu activities this year, and tell us 
what this money will buy?
    Secretary Johanns. Yes. The 2008 budget requests a total of 
$82 million for avian influenza. This will continue efforts 
initiated with the supplemental funding, which if you'll 
remember was $91 million. $57 million of that is specifically 
designated for APHIS highly pathogenic AI activities.
    Funding will be used to continue our surveillance, 
diagnostics, preparedness and response efforts, and then a 
piece of that is for international veterinary capacity-
building. Of the total requested, $3.2 million is to develop 
methods to detect AI in the environment and over $5 million is 
for further AI research, including development of poultry 
vaccines.
    The 2008 budget also includes about $17 million for the 
APHIS ongoing low pathogenic program. Low path AI is a concern 
for its potential cost to the poultry industry, but it's also a 
concern to us because of the potential that it might mutate 
into the highly pathogenic variety, so we also pay attention to 
that. So that details what we're doing with the AI funding.
    Senator Kohl. Mr. Secretary, can we expect more outbreaks 
of avian flu this spring? And if we can, what precautions do 
you have in place?
    Secretary Johanns. Low pathogenic AI is common in the 
United States, so to address low path first, it's been around 
about 100 years. Birds go through a flu season much like humans 
go through a flu season. It's typically not fatal to birds, and 
it's not a problem to human consumption of poultry. You cook 
the bird and you kill the virus. And that would be true of both 
low and high path. But we will see low path. We have strategies 
in place to deal with that, but again, it's fairly common.
    We've only had high path avian influenza in the United 
States on three occasions. The most recent was in 2004. And so 
far in this most recent international outbreak of high path 
avian influenza, we have not detected it.
    And we have been doing aggressive testing, in cooperation 
with the Department of the Interior, of wild birds and in 
Alaska, birds that would come down through the United States, 
through the flyway. In fact, we've done 79,000 wild bird 
samples to date. We haven't detected it, which is good news. We 
will continue our efforts to monitor and detect, will continue 
to do environmental samples, but so far, so good, on the high 
path.

                           EMERALD ASH BORER

    Senator Kohl. Good. I'd like to ask you about emerald ash 
borer. Would you speak to the efforts of APHIS in undertaking 
to control and eradicate emerald ash borer where it has been 
found, and also please say a word about the surveys that the 
budget requests funding for in order to prevent the spread of 
emerald ash borer in States like my own of Wisconsin?
    Secretary Johanns. The budget includes $30.7 million, an 
increase of about $21 million over the 2007 Continuing 
Resolution, for emerald ash borer efforts. The funding will 
support survey efforts and regulatory activities to prevent 
additional spread of the pest. The budget also requests $2 
million in APHIS plant methods development, a line item to 
develop control methods to do a better job of managing EAB.
    The program's immediate goal is to protect infested areas 
by containing the current infestation--mainly that would be in 
Michigan, Ohio, and Indiana--and eliminate isolated outbreaks, 
such as those detected in States like yours or Illinois or 
Maryland, and develop a long term control and eradication 
strategy. So we've boosted our request for funding here by 
about $21 million over where we were with the Continuing 
Resolution.
    Senator Kohl. I thank you very much. I'd like to call on 
Senator Bennett.
    Senator Bennett. Thank you, Mr. Chairman.

                          FSA COMPUTER SYSTEM

    Mr. Secretary, we're becoming increasingly aware of the 
situation regarding the computer system in the Farm Service 
Agency. I'm sure you're familiar with that. I understand it has 
gotten so bad that direction has been given to State and county 
officers as to what times of day they could use the system 
because it's not up in a uniform fashion.
    Can you walk us through the issues in relation to that and 
what you're doing? The funding request did not appear in this 
year's budget, so I assume you have a strategy for dealing with 
it. Just talk us through that one.
    Secretary Johanns. Well, we are working with staff. In 
fact, I think it was yesterday we gave an extensive briefing 
with our computer experts on some of the problems we are 
facing. And I'll just be very candid with you. This is an area 
where we're going to need some help.
    Senator Bennett. Does ``help'' mean money?
    Secretary Johanns. It always does in government, doesn't 
it?
    Senator Bennett. Yes.
    Secretary Johanns. Here is the challenge we face. Beginning 
in November 2006, FSA experienced performance problems in its 
web-based software for programs such as the MILC program, 
Direct and Counter-Cyclical Payments, and the 2007 crop year 
farm reconstitutions. The amount of time systems were off line, 
in other words, dark, became progressively longer. A number of 
corrective actions were put in place, but again, the problem 
just continued to worsen.
    So FSA did what you said, they rationed web access time to 
try to alleviate that overloading of computing resources, as a 
means to try to continue serving producers while other steps 
were put in place to aggressively diagnose the problem we're 
facing. That policy was suspended on February 9.
    A team was put together of USDA and private sector experts 
to observe the Kansas City Web Farm under a load situation. The 
team's recommendations to optimize the performance of the 
computing environment in applications systems are being 
implemented, and service has been restored at a pre-November 
level. That's my understanding. But I will tell you that I 
don't believe, in fact, no doubt about it, the problem is not 
solved.
    FSA and the department's OCIO have compiled a comprehensive 
list of investments in managed services that are needed to 
stabilize the infrastructure used by FSA to deliver program 
benefits. There's dozens of reasons as to why this is happening 
now, but suffice it to say that over time a lot has been added 
to this system, and maybe at times not enough money to deal 
with the issues that the system was asked to face.
    So what happens now, as it has been explained to me, and 
this is very nontechnical language, but let's say a farmer 
shows up and we put that farmer's information into the system 
to assist that farmer in some way. That is routed to our Kansas 
City facility, where that request works its way through a very 
complex system of lap and overlap and overlays, and quite 
honestly patched-together systems over a period of years. And 
as it's working its way through all of that and trying to make 
this work, a period of time elapses, and if you don't get your 
request met within that period of time, it will just kick you 
out.
    Senator Bennett. Yes. I don't want to go that deep into it 
because I want to hang onto my time, but I'm glad to know 
you're on top of it to that degree. Can we expect a request for 
reprogramming or a supplemental or something?
    Secretary Johanns. In the next 3 weeks we hope to have in 
front of you, your staff, a business case for what's going to 
be involved in this system. Here is what I will tell you, 
Senator, just to cut to the chase.
    I think there's going to be a short term response to this, 
because building a new system takes time and it's very 
expensive. It takes time. It could take 3 years plus. And so 
because of a new farm bill, because of a whole bunch of other 
things that just come along, I think there will be a short term 
response that we're going to have to deal with and then a long 
term approach to a system.
    Senator Bennett. I see. Well, thank you.

                          INTERNATIONAL TRADE

    Let's talk about international trade. You mentioned exports 
being up, record levels. Trade Promotion Authority is set to 
expire this year. How much of the increase that we've seen in 
farm exports can be attributed to TPA, and also Trade 
Adjustment Assistance, or TAA, for farmers? How effective has 
all of this been with respect to that, and what would be the 
effect if TPA expired without being renewed?
    Secretary Johanns. Personally, I think it would be a very 
bad situation for farmers. Our exports have been growing. There 
are better experts here on the panel that can tell you or offer 
thoughts about what is related to Trade Promotion Authority or 
what is not, but here is the bottom line.
    I don't think you will see another trade agreement 
negotiated or approved without Trade Promotion Authority. I 
think the trade initiative will just stop. It will just stop. 
Why? Why would a country negotiate with us, if the end result 
is there really is no agreement? There really is no end to the 
negotiations, and the possibilities for shaking on the deal and 
then the deal not really being a deal. So I personally believe 
it's critically important.
    I will also offer this, because I've said it publicly. To 
me it doesn't matter who is in the White House, it doesn't 
matter if it's one party or another party, I would have the 
same argument for Trade Promotion Authority no matter who was 
in the White House. I believe it's just an important part of 
what we do.
    Now, I think there's always an opportunity for discussion 
and analysis and debate about are we doing it well enough, are 
we not doing it well enough, what should we be doing, are we 
taking care of labor issues, environmental issues, trade 
issues, all of that. I think that's a very, very appropriate 
discussion. But I think without Trade Promotion Authority we 
disarm whoever is in the White House to negotiate trade 
agreements and bring those to the Senate and the House for 
approval.
    Senator Bennett. Thank you. I was going to discuss ag 
disaster assistance, but I think Senator Dorgan has signaled 
that he is going to deal with that.

              NATIONAL ANIMAL IDENTIFICATION SYSTEM (NAIS)

    Let me ask you one last question quickly about the National 
Animal Identification System. There is some confusion about 
that. We have given you some money in the past. You have asked 
for some more money. But can you help us understand exactly 
where that is and where you see it going in the coming year?
    Secretary Johanns. The first thing I want to tell you is 
that it is a voluntary system. The system that we have designed 
and articulated basically says to the producer, ``this is for 
you to make a decision as to whether this is the best approach 
for what you're doing in your operation.'' It is a voluntary 
system.
    The first piece of funding, if you will, actually predates 
me, but it was funding designed to put in place the structure 
necessary to do premises identification and lay the groundwork 
for the next steps. I can tell you that we had a goal at the 
end of January of having 25 percent of our premises registered, 
and we met that goal. We were right there. It was about 24.6 
percent, so we have met that goal, and we continue to work with 
States across the country.
    The bottom line is this, Senator. Some States are really 
doing well. They're doing great. They're registering premises. 
People believe in it. Other States are not doing as well. They 
are behind. They are not registering premises as aggressively. 
There is a debate in the country as to how important this might 
be, but I think we're overcoming that. We're working to get 
good information out there.
    Ultimately, I think it has to happen. I was an advocate 
when I was Governor. I'm an advocate now as Secretary. I do 
believe the voluntary approach beats the mandatory approach. I 
think that's where we need to be now. So I personally believe 
it is where we need to be headed.
    Senator Bennett. Thank you very much, Mr. Chairman.
    Secretary Johanns. Thank you, Senator.
    Senator Kohl. Thank you very much, Senator Bennett.
    Senator Dorgan.
    Senator Dorgan. Mr. Chairman, thank you very much.

                              DISASTER AID

    Mr. Secretary, welcome. I intend to try to offer a disaster 
aid provision to the emergency supplemental bill. I mentioned 
to you that I've done that three times. Twice it got through 
the full Senate, got to conference, and was blocked by the 
administration. If I am successful in getting a disaster aid 
bill through the Senate on this supplemental, I'm wondering 
whether the administration will continue to want to block it or 
whether you'll be working with us to try to pass it.
    Secretary Johanns. As you know, the administration's 
historic position is to require offsets to find a way to pay 
for disaster aid, and I don't see anything that would indicate 
a change in that historic position.
    Senator Dorgan. Well, the President doesn't request any 
offsets for any emergency supplemental bills.
    Secretary Johanns. In this area, the administration's 
position, though, has been to require offsets. Here is what I 
would say, Senator, and you know I went through this when I was 
governor, and it hasn't changed. On an annual basis we talk 
about disaster, and there will be disasters. This is a very, 
very large country. Weather patterns are different north to 
south and east to west. Probably the one guarantee I can make 
you each year is that somewhere in the United States there will 
be a disaster.
    It's just a big country. Somewhere there's going to be 
drought. Somewhere there's probably going to be hurricane and 
tornado and hail damage and all of the things that farmers and 
ranchers deal with. And yet in other parts of the country they 
oftentimes experience historically best years. I won't go 
through the figures. You know the figures. But I could cite 
figures about corn production this year and soybean production, 
etcetera.
    I personally believe that the long term answer to this is 
to look at what we're doing here in terms of the policy and try 
to figure out, is there a solution? I would love to sit down 
with you and talk to you about some of the proposals we've made 
in the farm bill, because I believe they'll make a big 
difference. I believe they will help this situation. Revenue 
countercyclical does work better----
    Senator Dorgan. Mr. Secretary, I only have 5\1/2\ minutes 
of it is now gone. I'm very interested in what you are saying, 
but that--I'm interested in a response to the question of will 
the administration attempt to block a disaster piece that I put 
in the emergency supplemental.
    Secretary Johanns. I can tell you, Senator, today the 
administration's position has been and will be that offsets 
will be required to finance that.
    Senator Dorgan. Mr. Secretary, did the administration 
request offsets when we provided farm disaster aid for farmers 
who lost everything during Hurricane Katrina?
    Secretary Johanns. We have programs for disaster aid that 
we administer, and we administered some of those programs there 
that were funded and we literally could identify some funding 
and go out there and try to help in the Katrina situation.
    Senator Dorgan. Mr. Secretary, with respect to Katrina, 
that disaster had a name. Last year's drought, the epicenter of 
which was in North and South Dakota, but it spread 
substantially, had no name. But the farmers in the Gulf region, 
as a result of Hurricane Katrina, did get disaster relief. A 
significant portion of that was declared emergency, signed by 
the President.
    I think it is unfair to suggest somehow that other farmers 
who lost everything, and there are others that did, should be 
subject to a different standard. And I just would say to you 
that I'm going to attempt once again to put a disaster 
provision in the emergency supplemental, and my hope is that 
this time the administration will not block it.

                       COUNTRY-OF-ORIGIN LABELING

    I want to ask--again, we have such limited time--I want to 
ask about Canadian beef. I don't understand why the 
administration is so anxious to almost have a cattle drive from 
Canada coming to this country. One-third of the cattle that 
have been identified with BSE in Canada were born after the 
feed ban, and yet the administration tells us because of the 
imposition of a feed ban that we won't have any risk associated 
with this.
    It seems to me, Mr. Secretary, if you're at least 
considering, as you are, bringing in substantial additional 
animals from Canada, who just recently discovered their ninth 
case--or tenth, if you consider the American cow--of BSE, that 
before you would do that you would agree to implement country-
of-origin labeling and be aggressively interested in country-
of-origin labeling, after which we then have a discussion about 
whether it is protective of this country's economic interests 
and this country's beef industry to bring in additional cattle 
from Canada in the shadow of their ninth case of BSE. Would you 
respond?
    Secretary Johanns. I'd be happy to. In reference to the 
question about country-of-origin labeling, let there be no 
mistake. Country-of-origin labeling is the law, effective 
October 1, 2008. I want you to understand that although I may 
have personal feelings about it and desire to have a great 
debate about it, those personal feelings aren't important at 
this point. We will administer the law that Congress has put in 
place.
    In reference to the minimal risk rule that you referred to, 
that is in the rulemaking process at this point in time. We 
have sought comments. The deadline for that is coming up pretty 
quickly. We will very carefully review those comments and then 
make a decision about the appropriate course of action.
    We oftentimes say, and you've heard me say it, and probably 
read my comments when I speak of Japan and South Korea, that 
they must live by international standards. It's not fair to 
have a personal country standard. And so I will endeavor to do 
everything I can to make sure we live by those standards, and 
that not only do I preach them, but I'm willing to recognize 
those standards in this country. So that's kind of how we 
approach it.
    Senator Dorgan. Mr. Chairman, first of all, thank you. I 
would like to submit additional questions, and I'd like the 
record to show my great personal restraint in not responding to 
the cheerleading about Fast Track.
    Senator Kohl. Thank you, Senator Dorgan.
    Senator Craig.
    Senator Craig. Byron, message received.

                     USDA LOAN GUARANTEE AUTHORITY

    Mr. Secretary, I have twice passed legislation seeking to 
increase USDA loan guarantee authority from the $40 million it 
is now to about $100 million. Your lawyers said then that they 
couldn't handle the logistics for projects this size. Now the 
President has proposed in his fiscal year 2008 budget a USDA 
loan guarantee package much larger than I ever tried to pass, 
as you know, to get into the ag portfolio new technologies. We 
must go beyond where we have been. I sensed that some years ago 
with anaerobic digestion and a combination of other things, not 
only to solve waste problems but to enhance energy production.
    Question: Since we are now talking in the backdrop of a new 
farm bill that will likely increase the energy title and 
therefore the loan guarantee authority for USDA, could you talk 
about the process of the USDA's loan guarantee program and your 
opinion as to how the department will handle this new loan 
guarantee authority?
    Secretary Johanns. Well, we do loan guarantees. They're not 
new to us, as you know, Senator, and they are something we're 
familiar with. In the farm bill proposal that we have 
submitted, we are proposing, for example, $2.1 billion in loan 
guarantees targeted at cellulosic ethanol.
    Senator Craig. Right.
    Secretary Johanns. And I guess probably the best way of 
answering your question is that the process that we have in 
place, we really envision as the process that would move us 
through those loan guarantees. So, again, it's not new for us. 
It's something we have done in the past. We feel confident that 
we can do it for what we're proposing in the future.
    Senator Craig. Okay. Well, we'll work with you on it. We're 
glad that USDA is moving more aggressively in that direction. 
That's certainly part of the solution of getting us over the 
hump in some of these changes necessary in technology, 
cellulosic being one of them.

             THE NATIONAL VETERINARIAN MEDICAL SERVICE ACT

    In December 2003 the President signed into law a USDA 
program called National Veterinarian Medical Service Act that 
provides incentive to bolster the number of veterinarians in 
the field who would serve as first responders in emergency 
situations. Now, we're primarily talking about large animal 
industry type veterinarians in rural areas.
    As I said in my opening statement, we are dumping millions 
of dollars into livestock disease research, and this panel 
helped provide hundreds of millions of dollars to create a 
National Animal Disease Lab in Ames, Iowa. I find it ironic 
that after spending all this money, we find ourselves in a 
crisis situation where we have a shortage of livestock 
veterinarians whose sole purpose is to intercept and defend 
this country against catastrophic animal diseases.
    Congress provided $500,000 in 2006, $750,000 in the 2007 
budget bill, to implement a pilot program, but your fiscal year 
2008 budget still does not support this program. Now I'm 
hearing from veterinarians that your department has no plan to 
implement the rules and regulations for the law passed over 3 
years ago to reverse the spiraling reduction in our first 
responders, i.e. large animal veterinarians. Your response to 
that?
    Secretary Johanns. You are right, there was $500,000 worth 
of funding in 2006. Here's what it boiled down to. By national 
standards, in trying to pull off a national program, it wasn't 
a huge amount of money, I think we would both agree. It turned 
out to be a rather complex program. It was a program that took 
some effort, if you will, to get together.
    I will assure you, Senator, it's not a program that we are 
opposed to, not at all. We see the need out there. Vets are 
educated and only a few of them decide to go with large animals 
versus the small animal practice. You see that in your State, 
we saw it in our State.
    Senator Craig. It's where the money is.
    Secretary Johanns. Yes. Well, and you know, there's just a 
certain difference in the kind of work that is performed, too.
    Senator Craig. Sure.
    Secretary Johanns. But we believe in the program. The only 
defense I can offer, and I don't want to sound defensive 
because we do like the program, is it just turned out to be 
more complicated than what it would appear.
    Senator Craig. Then my question is, is there a process of 
rules and regulations that will be implemented? Is this program 
something that will come into function, or is it at idle?
    Secretary Johanns. We are moving ahead with the design and 
the implementation of the program, so the answer to your 
question is yes.
    Senator Craig. Thank you. Thank you, Mr. Chairman.
    Senator Kohl. Thank you very much.
    Senator Nelson.
    Senator Nelson. Thank you, Mr. Chairman.

                  ADMINISTRATIVE EXPENSES FOR EARMARKS

    Mr. Secretary, as you know, during recent months there has 
been a great deal of attention drawn to earmarks, and we can 
certainly agree that transparency, accountability, and 
disclosure is extremely important on this topic. With that in 
mind, and this is sort of--it's a budget issue and question--
can you tell me if 100 percent of the congressionally-directed 
earmarks that go through USDA are actually allocated to the 
congressionally-directed recipient?
    Put another way, does USDA take some money, a certain 
percent of the earmark, for its own administrative expenses in 
connection with the earmark, both related and unrelated to the 
earmark? And would you support greater transparency, so that 
Congress and the public are aware of exactly how USDA directs 
this money? And it may be something you want to refer to 
somebody else, but----
    Secretary Johanns. I'll have Scott Steele offer a thought 
on that.
    Mr. Steele. Senator, yes, as I understand it, each of the 
agencies that pass through money through earmarks do take some 
administrative costs from that amount, and I think the 
percentages vary by agency. But yes, we think it should be 
transparent. I think that we do identify, and I'd have to check 
the records on this, and I can respond more for the record 
exactly what percentages agencies do take, but the Cooperative 
State Research, Education and Extension Service I know does 
take a certain percentage, and NRCS and the others do, but I 
think they do vary by agency.
    Senator Nelson. But what is the authority to do that? 
Because I'm not sure that there's any mandated percentage that 
is part of the earmark, that directs the agency to be able to 
do this. And so is the amount determined within the agency? Why 
is that not included within the appropriations process for the 
agency's budget, so it doesn't become skimming?
    Mr. Steele. Well, I don't know if it's called skimming or 
not. I think it's an issue of the cost of doing business. There 
are some administrative costs in dealing with implementing 
programs, and they can't all be ignored.
    Senator Nelson. Well, why wouldn't that be, without being 
argumentative, why wouldn't that be in the budget process, in 
the appropriations process we approve here?
    Mr. Steele. Well, the earmarks themselves, we have not 
requested earmarks in our budget request. We receive the 
earmarks from the Congress. So in our justification to the 
committees, we would not be justifying the earmark to the 
committee.
    We receive the money. In turn, we make use of it and follow 
the legislative intent, and I think in that process certain 
agencies have taken a percentage of the earmark for their 
administrative costs of tracking the expenditures and making 
sure that the work is carried out properly and there is some 
overhead costs that have to be covered in this process.
    Senator Nelson. But that's not an agency expenditure that's 
appropriated as part of the budgetary process.
    Secretary Johanns. No. I think what's happening here, 
Senator, is this. Historically earmarks have not been included 
in the administration's budget request. Even before the 
discussion really heated up on earmarks, you could go and look 
at past budget requests and we don't include them, so therefore 
there would be no administrative costs to include.
    But, as Scott indicates--and you probably have the numbers 
in front of you but we would be happy to supply them to the 
committee, too--there is a certain cost in just administering 
the earmark that has been established, and so that 
administrative cost has been covered by some piece of that, and 
I'm not even aware how much, for the program itself.
    Senator Nelson. Well, some are 2.5 percent for expenses 
related to implementing the President's Management Agenda; 
agency assessment of about 8 percent to pay for administrative 
support; program assessment, 2.5 percent to 9 percent, to 
support overall program direction. It means that the range 
could be from somewhere from 13 to 20.5 percent, or higher if 
the department charge is raised.
    It is something I think we need to look into as part of the 
appropriations process, so that we don't end up with, in 
effect, off-budget, outside appropriation, taking of certain 
expenses to the agency for the process of doing that. Or at 
least it ought to be formalized in some uniform way, so that if 
an earmark is in fact directed to a certain agency, that you 
know in advance what it's going to be, so it doesn't erode the 
amount of the earmark that you're expecting to go to the 
recipient.
    Secretary Johanns. We would be happy to work with you to 
find a very transparent approach, because I think the dilemma 
we find ourselves in is, we do have certain oversight 
responsibilities and so that's how this is coming about. But 
again, we want to be transparent about it. If we're doing 
something that you'd like to see different, we're open to----
    Senator Nelson. As a matter of compliment, you were able to 
provide us some of this information when we requested it. Some 
other agencies told us it was none of our business.
    Secretary Johanns. No, we're happy to provide it and happy 
to work through the issue.
    [The information follows:]

                   Administrative Costs for Earmarks

    Several USDA agencies administer funds as a result of Congressional 
earmarks. The amount of administrative costs withheld from an earmark 
differs based on the nature of the earmarked funds and the agency 
administering the particular earmark. There are some specific statutory 
set-asides that all agencies within USDA are required by law to apply 
against programs, including from earmarks. For example, all funding 
related to extramural research and development is subject to a 
requirement to set aside 2.5 percent of funds to be used for the Small 
Business Innovation Research Program (Small Business Research and 
Development Enhancement Act of 1992, Public Law 102-564, as amended). 
In addition, all biotechnology research projects are required to set 
aside 2.0 percent of funds to support the Biotechnology Risk Assessment 
program (Section 1668 of the Food, Agriculture, Conservation, and Trade 
Act of 1990, Public Law 101-624, as amended).
    In addition to statutory set-asides, agencies also have authority 
to use a portion of the appropriated funds to pay for administrative 
costs. The portion of the appropriated funds used to pay for 
administration costs may differ for each agency and program. Specific 
examples include:
  --The Cooperative State Research, Education and Extension Service 
        (CSREES) has specific statutory authority (Section 1469 of 
        National Agricultural Research, Extension and Teaching Policy 
        Act of 1977, Public Law 95-113, as amended) to retain up to 4 
        percent of amounts appropriated for research, extension and 
        teaching programs for administration of these programs.
  --The Agricultural Research Service (ARS) assesses 10 percent of all 
        appropriations to finance management costs associated with the 
        conduct of their nationwide research programs. ARS does not 
        have a separate budget line item to cover management support.
  --The Animal and Plant Health Inspection Service (APHIS) assesses a 
        rate between 2.5 percent to 9 percent depending upon the 
        program. APHIS, like ARS, does not have a separate budget line 
        item to cover management support.

    Senator Nelson. My time has expired. Thank you, Mr. 
Chairman. Thank you, Mr. Secretary.
    Secretary Johanns. Yes.
    Senator Kohl. Thank you, Senator Nelson. Senator Reed, then 
Senator Feinstein, then Senator Specter. Senator Reed?
    Senator Reed. Thank you very much, Mr. Chairman, and Mr. 
Secretary and gentlemen.

                 PROVINCIAL RECONSTRUCTION TEAMS (PRTS)

    I understand that this budget for the first time includes 
$12.5 million to support USDA personnel in provincial 
reconstruction teams in both Afghanistan and Iraq. Is that 
correct, Mr. Secretary?
    Secretary Johanns. That is correct, yes.
    Senator Reed. Any reason why this is the first time it's 
been in the budget? I can tell you they are really high valued 
items over there.
    Secretary Johanns. Scott tells me that it was actually in 
last year's budget at $5 million, so maybe what caught your 
attention is that it's there this year at $12 million. The 
reason why it's there is that we do have a presence. We think 
that presence is important. We think we can do some good things 
in those countries.
    In fact, in one of the farm bill proposals we made, we 
identify a place for this kind of activity, whether it's Iraq 
or Afghanistan or some other place. We have international 
expertise. We have offices in 75 foreign countries or 70 
foreign countries. We are all over the world, and we think we 
can be very helpful.
    Senator Reed. Well, Mr. Secretary, I second that. I've been 
out visiting these PRT teams numerous times and talking to 
military leaders. I was up in Tikrit with General Nixon of the 
25th Infantry Division, and he said he could use many more USDA 
experts.
    Secretary Johanns. Yes.
    Senator Reed. Will you be able to fill all the requirements 
that you've received with this money?
    Secretary Johanns. Yes, we believe we will. I can give you 
an update today, that we have staff in Iraq and we have had 
from the beginning. We have, on the PRTs I think we have six 
positions, five of which are already there, and I think the 
sixth one will be heading over there in April of this year. So 
this would fund what we've been asked to do.
    Senator Reed. Are these contract personnel or employees?
    Secretary Johanns. No, they're employees.
    Senator Reed. There are some non-DOD agencies that are 
having difficulty getting personnel to go over, for a couple of 
reasons. One is, they don't get all the benefits that DOD gets, 
but also there's a fear that if they leave their job in the 
United States or elsewhere, that they will suffer in terms of 
promotion or their management will suffer in terms of losing a 
key person without replacement.
    How are you dealing with that? Say for example an expert 
from the Southeast of the United States goes overseas. Can you 
put a replacement in there, or does that agency or that unit 
have to get along without them?
    Secretary Johanns. I've never run into it, but I would tell 
you my personal approach would be that they not lose anything; 
that if they want to go over and do a period of time in Iraq, 
that is of real value, or Afghanistan, they should not be set 
back in their career pathway. But, like I said, I haven't run 
into it, so I'm hoping that's an indication that that has not 
been a problem. In fact, one of our personnel--he just 
refreshed my recollection--actually came back because they got 
a promotion, and so they came back to fill that promotion.
    Senator Reed. Well, I think this is a key area, and it's 
not just for the Department of Agriculture, it's for all the 
agencies that are complementing our military efforts, and I 
would ask you to go back and look seriously about the 
incentives or disincentives, about the ability to fill all of 
the requested slots and the sufficient funding to do that. But 
I note this is some progress. It's taken 4 years or so to 
finally gear up, but at least we've geared up.

                    LOCALLY PRODUCED FOOD TO SCHOOLS

    Let me change topics quickly. In Rhode Island there's a 
number of organizations that are working with farmers in our 
State to bring locally produced food to schools, and I'm glad 
that one of the recent USDA farm bill proposals indicates 
support for fresh fruits and vegetables in schools. However, 
since the Farm-to-Cafeteria program was authorized in Section 
122 of the 2004 child nutrition and WIC reauthorization, the 
program has received no funding in the administration's budget. 
Why is that the case, if we're trying to get fresh food into 
the school cafeteria program?
    Secretary Johanns. Scott, do you know about past funding?
    Mr. Steele. Senator, I think that there was a pilot for the 
schools in prior years that we did fund, and we've been trying 
to get local sponsors to work and continue those pilots. But I 
think that the farm bill proposal is going to accelerate our 
efforts in dealing with this question.
    Secretary Johanns. Our farm bill proposals, and I'll turn 
to that, would dramatically boost our efforts here. We're 
proposing $2.75 billion--and these are all scored in a 10-year 
basis--$2.75 billion in funds to purchase fruits and vegetables 
for our food assistance programs, and an additional $500 
million to increase the purchase of fruits and vegetables in 
our school meals program. So over $3 billion will go into 
fruits and vegetables purchases in nutrition or school lunch.
    Senator Reed. And just a final question because my time has 
expired, but there will be an emphasis on purchasing local 
produce from local farmers?
    Secretary Johanns. Absolutely. Wherever we can buy locally, 
we want to do that. And the other thing I would point out is 
that our proposals at least are for mandatory money, so again 
if Congress agrees with us, your fruit and vegetable producers, 
your specialty crop farmers, will see a pretty significant 
presence in the farm bill that they have never seen before.
    Senator Reed. Thank you. Thank you, Mr. Chairman.
    Senator Kohl. Thank you, Senator Reed.
    Senator Feinstein.
    Senator Feinstein. Thank you very much, Mr. Chairman.

              DHS AGRICULTURAL INSPECTIONS AT U.S. BORDERS

    If I might, Mr. Secretary, why don't we go to this question 
that I had about DHS taking over ag inspections at the border. 
Just from the California experience, there is some indication 
to me that this may not be the best way to go. Could you 
comment?
    Secretary Johanns. We have a cooperative effort that goes 
on here with Homeland Security, and the USDA is a part of that. 
We can give you some numbers of things that we have done 
together. I can tell you from the USDA standpoint it is our 
goal to work as seamlessly as we possibly can with DHS in the 
administration of this program, and our attitude is, if we have 
resources that might be helpful, we want to provide those 
resources and be of assistance.
    I think, Senator, part of what is maybe being experienced 
here, this was a change, and sometimes it just takes a while 
for the system to adjust to that change. Every time I go to 
California, and I'm there on a frequent basis, this issue does 
arise from the agricultural community, because they're worried 
about pests coming in and that sort of thing.
    Senator Feinstein. And they're coming in.
    Secretary Johanns. Well, and from the USDA standpoint, I 
want you to know that we're ready to do whatever we can to make 
the system work, and we'll work as seamlessly as we possibly 
can to do that.
    Senator Feinstein. Well, I am told that fewer ag 
inspections are being done since the transfer.
    Secretary Johanns. I don't have those numbers in front of 
me, but----
    Senator Feinstein. May I ask you to take a look at that?
    Secretary Johanns. I will.
    Senator Feinstein. And get back to me, because California's 
ag is so big and affects so many States, and the penalty that 
comes from having fruit fly and then you quarantine three 
counties, the penalty is enormous. The key has to be to keep 
contaminated fruit out. Right now there's a problem with 
avocados coming in with a pest attached, and it's not being 
caught.
    Secretary Johanns. I will be happy to dig into the numbers 
and we will provide you with that information.
    [The information follows:]

                   AGRICULTURAL QUARANTINE INSPECTION
                            [Inspection Data]
------------------------------------------------------------------------
                 Pathway                   United States    California
------------------------------------------------------------------------
Fiscal Year 2002:
    Air Passengers arrivals.............      55,220,906      10,728,329
    Air Passengers inspected............      10,521,155       1,560,235
    Cargo inspections/clearances........       2,821,221         518,040

Fiscal Year 2003:
    Air Passengers arrivals.............      56,690,220      10,584,656
    Air Passengers inspected............       9,814,540       1,789,183
    Cargo inspections/clearances........       3,208,140         544,973

Fiscal Year 2004:
    Air Passengers arrivals.............      57,204,756      11,354,159
    Air Passengers inspected............      11,757,977       1,551,359
    Cargo inspections/clearances........       2,544,184         644,893

Fiscal Year 2005:
    Air Passengers arrivals.............      66,254,784      12,538,889
    Air Passengers inspected............      10,092,452       1,384,565
    Cargo inspections/clearances........       2,316,903         724,088

Fiscal Year 2006:
    Air Passengers arrivals.............      68,457,060      12,832,403
    Air Passengers inspected............       8,523,178       1,437,212
    Cargo inspections/clearances........       2,110,075         752,715
------------------------------------------------------------------------

    One of the major benefits of transferring all port of entry 
inspections to one agency is a front line inspection for all types of 
contraband by one individual. As a result, the front line inspectors 
today are not solely agricultural, narcotics, or weapons inspectors, 
but rather they have been trained to detect any and all contraband. 
This system allows for an efficient use of resources without 
compromising protection. However, having the front line inspectors 
trained to detect multiple forms of contraband does not allow for a 
direct comparison with the inspection regime prior to the transfer. For 
example, all international air passengers must be cleared through the 
Department of Homeland Security's Customs and Border Protection's (CBP) 
primary inspection. They may be directed to undergo a secondary 
agricultural inspection for a variety of reasons. While the actual 
number of secondary agricultural inspections of air passengers has 
decreased since the transfer, the primary inspection now includes a 
much stronger agriculture component because APHIS provides basic 
agricultural training to all CBP inspectors. Additionally, CBP has a 
more sophisticated risk identification system and database that allows 
for more targeted inspections.

             AGRICULTURAL QUARANTINE INSPECTION (AQI) FEES

    Senator Feinstein. All right, because don't you have $133 
million for administrative expenses? Is that for new ag 
inspectors, or is that something else?
    Secretary Johanns. Scott, do you know?
    Mr. Steele. Senator, this is the Agricultural Quarantine 
Inspection fee program that we carry out. We collect these fees 
from airline passengers, and that money is collected and those 
fees do change periodically in terms of how much money we 
recover from them. Then some of that money is transferred over 
to DHS from the Department. At this point in time for the 2008 
budget, it looks like we have estimated obligations in this 
program of about $482 million, and about $299 million, almost 
$300 million, of that would be transferred to the Department of 
Homeland Security to carry out the inspections you're talking 
about.
    Now, APHIS does keep some of those fees for their own 
internal use in helping DHS carry out its responsibility, but 
DHS is now in charge of the front line inspectors. They would 
be the one checking the baggage and those kinds of things. 
APHIS would be called in if there needed to be fumigation, 
training, and other things, sort of a secondary back-up role to 
the DHS people. Now, those DHS people, they were transferred 
from APHIS over to DHS. They originally worked for USDA, and 
they are now working for DHS, and they are being assigned and 
managed by DHS.

                        NUMBER OF AQI INSPECTORS

    Senator Feinstein. How many of them are there?
    Secretary Johanns. I don't have an exact number, of the 
total number of inspectors, but we can provide that for the 
record and tell you exactly who is doing what.
    Senator Feinstein. Well, for the record, this is one 
Senator--
    Secretary Johanns. Yes, and how many are in California.
    Senator Feinstein [continuing]. That doesn't really like 
that transfer. I don't think that inspections are well served 
by taking agricultural people and putting them under DHS, where 
the mission is totally different, and I don't want to see my 
State suffer because of it, either. So I'm going to watch 
carefully, and I hope you will as well.
    Secretary Johanns. We will, and we'll get you that 
information you have requested.
    [The information follows:]
    Agricultural Quarantine Inspection Positions Transferred to DHS
    In fiscal year 2002, the Animal and Health Inspection Service 
(APHIS) had 3,484 Agricultural Quarantine Inspection (AQI) full time 
equivalents (FTEs). Of these FTEs, 2,515 were inspection personnel.
    In fiscal year 2003, APHIS transferred 2,655 positions (529 of 
those positions were in California with 75 vacant positions) to the 
Department of Homeland Security. Of these 2,655 positions, 2,407 were 
inspection positions (including Plant Protection and Quarantine 
Inspectors and Technicians). Of the inspection positions, 346 were 
vacant at the time of the transfer (accordingly, 2061 inspection 
personnel were transferred). Of the total 2,655 positions, 387 were 
vacant.
    In fiscal year 2007, DHS informs the Department that they have 
2,188 agricultural specialist positions, including 130 vacancies. DHS 
also indicates that there are 337 inspectors currently located in 
California.

                       E. COLI IN SPECIALTY CROPS

    Senator Feinstein. Thank you. Let me go to E. coli. The 
outbreak of E. coli that essentially came from California 
products, at least the spinach, I mean, 90 percent of the 
United States is fed with that spinach, and I note that the 
budget increases by $4 million food safety research, but you 
also discontinue the food safety project at the Albany station 
in California which specifically targets E. coli, and so my 
question is, why?
    Secretary Johanns. This is one of the things that I 
mentioned in my opening statement. We did a farm bill proposal 
on kind of a parallel track with the budget, but eventually 
these two have to marry together because in 2008 we have a new 
farm bill.
    When it comes to specialty crops, I think you're going to 
like the proposals we have made. We are proposing not only that 
increase of additional fruit and vegetable purchases, which of 
course would be really good for California, but we're also 
proposing to increase research in that area by $1 billion--and 
again, these numbers are all on a 10-year score--because one of 
the things that we heard from our specialty crop farmers was, 
we need assistance in this area of research and phytosanitary/
sanitary issues.
    So we heard them, and again, never, I promise you, never in 
the history of farm bills have we had such a significant 
presence for specialty crop producers as what we are proposing. 
So if these proposals were to be adopted, there would be a 
major step forward for research in this area. It would be very 
significant.
    Senator Feinstein. My time is up, Mr. Chairman, but if I 
might just say--and you don't have to answer it, we can talk 
about this later--the time has perhaps come for some 
regulations from your department with respect to the 
phytosanitary handling of crops, to prevent this from happening 
again, instead of leaving it up to each State.
    Secretary Johanns. California has a very, very mature ag 
industry, as you know. They do good work. Some of their 
counties actually produce more agricultural products in value 
than some States. And so I guess what I would say to you is, we 
like what we're seeing there. They really do seem to be 
aggressively addressing this issue. Any time you go to a 
national phenomenon, it becomes that. I mean, it tends to be 
uniform, one-size-fits-all. I really want to talk to you about 
that before maybe any of us reach some conclusions on that.
    I would also mention that APHIS does work with California, 
and the FDA, in this area. But again, I think this would really 
warrant some serious thought and discussion, and I would really 
want to consult with our producers across the country, 
especially in California. They do some good work, as you know.
    Senator Feinstein. Thank you. Thank you, Mr. Secretary. 
Thank you, Mr. Chairman.
    Senator Kohl. Thank you, Senator Feinstein.
    Senator Specter.
    Senator Specter. Thank you, Mr. Chairman.

               COMMODITY SUPPLEMENTAL FOOD PROGRAM (CSFP)

    Mr. Secretary, I am concerned about the budget request 
which is $4 billion lower than the 2006-2007 level, and the 
termination of the Commodity Supplemental Food Program which 
provided some 6.4 million food packages to over 500,000 people 
in low income brackets, also seniors. I know that the 
projection is that the WIC program and food stamps will meet 
the needs, but that really isn't applicable when the seniors 
are not included in those programs.
    So my question, how can your department really keep up with 
the demands for very important services, and have a budget cut 
and not have even an inflationary increase, and continue to 
provide important programs like the Commodity Supplemental Food 
Program?
    Secretary Johanns. Overall, our nutrition programs are 
fully funded--not only funded for what we have today but the 
anticipated need. They're fully funded for the inflationary 
increase we anticipate, and they're even fully funded in terms 
of a contingency amount of money for WIC and food stamps. So we 
believe that we will meet the needs that are out there, and if 
we don't, if we have underestimated those, we have a 
contingency program that is available.
    Senator Specter. What is the contingency program?
    Secretary Johanns. It's a large amount of money. Scott, how 
much?
    Mr. Steele. Senator, yes, we have set aside additional 
money in a contingency fund if we would need to use it. It's $3 
billion for the Food Stamp Program. If our estimates are wrong 
on participation, we could then go to that contingency fund to 
make up the difference, the shortfall.
    In the WIC program it's $200 million. If we miss the 
estimate that we have now for 8.3 million women, infants and 
children, we would be able to tap into that $200 million if our 
estimate is wrong. So we have asked for that additional amount 
of money in the budget request.
    Secretary Johanns. Here is the situation on CSFP, and it is 
a popular program. It's certainly well received out there. Here 
is why it keeps popping up. The administrative costs get 
people's attention. They are about 46 percent of the food that 
is purchased. It is not a nationwide program. It's in 32 out of 
the 50 States, and I think we have it on some Indian 
reservations.
    And, again, we just believe--and we have monies in the 
budget for outreach--that if we can identify the people and 
move them to one of our other programs, it will work better for 
them. So that's why it keeps popping up every year.
    Senator Specter. Mr. Secretary, let me thank Keith Collins, 
your chief economist, for substantial help he has given us in 
the past when we've had some tough milk issues in Pennsylvania. 
I recall one incident where he came to the State and was 
enormously helpful.
    I'm not going to be able to stay for Commissioner von 
Eschenbach's testimony. I want to note with approval his 
confirmation. Good to see him on the job, past that hurdle.
    And one question which I would like him to answer for the 
record. It involves the--I note an increase in user fees, $15.7 
billion, on some of the drug review programs. We hear comments 
from time to time that the people who are awaiting those 
programs would be glad to increase their user fees if we could 
have more expeditious treatment. I'd like him to take a look at 
that question and give us a response in writing.
    Thank you very much, Mr. Chairman.
    Senator Kohl. Thank you, Senator Specter.
    Senator Harkin.
    Senator Harkin. Well, thank you very much, Mr. Chairman. 
Thank you, Mr. Secretary, Mr. Deputy Secretary, and all of you 
who are here. I just had a couple of questions.

                            ORGANIC FARMING

    Again, we tried in the last farm bill, Mr. Secretary, to 
put in some funds and different programs to help organic 
farmers. There has always been this sort of ``valley of death'' 
as they call it, when a farmer wants to transition to become an 
organic. Well, you take 3 years. You've got to have 3 years. 
Well, during those 3 years you can't really say it's organic, 
so how do you get through that sort of ``valley of death'' from 
being nonorganic to being organic?
    So we put funds in the bill and we put a couple of programs 
in there to help farmers do this. I see that the budget now 
zeros this out, zeros this out. Let's see, where was it? Yes, 
we had $1.8 million, very small, in discretionary funds last 
year, and the budget would provide no funds at all.
    Now, we do have some money that we put in there, mandatory 
money. We do have some of the mandatory money in there, that's 
true, but that's sort of on research and stuff. But the 
transition funds--we do the research, and that money is there, 
Mr. Chairman, for research in organics and what farmers might 
do and how they set up marketing things and stuff like that. 
That's that research, but the transition funds were extremely 
important, and they're just zeroed out at a time when consumers 
can't get enough organics.
    The fastest growing part of the food industry in America is 
organics, 20 percent a year. People at Whole Foods say they 
can't get enough organics. They can't even keep up with it. So 
people want it. The producers can't keep up. It seems to me a 
great opportunity, and I just want to know what kind of 
justification there is, because I'm looking at the farm bill 
this year, and if nothing else, I'd like to actually beef that 
up and do more in that area, Mr. Secretary.
    Secretary Johanns. I was just looking at our proposals that 
we submitted to your Agriculture Committee, Mr. Chairman, 
relative to organic farming, and we're doing a number of things 
here that I think would be helpful. I don't pick up that 
proposal in what we've put here, though, I don't think.
    So I guess what I would offer to you, I'd be anxious to sit 
down with you and see if there's something we can do there, 
because you're right, there is a period of time where you 
transition. We do have some money in this year's budget, some 
mandatory funding, as you point out, but in the next farm bill 
there's probably an opportunity here to take a look at this 
issue again.
    Senator Harkin. I'm open for any suggestions you've got on 
things where we can work together and how we focus on this.
    And the other thing that I heard, Mr. Secretary, was that 
we just had a meeting with some of these farmers in Iowa 
recently, sometime in January, I think it was, and the problem 
seems to be in terms of marketing, regional kinds of processing 
facilities and stuff, where a small farmer could take this in 
and get it processed and packaged and sent out, someplace like 
that, so I would like to visit with you about that.
    Secretary Johanns. Okay.

                           DHS AQI INSPECTORS

    Senator Harkin. I am told that in my absence Senator 
Feinstein covered the problems with the inspectors coming in. I 
think we've got a real problem there, and we're going to have 
to think about whether or not, Mr. Chairman, whether or not 
these inspectors ought to be brought back under USDA or should 
they stay under DHS. And quite frankly, everything I have heard 
is that they were doing their job under Ag, they had a good 
structure for it, and now they have been shifted and it's sort 
of the tail end of everything out there under DHS. I just 
wonder if we shouldn't somehow bring them back in under USDA. I 
assume you spoke about that in my absence.
    Secretary Johanns. Yes. Senator Feinstein has asked for 
some information on where were we on inspections before the 
change, where are we at now, and we'll provide that.

                                FOOD AID

    Senator Harkin. Okay. The last thing I just want to cover 
is food aid. Because of the continuing crisis in Africa and 
everywhere else, we have been obligated to provide additional 
emergency funding for Title II international food aid above and 
beyond the appropriated levels, and this goes back for the last 
several years.
    Again, the administration--we're talking about a budget 
here, now--the administration has been unwilling to acknowledge 
that increased demand. They have not requested any funding 
above the recent level of $1.2 billion for Title II, and I'm 
wondering why, since we know we're going to have to provide 
more, why there isn't more of a budget thing and why there 
isn't some justification in the budget for this food aid? It 
just makes it tough on us when it's not in that budget.
    Now, if you don't have the answer now, if you could submit 
it in writing, that would be fine with me.
    Secretary Johanns. Okay. We'll submit it in writing.
    Senator Harkin. That's fine. Just look at that.
    Secretary Johanns. Okay.
    Senator Harkin. Same level it has always been every year. 
We've got to come in and get more and more every year. And I 
think as you look around the world now, we're going to be asked 
to do that again, so it should be part of the budget.
    Secretary Johanns. Okay.
    [The information follows:]
       2008 Budget Request for Public Law 480 Title II Donations
    The 2008 budget requests just over $1.2 billion of appropriated 
funding for Public Law 480 Title II donations; this is a slight 
increase above the level provided in 2007. The requested funding will 
be supplemented by reimbursements from the Maritime Administration for 
prior year cargo preference costs, which are expected to total just 
over $120 million in 2008.
    The appropriations request reflects a careful prioritization among 
the competing demands for international humanitarian assistance. The 
United States has a number of different programs and authorities for 
responding to humanitarian needs overseas, each of which is important 
and makes a unique contribution to our humanitarian response efforts.
    In addition, it is important to understand that emergency food 
needs are difficult to predict in advance, especially given the complex 
nature of evolving, rapidly changing conflicts and the unpredictability 
of rainy seasons in drought-prone areas. However, should unanticipated 
and extraordinary emergencies arise during the course of the year, the 
Administration has a number of options for responding, including a 
supplemental appropriations request and a release of commodities from 
the Bill Emerson Humanitarian Trust. At present, the Trust holds 
915,000 metric tons of wheat and $107 million of cash. The wheat 
tonnage equivalent of that cash is approximately 500,000 metric tons, 
so in total the Trust has resources equal to about 1.4 million metric 
tons of wheat.
    In view of these considerations, the Administration believes the 
2008 budget continues our commitment to addressing the most severe and 
critical emergency food aid needs.

    Senator Harkin. Thank you very much, Mr. Chairman.
    Senator Kohl. Thank you, Senator Harkin.
    Senator Nelson, do you want to make comments?
    Senator Nelson. Thank you, Mr. Chairman.

                          CONTINGENCY FUNDING

    One quick item: Mr. Chairman, I commend the contingency 
fund to deal with the challenges of food stamps and making sure 
that the numbers match with the requirements. I wonder if it's 
possible to do a similar thing with mitigation funding, with a 
contingency fund.
    We know every year we're going to have disasters that will 
relate to agriculture, whether it's hurricanes or whether it's 
continuing drought. In the past they've been offset typically 
from some program within the previous farm bill, 2002. I 
remember Nebraska being a beneficiary of that when you were 
Governor. It's an ongoing situation. We don't know where it's 
going to happen, but we know that it will happen.
    Why aren't we in a position to set aside a contingency? If 
we're going to take $18 billion, roughly, out of the farm bill, 
why don't we preserve some of that to deal with the fact that 
disasters will occur that are not going to be adequately 
covered by crop insurance?
    There isn't any way an 8-year continuing drought can be 
covered by crop insurance. We went over that, I think, in the 
Senate Ag Committee, in talking about how we will balance that 
all out. But isn't it possible to set aside $5 billion or $6 
billion? If we can set aside $3 billion for food stamps, it 
would seem to me that we ought to be able to hedge our bet a 
bit on natural disasters for crop coverage.

                      CROP INSURANCE GAP COVERAGE

    Secretary Johanns. Here is the challenge you will face if 
you want to establish a fund and just have money in it, 
whatever that amount would be. Keep in mind during the last 
farm bill, notwithstanding the attempts to pass recent disaster 
relief, we spent about $8 billion on disaster relief programs, 
and the current discussion is somewhere along the lines of $3 
or $4 additional billion, so you could be up to around $12 
billion. And you're going to start with a baseline just like we 
did, and everything outside of that is above the baseline, and 
you know the drill on amounts above the baseline.
    Here is what I would offer to you, though. I do believe 
that this crop insurance approach is worth looking at. One of 
the big criticisms with crop insurance today is, you can't 
cover the gap, so we're proposing a gap coverage be made 
available to cover that typically 30 percent gap in coverage 
between 70 percent and 100 percent.
    And then the second thing is the revenue-based 
countercyclical program just will work better. We can't talk 
about the specific product, we're forbidden, but there is some 
effort to look at this issue of ongoing disaster and its impact 
on crop insurance and----
    Senator Nelson. Well, you just reach the base, so that 
ultimately you're out of business unintentionally.
    Secretary Johanns. Exactly. Dr. Collins can give you a 
great briefing on that. But we're looking at some of the very 
issues you're talking about, and this actually might--I would 
respectfully suggest--be a better model than just the fund.
    Senator Nelson. Well, I would agree with you for the 
occasional loss. I don't think that you can rely on crop 
insurance to cover a disaster that continues for 8 years. It's 
not designed to do that. That's like insuring your house and 
having it burn down every year for 8 years. The mechanism just 
doesn't presuppose that in the actuarial computations.
    But statistically I'm sure Mr. Steele could calculate over 
the last 20 years what, adjusted for current dollar value, what 
the crop losses have been that would be disaster occurrences, 
so that you could calculate highs and lows and treat it as, if 
you will, a contingency fund on an actuarial or statistical 
basis within the budget, and have it covered.
    Now, it's true, sometimes it's better to cover that 30 
percent. I understand that difference. But I don't think your 
crop insurance is going to work for a multiyear drought that 
goes on and on and on and on. For occasional losses, I think 
that's the way to go for 2 or 3 years, but not an 8- or 9-year 
loss as you know we're experiencing in southwest Nebraska.
    Something for you to consider, and I hope that you will 
take a close look at it, and I hope as we put together the 
appropriations package, we can work in that direction.
    Secretary Johanns. Okay. We would be anxious to sit down 
with you, and we'll consider your comments.
    Senator Nelson. Thank you.

                     ADDITIONAL COMMITTEE QUESTIONS

    Senator Kohl. Thank you very much, Senator Nelson.
    And we would like to thank you, Secretary Johanns, along 
with Mr. Conner, Mr. Steele, Mr. Collins. Your testimony and 
your response to our questions has been really good, and we 
look forward to continuing to work with you as the process 
unfolds.
    Secretary Johanns. Mr. Chairman, thank you.
    [The following questions were not asked at the hearing, but 
were submitted to the Department for response subsequent to the 
hearing:]

                Questions Submitted by Senator Herb Kohl

                                  veal
    Question. Mr. Secretary, I am very concerned that we have some 
serious trade distortions with Canada which disadvantage U.S. veal 
producers.
    Wisconsin veal producers believe that Canadian policies, 
particularly access to low-priced feed coupled with support from the 
Quebec production price insurance program, give their competitors in 
Canada an unfair economic advantage in the form of lower production 
cost which encourage over production. Some of the increased production 
is exported to the U.S. market where it is further processed and sold 
as U.S. produced product. The relatively low cost of production in 
Canada also encourages many Canadian producers to purchase replacement 
calves in the United States which drives up prices for U.S. producers.
    I would like the USDA's Economic Research Service to review this 
topic and provide some updated data on this matter. I'm particularly 
interested in an updated comparison of subsidies which apply to U.S. 
veal producers and their counterparts in Canada.
    Answer. The information is submitted for the record.
    [The information follows:]
    In 2005 the cost of production for a milk- or formula-fed veal calf 
raised to about 450 pounds in the United States was $682.50 versus a 
net cost of $699.97 in Canada, which includes a payment from the 
Canadian Agricultural Income Stabilization (CAIS) program.
    Exports of veal meat from Canada to the United States in the 
carcass, cuts-bone-in, and cuts boneless categories (assumed to be 
available for further processing in the United States) have increased 
from 2000 to 2005.
    Carcass exports to the United States have risen rapidly due to 
increased slaughter capacity in Canada and restrictions on live animal 
trade as a result of BSE-related border measures. U.S. cattle export 
data to Canada do not provide breakouts by size so we cannot readily 
determine how many calves are really being shipped to Canada for veal. 
A category in USDA export statistics that includes these calves is 
Cattle not for Breeding which we show here for 2002 to 2006.
    Exports fell with the onset of BSE-related border measures, 
dropping from about 133,500 animals in 2002 to a low of 14,200 in 2004 
and rebounding slowly afterward. Exports reached 36,050 animals in 
2006. Purchases of veal calves by Canadians make up some unknown share 
of these exports.
    Veal market data reports show the following calf slaughter numbers 
in Canada and the United States in recent years.

------------------------------------------------------------------------
                                              Canada           U.S.
------------------------------------------------------------------------
2003....................................         251,309         971,459
2004....................................         284,334         838,405
2005....................................         267,900         717,338
2006....................................         245,341         698,618
------------------------------------------------------------------------

    Question. I would also like to receive a summary of steps you have 
taken in conjunction with the U.S. Trade Representative to resolve this 
dispute.
    Answer. USDA, along with the Office of the United States Trade 
Representative (USTR), is aware of the concerns that have been 
identified and has examined Canadian Federal and provincial policies 
regarding support provided to Canadian veal producers. To date, USDA 
has not identified components of the Quebec Income Stabilization 
Program that are inconsistent with Canada's international obligations 
but remains open to additional information and assessment. There are 
several recent factors that have changed the dynamics of the United 
States and Canadian veal and veal calf markets, including the 
imposition of U.S. BSE restrictions on Canadian cattle. USDA will 
continue to monitor the situation closely. If new information indicates 
that Canada is not fully meeting its international obligations, USDA 
and USTR will take prompt action to address the matter.

         AFGHANISTAN/IRAQ PROVINCIAL RECONSTRUCTION ACTIVITIES

    Question. Last August, we received notification from the U.S. 
Department of State that $7.8 million of the Iraq Relief and 
Reconstruction Fund was being transferred to USDA to restore and expand 
a sustainable agriculture sector in Iraq. Your request for 2008 
includes $12.5 million for Provincial Reconstruction Teams to restore 
and stabilize the agricultural economies in Afghanistan and Iraq.
    Please tell us the amount of funds that USDA has used for these 
activities since the beginning of fiscal year 2006, including funds 
directly appropriated to USDA or transferred from other Departments. 
Also tell us what specific activities were carried out with these 
funds.
    Answer. Since the beginning of fiscal year 2006 through March 2007, 
USDA has expended approximately $3.39 million in Afghanistan ($2.45 
million transferred from USAID, $140,000 from the CCC-funded Emerging 
Markets Program, and $800,000 from USDA appropriated funding) to 
support USDA participation in the Provincial Reconstruction Teams 
(PRTs); to provide technical assistance and capacity building to the 
Ministry of Agriculture; and to support development of agriculture and 
trade programs at institutions of higher education. This amount will 
grow as additional expenses are incurred during fiscal year 2007.
    Since the beginning of fiscal year 2006 through March 2007, USDA 
has used approximately $6.56 million in Iraq ($5.3 million transferred 
from the State Department to support revitalization of Iraqi 
agricultural extension programs; $260,000 transferred from USAID to 
support USDA participation in the PRTs; and $1 million from USDA 
appropriated funding) to provide both agricultural advisors to the PRTs 
and Ministry of Agriculture, and public affairs specialist to work with 
the Iraq Reconstruction Management Office (IRMO). This amount will also 
increase as we move through fiscal year 2007.
    Question. What specific outcomes have been realized by the 
expenditure of these funds and are these consistent (and on schedule) 
with the original objectives of the allocations?
    Answer. With this funding, USDA has been an active participant in 
the ongoing reconstruction initiatives in both Afghanistan and Iraq. In 
the case of Afghanistan, USDA has been able to introduce modern 
agriculture production and marketing techniques to the rural provinces. 
Among other things, efforts have been focused on irrigation system 
rehabilitation, post-harvest loss reduction, marketing system 
improvements and livestock health.
    In Iraq, USDA's Agricultural Extension Revitalization Program is on 
schedule to provide the first training of Iraqi extension agents in 
June 2007. In addition, USDA has deployed PRT and ministry advisors as 
well as public affairs specialists who are now embedded into the Iraqi 
and U.S. institutions to which they were assigned. Recruitment for 
additional advisors is ongoing. USDA is cooperating with other U.S. 
Government agencies to continue identifying appropriate assignments.
    The outcomes that have been achieved through these activities have 
been consistent with the purposes for which the funding was originally 
allocated.
    Question. How do you recruit people to take assignments in 
locations such as Iraq and Afghanistan, and how do you assure their 
security?
    Answer. The Foreign Agricultural Service coordinates the 
recruitment and selection of USDA agricultural advisors, drawing upon 
the expertise of the Department's agencies such as the Natural 
Resources Conservation Service, the Animal and Plant Health Inspection 
Service, and the Agricultural Marketing Service, as well as the Land 
Grant Universities and 1890 colleges. A panel from USDA interviews and 
selects candidates, matching their technical skills, as well as their 
anticipated ability to operate in an insecure area, to skills needed in 
the PRTs. Recommendations are sent to the Secretary for final approval.
    Prior to deployment, all advisors attend a two-week security 
training program. Once deployed, each advisor is embedded with the U.S. 
military to ensure personal security.
    Question. In Afghanistan, there had been hopes that poppy 
production could be replaced with food crops that could help sustain 
their people. Yet we hear that poppy production there is still their 
leading crop and that the World Food Program considers that country in 
serious need of humanitarian food assistance.
    Explain what has been done to try and move Afghan farmers away from 
poppy production and why does it not seem to be working?
    Answer. USDA's role in support of the Administration's efforts to 
promote alternative livelihoods includes providing expertise to the 
Afghanistan Ministry of Agriculture to strengthen programs in 
agricultural extension, animal health, plant protection, and natural 
resources, and helps the Ministry extend its programs to all provinces 
and districts of the country. USDA's advisors on the PRTs work with 
their ministry counterparts to build capacity and develop programs at 
the local level.
    USDA helped to establish and continues to support the Afghan 
Conservation Corps which has employed thousands of Afghans in projects 
for reforestation, soil and water conservation, and conservation 
education. With local sales proceeds derived from the monetization of 
USDA food aid commodities, USDA has supported the renovation of 
agricultural and veterinary teaching facilities at Kabul University and 
the training of faculty. USDA also is working to build the capacity of 
five agricultural universities in Afghanistan, through faculty 
training, construction, and renovation of laboratories and classrooms.
    Finally, because livestock is vitally important to the Afghan 
economy, USDA is training Afghan veterinarians in the recognition, 
diagnosis, and control of animal diseases.

                     CCE AND INFORMATION TECHNOLOGY

    Question. Mr. Secretary, the budget for the Common Computing 
Environment is spread to the 3 agencies it serves this year--Rural 
Development, the Natural Resources Conservation Services, and Farm 
Service Agency. However, total funding for CCE decreases by nearly $30 
million.
    It is not my understanding that information technology needs at 
USDA have decreased--in fact, at the Farm Service Agency--the opposite 
is true. We have all heard about the problems and delays at the county 
offices--when the East Coast is working, the West Coast can't work, and 
vice versa, or FSA risks overloading the system. This is clearly 
unacceptable, and although the Farm Bill is scheduled to be 
reauthorized this year, which will obviously increase FSA's workload, 
funding increases in their budget for IT will only maintain the 
antiquated system in place now. It's like trying to stop a dam from 
bursting with duct tape.
    Why is the budget for CCE decreasing this year, when needs are 
certainly not?
    Answer. Funding for the CCE has been comprised of Service Center 
Agency (FSA, NRCS, RD) information technology (IT) purchases through 
their own appropriations, in addition to funding provided through the 
CCE direct appropriation. This funding has been used to develop an 
infrastructure to support the business delivery functions of the 
Service Center Agency (SCA) field offices located across the country. 
The 2008 budget requests that $78.5 million with an additional $12 
million for CCE activities specific to FSA be included in the SCA 
salaries and expenses appropriations to meet the ongoing business 
delivery needs. This funding will support the continued IT activities 
of the SCAs as they jointly maintain the CCE infrastructure. In 
addition, the SCAs will continue to work with the Information 
Technology Services (ITS) division of the Office of the Chief 
Information Officer in USDA. ITS is funded through reimbursable 
agreements with the SCAs and delivers staffing and services to the 
agencies in support of the CCE. In coordination with ITS, the agencies 
will be able to ensure that the necessary services and staffing are 
available to maintain the infrastructure and program delivery.
    Question. Does the USDA have a solid budget estimate of the cost to 
replace the current outdated FSA computer system?
    Answer. FSA is planning to implement a long-term modernization 
effort known as MIDAS to replace its obsolete equipment. At this time, 
FSA anticipates submitting a business case for this investment to the 
Office of Management and Budget during March 2007. Preliminary cost 
estimates indicate that this planned transition would require about 
$278 million over fiscal years 2007 through 2009. It would also have a 
total 10-year lifecycle cost of $463 million unadjusted for risk and an 
estimated cost of $617 million when adjusted for risk.
    In addition to this modernization effort, further costs must be 
incurred to stabilize the FSA IT system components at field offices in 
the short term. These additional costs are estimated to be about $150 
million to bring the Kansas City web-based system up to at least 
moderate reliability; about $97 million to implement likely disaster 
assistance and Farm Bill legislation; and nearly $29 million to replace 
obsolete field office components. Thus, estimated total costs of nearly 
$553 million over fiscal years 2007 through 2010 will be required to 
bring the current system up reasonable operating capability and to 
transition to a modernized system. However, the actual modernization 
component as noted above is estimated to cost about $278 million.
    Question. Is this part of the Farm Bill proposals submitted? If 
not, where will this funding come from, since it is not in the 
President's budget?
    Answer. Funding for modernization of FSA's information technology 
systems is not included in the Administration's Farm Bill proposal. 
USDA is working with the Office of Management and Budget to identify an 
appropriate funding source for this investment.

                         AGRICULTURAL RESEARCH

    Question. Federal support for agricultural research is one of the 
most important contributions we make to support productivity for our 
farmers, ranchers, and all parts of our rural economy. A very good case 
can be made that this type of research is not getting the full support 
it needs in terms of funding, but the results have been impressive.
    What, if anything, is broke about the current agricultural research 
programs? If there is a need to combine agencies like ARS and CSREES, 
isn't that just a matter of coordination? Isn't that the role of the 
Under Secretary now?
    Answer. While current agricultural research programs are 
functioning well, they can be strengthened. Currently, both ARS and 
CSREES support basic and applied research spanning the full spectrum of 
agriculture related issues including plant and animal systems, food and 
nutrition, and natural resources.
    Our proposal will greatly facilitate closer collaboration by 
establishing a single National Program Staff (NPS) to manage programs 
and resources across all areas of research, both intramural and 
extramural, as well as extension and education. This will help ensure 
that resources will be maximized and that the comparative strengths of 
our intramural and extramural system are better utilized to address 
critical problems facing agriculture.
    While the Under Secretary has a role in coordinating programs 
between the REE agencies, it is important that this coordination be 
institutionalized. This can best be accomplished by merging the 
agencies.
    Question. Can you please give us your view on how Federal support 
for agricultural research should be administered? For example, what is 
the role of the State/Federal partnerships that have worked so well 
over the past?
    Answer. Continued Federal support for agricultural research is 
critical to the future of American agriculture. It is important to 
maintain both strong intramural and extramural research programs. 
Central to USDA's extramural efforts is the State/Federal partnership 
with the Land Grant Universities and other cooperators. These efforts 
should be maintained and strengthened.
    Question. Do you think that USDA should have its own in-house 
research agency? As you know, there are proposals under consideration 
that would remove agricultural research from the jurisdiction of USDA 
and place it with an independent agency. How do you feel about that?
    Answer. Agricultural research and education is a core mission of 
USDA and it is important to maintain a strong intramural research 
capacity. The Administration strongly supports keeping intramural 
research efforts within the jurisdiction of USDA and does not support 
moving these efforts into an independent agency.
    One of the Administration's farm bill proposals would make 
significant changes to the Research, Education, and Economics mission 
area within USDA. Specifically, CSREES and ARS would be folded into one 
agency. The thrust of the argument for this change is that it will 
provide better coordination and allow for enhanced efficiency and 
effectiveness of program implementation and resource allocation.
    Question. How do you think we best meet the needs for long-term 
research that can be well served by long-term formula funds and 
competitive grants and the short term problem solving needs that can 
perhaps be best served by use of your special grant authorities? Do you 
think we need to maintain a balance to meet both these type of research 
needs?
    Answer. Our experience is that a mixed portfolio of formula funds 
and competitive grant programs allows us to address the needs of 
research for American agriculture. Our programs support the goals and 
objectives of USDA, and incorporate stakeholder input on a continuing 
basis. Formula funds ensure that each State has an immediate response 
capacity to address emerging issues and problems. When an issue arises, 
existing resources can be mobilized quickly to begin to deal with the 
problem.
    For those areas of longer-term concern, competitive programs are 
able to lay the scientific groundwork needed to address specific 
problems. Because these programs are designed at the Federal level, 
with stakeholder input, and take into account the needs of the entire 
nation, they apply available resources to America's highest 
agricultural research priorities. In our experience, well developed and 
logically structured competitive programs take no longer and can be as 
responsive to solving science based issues as legislatively mandated 
special research grants.

                NATIONAL VETERINARY MEDICAL SERVICES ACT

    Question. Please provide an update on the implementation of the 
National Veterinary Services Act.
    Answer. We plan to publish a Final Rule delegating the National 
Veterinary Medical Services Act program to CSREES in the Federal 
Register on March 19, 2007. Although there are additional 
administrative steps that must be completed prior to the distribution 
of funds, a framework for the program has been developed by CSREES. The 
Department recognizes the importance of this Act to the veterinary 
community and those that they serve and is moving forward in the 
implementation of this program as quickly as possible.

                               AVIAN FLU

    Question. Secretary Johanns, as you are aware, we provided in the 
Joint Resolution we recently passed more than $47 million to annualize 
funding provided in an fiscal year 2006 supplemental bill for avian flu 
activities in APHIS. Further increases are included in the budget, 
although we understand that this may change some based on passage of 
the joint resolution. Although it may seem that there was certainly a 
few months where we didn't hear about too many avian flu outbreaks, 
very recently there has been a new outbreak in Britain, and we are 
headed into the spring, when the birds will be migrating and we know 
their migratory patterns must be monitored closely. I know that you are 
aware of the importance of staying ahead of this situation--this is 
evidenced by your budget request.
    What is the total amount within APHIS that will be spent on avian 
flu activities this year? What will this money buy?
    Answer. APHIS is planning to spend $107.7 million ($30 million in 
2006 supplemental funding, $16.8 million carryover from Low Pathogenic 
Avian Influenza (LPAI), $47.2 million for highly pathogenic avian 
influenza (HPAI) appropriated funding and $13.7 million for LPAI 
appropriated funding) during fiscal year 2007. The use of these funds 
will increase surveillance in wildlife, domestic poultry, and game 
birds; increase and enhance existing preparedness; and provide capacity 
building for highly pathogenic avian influenza (HPAI) in the 
international community. Additionally, APHIS is increasing its 
interdiction activities to reduce the threat of an HPAI introduction 
through smuggling.
    Question. Can we expect more outbreaks of avian flu as we enter 
Spring?
    Answer. The United States has not experienced any introductions of 
the Asian strain of highly pathogenic avian influenza. APHIS is 
confident that the current surveillance activities in wildlife, 
domestic poultry, as well as smuggling interdictions provide an ample 
early warning solution that will enable Federal, State, and local 
resources to rapidly respond to an incursion of the virus, and thereby 
limit its potential for spread.

                             EMERGING PESTS

    Question. Secretary Johanns, I was pleased to see an increase of 
$20.5 million in the Emerging Plant Pests program for Emerald Ash 
Borer, bringing total funding to respond to this pest to more than $30 
million. I was also pleased to see that a portion of this increase is 
going to support surveys in States where EAB is most likely to occur 
next, one of which is my home State of Wisconsin. USDA estimates, as 
you know, that if EAB is not contained and eradicated, it could cost 
State and local governments and landowners $7 billion over the next 25 
years for tree removal and replacement. It has already devastated areas 
where it has shown up.
    Could you please speak to the efforts APHIS is undertaking to 
control and eradicate Emerald Ash Borer where it has been found? Also, 
please talk about the surveys the budget requests funding for in order 
to prevent the spread of EAB. What do you do if you find it in a new 
place?
    Answer. APHIS and USDA's Forest Service have been cooperating with 
affected States since 2002 to address EAB. The program uses a 
management strategy with survey, regulatory, outreach, and control 
components designed to contain the general EAB infestation and find any 
isolated infestations and take appropriate action to contain or 
eradicate them. In December 2006, APHIS expanded its EAB quarantine 
regulations to cover the entire States of Illinois, Indiana, and Ohio, 
more than tripling the existing regulated area to prevent additional 
spread of EAB.
    Regulatory activities include monitoring high-risk businesses and 
ensuring that they move regulated articles only under compliance 
agreement with the EAB program as well as working to identify pathways 
for the potential movement of regulated articles and conducting special 
operations such as weigh station blitzes. The regulatory program also 
includes a strong outreach component to ensure that businesses and 
residents in quarantined areas are aware of the risk of moving items.
    Survey activities, including visual surveys and the use of 
detection trees, which are trees that have been stressed to release 
volatile chemicals attractive to the beetle, are used to detect the 
presence of EAB in new areas and delimit the extent of known 
infestations. If the program detects EAB outside of the known infested 
areas, delimiting surveys are conducted to determine how old and how 
large the infestation is and what action would be appropriate. The only 
available eradication method requires the removal of all ash trees 
within a half-mile radius of a young infestation. Such activities take 
place only at small, truly isolated infestations.
    APHIS is also investing in methods development projects for EAB, 
including more accurate survey methods and control options. The fiscal 
year 2008 Budget also requests funds to expand survey efforts into 
States near currently infested areas, including Wisconsin, Minnesota, 
Iowa, Missouri, Kentucky, Tennessee, West Virginia, Virginia, 
Pennsylvania, and New York. These States have risk factors based on the 
movement of EAB host materials.
    Question. How does APHIS work to prevent things such as Emerald Ash 
Borers (EAB) and the Asian Longhorn Beetles from entering the United 
States? What improvements need to be made at the borders to prevent 
these incredibly expensive pests from entering and causing these 
problems?
    Answer. The Agriculture Quarantine and Inspection program protects 
the United States from the risks associated with the introduction of 
invasive agricultural pests and diseases. APHIS and the Department of 
Homeland Security cooperate to carry out this program, and fund the 
programs through a combination of appropriations and user fees. The 
Pest Detection program supports APHIS' goal of safeguarding U.S. 
agricultural and environmental resources by ensuring that new 
introductions of harmful plant pests and diseases are detected as soon 
as possible, before they cause significant damage. USDA is requesting a 
$15 million increase in the Pest Detection program for fiscal year 
2008.
    Exotic wood boring and bark beetles such as EAB and Asian 
longhorned beetle (ALB) likely entered the United States through 
infested solid wood packing materials such as pallets, crates, and 
other materials used in international shipping. These materials are 
often reused and reshipped many times throughout the world. Many 
countries have recognized the need to deal with the pest risk. APHIS 
worked with its international counterparts to develop standards for 
safely moving solid wood packing materials and implemented regulations 
based on the developed standards. While APHIS and affected States are 
still dealing with the effects of EAB and ALB and several other exotic 
forest pests already in the United States, we believe that the new 
regulation of wood packaging materials should help prevent future 
infestations of this type.

                     ERADICATION VERSUS MANAGEMENT

    Question. At what point do you make a determination that the 
eradication of a disease isn't possible, such as in the case of citrus 
canker? What are the next steps once that determination has been made.
    Answer. Although each pest or disease situation must be analyzed 
separately, there are several factors we consider when determining 
whether or not eradication is feasible. Among these are: the 
availability of adequate funding and active participation from Federal, 
State, and industry cooperators; weather and any other environmental 
constraints; the potential of the pest to do significant economic 
damage to agricultural or forest resources; the extent to which the 
pest or disease has spread; the availability of effective detection, 
diagnostic, and control technology; the availability of acceptable 
alternatives to eradication; public support for an eradication program; 
the disease's public health significance; and the vectors associated 
with a disease (e.g., mosquitoes, ticks, etc.).
    Federal officials take all of these and other factors into 
consideration as they determine whether the eradication of a pest or 
disease is possible. If one or more of these factors change 
considerably during the course of an eradication effort, the planned 
course of action will be reevaluated. Prior to making any major 
decisions about discontinuing an eradication effort, Federal officials 
will consult with their State and industry cooperators, then update 
policies and regulations as appropriate.

                            INVASIVE SPECIES

    Question. Please provide a list of current plant and animal 
invasive species, ranked by their threat level. What is APHIS' short 
and long-term plans to deal with these?
    Answer. The Administration has not ranked invasive species by 
threat level. Invasive species that APHIS addresses include, but are 
not limited to, the programs focused on cattle fever tick, 
Mediterranean fruit fly, emerald ash borer, potato cyst nematode, 
sudden oak death, citrus diseases, brucellosis, pseudorabies, and 
chronic wasting disease. APHIS addresses each of these threats as 
resources allow.
    Over the long term, APHIS develops response plans for exotic pests 
and diseases that have the potential to cause significant economic or 
environmental damage and uses its safeguarding system, which involves 
prevention, detection, and management components, to protect U.S. 
agriculture. Under the Pest and Disease Exclusion mission area, APHIS 
works to prevent exotic pests such as cattle fever tick and 
Mediterranean fruit fly from entering the United States. These and 
other pests have direct pathways into the United States. APHIS takes 
action at U.S. borders or in other countries to mitigate the risks 
associated with them.
    Under the Monitoring and Surveillance mission area, APHIS conducts 
plant pest surveys, animal health surveillance, and other activities 
designed to detect exotic plant pests and foreign animal diseases if 
they are present so that we can deal with them quickly if needed. These 
programs target a changing list of high-risk plant pests depending on 
trade and travel pattern and outbreaks in other countries. These 
programs also conduct intensive monitoring and emergency preparedness 
efforts. APHIS analysts follow animal and plant health situations 
around the world and frequently adjust monitoring and surveillance 
efforts and pest and disease exclusion priorities to safeguard U.S. 
agriculture and natural resources from high-risk pests and diseases.
    APHIS also works to control or eradicate high priority invasive 
species through programs in the Pest and Disease Management area, 
including, but not limited to, emerald ash borer, potato cyst nematode, 
sudden oak death, several citrus diseases, brucellosis, pseudorabies, 
and chronic wasting disease.

                  CHRONIC WASTING DISEASE/STATE MATCH

    Question. The budget request includes a decrease of over $6 million 
for activities related to chronic wasting disease. One of the 
justifications for this decrease is a match in which the Federal 
Government will pay for 60 percent of anticipated program needs, and 
the State will fund the rest. Similar proposals for State match are 
mentioned throughout the APHIS budget.
    Specifically for Chronic Wasting Disease, how will the requirements 
for the States change with this proposal? Will their funding level need 
to increase?
    Answer. The 2008 budget proposes a reduction of about $4 million. 
The program requirements for the chronic wasting disease (CWD) herd 
certification program (HCP) will not change with the funding reduction. 
At the requested funding level, USDA anticipates the States and 
cooperators would contribute additional resources to support the 
efforts at current levels.
    Question. More broadly, what amount does APHIS anticipate saving by 
requiring increased State matches for APHIS activities? Is there 
currently a mandated match level for States, or is this an entirely new 
proposal? If a State can't or does not provide the requested match 
amount, what will APHIS do then?
    Answer. The following table is provided for the record.
    [The information follows:]

------------------------------------------------------------------------
                        Line Item                             Savings
------------------------------------------------------------------------
Chronic Wasting Disease.................................          $4,400
Emerging Plant Pests--Citrus Health Response Program               2,300
 (Florida)..............................................
Emerging Plant Pests--Asian Longhorned Beetle (NJ & NY).           1,691
Emerging Plant Pests--Glassy-Winged Sharp Shooter                  1,001
 (California)...........................................
Johne's Disease.........................................           5,005
Noxious Weeds...........................................             300
                                                         ---------------
      Total.............................................          14,697
------------------------------------------------------------------------

    There is currently no mandated match level for States, nor is USDA 
proposing a mandated level. It is our goal to leverage increased 
participation from the States to maximize the benefits received from 
Federal dollars.
    If a State is unable to contribute the estimated amount for a 
particular program, USDA will evaluate the overall impact to program 
efforts and adjust future funding requests accordingly.

                            JOHNE'S DISEASE

    Question. Mr. Secretary, the APHIS budget for Johne's disease 
includes a decrease of nearly $10 million approximately 75 percent. One 
of the reasons for this justification is the supposition that States, 
universities, and producers, would be responsible for testing, herd 
clean-up, risk assessments and disease management, as well as the 
continuation of the national Johne's demonstration herd project.
    Was there any input gathered from those whose responsibilities will 
be increased before this proposal was put forth? Are these activities 
that the States, etc. are currently undertaking, or would have to pick 
up?
    Answer. USDA has consulted with our partners in the Voluntary 
Bovine Johne's Disease Control Program (VBJDCP), and they are aware of 
our request. From its inception, the VBJDCP has been a cooperative 
effort among APHIS, State departments of agriculture, and industry. 
States have been the main driving force of the VBJDCP. A large part of 
the Johne's disease funds not requested in the President's Budget has 
been used by the States to pay for producer testing and risk assessment 
fees. With a reduction in Federal funding, these costs will need to be 
covered by producers who benefit from this program. In addition, State 
and University partners would assume responsibility for continuation of 
the Johne's disease demonstration herd projects implemented in each 
region. These projects focus on new and current testing schemes and 
control methods to determine the most effective cost management 
practice options.
    APHIS will continue to provide oversight to the VBJDCP and support 
analysis of the national demonstration projects, along with continuing 
laboratory approval and licensing diagnostic tests and vaccines for 
commercial use.

                 NATIONAL ANIMAL IDENTIFICATION SYSTEM

    Question. What is the status of the development of a National 
Animal Identification System?
    Answer. The National Animal Identification System is composed of 
three components: premises registration, animal identification, and 
animal tracing. Premises registration is the foundation of the program. 
As of March 12, 2007, all 50 States, 60 Tribes, and 2 U.S. Territories 
are capable of registering premises according to USDA standards, and 
approximately 378,000 locations have been registered.
    Significant progress has also been made on the second component of 
NAIS, animal identification. As of March 12, 2007, approximately 1 
million Animal Identification Number devices have been distributed.
    The third component of the NAIS, animal tracing, is currently under 
development with the help of USDA's industry and State partners. 
Industry, through private systems, and States will manage the animal 
tracing databases that maintain the movement records of animals. Full 
deployment of the Animal Trace Processing System is planned for the 
near future.
    Question. If such an animal identification system is made 
voluntary, what effect does APHIS anticipate that will have on 
participation? What efforts will be made to encourage participation?
    Answer. Participation in the NAIS is voluntary. The USDA remains 
committed to building upon our strong partnership with the States and 
industry to meet producers' needs and establish a versatile system that 
makes sense for everyone.
    Moving forward with this voluntary approach has allowed producers 
the opportunity to test the program and recommend the most practical 
solutions for a more effective system. In this sense, producers 
themselves are playing an active role in helping to shape the NAIS 
program so that it works well for their particular needs. Additionally, 
a voluntary NAIS allows for the best price competition between service 
providers (identification device manufacturers, database providers, 
etc.) and leaves room for market applications (such as age/source/
process verification) to help drive the system.
    To encourage participation, USDA has provided funding to facilitate 
development and implementation of an efficient system, and flexibility 
to adapt to producers' operations and needs. On February 2, 2007, USDA 
published a request for proposals from nonprofit organizations that 
wish to enter into cooperative agreements with USDA to advance premises 
registration. USDA will make up to $6 million available, subject to the 
availability of funding, for the cooperative agreements. These 
cooperative agreements will support the efforts of such organizations 
to promote the NAIS and, specifically, increase participation in 
premises registration--the foundation of the program.

                SMALL FARM/ORGANICS/AMS SEED MISLABELING

    Question. We continue to hear reports that the number of farmers in 
the United States is getting smaller and the farms are getting larger. 
Still, we have a responsibility to promote programs and policies to 
help small and beginning farmers be productive and able to maintain a 
reasonable life style. After all, these small independent farmers are 
truly small business entrepreneurs who need the government to be their 
friend, not their obstacle. I fear that in too many cases, government 
is their obstacle.
    Last year I asked you a question about how USDA can help these 
small farmers.
    What have you done since then to improve their opportunities?
    Answer. Through a number of different programs, USDA helps 
operators of small and medium-size farms. For example, the Farm Service 
Agency (FSA) provides a variety of farm loan programs, including 
traditional operating loans, beginning farmer and youth programs. The 
Agricultural Marketing Service (AMS) helps small producers obtain 
greater access to marketing channels and engage in more profitable farm 
marketing activities through research, alternative market development, 
and grant programs. Additional information will be provided for the 
record.
    [The information follows:]
    FSA offers direct and guaranteed farm ownership and operating loans 
to family-size farmers and ranchers who cannot obtain commercial credit 
from a bank, Farm Credit System institution, or other lender. Borrowers 
include beginning farmers who do not qualify for conventional loans 
because they have insufficient financial resources, as well as 
established farmers who have suffered financial setbacks from natural 
disasters, or whose resources are too limited to maintain profitable 
farming operations. FSA loans can be used to purchase land, livestock, 
equipment, feed, seed, and supplies; they can also be used for building 
construction and improvements. FSA guaranteed loans provide 
conventional agricultural lenders with up to a 95 percent guarantee of 
the principal loan amount. The lender is responsible for servicing a 
borrower's account, including the collection of payments, for the life 
of the loan. All loans must meet certain qualifying criteria to be 
eligible for guarantees. Farmers interested in these loans must apply 
to a conventional lender, which then arranges for the FSA guarantee.
    AMS conducts or supports applied research to help small and medium-
sized farm producers and processors make better informed business 
decisions in the face of changing marketing conditions and practices; 
maintains a centralized information clearinghouse of agricultural 
marketing research materials and resources on the agency's website and 
disseminates research results, technical assistance, and data via 
internet, publications, conference presentations, and outreach efforts; 
administers the Farmers Market Promotion and Federal-State Marketing 
Improvement grant programs; and collaborates with other agencies that 
support small farm marketing, including State departments of 
agriculture, land-grant universities, Tribal governments, trade 
associations, non-profit organizations and private foundations.
    During fiscal year 2006 and early 2007 AMS supported four national 
and four regional farmers market and direct marketing workshops, and 
AMS personnel presented or trained at nineteen conferences and meetings 
that support small farms, farmers markets, and agricultural community 
outreach to improve food marketing practices among small-scale and 
socially disadvantaged farmers, and expand awareness of available 
marketing services and resources. Further, AMS created a regularly 
updated Farmers Market Resource Guide in March 2006 that provides a 
one-stop information source about available financial and technical 
assistance for farmers market and direct farm marketing activities.
    AMS also provides specific funding assistance. AMS awarded $1 
million through 20 Farmers Market Promotion Program (FMPP) grants for 
2006. Agricultural cooperatives; local and Tribal governments; non-
profit, public benefit and economic development corporations; and 
regional farmers' market authorities are eligible for FMPP grants. The 
Federal-State Marketing Improvement Program (FSMIP) funded 27 
competitive matching grants worth $1.334 million to State Departments 
of Agriculture and other appropriate State agencies to assist in 
exploring new market opportunities for U.S. food and agricultural 
products and to encourage research and innovation aimed at improving 
the efficiency and performance of the U.S. marketing system. The 
majority of FSMIP projects are geared toward small to medium sized 
producers. In addition, the Specialty Crop Block Grant Program makes 
funds available to State departments of agriculture to enhance the 
competitiveness of specialty crops. It has made $6.58 million available 
to 50 States (and to Puerto Rico and the District of Columbia).
    Question. When we see problems like the mis-labeling of GM grain 
that gets into the market place, that sends a very troubling message to 
our trade partners and can create problems that small operators can't 
absorb.
    We have heard several reports of genetically modified material 
getting into crops intended for commercial sales, the most well-known 
being rice. What has the economic effect been of instances such as 
this?
    Answer. The economic effect can be reductions in seed available for 
planting and potential trade restrictions. For example, two popular 
long grain rice varieties can no longer be planted for commercial 
production due to the presence of genetically modified material. The 
value of certified seed of these varieties produced in 2006 for 
planting in 2007 is estimated to be $39 million.
    Question. What programs does USDA have in place to make sure those 
sort of labeling problems don't happen?
    Answer. The Agricultural Marketing Service administers the 
interstate labeling provisions of the Federal Seed Act, a truth-in-
labeling law that regulates the interstate shipment of agricultural and 
vegetable seeds. Enforcement of the Act by AMS helps ensure that seed 
purchased by small independent farmers is of high quality and 
truthfully labeled. However, the Act does not regulate biotechnology 
traits or biotechnologically derived seeds. Instead, the Act considers 
biotechnology derived seeds found in traditional varieties as ``other'' 
crop seeds and they have to be labeled as such. If the biotechnology 
derived seeds exceed 5 percent, they have to be listed as a separate 
component on the seed label.
    Question. As you know, the organics label is a very important 
label, what are you doing to protect the integrity of that label?
    Answer. USDA's National Organic Program (NOP) is responsible for 
administering the organic regulations and ensuring that all 
requirements are met to protect the integrity of the organic label. The 
2008 budget includes an increase of about $1 million above the 2007 
level of $2 million to ensure that the NOP can meet the needs of the 
rapidly growing organic industry. The increase will support, among 
other efforts, development of standards requested by the industry and 
regulatory enforcement to maintain labeling credibility. To ensure 
compliance with the regulations, the NOP directly oversees its 
accredited certifying agents to monitor organic producers and 
processors, conducts retail surveillance, conducts investigations, 
takes action on complaints, and imposes penalties where appropriate.

           GENETICALLY MODIFIED MATERIALS IN COMMERCIAL CROPS

    Question. How is AMS, and USDA overall, working to prevent the 
introduction of genetically modified materials into crops intended for 
commercial sales?
    Answer. The Animal and Plant Health Inspection Service (APHIS) is 
involved in regulation of the biotechnology industry. Various measures 
are used in authorized field tests to ensure that genetically 
engineered organisms are confined to the test site. The measures 
include isolation distances to mitigate cross pollination with other 
crops and weedy relatives, cleaning of farm equipment to mitigate the 
inadvertent spread of seed, timely disposition of the field test, and 
post-harvest monitoring for volunteers. To ensure compliance, 
inspections of the test site, facilities, and records are conducted. 
Once a crop is deregulated, that crop is considered no different than 
conventional crops and may be planted without restrictions from APHIS.
    For organic products, regulations of AMS' National Organic Program 
prohibit the use of genetically modified organisms in organic 
production. Accredited certifying agents review organic production and 
handling plans before certified organic production begins to ensure 
that no genetically modified organisms are used in production and that 
handling procedures protect organic products from contact with 
genetically engineered materials. Penalties are in place for 
intentional disregard of the regulations.

                   COUNTRY OF ORIGIN LABELING (COOL)

    Question. Please provide an update on plans to implement COOL.
    Answer. AMS has entered into cooperative agreements with 14 States 
for the purpose of conducting audits of retail establishments to 
enforce the COOL regulations for fish and shellfish. Audits in States 
without cooperative agreements were conducted by USDA personnel. In 
fiscal year 2006 1,159 retail stores were audited; the number of audits 
in fiscal year 2007 will increase slightly.
    For the remaining covered commodities, AMS will issue proposed 
regulations for public comment and issue final regulatory actions to 
implement COOL by the statutorily established effective date.
    Question. If language was enacted that would move the current 
implementation date for COOL forward to sometime during fiscal year 
2008, please explain what steps would be required to implement it on an 
accelerated schedule. What funds would be required to implement COOL 
during fiscal year 2008?
    Answer. To implement COOL for the remaining covered commodities on 
an accelerated schedule, it could be necessary for AMS to issue final 
regulatory actions without the benefit of a public comment process.
    Given the current implementation date, AMS will not need additional 
funding in fiscal year 2008. To include the additional commodities, the 
program needs to develop the necessary regulations. Once regulations 
are established, the program must expand retail and supplier 
enforcement through adequate Federal staffing and by establishing 
additional cooperative agreements with State agencies and U.S. 
territories to conduct retail surveillance audits. The program would 
focus on training and educating Federal and State employees on their 
enforcement responsibilities; overseeing the uniform application of the 
requirements from the Federal level; conducting educational and 
outreach activities with interested parties; conducting routine 
surveillance and product trace-back audits throughout the supply chain 
to ensure proper labeling and enforcement; responding to formal 
complaints; and initiating enforcement actions against violators. Since 
expanding the current program to all commodities in the statute will 
constitute an increase in program activity, implementation will require 
an increase in funding.

                         RISK MANAGEMENT AGENCY

    Question. Is RMA developing any new products to serve regions of 
the country that currently have few, if any, options for risk 
management? If so, please explain them.
    Answer. The Risk Management Agency (RMA) has undertaken an 
evaluation of its product portfolio to identify gaps in availability, 
particularly with respect to underserved crops and/or regions. This 
evaluation found that, with few exceptions, crop insurance coverage is 
generally available for the most economically significant crops in the 
underserved regions. This result is consistent with the conclusions of 
a recent independent evaluation of RMA's product portfolio. This 
suggests that RMA should place greater emphasis on improving currently 
available products to provide more effective risk management 
protection, and target efforts on the development of new products 
towards filling the few remaining gaps. RMA is currently conducting 
comprehensive evaluations of several crop programs to identify areas 
for improvement, particularly among underserved regions.
    In addition, RMA has implemented several new products, most notably 
Adjusted Gross Revenue (AGR), Adjusted Gross Revenue-Lite (AGR-Lite), 
and two Pasture, Rangeland and Forage (PRF) pilot programs. The AGR, 
AGR-Lite and PRF programs are particularly oriented to producers for 
whom traditional crop insurance products were either impractical, or 
did not provide effective risk management protection. In addition, over 
twenty pilot programs are currently active that pertain to specialty 
crops, including pilot programs for processing chili peppers, Hawaii 
Tropical Fruit, and Florida Fruit Trees. RMA also has ongoing 
development efforts for a revenue insurance product for certain 
specialty crops, as well as an umbrella weather-peril product that 
could provide effective coverage for certain crops with relatively 
limited market value. Additional risk management tools are developed 
through partnership agreements that impact underserved producers. These 
partnership agreements deal with a wide range of topics including the 
development and understanding of markets, pest and disease control, and 
water management.
    The Crop Insurance Board also accepts private sector submissions 
that allows persons to develop and submit for approval their own 
products targeted to specific risk management needs.

                             GLOBAL WARMING

    Question. USDA conservation programs provide a model for natural 
resources protection on a vast scale. Today, there is much discussion 
about the issue of global climate change.
    Please describe any current agricultural activities that may 
contribute to global climate change.
    Answer. Through a portfolio of beneficial conservation programs and 
energy conservation practices Producers have opportunities to save 
money and time while reducing greenhouse gas emissions. There are 
several agricultural and forestry production systems that can be 
implemented to reduce GHG emissions and increase carbon storage, called 
sequestration, in soils and vegetation. Many conservation practices 
used by agricultural producers can mitigate negative effects attributed 
to climate change. One example of a specific practice is Conservation 
tillage. Residues and tillage can be managed to build organic matter 
and to sequester carbon while also reducing energy requirements and 
soil erosion. Another example is Comprehensive Nutrient Management 
systems. These systems can capture methane for energy production while 
also reducing negative water quality impacts.
    Question. Please describe any changes in agricultural production or 
conservation practices that might better mitigate against the threat of 
global climate change. For example, what are the benefits of carbon 
sequestration as a means to reduce greenhouse gasses or other potential 
contributors to global warming?
    Answer. USDA is providing incentives and supporting voluntary 
actions by private landowners in targeting efficiency improvements 
through the USDA/Department of Energy (DOE)/Environmental Protection 
Agency (EPA) AgSTAR, as well as many other programs. USDA has 
instituted new standards and is targeting specific incentives that 
encourage carbon sequestration and greenhouse gas (GHG) emission 
reduction efforts. USDA also is sponsoring improved monitoring and 
reporting guidelines for voluntary initiatives. USDA agencies and their 
partners are developing tools to estimate the amount of carbon stored 
and GHG emissions reduced at the field and producer level. Such tools 
will make it easier for producers to estimate carbon storage and GHG 
emissions reductions.
    The Agricultural Research Service conducts global climate change 
research under the Global Change National Program. This research 
focuses on four aspects of global change: Carbon Cycle and Carbon 
Storage; Trace Gases; Agricultural Ecosystem Impacts; and Changes in 
Weather and the Water Cycle at Farm, Ranch, and Regional Scales. These 
factors may significantly affect agricultural productivity and are not 
addressed specifically by other ARS National Programs. Recently, in 
response to concerns about global climate change, a strong interest has 
developed in determining how agricultural activities and practices can 
be used to store carbon, particularly in soil. A Federal multi-agency 
research initiative on the carbon cycle, the U.S. Global Change 
Research Program Carbon Cycle Initiative, is under development to 
address carbon cycle science.

                           VALUE-ADDED GRANTS

    Question. Funding has been provided for Value-Added Agricultural 
Product Market Development Grants since the Agricultural Risk 
Protection Act of 2000. Ample time has elapsed to evaluate the 
effectiveness of this program.
    Please describe the types of products that have been funded.
    Answer. A wide variety of projects are funded, including value 
added products made from meat, dairy products, grains, fruits and 
vegetables, oilseeds, and renewable energy sources. Grant funds 
totaling $150,000 were used as working capital for the start up phase 
of a new tilapia production facility where the fish will be raised and 
processed into fillets. Other types of products include wine, compost 
made from diary waste, wind energy, soy-flour, identity-preserved 
yogurt, dehydrated apple slices, and branded cuts of beef.
    Question. Are these products becoming marketable and sustainable?
    Answer. Information about the long-term sustainability became 
available early this year from a study that the University of Missouri 
has done. The study indicates that approximately 60 percent of the 
projects funded resulted in a marketable product.
    Question. What are the outcome measures that are being used to 
determine the success of this program?
    Answer. Several measures evaluating the program are in place, 
including the number of jobs created, the increase in producer revenue 
due to the project, the increase in customer base due to the project, 
and the sustainability of the business receiving the grant.
    Question. How many grants and how much funding has been provided to 
energy-related projects?
    Answer. Since 2001, 155 grants have been made for energy-related 
projects, totaling $25.2 million.
    Question. How successful are these energy-related projects and how 
do you define success?
    Answer. We define the success of energy-related projects in the 
same way as for other project types--we consider any project that 
resulted in a marketable product to be successful. We estimate that 
approximately 48 percent of energy related projects resulted in a 
marketable product. This compares to 60 percent success in projects 
over all for the value added program.

                  SINGLE FAMILY HOUSING LOAN PROGRAMS

    Question. Mr. Secretary, the Budget terminates the direct single 
family housing loan program that has served very low and low income 
rural households well for over 40 years. The 2000 Census reveals that 
7.8 million of the non-metropolitan population is poor, 5.5 million 
face housing cost overburden, and 1.6 million non-metro housing units 
are either moderately or severely substandard.
    While the direct loan program is terminated, funding for the 
guaranteed loan program is given a concomitant increase. However, this 
increase comes with a 50 percent rise in the fee to participate. 
Average incomes of households in the guaranteed program are about twice 
as high as in the direct program, and this fee increase will force 
those incomes higher.
    The Administration proposes to submit legislation for subsidized 
guaranteed options, but no language has been provided and no funding is 
requested in 2008.
    Given the large income differential between direct and guaranteed 
program participants, how will very low income households gain 
assistance for homeownership loans?
    Answer. We anticipate that many very-low income families will be 
able to participate in our guaranteed homeownership program. Currently 
about 30 percent of those families who have received guaranteed loans 
have very low and low incomes.
    Question. When does the Administration expect to send up 
legislation on subsidized guarantees?
    Answer. We anticipate the legislative package will be delivered 
soon.
    Question. The current direct program can provide mortgage interest 
rates as low as 1 percent for very low income households. How deeply 
subsidized do you expect the proposed guaranteed program to be?
    Answer. We are currently developing options to assist very low and 
lower income families through the subsidized guaranteed program. Our 
goal is to help more lower income families to achieve homeownership 
through a guaranteed loan originated and serviced by private sector 
lenders. Currently interest rate reduction provisions have not been 
developed.
    Question. Do you expect the guarantee fee increase to result in a 
deterioration in the credit quality of the guaranteed portfolio?
    Answer. No, all applicants will be required to meet current credit 
quality standards. The proposed fee increase, which can be financed as 
part of the loan, will only increase the average customer's loan 
payment by about $7 per month.
    Question. How much do you expect the average income of guaranteed 
program participants to rise as a result of raising the fee?
    Answer. We do not expect to see an increase in the income of our 
guarantee program participants.

                         OFFICE CONSOLIDATIONS

    Question. Mr. Secretary, delivering a direct single family housing 
program is clearly much more labor intensive than a guaranteed program. 
In conjunction with refocusing housing lending from direct to 
guaranteed loans, Rural Development is proposing to reduce staff 
somewhat and consolidate its field office structure.
    What is the proposed magnitude of staff reductions, and extent of 
field office consolidations?
    Answer. Any office consolidations that may occur will be done so as 
recommended by each Rural Development State Director in order to 
accommodate a reduction of management levels in each State while 
recognizing population shifts, the need to improve delivery systems in 
order to deliver all programs in all locations and to accommodate 
enhancements in technology enabling us to do business in new ways.
    Since the State plans are currently being reviewed, we do not know 
the number of offices to be closed or that will operate on a part-time 
basis. RD will keep the Committee informed of its plans. It is RD's 
intent that the realignment be completed by March, 2008.
    Rural Development operated with 6,475 FTE's in fiscal year 2006, 
and expects to operate with 6,300 FTE's in fiscal year 2007. Rural 
Development is not proposing a Reduction-in-Force and all employees 
will be offered a position at their current grade and pay level. We are 
also seeking Voluntary Early Retirement Authority which could be of 
interest to those employees who are several years short of being 
eligible for regular retirement.

                      COMMUNITY FACILITIES GRANTS

    Question. Rural Development's Community Facilities program includes 
direct loans, guaranteed loans, and grants to support essential 
community facilities in poor, remote rural communities. Through this 
program communities can finance rural hospitals, health clinics, day 
care centers, libraries, town halls, fire trucks and other first 
responder vehicles and equipment, and a myriad of other essential 
community facilities. This has been one of the most successful programs 
in Rural Development's portfolio.
    Budget authority may be transferred among the loan and grant 
programs. However, this Budget appears to eliminate the grant program, 
leaving only direct and guaranteed loans to meet needs of small rural 
communities.
    What is the back-log of applications and pre-applications for loans 
and grants?
    Answer. As of March 13, 2007, there were 667 applications and pre-
applications totaling $955,581,290 for the Community Facilities direct 
loan program, 48 applications and pre-applications totaling 
$176,316,844 for the guaranteed loan program, and 757 applications and 
pre-applications totaling $62,511,425 for the grant program.
    Question. Will the aggregate requested program level be adequate 
for the fiscal year 2008 demand?
    Answer. The aggregated requested program level will be adequate to 
meet our highest priorities in fiscal year 2008.
    Question. How will small, low income communities, who in the past 
relied on grant assistance, finance the community infrastructure they 
need?
    Answer. There are a number of Federal community development 
programs and State and local economic development agencies designed to 
serve low-income and rural communities. A recent GAO report highlighted 
73 Federal agencies which serve the purpose of economic development, 
with several of these specifically supporting the construction of 
facilities in low-income rural communities.
    Question. Has Rural Development estimated the impacts of this 
proposal on communities by size, region and income level? What are the 
results of that study?
    Answer. No, RD has not estimated the impacts by size, region and 
income level. However, as there are other Federal agencies providing 
grant funding for low-income rural communities, the impacts of the 
proposal will be ameliorated.

                      MUTUAL AND SELF-HELP HOUSING

    Question. The Self Help Housing Program has been hugely successful 
in assisting very low income households become successful homeowners. 
With technical assistance provided by grantees, program participants 
jointly contribute sweat equity as they construct their new homes. Long 
term financing has been provided by the Sec. 502 direct program. 
However, this Budget terminates the direct program, terminates the Sec. 
523 Self-Help Land Development loan program, and reduces Self-Help 
grants by 72 percent.
    In the face of the success and long term support for the Self-Help 
program, why is the Administration taking this action at this time?
    Answer. Increasing cost in other Rural Housing Programs and fiscal 
year 2008 budget constraints require program reductions. Rural 
residents participating in the Self Help Housing program are encouraged 
to seek financing using the Section 502 guaranteed program or obtain 
financing from the private sector.
    Question. What are the private sector funding sources that will 
replace this program, and provide homeownership opportunities for these 
very low income households?
    Answer. Most Self-Help Housing grantees have been successful in 
securing other financial assistance to operate their programs. We 
anticipate that grantees can seek further funds from outside sources 
and use the Habitat for Humanity model which does not rely upon Federal 
financing.

                          RURAL RENTAL HOUSING

    Question. Mr. Secretary, this Budget again proposes to terminate 
direct rural rental housing loans (Sec. 515), to rely solely on the 
Sec. 538 guaranteed loan program for affordable rural rental housing 
construction. The direct program provides subsidized mortgage loans and 
allows the opportunity for rental assistance for very low income 
tenants. Subsidized financing, coupled with rental assistance that caps 
certain tenants' rent payments at 30 percent of income, allows the 
program to serve tenants with mean incomes under $10,000.
    The bulk of Sec. 515 tenants are very low income, with a majority 
female headed households, elderly and/or handicapped. Without the Sec. 
515 program, what will be the source of new affordable rental housing 
for these, most vulnerable, rural residents?
    Answer. Section 538 guaranteed multi family rural rental housing 
program has experienced great success and will be the primary source of 
multi family units without Section 515 funding.
    Question. Rental assistance is not available in Sec. 538 projects. 
Without rental assistance, how can the Sec. 538 program reach the very 
low income rural population now being served?
    Answer. The section 538 program reaches very low income rural 
population in two ways. Leveraged tax credit financing is present in 
nearly 80 percent of section 538 projects. Nearly 7,000 units currently 
enjoy tax credits. Additionally, savings incurred from interest credit 
subsidies are passed on to the tenants through lower required rent 
payments.
    Question. Are there areas of the country where the Sec. 515 
program, even without new rental assistance, could reach very low 
income households that would not be served through the Sec. 538 
program?
    Answer. The section 538 program can provide rents that are 
comparable to the rents created by the section 515 program without 
rental assistance. This is because the section 538 is eligible to be 
combined with 9 percent tax credits, as well as other affordable 
funding sources. The 538 program also offers an interest credit which 
buys down the interest rate of up to $1.5 million of the lender's loan 
to the Applicable Federal Rate for the entire term of the loan and loan 
amortizations of up to 40 years. These factors all aid in the creation 
of units with affordable rents.

                  MULTI-FAMILY HOUSING REVITALIZATION

    Question. Mr. Secretary, Rural Development has a direct loan 
portfolio reflecting over 17,000 properties, containing over 460,000 
affordable rental units. Many of these properties are in excess of 20 
years old, in need of substantial repair and rehabilitation. A recent 
study indicated that the portfolio could be segmented into three 
components: 10 percent are in growing markets in which it is 
economically feasible for owners to prepay, leave the program, and 
raise rents; 10 percent are in declining markets where the costs of 
maintaining the properties exceed the foreseeable benefits and need; 
and the 80 percent balance of the portfolio that is appropriate for 
revitalization and retention in the affordable housing program. Last 
year the Administration proposed revitalization legislation, including 
restructuring tools such as interest rate reductions, loan deferrals, 
reamortizations, subordination, debt forgiveness, etc. Funds were 
provided in fiscal year 2006 for a demonstration revitalization program 
for rural rental housing properties.
    Please provide a summary of actions taken under the fiscal year 
2006 revitalization demonstration program.
    Answer. Last year we were able to approve and obligate funding to 
revitalize 78 properties with over 2,300 apartment units in 16 States, 
using $8.9 million in budget authority provided to the demonstration 
program.
    Question. How much of the funds were utilized and in what manner?
    Answer. We were able to obligate the following program level 
amounts: $48 million in debt deferral, $4.5 million in soft ``bullet'' 
(any loan that requires a generous repayment term usually at the end of 
the life of the loan and it is anticipated that the loan will be 
refinanced) loans, $.28 million in zero percent loans and $.21 million 
in grants.
    Question. What is the status of a demonstration for fiscal year 
2007?
    Answer. With a similar level of budget authority this year, we 
anticipate that the funding NOFA will be released during the month of 
April. Our key demonstration goals this year are to fund revitalization 
transactions in every State, fund an increased number of portfolio 
level transactions and increase the use of leveraged funds.
    Question. What is the status of the Administration's revitalization 
legislation proposal?
    Answer. Our legislative proposal is currently in the final stages 
of review. We expect to transmit it to Congress shortly.
    Question. What were the lessons learned under the fiscal year 2006 
demonstration and have you revised the legislative proposal 
accordingly?
    Answer. We found last year that by using debt deferral and 
carefully underwriting revitalization transactions, we were able to 
approve transactions with very limited rent increases. We also found 
last year that applications were received from approximately 4,100 
properties or a quarter of the Section 515 properties in our portfolio. 
The large number of applicants reflects the clear need to have new cost 
effective revitalization tools to help preserve this valuable 
portfolio.

                     MULTI-FAMILY HOUSING VOUCHERS

    Question. In the face of loan prepayment demands by multi-family 
housing property owners, raising the specter of increased rents for 
very low income rural tenants, $16 million was provided in fiscal year 
2006 for rental housing vouchers.
    How many properties, containing how many units, prepaid in fiscal 
year 2006?
    Answer. In fiscal year 2006, owners of 151 properties containing 
2,330 units went through the Rural Development prepayment process. In 
addition, 58 properties containing about 1,000 units completed the 
foreclosure process. This was a total of 209 properties containing 
3,330 units.
    Question. How many properties and units do you expect to prepay in 
fiscal year 2007 and in fiscal year 2008?
    Answer. We are currently forecasting a total of 225 properties 
containing about 3,600 units to prepay or complete foreclosure 
proceedings in fiscal year 2007. We are currently forecasting a total 
of 275 properties containing about 4,400 units to prepay or complete 
foreclosure proceedings in fiscal year 2008.
    Question. How many vouchers, using how much of the funds, were 
obligated in fiscal year 2006?
    Answer. In fiscal year 2006, we offered vouchers to all tenants in 
properties where the mortgage was prepaid after September 30, 2005. The 
first voucher was issued in April, 2006. Three hundred and eight one-
year vouchers were obligated for a total of $601,000 which represents 
12 months of payment.
    Question. What are your forecasts for voucher utilization in fiscal 
year 2007 and fiscal year 2008?
    Answer. In the first 6 months of fiscal year 2007, approximately 
600 vouchers were obligated for a total of $1.5 million. We are 
estimating to obligate a total of 1,800 vouchers this fiscal year and 
we estimate obligating about 2,200 vouchers in fiscal year 2008. Our 
experience, somewhat limited at this point, is that about half of a 
property's tenants accept the offer of a voucher, and of those about 
half utilize the voucher. The majority of the tenants utilize the 
voucher in the property where they were living at the time of 
prepayment or foreclosure, although the voucher can be used in any 
property where the owner will accept it.

                   RURAL BUSINESS DEVELOPMENT GRANTS

    Question. Mr. Secretary, this Budget, again, terminates successful 
grant programs that promote economic development and job creation in 
rural America. Rural Business Enterprise Grants (RBEG) facilitate 
development of small and emerging business enterprises, while Rural 
Business Opportunity Grants (RBOG) provide technical assistance for 
business development planning. Current funding levels would create or 
save about 24,500 jobs, through 560 recipients, in rural areas 
desperately needing development assistance.
    On a cost per job basis, these grant programs are probably the most 
effective in the Rural Development portfolio. Why is the Administration 
proposing to terminate such successful programs?
    Answer. Funding can be provided by other business loan and grant 
programs within the Federal Government and rural development.
    Question. This proposal was soundly rejected last year. What has 
changed in the rural economy to make this proposal now more palatable?
    Answer. Limited discretionary funding, higher priorities, and the 
need to support other Departmental priorities all played into the 
Administration's proposal. Rural Development intends to focus its 
resources on programs with higher potential for encouraging private-
sector investments, and that would reach a broader range of rural 
communities.

              FINANCING NEW ELECTRIC GENERATION FACILITIES

    Question. Mr. Secretary, we understand that there are about 66 
electric Generation and Transmission (G&T) cooperatives and 864 
distributional cooperatives, many of which rely on the Rural Utilities 
Service (RUS) electric loan program for financing. These cooperatives 
serve about 13 percent of U.S. electric customers, provide 11 percent 
of electric sales, and own about 4 percent of total U.S. operational 
capacity.
    Cooperatives are entering a new wave of power plant investment to 
increase capacity and replace aging infrastructure that dates from the 
mid-1970's to mid 1980's. Planning for new construction takes several 
years, followed by construction periods that can span 5 years or 
longer. Cooperatives depend on the Federal Government for adequate, low 
cost financing to accommodate the Nation's growing energy needs. 
Financing is principally provided by Federal Financing Bank (FFB) loans 
guaranteed by RUS, which is offered at Treasury interest rates plus \1/
8\ percent.
    We are concerned that this Budget will not meet capital needs of 
rural electric cooperatives. RUS currently has applications exceeding 
$10 billion for generation and transmission purposes, scheduled for 
funding in fiscal year 2007 and fiscal year 2008. About 80 percent of 
this total is for construction of new baseload generation. This Budget 
seeks only $4.1 billion in fiscal year 2008 funding, and, for the first 
time, bars funding for new baseload generation.
    Prohibiting new baseload generation will make many of these plants 
less feasible economically at a time when electricity demand is growing 
rapidly. Rural consumers already pay an average of 12 percent higher 
electric rates than neighboring utilities. Terminating Federal funding 
will force rural electric cooperatives to face higher interest rates, 
shorter loan terms, and raise rates charged to rural customers.
    In the face of demonstrated needs for extensive infrastructure 
replacement and expansion, why is the Administration barring access to 
financing for new baseload generation?
    Answer. There are significant demands on RUS electric loan 
resources. Needs for transmission and plant upgrades, including 
environmental upgrades, as well as the need for new generation plans 
are high. Due to the inherent risks associated with construction of 
baseload generation, other significant demands on loan resources and 
the ability to obtain commercial financing, the Administration 
determined that restricting the use of electric loan funds made the 
best use of taxpayer funds while still providing significant support 
for rural electric needs.
    However, understanding the concerns of Congress, the Administration 
has committed to providing a generation only subsidy rate.
    Question. What studies has the Administration performed that 
indicate sufficient private financing is available to meet this 
immediate need for baseload generation?
    Answer. Though no studies have been conducted by the 
Administration, there is significant liquidity in the capital markets 
to absorb demand for this segment of the energy sector.
    Question. Has the RUS estimated the impacts of this policy change 
on electricity costs of rural consumers? What are the impacts?
    Answer. The Administration has not estimated the impacts of this 
proposal on electricity costs.

                        WATER AND WASTE PROGRAM

    Question. Mr. Secretary, Rural Development's Water and Waste Water 
program has provided loan and grant funds for years to small rural 
communities to ensure adequate clean water and sanitary waste disposal 
systems. This Budget again proposes to alter the method to determine 
borrower interest rates. Poverty and intermediate interest rates would 
float such that the poverty rate would be 60 percent of the market rate 
and the intermediate rate would be 80 percent of market. In the current 
interest rate environment, poverty and intermediate interest rates 
would substantially fall. Projects would be financed with substantially 
more debt and reduced grant funds, but with little change in 
communities' debt burdens due to the dramatic interest rate reductions.
    Will you provide assurance that small, poor communities will not be 
left out of the program, and that debt burdens will not increase and 
raise water and sewer rates?
    Answer. The lower interest rate would allow a small community to 
borrow more loan funds without an increase in their annual debt 
repayment. While a community's total debt may increase, their annual 
debt burden should not increase and will not raise water and sewer 
rates. Our objective is to provide a funding mix of low interest loan 
and grant funds to keep user rates reasonable and consistent with the 
cost of similar systems in the area. It is still anticipated that grant 
funds would be focused on helping the neediest communities. With lower 
interest rates, we would be able to increase our reach to more 
communities with lower incomes.
    Question. Do regulations still allow borrowers with loan funds 
obligated but not closed to receive the interest rate in effect at the 
time of obligation or closing?
    Answer. Yes.
    Question. What is the magnitude of loan funds currently obligated 
but not closed?
    Answer. As of March 13, 2007, there were $2,482,693,545 in loan 
funds obligated but not closed. This represents 1,813 unclosed loan 
obligations.
    Question. Please provide a distribution of unclosed obligations, by 
year.
    Answer. As of March 13, 2007, the unclosed obligations by year 
were:
    [The information follows:]

------------------------------------------------------------------------
               Fiscal year                      No.           Amount
------------------------------------------------------------------------
2007....................................             209    $270,506,775
2006....................................             655     845,439,746
2005....................................             399     569,531,323
2004....................................             226     328,100,059
2003....................................             116     164,029,838
2002....................................             113     172,123,226
2001....................................              25      37,473,080
2000....................................              24      39,727,518
1999....................................              19      21,932,140
1998....................................              15      23,712,840
1997....................................               5       4,201,300
1996....................................               4       4,260,700
1995....................................  ..............  ..............
1994....................................               1         300,000
1993....................................               2       1,355,000
                                         -------------------------------
      Total.............................           1,813   2,482,693,545
------------------------------------------------------------------------

                   INFORMATION TECHNOLOGY (IT) ISSUES

    Question. Mr. Secretary, it appears that automated systems for the 
Farm Service Agency (FSA) are currently in an untenable situation. The 
current spate of severe access and response problems emerged last 
November, peaking in January with field offices experiencing only 
sporadic, random access to program software. FSA program participants 
faced substantial delays while FSA field staff endured long, erratic 
periods of unresponsive software.
    Please describe how this Budget addresses FSA IT needs.
    Answer. The fiscal year 2008 President's Budget provides sufficient 
funding to maintain the IT system at its current level of operation. 
USDA is working with the Office of Management and Budget to identify an 
appropriate funding source for stabilization and modernization.
    Question. Our understanding is that it will take hundreds of 
millions to fully resolve the unstable IT situation. Please provide a 
detailed plan, with associated costs, that generates a long-term, 
sustainable, solution to this problem.
    Answer. A business plan is being prepared to address the 
requirements and resources necessary to stabilize the current system, 
prepare it for implementation of a potential disaster bill and the new 
farm bill, and replace the current system with a fully modernized and 
integrated new system.
    FSA's business plan includes the following major components:
  --Network Stabilization (e.g., expand equipment capacity, purchase 
        monitoring tools and hire personnel to monitor the system)
  --Stabilize Databases and Farm Program Payment Applications (e.g., 
        establish proper test environment; employee training and 
        consultants to address database design, configuration and 
        problems; update applications; establish data warehouse for 
        queries and reporting)
  --Disaster Bill (e.g., hardware, software development and testing)
  --Farm Bill (e.g., hardware, software development and testing)
  --Modernization (e.g., capital investments and incremental operating 
        costs)
  --Field office system replacement (e.g. replacement of field office 
        servers)
    The following table summarizes the estimated costs.
    [The information follows:]

                                  FSA IT SYSTEM STABILIZATION AND MODERNIZATION
                                           [Preliminary Cost Estimate]
----------------------------------------------------------------------------------------------------------------
                                                            Fiscal Year
                                 ----------------------------------------------------------------   Total Cost
                                       2007            2008            2009            2010         Requirement
----------------------------------------------------------------------------------------------------------------
Capital Requirements:
    Network Stabilization.......      11,467,850      12,966,667      12,548,750  ..............      36,983,267
    Database/Application              12,983,000      44,047,100      12,067,100  ..............      69,097,200
     Stabilization..............
    Disaster Bill...............       8,500,000  ..............  ..............  ..............       8,500,000
    Farm Bill \1\...............      16,000,000      42,000,000  ..............  ..............      58,000,000
    Modernization...............         675,521     132,154,811     120,572,189  ..............     253,402,521
                                 -------------------------------------------------------------------------------
      Total.....................      49,626,371     231,168,578     145,188,039  ..............     425,982,988
                                 ===============================================================================
Incremental Operating
 Requirements:
    Network Stabilization.......       4,949,286       5,307,077       6,798,435       1,556,275      18,611,072
    Database/Application               8,120,857       7,245,800       8,864,800  ..............      24,231,457
     Stabilization..............
    Disaster Bill...............  ..............       5,080,000      25,420,000  ..............      30,500,000
    Farm Bill \1\...............  ..............  ..............  ..............  ..............  ..............
    Modernization...............  ..............      12,118,000      12,364,000  ..............      24,482,000
    Field Office System           ..............      19,200,000       9,600,000  ..............      28,800,000
     Replacement \2\............
                                 -------------------------------------------------------------------------------
        Total...................      13,070,143      48,950,877      63,047,235       1,556,275     126,624,530
                                 ===============================================================================
Total Cost:
    Network Stabilization.......      16,417,136      18,273,743      19,347,185       1,556,275      55,594,339
    Database/Application              21,103,857      51,292,900      20,931,900  ..............      93,328,657
     Stabilization..............
    Disaster Bill...............       8,500,000       5,080,000      25,420,000  ..............      39,000,000
    Farm Bill \1\...............      16,000,000      42,000,000  ..............  ..............      58,000,000
    Modernization...............         675,521     144,272,811     132,936,189  ..............     277,884,521
    Field Office System           ..............      19,200,000       9,600,000  ..............      28,800,000
     Replacement \2\............
                                 -------------------------------------------------------------------------------
      Total.....................      62,696,514     280,119,454     208,235,274       1,556,275     552,607,517
----------------------------------------------------------------------------------------------------------------
\1\ Farm Bill estimate includes only IT related costs. Additional expenditures to deliver the 2007 Farm Bill
  will be required. For example, temporary employee cost for the 2002 Farm Bill was approximately $26 million
  for 1,100 temporary employees.
\2\ Includes only those costs necessary to upgrade network servers located in field office locations. Estimate
  does not include normal replacement costs for other field office equipment (e.g. phone systems, printers,
  workstations, mobile devices, GPS systems, etc.) which may also be approaching the end of their expected
  useful life.

                  FSA FIELD STAFF AND OFFICE STRUCTURE

    Question. Mr. Secretary, adequate FSA field staffing and office 
locations have been issues for some time. Substantial concerns were 
raised in the recent past in response to FSA plans to restructure.
    What are current plans for altering FSA field staffing levels and 
field office locations?
    Answer. FSA has asked each State Executive Director (SED) to 
conduct an independent local-level review of the efficiency and 
effectiveness of FSA offices in their respective State. There is no 
national plan or formula for closing or consolidating offices. SEDs and 
State committees have been directed by the FSA Administrator to form a 
review committee to identify what the optimum network of FSA 
facilities, staffing, training and technology should be for their 
State. Efficiencies will be based on each State's individual needs and 
will be within existing budgetary resources and staffing ceilings. FSA 
is also committed to coordinating with Congress, stakeholders, local 
groups and customers to ensure the agency offers the best service 
possible.

                      FINANCIAL MANAGEMENT SYSTEM

    Question. The budget request includes an increase of $24.8 million 
for the financial management system of the Chief Financial Officer.
    What will the total cost for completion of this system be?
    Answer. The estimated cost for implementation of USDA's new 
financial management system is approximately $90 million.
    Question. How many years will it take for this system to be 
completed?
    Answer. Our preliminary schedule shows completion of implementation 
at the end of fiscal year 2011. USDA is presently in the acquisition 
phase and has yet to award a contract for services or hosting.
    Question. If no funds are provided for this, will work continue?
    Answer. If appropriated funding is not provided, the project will 
continue, but will do so at a pace that reflects the funding that would 
be available, and this is likely to be at a much slower pace than 
projected. Funding would be sought from other sources--the Working 
Capital Fund, reimbursements from customer agencies, purchase card 
rebate proceeds, and/or any funds that might be made available under 
authority to transfer unobligated balances. By relying upon these 
alternative sources, implementation timing will be affected as these 
resources may also be needed for other important corporate investments. 
To the extent that implementation is delayed, USDA will need to 
maintain operation of the legacy financial system, adding additional 
costs.

                 CAPITAL SECURITY COST SHARING PROGRAM

    Question. The budget includes an increase of $5,241,000 under the 
Foreign Agricultural Service for the Capital Security Cost Sharing 
Program. Since fiscal year 2005, this program has increased 
substantially.
    When do you expect funding for this to plateau and then start to 
decline?
    Answer. The Capital Security Cost Sharing (CSCS) program is 
designed to generate a total of $17.5 billion to fund 150 new 
diplomatic facilities over a 14-year period. The FAS assessment 
comprises approximately 70 percent of USDA's total annual contribution 
to the program. In the case of FAS, its assessment started at $0.6 
million in 2005 and increased to over $5.5 million in 2007. It is 
estimated to increase annually until 2009, at which time the estimated 
annual assessed level will total approximately $9 million. This level 
is assumed to remain constant at that point for the next 9 years with 
FAS payments totaling as much as $140 million over the life of the 
program.
    Question. What assurance have you received from the State 
Department that FAS is paying for space that they actually occupy?
    Answer. FAS Washington staff have worked closely with our field 
offices and with the State Department's Office of Building Operations 
to correctly identify positions that should be billed to FAS. Also, 
according to Section 604 of the Secure Embassy Construction and 
Counterterrorism Act of 1999, the funds collected under the CSCS 
program are devoted entirely to the construction of new embassy and 
consular compounds worldwide, regardless of presence.
    Question. Is the agency currently paying for space in facilities 
where they do not have a presence?
    Answer. The CSCS program funds construction of new U.S. embassy 
compounds by contributions from all agencies in proportion to their 
overseas presence. Of the 80 planned security projects in the next 
seven years, FAS will occupy space in 27 of the new facilities.
    Question. Which agencies at USDA contribute to the Capital Security 
Cost Share Program?
    Answer. Other USDA agencies that contribute to the CSCS program 
include the Animal and Plant Health Inspection Service, Agricultural 
Research Service, Rural Development, Natural Resources Conservation 
Service, and Grain Inspection, Packers and Stockyards Administration.
    Question. Is this reflected in all of their budget justifications? 
If not, why?
    Answer. Like FAS, APHIS and ARS display their contributions to the 
CSCS program in their explanatory notes. In the case of the other 
agencies, the amounts involved are less than $60,000 for 2008, and the 
agencies have not displayed them separately from other administrative 
funding.

          PUBLIC LAW 480 TITLES I AND II AND FOOD FOR PROGRESS

    Question. Over the past several years, funds have been transferred 
from Public Law 480 Title I to carry out activities under the Food for 
Progress program. Please explain the impact of your request to 
eliminate the Title I program will have on the Food for Progress 
program.
    Answer. Food for Progress programming in 2008 will continue to be 
carried out through Commodity Credit Corporation funding. The 2008 
President's budget projects that CCC-funded Food for Progress 
programming will total approximately $163 million.
    Public Law 480 Title I funding to carry out Food for Progress will 
no longer be available in 2008. Although no funding was appropriated 
for Public Law 480 Title I for 2007, approximately $39 million of Title 
I funding that was carried over from prior years is being used to 
support Food for Progress programs this year. No similar carry over 
balances are expected to be available during 2008.
    Question. Is it your anticipation that there will be increased 
availability of funds in fiscal year 2008 for non-emergency programs 
under Title II? If not, is the Title I elimination another overall 
reduction in non-emergency food aid programs?
    Answer. It is difficult to predict with certainty what the level of 
emergency needs will be in 2008 and, therefore, difficult to state 
whether funding for non-emergency programs will increase above this 
year's level. When the 2007 budget recommended no further funding for 
Public Law 480 Title I, a corresponding increase of $80 million was 
requested for Public Law 480 Title II donations. That increase was 
approved and remains in the base funding level for Title II and can, 
therefore, be used to support either emergency or non-emergency Title 
II programming.

                 AGRICULTURAL RECONSTRUCTION ACTIVITIES

    Question. The Department supports the use of Provincial 
Reconstruction Teams as a way to assist, re-stabilize, and promote 
agricultural production in certain areas of the world, such as Iraq and 
Afghanistan. However, it seems that many of the developmental aspects 
of these teams could also serve in developing countries, such as in 
sub-Saharan Africa, where the ability to promote food security is 
crucial.
    Do you think that the use of a mechanism similar to the Provincial 
Reconstruction Teams could serve a useful purpose as part of an overall 
global food security strategy?
    Answer. The PRTs were first established in Afghanistan for the 
international community to provide improved security and to facilitate 
reconstruction, along with economic development, throughout the 
country. The PRTs are seen as transitional structures and operate in 
high risk, unstable and difficult situations. The PRTs have a broad 
mandate in bringing reconstruction to the local people and allow the 
U.S. Government to engage with key government, military, tribal, 
village, and religious leaders in the provinces, while monitoring and 
reporting on important political, military and reconstruction 
developments. They also provide protective services to experts 
providing assistance.
    USDA has found PRTs to be effective in allowing USDA agricultural 
advisors to work and directly affect agriculture on a local level in 
Afghanistan and Iraq. PRTs could serve a useful purpose as part of an 
overall global food security strategy, especially in reconstruction and 
stabilization situations. In other situations they might have 
usefulness but, as transitional structures, they would need to be 
modified considerably to make them relevant and cost effective.
    Question. If not, then why do you think they will be successful in 
Afghanistan and Iraq?
    Answer. USDA believes that PRTs in Afghanistan and Iraq are 
effective platforms from which our specialists can operate. USDA's PRT 
advisors continue to make significant contributions to the training of 
Ministry of Agriculture staff at the local level, and they provide 
valuable expertise to local and international non-governmental 
organizations, donors, and others working in agricultural development. 
PRTs allow USDA to work in close collaboration with other agencies to 
plan and implement projects that utilize a combination of resources. 
Many of these projects would be beyond the capacity of USDA alone.

                        CONSERVATION OPERATIONS

    Question. For Conservation Technical Assistance, there is an 
increase of $1,000,000 for a stand-alone financial audit.
    Why is this audit necessary?
    Answer. The Conservation Technical Assistance program is the 
foundation for all of USDA's conservation efforts. This makes it vital 
for policy officials to have the most accurate information possible in 
order to make the best programmatic and management decisions. An 
independent financial audit will help the agency identify weaknesses in 
program implementation and help institute improvements for program 
management and accountability.
    Question. What concerns were raised in order for these funds to be 
needed?
    Answer. During preparation of the 2008 President's budget request, 
issues of program management and accountability were closely looked at. 
It was determined that an independent financial audit would help 
identify steps needed to address concerns regarding improper or 
duplicate payments; large number of up(down)ward adjustments, proper 
use of commitments and obligations; and validity of open obligations 
and reimbursable accounts.
    Question. The budget includes a decrease of $17,225,000 for the 
Grazing Lands Conservation Initiative but retains $10,000,000 for a 
competitive grants program.
    Please explain the purpose and aspects of this program.
    Answer. By Congressional directive in recent years, NRCS provided 
technical assistance to owners and managers of private grazing lands to 
improve long-term productivity and ecological health. In fiscal year 
2006, Congress directed that $4,188,000 (of the $27,500,000 GLCI 
earmark) be used on efforts to manage the spread of invasive species. A 
nationwide competitive grants process was used to carry out the fiscal 
year 2006 Congressional directive. The President's 2008 budget proposes 
to continue the competitive grants program to control invasive species. 
It is estimated that invasive plants infest over 100 million acres of 
grazing land in the United States.
    Question. How will these funds be awarded?
    Answer. A nationwide announcement would be issued to attract viable 
applications from eligible government and non-government organizations 
and individuals to compete for the available funding. The grants would 
be awarded based on various elements in the applications including 
purpose and goals, soundness of approach, proposed project management, 
and transferability (technology transfer). A matching contribution 
would be required of the applicant. A portion of the funds would be set 
aside for competition among limited resource farmers and ranchers and 
Tribes.
    Question. What are the goals and expected outcomes of this program?
    Answer. The objective of the invasive species grants would be to 
encourage and support the management and control of invasive species 
affecting grazing lands. We will use the ``cooperative conservation'' 
approach to address invasive species concerns on a local, statewide, or 
regional basis. The use of Integrated Pest Management techniques and 
biological pest control methods would be encouraged.

                 RESOURCE CONSERVATION AND DEVELOPMENT

    Question. The budget includes a decrease of $37,717,000 for 
Resource Conservation and Development program activities. Included in 
this is a proposed consolidation of RC&D Coordinators, reducing the 
number from 375 to 50.
    Why is this consolidation necessary?
    Answer. The Program Assessment Rating Tool (PART) analysis found 
the program to be duplicative of other conservation and rural 
development programs and the program does not prioritize or target 
funding effectively. Specifically, the purposes and services provided 
by the RC&D program overlap with other similar resource conservation 
planning, rural economic development, and community facilities/
amenities development services provided by other USDA agencies (such as 
the Forest Service and Rural Development) and other Federal departments 
(such as the Department of Commerce's Economic Development 
Administration).
    Question. What plans are currently in place should the Committee 
decide to decrease funding for RC&D?
    Answer. While the overall program budget will decrease, NRCS will 
continue to provide support through a state-wide RC&D coordinator. The 
coordinator's role will focus more on coordinating USDA assistance 
toward the implementation of RC&D Area Plans rather than day-to-day 
operations of RC&D councils. For several years, USDA has partnered with 
the National Association of RC&D Councils, Inc. to increase the 
capacity and sustainability of RC&D councils across the country. Many 
councils have increased their partnerships and financial portfolios so 
they are less reliant on NRCS direct technical and financial 
assistance. The budget proposal reflects an expectation that more 
councils will be able to take on the additional responsibility.
    Question. Will staff be folded into other agencies within the 
Department?
    Answer. The majority of RC&D coordinators are classified in such a 
way that they will fit well within other jobs and activities of NRCS. 
Most RC&D Coordinators were previously NRCS Soil Conservationists prior 
to becoming RC&D Coordinators. The majority would easily adjust to soil 
conservationist type work at the field level.

                     AGRICULTURAL MARKETING SERVICE

    Question. How does AMS intend to protect the organic standard in 
light of current FDA proposals to approve food from cloned animals, 
with no requirement for labeling?
    Answer. In response to the FDA announcement regarding cloned 
animals, AMS issued a notice to the industry that, pursuant to the 
National Organic Program (NOP) regulations, cloning is a prohibited 
practice in organic production. AMS also consulted the National Organic 
Standards Board (NOSB) and received a recommendation to prohibit not 
only cloning as a production method, but the use of their progeny in 
organic production as well. AMS intends to develop rulemaking or 
guidance related to clones and their progeny in organic production.
    Question. What actions has AMS taken in response to the audits 
performed by the American National Standards Institute in 2004 and by 
the USDA Office of Inspector General in 2005, which made strong 
recommendations about changes needed in the administration of the 
National Organic Program?
    Answer. The audit conducted by the American National Standards 
Institute (ANSI) found that there were many procedures, required by an 
ISO Guide 61 system (since revised by ISO and reissued as ISO 17011), 
that the ANSI auditors were not able to identify during the onsite 
audit. In response, AMS assigned a task force of experienced quality 
system specialists to work on the NOP quality management system. Those 
processes were completed by the September 2005 target date agreed to by 
AMS. Some processes that require participation by certifying agents or 
certified operations, such as our reinstatement procedures, have been 
posted on the NOP website. Some additional procedures have been posted 
as they were approved by the Office of the Inspector General, who 
conducted a separate but similar review at about the same time. The OIG 
audit found similar deficiencies as the ANSI audit and identified 10 
action items to be completed by the NOP. All of the OIG action items 
have been completed.

           NATIONAL ORGANIC CERTIFICATION COST SHARE PROGRAM

    Question. Of the $5 million provided in the fiscal year 2002 Farm 
Bill for the National Organic Certification Cost Share Program, how 
much remains unobligated and/or unspent? Please provide a breakdown of 
the States with remaining unobligated and/or unspent funds, as well as 
a list of States that have spent all of their funds.
    Answer. The information is provided for the record. As of March 20, 
2007, $148,340 is unobligated and unspent funds total $247,100 for the 
24 States with funds remaining.
    Eighteen States have exhausted all of their allotted funds: 
Arkansas, Colorado, Florida, Georgia, Illinois, Iowa, Massachusetts, 
Minnesota, Montana, New Hampshire, New York, North Carolina, Oklahoma, 
Pennsylvania, Tennessee, Virginia, Washington, and Wisconsin.
    Seven States that have spent more than 90 percent of program 
allotted funds: California, Maine, Michigan, North Dakota, Oregon, 
South Dakota, and Vermont.
    Seventeen States have more than 10 percent of program allotted 
funds remaining: Alaska, Hawaii, Idaho, Indiana, Kansas, Kentucky, 
Maryland, Mississippi, Missouri, Nebraska, New Jersey, New Mexico, 
Ohio, South Carolina, Texas, Utah, and Wyoming.
    Eight States chose not to participate in this program: Alabama, 
Arizona, Connecticut, Delaware, Louisiana, Nevada, Rhode Island, and 
West Virginia.
    Question. If funding for the National Organic Certification Cost 
Share Program remains unobligated and/or unspent in some States at the 
end of fiscal year 2007, does USDA have the authority to make that 
funding available to other States? Does USDA plan to do so?
    Answer. Within each AMS-State cooperative agreement, there is a 
provision that gives AMS the authority to terminate agreements and 
redistribute unspent funds to other States that have exhausted funds. 
If States are not actively obligating funds and large balances remain 
unspent at the end of fiscal year 2007, AMS will exercise this 
authority.
    Question. What is the total funding provided in the fiscal year 
2008 budget for the National Organic Program?
    Answer. The fiscal year 2008 request for Organic Standards is $3.18 
million.

                             EMERGING PESTS

    Question. How does APHIS work to prevent things such as Emerald Ash 
Borers and Asian Longhorn Beetles from entering the United States? What 
improvements need to be made at the borders to prevent these incredibly 
expensive pests from entering and causing these problems?
    Answer. The Agriculture Quarantine and Inspection program protects 
the United States from the risks associated with the introduction of 
invasive agricultural pests and diseases. APHIS and the Department of 
Homeland Security cooperate to carry out this program, and fund the 
programs through a combination of appropriations and user fees. The 
Pest Detection program supports APHIS' goal of safeguarding U.S. 
agricultural and environmental resources by ensuring that new 
introductions of harmful plant pests and diseases are detected as soon 
as possible, before they cause significant damage. USDA is requesting a 
$15 million increase in the Pest Detection program for fiscal year 
2008.
    Exotic wood boring and bark beetles such as EAB and Asian 
longhorned beetle (ALB) likely entered the United States through 
infested solid wood packing materials such as pallets, crates, and 
other materials used in international shipping. These materials are 
often reused and reshipped many times throughout the world. Many 
countries have recognized the need to deal with the pest risk. APHIS 
worked with its international counterparts to develop standards for 
safely moving solid wood packing materials and implemented regulations 
based on the developed standards. While APHIS and affected States are 
still dealing with the effects of EAB and ALB and several other exotic 
forest pests already in the United States, we believe that the new 
regulation of wood packaging materials should help prevent future 
infestations of this type.
    Question. At what point do you make a determination that the 
eradication of a disease isn't possible, such as in the case of citrus 
canker? What are the next steps once that determination has been made?
    Answer. Although each pest or disease situation must be analyzed 
separately, there are several factors we consider when determining 
whether or not eradication is feasible. Among these are: the 
availability of adequate funding and active participation from Federal, 
State, and industry cooperators; weather and any other environmental 
constraints; the potential of the pest to do significant economic 
damage to agricultural or forest resources; the extent to which the 
pest or disease has spread; the availability of effective detection, 
diagnostic, and control technology; the availability of acceptable 
alternatives to eradication; public support for an eradication program; 
the disease's public health significance; and the vectors associated 
with a disease (e.g., mosquitoes, ticks, etc.).
    Federal officials take all of these and other factors into 
consideration as they determine whether the eradication of a pest or 
disease is possible. If one or more of these factors change 
considerably during the course of an eradication effort, the planned 
course of action will be reevaluated. Prior to making any major 
decisions about discontinuing an eradication effort, Federal officials 
will consult with their State and industry cooperators, then update 
policies and regulations as appropriate.
    Question. Specifically for Chronic Wasting Disease, how will the 
requirements for the States change with the proposal for a match in 
which the Federal Government will pay for 60 percent of anticipated 
program needs, and the State will fund the rest? Will the State funding 
level need to increase?
    Answer. The 2008 budget proposes a reduction of about $4 million. 
The program requirements for the chronic wasting disease (CWD) herd 
certification program (HCP) will not change with the funding reduction. 
At the requested funding level, USDA anticipates the States and 
cooperators would contribute additional resources to support the 
efforts at current levels.
    Question. More broadly, what amount does APHIS anticipate saving by 
requiring increased State matches for APHIS activities? Is there 
currently a mandated match level for States, or is this an entirely new 
proposal? If a State can't or does not provide the requested match 
amount, what will APHIS do then?
    Answer. The following table is provided for the record.
    [The information follows:]

------------------------------------------------------------------------
                        Line Item                             Savings
------------------------------------------------------------------------
Chronic Wasting Disease.................................          $4,400
Emerging Plant Pests--Citrus Health Response Program               2,300
 (Florida)..............................................
Emerging Plant Pests--Asian Longhorned Beetle (NJ & NY).           1,691
Emerging Plant Pests--Glassy-Winged Sharp Shooter                  1,001
 (California)...........................................
Johne's Disease.........................................           5,005
Noxious Weeds...........................................             300
                                                         ---------------
      Total.............................................          14,697
------------------------------------------------------------------------

    There is currently no mandated match level for States, nor is USDA 
proposing a mandated level. It is our goal to leverage increased 
participation from the States to maximize the benefits received from 
Federal dollars.
    If a State is unable to contribute the estimated amount for a 
particular program, USDA will evaluate the overall impact to program 
efforts and adjust future funding requests accordingly.

                      APHIS COOPERATIVE AGREEMENTS

    Question. Please provide a chart showing all cooperative agreements 
with States and other organizations to be carried out in fiscal year 
2007, including total funding provided by Congress, and funding 
retained by APHIS.
    Answer. Given the timing of the full-year fiscal year 2007 
appropriation, APHIS is currently in the process of negotiating with 
States and other organizations in the development of work plans and 
agreements for this year. Therefore, the requested information is not 
available at this time. This information will be provided when 
available, but not later than August 1, 2007.
    Question. Was there any input gathered from those whose 
responsibilities will be increased before this proposal was put forth 
to decrease funding for Johne's disease? Are these activities that the 
States, etc. are currently undertaking, or would have to pick up?
    Answer. USDA has consulted with our partners in the Voluntary 
Bovine Johne's Disease Control Program (VBJDCP), and they are aware of 
our request. From its inception, the VBJDCP has been a cooperative 
effort among APHIS, State departments of agriculture, and industry. 
States have been the main driving force of the VBJDCP. A large part of 
the Johne's disease funds not requested in the President's Budget has 
been used by the States to pay for producer testing and risk assessment 
fees. With a reduction in Federal funding, these costs will need to be 
covered by producers who benefit from this program. In addition, State 
and University partners would assume responsibility for continuation of 
the Johne's disease demonstration herd projects implemented in each 
region. These projects focus on new and current testing schemes and 
control methods to determine the most effective cost management 
practice options.
    APHIS will continue to provide oversight to the VBJDCP and support 
analysis of the national demonstration projects, along with continuing 
laboratory approval and licensing diagnostic tests and vaccines for 
commercial use.

                      COMMON COMPUTING ENVIRONMENT

    Question. Why is the budget for CCE decreasing this year, when 
needs are certainly not?
    Answer. Funding for the CCE has been comprised of Service Center 
Agency (FSA, NRCS, RD) information technology (IT) purchases through 
their own appropriations, in addition to funding provided through the 
CCE direct appropriation. This funding has been used to develop an 
infrastructure to support the business delivery functions of the 
Service Center Agency (SCA) field offices located across the country. 
The 2008 budget requests that $78.5 million with an additional $12 
million for CCE activities that are specific to FSA be included in the 
SCA salaries and expenses appropriations to meet the ongoing business 
delivery needs. This funding will support the continued IT activities 
of the SCAs as they jointly maintain the CCE infrastructure. In 
addition, the SCAs will continue to work with the Information 
Technology Services (ITS) division of the Office of the Chief 
Information Officer in USDA. ITS is funded through reimbursable 
agreements with the SCAs and delivers staffing and services to the 
agencies in support of the CCE. In coordination with ITS, the agencies 
will be able to ensure that the necessary services and staffing are 
available to maintain the infrastructure and program delivery.
    Question. Please provide a chart showing the total CCE funding, 
either within the CCE account or at the Agencies, over the past 5 
years.
    Answer. A chart has been provided for the record showing the 
funding for the CCE for fiscal year 2002 through fiscal year 2006. This 
chart includes funding from the CCE direct appropriation, agency direct 
purchases of IT equipment and services for the CCE, and agency 
reimbursements of the OCIO-Information Technology Services (ITS) 
through the Working Capital Fund (WCF). These amounts paid for ITS 
operating expenses for the CCE and other IT activities, such as 
Geographic Information Systems (GIS).
    [The information follows:]

                                                   CCE FUNDING
----------------------------------------------------------------------------------------------------------------
                                                                    Fiscal year
                                 -------------------------------------------------------------------------------
                                       2002            2003            2004            2005            2006
----------------------------------------------------------------------------------------------------------------
Funding Source:
    CCE Direct Appropriation....     $59,369,000    $133,155,000    $118,585,000    $121,577,300    $108,971,000
    Service Center Agency IT          29,174,241      30,924,733      30,748,000      55,413,000      30,265,009
     purchases for CCE (paid
     directly to vendors; did
     not go through WCF)........
                                 -------------------------------------------------------------------------------
        Total...................      88,543,241     164,079,733     149,333,000     176,990,300     139,236,009
----------------------------------------------------------------------------------------------------------------

    Question. Does the USDA have a solid budget estimate of the cost to 
replace the current outdated FSA computer system?
    Answer. FSA is planning to implement a long-term modernization 
effort known as MIDAS to replace its obsolete equipment. FSA 
anticipates submitting a business case for this investment to the 
Office of Management and Budget during March 2007. Preliminary cost 
estimates indicate that this planned transition would require about 
$278 million over fiscal years 2007 through 2009. It would also have a 
total 10-year lifecycle cost of $463 million unadjusted for risk and an 
estimated cost of $617 million when adjusted for risk.
    In addition to this modernization effort, further costs must be 
incurred to stabilize the FSA IT system components at field offices in 
the short term. These additional costs are estimated to be about $150 
million to bring the Kansas City web-based system up to at least 
moderate reliability; about $97 million to implement likely disaster 
assistance and Farm Bill legislation; and nearly $29 million to replace 
obsolete field office components. Thus, estimated total costs of nearly 
$553 million over fiscal years 2007 through 2010 will be required to 
bring the current system up reasonable operating capability and to 
transition to a modernized system. However, the actual modernization 
component as noted above is estimated to cost about $278 million.
    Question. Is an FSA replacement system part of the Farm Bill 
proposals submitted? If not, where will this funding come from, since 
it is not in the President's budget?
    Answer. Funding for modernization of FSA's information technology 
systems is not included in the Administration's Farm Bill proposal. 
USDA is working with the Office of Management and Budget to identify an 
appropriate funding source for this investment.

                  COMMODITY SUPPLEMENTAL FOOD PROGRAM

    Question. How many people currently on CSFP do you estimate will 
lose all benefits, either by not deciding to participate in Food 
Stamps, or receiving fewer benefits under Food Stamps?
    Answer. We do not know how many current CSFP participants would not 
participate or potentially receive a food stamp benefit lower than the 
value of the CSFP package. We estimate that CSFP participants who opt 
to transition to food stamps will receive an average monthly benefit of 
$54 per person. In contrast, we project that the average CSFP food 
package for elderly people would have a retail value of about $44 in 
fiscal year 2007.

              PROPOSED LIMIT ON WIC ADMINISTRATIVE FUNDING

    Question. Please explain how the proposed limit on WIC 
administrative funding will affect the activities that WIC providers 
are required to carry out, including nutrition education, referral 
services, and other important services?
    Answer. We appreciate the hard work that WIC professionals have 
done to create and operate one of our premier nutrition assistance 
programs. However, nutrition services and administration (NSA) funding 
continues to require a greater and greater proportion of the annual WIC 
appropriation. In every other sector of government--Federal, State and 
local--we have all had to learn to become more efficient within tighter 
administrative budgets. We believe WIC can, too. WIC State agencies 
have achieved remarkable success in controlling food costs; we have no 
doubt that the same creativity can be applied to the NSA costs without 
compromising important client services and program operations.
    Our proposal would provide NSA funds at the fiscal year 2006 per-
person level. This would allow for a greater proportion of appropriated 
funds to be used for food benefits and to ensure that funding continues 
to be adequate to serve all eligible individuals who wish to 
participate. It is anticipated that the total appropriation needed for 
fiscal year 2008 would be reduced by approximately $145 million through 
this redirection of NSA funds to food funds.
    Question. Please outline how this proposal is different from the 
fiscal year 2007 budget request.
    Answer. The current proposal is intended to provide a reduction in 
WIC NSA funding to slow its growth rather than to ``cap'' the funds 
available for NSA at 25 percent as proposed in the fiscal year 2007 
budget.
    Current legislation provides an amount for State agency NSA grants 
sufficient to guarantee a national administrative grant per participant 
(AGP). The guaranteed national AGP for each fiscal year is based on the 
prior year's AGP, inflated by the State and Local Purchase Index, as 
required by legislation. The WIC AGP inflation rate from fiscal year 
2006 to fiscal year 2007 was 6 percent.
    Our current proposal would reduce the AGP used to determine the 
proportion of funds made available for NSA in fiscal year 2008 rather 
than using the inflated fiscal year 2007 AGP level.
    Question. If this proposal is not adopted, will your request level 
for WIC still be adequate?
    Answer. USDA estimates that setting the fiscal year 2008 
administrative grant per participant at the fiscal year 2006 level will 
save approximately $145 million through redirection of NSA funds to 
food funds. If this proposal is not adopted, then an additional $145 
million would be needed in the fiscal year 2008 appropriation for the 
WIC Program in order to support average monthly participation at the 
anticipated level of 8.28 million.
    Question. Will the proposal regarding income limits actually save 
any money? Will this proposal, if included, require States to re-check 
the eligibility of all of their participants?
    Answer. USDA estimates that approximately $2 million per year will 
be saved by the proposal to limit income eligibility based on 
participation in Medicaid to those individuals whose incomes are below 
250 percent of the Federal poverty guidelines. This will help ensure 
that WIC benefits are targeted to those most in need. The proposal 
would not require States to re-check the eligibility of all of their 
current participants. Rather, affected States will need to ask new WIC 
applicants and applicants whose prior certification has expired to show 
documentation of eligibility in a means-tested program other than 
Medicaid, such as the Food Stamp Program or Temporary Assistance for 
Needy Families, or to show documentation of their income to determine 
eligibility.
    Question. How many States will be affected by the income 
eligibility proposal, and how much will it cost them to re-certify all 
WIC participants? How many people do you think will have to be re-
certified, and how many ineligible participants will be identified?
    Answer. Based on current Medicaid income eligibility levels, seven 
States would be affected: Hawaii, Maryland, Minnesota, Missouri, New 
Hampshire, Rhode Island and Vermont. The proposal would not require 
these States to re-certify current participants. Rather, these seven 
States will need to ask new WIC applicants and applicants whose prior 
certification has expired to show documentation of eligibility in a 
means-tested program other than Medicaid, such as the Food Stamp 
Program or Temporary Assistance for Needy Families, or to show 
documentation of their income to determine eligibility. We estimate 
that approximately 3,000 applicants who are on Medicaid in these States 
will have incomes above the 250 percent threshold and therefore no 
longer be eligible for benefits.

                FOOD STAMP PROGRAM LEGISLATIVE PROPOSALS

    Question. How does the legislative proposal in the Food Stamp 
Program work to streamline Federal assistance programs?
    Answer. Many of the proposals work together to streamline the 
administration of the Food Stamp Program by simplifying complex 
policies, while at the same time supporting low-income working 
families. For example, we are proposing to exclude all retirement 
accounts and certain educational savings accounts from resources when 
determining eligibility. This simplifies the eligibility determination 
on the part of the State agencies while encouraging low-income families 
to save for retirement and their children's future even if they 
experience a temporary need for food stamps. We are proposing to 
exclude combat related pay for military personnel. This proposal would 
make permanent a policy that has been enacted on a yearly basis through 
the budget process. This proposal makes it easier for State agencies to 
determine eligibility while supporting the families of service 
personnel fighting overseas by ensuring that they do not lose food 
stamps as a result of the additional deployment income. Taken as a 
whole, these proposals would have a significant affect on streamlining 
the administration of the Food Stamp Program.

               CENTER FOR NUTRITION POLICY AND PROMOTION

    Question. Please list all cooperative agreements or contracts 
entered into by CNPP in regard to My Pyramid, including funding levels 
and recipients.
    Answer. Current contracts are for hosting and maintenance 
operations, evaluation, customer service, and refinement of tools 
already developed for the MyPyramid.gov Web site. Three cooperative 
agreements exist for educational purposes in support of MyPyramid and 
the 2005 Dietary Guidelines for Americans. No funds are exchanged 
between parties for these cooperative agreements. A list will be 
provided for the record.
    [The information follows:]

------------------------------------------------------------------------

------------------------------------------------------------------------
Hosting and Maintenance Contracts (for support of
 website and associated databases):
    National Information Technology Center, Kansas City,        $181,000
     KS.................................................
    American Systems Corporation, Chantilly, VA.........          90,000
    Akamai Technologies, Cambridge, MA..................         120,000
Evaluation (for 12 month American Customer Satisfaction
 Index):
    ForSee Results, Ann Arbor, MI.......................          25,000
Customer Service (for customer support specialist):
    Network Management Resources Consulting, Inc.,                79,451
     Annapolis, MD......................................
Refinement of Tools (to increase usability of existing
 interactive tools):
    Porter Novelli, Washington, DC......................         102,052
Cooperative Agreements (To promote MyPyramid and the
 2005 Dietary Guidelines for Americans):
    Tufts University, Boston, MA and Safeway, Inc.,              ( \1\ )
     Pleasanton, CA.....................................
    Naturally Nutrient Rich Coalition (NNRC), Chicago,           ( \1\ )
     IL.................................................
    Hispanic Communication Network (HNC), Washington, DC         ( \1\ )
------------------------------------------------------------------------
\1\ No funds were exchanged for Cooperative Agreements.

                   FOOD SAFETY AND INSPECTION SERVICE

    Question. Will States receive the full funding level they requested 
in fiscal year 2007 with the additional funding that we provided in the 
Joint Resolution?
    Answer. Funding levels for the States are reviewed in order to 
determine the amounts they require to perform their inspection tasks 
and may at times vary from the amount requested. However, adequate 
funds are available for States.
    Question. Is the President's budget for fiscal year 2008 sufficient 
to provide the States with their full funding request in fiscal year 
2008 for their State meat inspection programs?
    Answer. FSIS requests an increase of nearly $1 million for State 
MPI programs in fiscal year 2008, as stated in the amended budget 
explanatory notes. The fiscal year 2008 President's Budget provides 
full funding for the State MPI programs based on estimated needs when 
the budget was proposed. FSIS will know the funding request from the 
States sometime after August 2007, when the States provide updated 
funding needs.
    Question. Please provide information regarding any long-term 
contracts FSIS has regarding public meeting space, including funding 
spent on these contracts.
    Answer. The Food Safety and Inspection Service has no long-term 
contracts for public meeting space.
    Question. Please provide information on employee performance 
bonuses at FSIS in fiscal year 2006, including the total amount of 
bonuses provided to GS employees, and the total amount of bonuses 
provided to SES employees.
    Answer. The Food Safety and Inspection Service's Senior Executive 
Service (SES) performance awards for fiscal year 2006 totaled $269,362, 
and were paid in fiscal year 2007 using fiscal year 2007 funds. For 
fiscal year 2006, all other employees received a total of $2,774,926 in 
bonuses.
    Question. How often do processing inspectors working in combination 
slaughter/processing plants have to perform slaughter duties because of 
an absence of a slaughter inspector due to vacancies, illness, 
vacations, etc.? Please describe the type of records the Agency keeps 
in such instances provide those records for the past 2 years.
    Answer. The Food Safety and Inspection Service utilizes a variety 
of strategies to staff critical slaughter positions when absences occur 
due to vacancies, illnesses, and vacations. These strategies include 
utilization of relief inspectors and relief public health 
veterinarians, other-than-permanent employees, higher graded slaughter 
inspection personnel, and processing inspection personnel. The use of 
processing inspectors to cover the absence of slaughter inspectors has 
been policy for several decades, and is the best use of staff, as the 
presence of inspectors at slaughter facilities must be continuous. 
Documentation of the daily staffing strategies utilized at each plant 
is not maintained. Thus, records on the use of these staffing 
strategies are not available.
    Question. What is the current career ladder for FSIS inspection 
personnel? For the years 1996-2006, please identify the number of 
Agency employees by GS level that worked in Agency headquarters; that 
worked in field locations. How will the Agency's implementation of RBI 
affect the numbers of employees in each GS level?
    Answer. FSIS' inspection program personnel include the following 
primary occupations:
  --Food Inspection (slaughter), GS-5, career ladder GS-7
  --Consumer Safety Inspectors (processing), GS-8, career ladder GS-9
  --Consumer Safety Inspectors (relief positions), GS-10
  --Public Health Veterinary Medical Officers, GS-11, career ladder GS-
        12
    Under a more robust risk-based inspection system for meat and 
poultry processing, USDA will continue using the same number of 
inspection program personnel, spending the same amount of overall time 
conducting inspections. Risk-based inspection is about working smarter 
to protect public health by having inspection personnel spend more time 
in the processing plants that need assistance and expertise.
    A chart identifying the number of Food Safety and Inspection 
Service positions at headquarters and in field positions (1996-2006) 
follows:
    [The information follows:]

                                                                               FOOD SAFETY AND INSPECTION SERVICE
                                                                      Actual Headquarters and Field Positions for 1996-2006
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                            1996          1997          1998          1999          2000          2001          2002          2003          2004          2005          2006
                                       ---------------------------------------------------------------------------------------------------------------------------------------------------------
                 Grade                  Wash          Wash          Wash          Wash          Wash          Wash          Wash          Wash          Wash          Wash          Wash
                                         DC    Field   DC    Field   DC    Field   DC    Field   DC    Field   DC    Field   DC    Field   DC    Field   DC    Field   DC    Field   DC    Field
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Senior Executive Service..............    16       5    23       1    20       1    21  ......    21  ......    19       2    19       2    21  ......    26  ......    25       1    25       1
GS-15.................................    44       9    45      30    45      30    57      25    51      25    52      25    51      26    59      27    60      26    59      32    58      32
GS-14.................................    89      44   100      48   100      48   102      49    93      46    94      46   103      58   107      72    98      72   130      87   128      85
GS-13.................................   212     246   215     347   215     347   248     297   232     283   248     301   221     331   228     351   208     369   293     406   240     394
GS-12.................................    91     956   148     939   148     939   106     935    81     874    91     883    93     889   108     960    97   1,027   117   1,058    97   1,027
GS-11.................................    67     387    28     463    28     463    36     406    35     345    42     329    34     384    44     304    32     280    53     260    45     253
GS-10.................................  ....     176  ....     195     1     345  ....     471     2     510  ....     515     1     516     1     494     2     459     1     409     1     403
GS-9..................................    60   2,195   104    ,264   109   2,168    42   2,017    41   1,826    45   1,859    49   1,951    43   1,878    57   1,971    49   1,959    42   1,892
GS-8..................................    25   1,235     8   1,220     8   1,171    13     986    11   1,023    12   1,046    11   1,068    14   1,101    31     965    14     959    12     930
GS-7..................................    86   3,492    84   3,265    84   3,267    75   3,551    70   3,647    64   3,630    54   3,348    57   3,234    74   3,278    60   3,223    55   3,120
GS-6..................................    73      63    38      70    38      70    34      55    37      47    27      47    17      43    14      42    11      50    14      48    11      46
GS-5..................................    68     460    46     341    44     341    16     284    18     656    19     676    11     317    12     401    14     313    11     240     8     232
GS-4..................................    20      84    38      49    38      49     7      54     2      34  ....      36     1      32     3      24     3      51     8      38     6      36
GS-3..................................     2      17     3       6     3       6     1  ......  ....  ......  ....      21     1      20     2      19     1       1  ....  ......  ....  ......
GS-2..................................     2       2  ....  ......  ....  ......  ....  ......  ....  ......  ....       1  ....  ......  ....  ......  ....  ......  ....  ......  ....  ......
GS-1..................................     2       1  ....  ......  ....  ......  ....  ......  ....  ......  ....
Ungraded Positions....................     2      19     2      24     1      22     1      23  ....      23  ....  ......  ....  ......  ....  ......  ....  ......  ....  ......  ....  ......
                                       ---------------------------------------------------------------------------------------------------------------------------------------------------------
      Total Permanent Positions.......   859   9,391   882   9,262   882   9,267   759   9,153   694   9,339   713   9,417   666   8,985   713   8,907   720   8,863   834   8,720   728   8,451
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

    Question. In late October 2006, 493 beef carcasses at the Swift & 
Company plant located in Grand Island, Nebraska were inadvertently 
sprayed with sewage water. Instead of condemning the carcasses 
according to the provisions of 9 CFR 318.14, FSIS management officials 
instead approved a ``rework'' of the contaminated carcasses. Please 
explain the justification for this action.
    Answer. Under 9 CFR 318.2(d), USDA's Food Safety and Inspection 
Service (FSIS) has historically considered offers to recondition 
product if it believes that an establishment can make the product safe 
for human consumption. I will provide more information on this 
particular action for the record.
    [The information follows:]
    In this case, the establishment developed an aggressive 
reconditioning plan based on relevant science, in close consultation 
with FSIS officials, and approved by FSIS. After reconditioning, 
extensive testing showed that, microbiologically, these carcasses had 
testing results equal to or better than carcasses normally processed at 
the facility.
    Question. The fiscal year 2008 budget proposal calls for the 
imposition of a licensing fee on all meat, poultry and egg production 
facilities within FSIS jurisdiction. Will the approximately 1000 
foreign establishments that are eligible to export to the United States 
also be subject to such a licensing fee?
    Answer. No, foreign establishments eligible to export to the United 
States would not be subject to the proposed fee. USDA is recommending a 
fee for each Federally inspected establishment or official plant to 
partially cover the costs of USDA inspection services.
    Question. The fiscal year 2008 calls for the imposition of 
reinspection fees for all firms that are subject to failure of 
performance standards and/or recalls. Will foreign establishments that 
export to the United States be subject to reinspection fees when FSIS 
auditors find violations of U.S. standards?
    Answer. No. The proposal would not provide for charging fees to 
foreign establishments that export meat, poultry or egg products to the 
United States. FSIS may decertify foreign establishments, i.e., 
prohibit them from exporting meat, poultry or egg products to the 
United States, if it finds that they do not meet the requirements set 
forth in its regulations for imports.
    Question. What is the status of the study being conducted in Canada 
to justify less than daily inspection of processed meat and poultry 
products that are exported to the United States?
    Answer. The Canadians are continuing their study of less-than-daily 
inspection, and nothing has been submitted to USDA at this time. Once a 
study is completed, it will need to be peer reviewed and the data 
assessed by USDA. The Canadians will maintain daily inspection for any 
product exported to the United States until the study is completed and 
reviewed and a decision is made on how to proceed.
    Question. What is the Meat Safety Enhancement Program as it applies 
to meat imports from Australia? How does it differ from traditional 
inspection procedures? Have there been any Australian establishments 
approved to export meat products to the United States using MSEP? Are 
there any pending applications from any Australian meat establishments 
to use MSEP to export to the United States? If there are, what is the 
status of those applications? What criteria will FSIS use to make its 
final determination on the viability of those applications?
    Answer. Australia's Meat Safety Enhancement Program (MSEP) is an 
alternative inspection program to Australia's traditional slaughter 
inspection procedures, which rely solely on government-paid inspectors. 
MSEP differs from Australia's traditional inspection approach by using 
both company inspectors and government-paid inspectors. It was 
developed by the Australian government patterned after the United 
States' HACCP-Based Inspection Model Project (HIMP). USDA's Food Safety 
and Inspection Service determined MSEP to be equivalent in 1999. While 
one MSEP establishment in Australia has applied for the ability to 
export its product to the United States, FSIS has not given approval 
until it completes its assessment of a pilot study carried out by the 
establishment and the Australian government and concurs that the food 
safety conditions established as part of the 1999 equivalence decision 
are being achieved.

                       FSIS RISK BASED INSPECTION

    Question. Please provide us an update on the FSIS announcement 
regarding its change to risk-based inspection. What is the ultimate 
goal of this change, and do you believe that FSIS has the right science 
and testing capabilities at this time, to do this safely?
    Answer. A risk-based inspection system will help USDA improve the 
safety of meat and poultry products from USDA-inspected processing 
establishments, and therefore decrease the incidence of illness and 
deaths caused by foodborne pathogens.
    Since USDA's Food Safety and Inspection Service (FSIS) inspection 
program personnel are in each plant every day, FSIS has the necessary 
scientific and testing data to institute a risk-based inspection system 
in processing establishments. In addition to considering the inherent 
risk of product, as well as its volume, FSIS will use seven key factors 
to specifically determine a plant's ability to control risk: food 
safety recalls; verified food safety consumer complaints; noncompliance 
records that are significant to public health, enforcement actions FSIS 
has taken against establishments, ready-to-eat and E. coli O157:H7 
sampling results, ready-to-eat Listeria monocytogenes control 
alternatives, and a plant's Salmonella verification category. For more 
information on how FSIS will measure risk in 30 prototype processing 
establishments, visit the agency's Web site at: http://
www.fsis.usda.gov/Regulations_&_Policies/RBI_Meeting_040207/index.asp.
    Question. Do you currently have enough data on E. coli, Salmonella 
and Listeria testing, for example, to make sure that you are targeting 
the right plants, or are you still collecting it?
    Answer. The USDA's Food Safety and Inspection Service (FSIS) has 
sufficient data to establish the plants' ability to control risk, but 
the agency will continue to collect data on a daily basis. The data 
already on hand is historical, and the last 12 months data can be used 
to calculate ability to control risk. The data the agency will collect 
in the future will give FSIS a snapshot of current conditions in 
establishments, as well as provide the agency with a measure of 
establishments' ability to control risk that particular day. The data 
will allow FSIS to adjust plant inspection intensity in real-time, 
based on current data, thereby being more proactive instead of reactive 
by, for instance, increasing intensity after a recall.
    Specifically with regard to E. coli O157:H7, Listeria 
monocytogenes, and Salmonella sampling analysis, in calendar year 2003, 
FSIS conducted over 80,000 analyses of samples, and that number grew to 
almost 100,000 in CY 2006. These sampling data, particularly when 
combined with the other risk-based factors, provide FSIS with a very 
good picture of the food safety controls within regulated 
establishments.
    Question. Will risk-based inspection result in fewer food 
inspectors at processing facilities?
    Answer. Under a more robust risk-based inspection system for meat 
and poultry processing, USDA will continue using the same number of 
inspection program personnel, spending the same amount of overall time 
conducting inspections. Risk-based inspection is about working smarter 
to protect public health by having inspection personnel spend more time 
in the processing plants that need assistance and expertise.
    Question. What level of funding has been used so far to develop 
this program?
    Answer. FSIS has not dedicated a specific funding level for the 
risk-based inspection initiative. However, some of the recent 
expenditures for this effort include public meetings and technical 
summits, employee meetings, meetings with the National Advisory 
Committee on Meat and Poultry Inspection, a contract with Resolve Inc., 
and other miscellaneous items.
    Question. Please provide a detailed explanation of the evaluation 
FSIS will undertake of the pilot risk-based inspection program before 
expanding it to further plants. How will you measure success or 
failure, and what are the parameters of that determination?
    Answer. USDA's Food Safety and Inspection Service (FSIS) intends to 
implement and review risk-based inspection for processing in a careful 
and deliberative manner. The perfect report card for the long-term 
would be a measured decrease of food borne disease and death. While 
FSIS is still in the process of developing how we intend to evaluate 
RBIS, in the near-term, FSIS will compare such measures as verified 
consumer food safety complaints, product recalls, and changes in the 
effectiveness of establishment risk controls between RBIS and 
traditionally-inspected establishments. In addition, FSIS will be 
interviewing inspection program personnel, and the USDA's Office of 
Inspector General will be continuing to audit the development and 
implementation of RBIS.
    Question. What role is turning off the PBIS inspection task 
scheduler playing in risk-based inspection in processing? Have there 
been circumstances when the PBIS scheduler has been turned off within 
the past 5 years, and if so, please identify those circumstances and 
the reasons for them.
    Answer. The Food Safety and Inspection Service (FSIS) will no 
longer use the Performance Based Inspection System (PBIS) database 
scheduler in the initial 30 prototype processing locations under risk-
based inspection. However, at that time, the agency will not 
discontinue the use of PBIS as a whole--only the scheduler. Processing 
inspectors at the prototype processing locations will continue to 
report their findings into the PBIS system, and these data will be 
analyzed on an on-going basis.
    In 2000, FSIS allowed District Offices the option of not scheduling 
the inspection procedures to be performed in a plant on a specific day. 
This change recognized that some establishments operate seasonally, 
such as plants that specialize in seasonal or holiday meats; some 
operate infrequently, such as one day per week; and some prepare 
products for inspection by FSIS and by the Department of Health and 
Human Services' Food and Drug Administration on different days. This 
policy saves inspection program personnel time, since they do not have 
to check a ``not performed'' box for a day when an establishment is 
simply not producing FSIS-inspected product.
    Question. The fiscal year 2008 budget proposal calls for the 
expenditure of funds during the last quarter of the fiscal year to 
cover the costs of training and relocation of staff when risk-based 
inspection in slaughter is implemented. How did the Agency arrive at 
those figures? Does the Agency anticipate reductions in staff when 
risk-based inspection in slaughter is implemented?
    Answer. The agency's goal is to begin to implement risk-based 
inspection for young chickens at slaughter plants during the last 
quarter of fiscal year 2008. For that to happen, FSIS will need to have 
a final rule in place.
    Implementation of risk-based inspection in slaughter facilities is 
projected to require two weeks of training for Food Inspectors and one 
week for Consumer Safety Inspectors. Cost considerations include 
travel, per diem, supplies, and materials as well as backfill of 
frontline inspection personnel while employees are in training. These 
costs also include post-training meetings conducted by FSIS' Technical 
Service Center employees to ensure consistent policy application. Other 
cost considerations include employee relocation expenses in accordance 
with Federal travel regulations.
    Risk-based inspection in processing establishments will not lead to 
reductions in the inspection program personnel workforce. Once it is 
implemented in the future, risk-based inspection for slaughter may 
result in a redistribution of the inspection workforce.
    Question. Does the Agency anticipate reductions in the overall 
inspection workforce as it implements both risk-based inspection in 
processing and slaughter? If it does, what role will attrition play in 
those reductions? Will the Agency be forced to reduce staffing through 
layoffs?
    Answer. Under a more robust risk-based inspection system for meat 
and poultry processing, USDA will continue using the same number of 
inspection program personnel, spending the same amount of overall time 
conducting inspections.
    Risk-based inspection for slaughter will likely result in a 
redistribution of the inspection workforce. Anyone who is employed by 
FSIS when risk-based inspection for slaughter is implemented and 
desires to keep working for the agency will continue to do so. Risk-
based inspection is about working smarter to protect public health by 
having inspection personnel spend more time in the plants that need 
assistance and expertise.
    Question. What Notices and Directives has the Agency issued in 
preparation for the implementation of risk-based inspection in 
processing? What is the legal justification for implementing risk-based 
inspection in processing without the need for formal rulemaking or a 
change in existing statutes?
    Answer. As of February 27, 2007, USDA's Food Safety and Inspection 
Service (FSIS) has not issued any directives, but will issue a 
directive to personnel regarding the implementation of risk-based 
inspection at the thirty prototype processing locations in order to 
instruct employees on how they are to perform daily tasks. In addition, 
before implementing the nationwide risk-based inspection system for 
processing, the agency will issue either an updated or new directive 
for personnel. I will have FSIS provide additional information 
explaining this rationale more thoroughly.
    [The information follows:]
    The Administrative Procedure Act (APA) (5 U.S.C. 511-599) is the 
law under which regulatory agencies, including FSIS create the rules 
and regulations necessary to implement and enforce the statute such as 
the Federal Meat Inspection Act, the Poultry Products Inspection Act, 
and the Egg Products Inspection Act. Section 553 of the APA, titled 
``Rule making'' defines the procedures and specifies exemptions from 
rulemaking. Section 553(a) of the APA States that matters relating to 
agency management or personnel are not subject to rule making. Risk-
based inspection does not place new regulatory requirements on 
establishments that will be subject to this new inspection management 
strategy. What risk-based inspection does is determine which inspection 
tasks are to be completed by FSIS inspectors for specific 
establishments. This is a matter of agency management, and so is not 
subject to rule making.
    Even though rule making is not required, FSIS has engaged in, and 
plans to continue to engage in, a public, transparent development 
process in devising its new management strategy. The agency believes 
that public involvement by its stakeholders will yield the best results 
and the best positive effects on public health in the end. As FSIS 
gains practical insights from prototyping risk-based inspection, the 
agency plans to adapt the system to changing circumstances and its 
evolving understanding as to how best to manage inspection staff.
    Some of FSIS' public participation activities used in the 
development of risk-based inspection include a two-day public listening 
session in October 2006, and three public sessions with the National 
Advisory Committee on Meat and Poultry Inspection to gather input. In 
addition, on April 2, 2007, FSIS will hold a public meeting to gather 
feedback on the proposed methodology to determine plant ability to 
control risk, and specifically how best to utilize noncompliance 
records. The agency will also hold another public meeting on April 5, 
2007, to determine to how to improve attribution data. Public meetings 
are scheduled for April 25 and 30, 2007, to discuss how best to use 
establishment volume and establishment reported data, respectively, in 
the formulas for risk determination.
    Question. What is the status of the installation of the FSIS 
Automated Technology Suite (FACTS)? How is FACTS being used in the data 
collection for plants involved in the risk-based inspection in 
processing program? Please specify all the types of recorded data 
available to the Agency that will be considered in making decisions for 
risk-based inspection. For example, the Agency plans to use information 
on Noncompliance Records (NRs)--what specific information is available 
on a NR that will be factored into RBI decisions?
    Answer. The Food Safety and Inspection Service's (FSIS) Automated 
Technology Suite (FACTS) applications have been incorporated into the 
Public Health Data Consolidation business case. When fully funded, this 
will allow FSIS to continue building an information technology system 
that is modernized to consolidate data into one data warehouse system 
and process and analyze this data through transactional systems. With 
this initiative FSIS will be able to gather data efficiently, increase 
data integrity and security, and expedite analysis of all FSIS data.
    The data from the processing plants that has already been gathered, 
along with risk-based inspection data to be gathered, will be stored 
and utilized through the data warehouse system described above.
    Since FSIS inspection program personnel are in each plant every 
day, the agency has the necessary data to institute an enhanced risk-
based inspection system in processing establishments. In addition to 
considering the inherent risk of product, as well as its volume, FSIS 
will use seven key factors to specifically determine a plant's ability 
to control risk: food safety recalls; verified food safety consumer 
complaints; noncompliance records that are significant to public 
health, enforcement actions FSIS has taken against establishments, 
ready-to-eat and E. coli O157:H7 sampling results, ready-to-eat 
Listeria monocytogenes control alternatives, and a plant's Salmonella 
verification category. For more information on how FSIS will measure 
risk in 30 prototype processing establishments, visit the agency's Web 
site at http://www.fsis.usda.gov/Regulations_&_Policies/
RBI_Meeting_040207/index.asp.

                          FSIS FOOD INSPECTORS

    Question. Please provide vacancy rates for food inspectors by 
district. Please provide a breakdown of FSIS inspectors and plant 
responsibility over the past 5 years.
    Answer. As of February 27, 2007, the inspection work force has 
increased by 139 positions since the end of fiscal year 2006. These are 
potential new employees who have passed background checks, had 
satisfactory interviews, and have agreed to a start date. At any given 
time, the Food Safety and Inspection Service (FSIS) shows a vacancy 
rate due to a lag in hiring, attrition, difficulty in recruiting in 
some remote areas, difficulty in recruiting in some high income 
locations, and retirement. To meet current demand, FSIS projects that 
we would have 7,500 in-plant personnel by the end of the fiscal year. 
The information is provided for the record.
    [The information follows:]

                                       IN-PLANT OFF-LINE VACANCY DATA \1\
                                            [As of February 27, 2007]
----------------------------------------------------------------------------------------------------------------
                                                                                                   Current Value
                            District                                 Positions      Employment    Rate (percent)
----------------------------------------------------------------------------------------------------------------
Alameda.........................................................          275.00          229.00           16.73
Denver..........................................................          278.00          253.00            8.99
Minneapolis.....................................................          185.00          167.00           9.730
Des Moines......................................................          259.00          236.00            8.88
Lawrence........................................................          227.00          206.00        \1\ 9.25
Springdale......................................................          313.00          286.00            8.63
Dallas..........................................................          229.00          183.00           20.09
Madison.........................................................          148.00          140.00            5.41
Chicago.........................................................          278.00          234.00           15.83
Philadelphia....................................................          281.00          259.00            7.83
Albany..........................................................          254.00          214.00           15.75
Beltsville......................................................          190.00          170.00           10.53
Raleigh.........................................................          261.00          233.00           10.73
Atlanta.........................................................          333.00          297.00           10.81
Jackson.........................................................          317.00          296.00          6.6296
                                                                 -----------------------------------------------
      Total.....................................................        3,828.00        3,403.00          11.10
----------------------------------------------------------------------------------------------------------------
\1\ Talmadge/Aiken (T/A) plants are not included.


                                        ON-LINE (SLAUGHTER) VACANCY DATA
                                            [As of February 27, 2007]
----------------------------------------------------------------------------------------------------------------
                                                                                                      Current
                            District                                 Positions      Employment     Vacancy Rate
----------------------------------------------------------------------------------------------------------------
Alameda.........................................................          209.00          175.00           16.27
Denver..........................................................          220.00          187.00           15.00
Minneapolis.....................................................          164.00          141.00           14.02
Des Moines......................................................          413.00          373.00            9.69
Lawrence........................................................          334.00          313.00            6.29
Springdale......................................................          453.00          431.00            4.86
Dallas..........................................................          337.00          309.00            8.31
Madison.........................................................          104.00           90.00           13.46
Chicago.........................................................          169.00          141.00           16.57
Philadelphia....................................................          142.00          126.00           11.27
Albany..........................................................           33.00           25.00           24.24
Beltsville......................................................          275.00          255.00           7.270
Raleigh.........................................................          504.00          456.00            9.52
Atlanta.........................................................          509.00          450.00           11.59
Jackson.........................................................          612.00          576.00            5.88
                                                                 -----------------------------------------------
      Total.....................................................        4,478.00        4,048.00           9.60
----------------------------------------------------------------------------------------------------------------
Note: It is important to note that the total number of field inspection staff identified above cannot be
  compared with the total number of ``field staff'' in an exhibit of FSIS' fiscal year 2008 Explanatory Notes
  entitled: ``Permanent Positions by Grade and Staff Year Summary -2006 Actual and Estimated 2007 and 2008.''
  The field staff identified above relate to the inspection personnel whereas the ``field staff'' in the
  ``Permanent Positions by Grade and Staff Year Summary--2006 Actual and Estimated 2007 and 2008'' exhibit
  relate to all FSIS staff outside of the Washington, D.C. area (e.g., Technical Service Center staff in Omaha,
  Nebraska, Financial Processing Center in Urbandale, IA, lab personnel in the three FSIS laboratories, etc.)


                              INPLANT POSITION AND EMPLOYMENT FIVE YEAR HISTORY \1\

----------------------------------------------------------------------------------------------------------------
                                      On-Line        Off-Line      Enforcement,    Public Health
                                 --------------------------------  Investigation  Veterinariian/
                                                                     Analysis      Veterinarian
                                                                     Officer/         Medical
                                                                    Compliance      Officer \2\        Total
                                      Sla-07         CSI 08-10        Officer    ----------------
                                                                 ----------------
                                                                     GS 12-13        GS 11-13
----------------------------------------------------------------------------------------------------------------
       Available Positions
Fiscal Year 03..................           3,952           3,491             189             992           8,624
Fiscal Year 2004................           3,652           3,749             195             983           8,579
Fiscal Year 05..................           3,547           3,608             212             995           8,362
Fiscal Year 06..................           3,509           3,556             215             966           8,246
Fiscal Year 07 \2\..............           3,518           3,610             202             964           8,294
           Employment
Fiscal Year 03..................           3,310           3,226             189             838           7,563
Fiscal Year 2004................           3,302           3,090             195             850           7,437
Fiscal Year 2005................           3,217           3,150             188             831           7,386
Fiscal Year 2006................           3,158           3,183             185             793           7,319
Fiscal Year 20071A\3\...........           3,147           3,181             183             772           7,283
----------------------------------------------------------------------------------------------------------------
\1\ T/Apositions are not included.<bullet>
\2\ Includes VMS.
\3\ Current as of 2/27/2007. The end of fiscal year projected employment is 7,500.


                    OTHER THAN PERMANENT--STAFF YEARS
------------------------------------------------------------------------
                          Years                                Usage
------------------------------------------------------------------------
2003....................................................             438
2004....................................................             377
2005....................................................             310
2006....................................................             298
\1\ 2007................................................             360
------------------------------------------------------------------------
\1\ Planned OTP usage.

                         RISK MANAGEMENT AGENCY

    Question. Is RMA developing any new products to serve regions of 
the country that currently have few, if any, options for risk 
management? If so, please explain them.
    Answer. The Risk Management Agency (RMA) has undertaken an 
evaluation of its product portfolio to identify gaps in availability, 
particularly with respect to underserved crops and/or regions. This 
evaluation found that, with few exceptions, crop insurance coverage is 
generally available for the most economically significant crops in the 
underserved regions. This result is consistent with the conclusions of 
a recent independent evaluation of RMA's product portfolio. This 
suggests that RMA should place greater emphasis on improving currently 
available products to provide more effective risk management 
protection, and target efforts on the development of new products 
towards filling the few remaining gaps. RMA is currently conducting 
comprehensive evaluations of several crop programs to identify areas 
for improvement, particularly among underserved regions.
    In addition, RMA has implemented several new products, most notably 
Adjusted Gross Revenue (AGR), Adjusted Gross Revenue-Lite (AGR-Lite), 
and two Pasture, Rangeland and Forage (PRF) pilot programs. The AGR, 
AGR-Lite and PRF programs are particularly oriented to producers for 
whom traditional crop insurance products were either impractical, or 
did not provide effective risk management protection. In addition, over 
twenty pilot programs are currently active that pertain to specialty 
crops, including pilot programs for processing chili peppers, Hawaii 
Tropical Fruit, and Florida Fruit Trees. RMA also has ongoing 
development efforts for a revenue insurance product for certain 
specialty crops, as well as an umbrella weather-peril product that 
could provide effective coverage for certain crops with relatively 
limited market value. Additional risk management tools are developed 
through partnership agreements that impact underserved producers. These 
partnership agreements deal with a wide range of topics including the 
development and understanding of markets, pest and disease control, and 
water management.
    The Crop Insurance Board also accepts private sector submissions 
that allows persons to develop and submit for approval their own 
products targeted to specific risk management needs.

                 NATIONAL ANIMAL IDENTIFICATION SYSTEM

    Question. What is the status of the development of a National 
Animal Identification System?
    Answer. The National Animal Identification System is composed of 
three components: premises registration, animal identification, and 
animal tracing. Premises registration is the foundation of the program. 
As of March 12, 2007, all 50 States, 60 Tribes, and 2 U.S. Territories 
are capable of registering premises according to USDA standards, and 
approximately 378,000 locations have been registered.
    Significant progress has also been made on the second component of 
NAIS, animal identification. As of March 12, 2007, approximately 1 
million Animal Identification Number devices have been distributed.
    The third component of the NAIS, animal tracing, is currently under 
development with the help of USDA's industry and State partners. 
Industry, through private systems, and States will manage the animal 
tracing databases that maintain the movement records of animals. Full 
deployment of the Animal Trace Processing System is planned for the 
near future.
    Question. If such an animal identification system is made 
voluntary, what effect does APHIS anticipate that will have on 
participation? What efforts will be made to encourage participation?
    Answer. Participation in the NAIS is voluntary. The USDA remains 
committed to building upon our strong partnership with the States and 
industry to meet producers' needs and establish a versatile system that 
makes sense for everyone.
    Moving forward with this voluntary approach has allowed producers 
the opportunity to test the program and recommend the most practical 
solutions for a more effective system. In this sense, producers 
themselves are playing an active role in helping to shape the NAIS 
program so that it works well for their particular needs. Additionally, 
a voluntary NAIS allows for the best price competition between service 
providers (identification device manufacturers, database providers, 
etc.) and leaves room for market applications (such as age/source/
process verification) to help drive the system.
    To encourage participation, USDA has provided funding to facilitate 
development and implementation of an efficient system, and flexibility 
to adapt to producers' operations and needs. On February 2, 2007, USDA 
published a request for proposals from nonprofit organizations that 
wish to enter into cooperative agreements with USDA to advance premises 
registration. USDA will make up to $6 million available, subject to the 
availability of funding, for the cooperative agreements. These 
cooperative agreements will support the efforts of such organizations 
to promote the NAIS and, specifically, increase participation in 
premises registration--the foundation of the program.

                            INVASIVE SPECIES

    Question. Please provide a list of current plant and animal 
invasive species, ranked by their threat level. What is APHIS' short 
and long-term plans to deal with these?
    Answer. The Administration has not ranked invasive species by 
threat level. Invasive species that APHIS addresses include, but are 
not limited to, the programs focused on cattle fever tick, 
Mediterranean fruit fly, emerald ash borer, potato cyst nematode, 
sudden oak death, citrus diseases, brucellosis, pseudorabies, and 
chronic wasting disease. APHIS addresses each of these threats as 
resources allow.
    Over the long term, APHIS develops response plans for exotic pests 
and diseases that have the potential to cause significant economic or 
environmental damage and uses its safeguarding system, which involves 
prevention, detection, and management components, to protect U.S. 
agriculture. Under the Pest and Disease Exclusion mission area, APHIS 
works to prevent exotic pests such as cattle fever tick and 
Mediterranean fruit fly from entering the United States. These and 
other pests have direct pathways into the United States. APHIS takes 
action at U.S. borders or in other countries to mitigate the risks 
associated with them.
    Under the Monitoring and Surveillance mission area, APHIS conducts 
plant pest surveys, animal health surveillance, and other activities 
designed to detect exotic plant pests and foreign animal diseases if 
they are present so that we can deal with them quickly if needed. These 
programs target a changing list of high-risk plant pests depending on 
trade and travel pattern and outbreaks in other countries. These 
programs also conduct intensive monitoring and emergency preparedness 
efforts. APHIS analysts follow animal and plant health situations 
around the world and frequently adjust monitoring and surveillance 
efforts and pest and disease exclusion priorities to safeguard U.S. 
agriculture and natural resources from high-risk pests and diseases.
    APHIS also works to control or eradicate high priority invasive 
species through programs in the Pest and Disease Management area, 
including, but not limited to, emerald ash borer, potato cyst nematode, 
sudden oak death, several citrus diseases, brucellosis, pseudorabies, 
and chronic wasting disease.

                     AGRICULTURAL MARKETING SERVICE

    Question. We have heard several reports of genetically modified 
material getting into crops intended for commercial sales, the most 
well-known being rice. What has the economic effect been of instances 
such as this?
    Answer. The economic effect can be reductions in seed available for 
planting and potential trade restrictions. For example, two popular 
long grain rice varieties can no longer be planted for commercial 
production due to the presence of genetically modified material. The 
value of certified seed of these varieties produced in 2006 for 
planting in 2007 is estimated to be $39 million.

           GENETICALLY MODIFIED MATERIALS IN COMMERCIAL CROPS

    Question. How is AMS, and USDA overall, working to prevent the 
introduction of genetically modified materials into crops intended for 
commercial sales?
    Answer. The Animal and Plant Health Inspection Service (APHIS) is 
involved in regulation of the biotechnology industry. Various measures 
are used in authorized field tests to ensure that genetically 
engineered organisms are confined to the test site. The measures 
include isolation distances to mitigate cross pollination with other 
crops and weedy relatives, cleaning of farm equipment to mitigate the 
inadvertent spread of seed, timely disposition of the field test, and 
post-harvest monitoring for volunteers. To ensure compliance, 
inspections of the test site, facilities, and records are conducted. 
Once a crop is deregulated, that crop is considered no different than 
conventional crops and may be planted without restrictions from APHIS.
    For organic products, regulations of AMS' National Organic Program 
prohibit the use of genetically modified organisms in organic 
production. Accredited certifying agents review organic production and 
handling plans before certified organic production begins to ensure 
that no genetically modified organisms are used in production and that 
handling procedures protect organic products from contact with 
genetically engineered materials. Penalties are in place for 
intentional disregard of the regulations.

                           VALUE-ADDED GRANTS

    Question. Funding has been provided for Value-Added Agricultural 
Product Market Development Grants since the Agricultural Risk 
Protection Act of 2000. Ample time has elapsed to evaluate the 
effectiveness of this program.
    Please describe the types of products that have been funded.
    Answer. A wide variety of projects are funded, including value 
added products made from meat, dairy products, grains, fruits and 
vegetables, oilseeds, and renewable energy sources. Grant funds 
totaling $150,000 were used as working capital for the start up phase 
of a new tilapia production facility where the fish will be raised and 
processed into fillets. Other types of products include wine, compost 
made from diary waste, wind energy, soy-flour, identity-preserved 
yogurt, dehydrated apple slices, and branded cuts of beef.
    Question. Are these products becoming marketable and sustainable?
    Answer. Information about the long-term sustainability became 
available early this year from a study that the University of Missouri 
has done. The study indicates that approximately 60 percent of the 
projects funded resulted in a marketable product.
    Question. What are the outcome measures that are being used to 
determine the success of this program?
    Answer. Several measures evaluating the program are in place, 
including the number of jobs created, the increase in producer revenue 
due to the project, the increase in customer base due to the project, 
and the sustainability of the business receiving the grant.
    Question. How many grants and how much funding has been provided to 
energy-related projects?
    Answer. Since 2001, 155 grants have been made for energy-related 
projects, totaling $25.2 million.
    Question. How successful are these energy-related projects and how 
do you define success?
    Answer. We define the success of energy-related projects in the 
same way as for other project types--we consider any project that 
resulted in a marketable product to be successful. We estimate that 
approximately 48 percent of energy related projects resulted in a 
marketable product. This compares to 60 percent success in projects 
over all for the value added program.
                                 ______
                                 

               Questions Submitted by Senator Tom Harkin

                 AGRICULTURE QUARANTINE AND INSPECTION

    Question. In 2002, agriculture inspectors who protect our Nation 
from invasive species and pests at ports of entry were transferred from 
USDA to the Department of Homeland Security (DHS). Consequently, now 
USDA is responsible for creating the policy for agriculture inspections 
at ports of entry but DHS is responsible for the implementation of that 
policy.
    Secretary Johanns, can you tell me how much control USDA still has 
over the agriculture inspectors at ports of entry?
    Answer. In order to fulfill the requirements of the Homeland 
Security Act of 2002, USDA and DHS entered into a memorandum of 
agreement (MOA) which specified the roles of the Animal and Plant 
Health Inspection Service (APHIS) and the Customs and Border Protection 
(CBP). Through this MOA, CBP conducts the majority of the front line 
activities. APHIS provides training, risk assessment, and technical 
support.
    Question. A Government Accountability Office (GAO) report that came 
out last year noted that agriculture inspectors' morale is low, their 
rates of interception of potentially harmful material is low, and that 
there are fewer canine units performing inspections. Can USDA do 
anything to improve these problems, or is this responsibility now 
entirely in the hands of DHS?
    Answer. After the issues were highlighted by GAO, the Animal and 
Plant Health Inspection Service within USDA and the Customs and Border 
Protection within DHS instituted quarterly face-to-face meetings. These 
meetings occur at both the technical level and managerial level. These 
meetings ensure transparency and are a forum for addressing present and 
future issues.
    Question. What would be the positive and negative impacts in 
transferring these inspectors back to USDA from DHS?
    Answer. The USDA supports the President's decision to transfer 
inspectors from the USDA to DHS. This decision allowed for the creation 
of a consolidated border inspection organization which provides 
information sharing, streamlined services, cross-training among 
specialists, and innovative techniques that were not possible when 
border inspection was the responsibility of three separate agencies. 
Rather than limiting agricultural inspection to a relatively small 
cadre of specialized inspectors, DHS greatly expanded the number of 
inspectors who can screen air passengers and vehicles at land border 
crossings for prohibited agricultural products.

                      U.S. FOREIGN FOOD ASSISTANCE

    Question. As a result of continuing food crises in Africa and 
elsewhere, Congress has been obliged to provide additional emergency 
funding for Title II international food aid above and beyond 
appropriated levels for the last several years.
    Why has the Administration been unwilling to acknowledge that 
increased demand for emergency food assistance has persisted, and not 
requested funding above the recent levels of $1.2 billion for Title II 
in the fiscal 2008 budget proposal?
    Answer. The 2008 budget request reflects a careful prioritization 
among the competing demands for international humanitarian assistance. 
It is also important to understand that emergency food needs are 
difficult to predict in advance, especially given the complex nature of 
evolving, rapidly changing conflicts and the unpredictability of rainy 
seasons in drought-prone areas.
    Nevertheless, the 2008 budget does support our commitment to 
addressing the most severe and critical emergency food aid needs. And 
should unanticipated needs arise, the Bill Emerson Humanitarian Trust 
is available to ensure we can respond to them.
    Question. The USDA policy with respect to the Bill Emerson 
Humanitarian Trust, at least as indicated in the budget summary 
document for fiscal 2008, is that up to 500,000 tons of food is 
available annually for unanticipated emergency food assistance. Since 
the Emerson Trust now has commodity reserves of about 800,000 tons, 
that would last less than 2 years. When does the Administration plan to 
ask for funds to replenish the Trust?
    Answer. The Trust currently holds 915,000 metric tons of wheat and 
$107 million of cash. Based on a current price of hard red winter wheat 
of about $216 per metric ton, that cash equates to approximately 
495,000 metric tons of wheat. That amount, combined with the 915,000 
metric tons of wheat held in the Trust, provides a total tonnage of 
just over 1.4 million metric tons. Wheat is not the only commodity that 
might be needed in an emergency, of course, but because it is used so 
frequently in overseas feeding programs, it provides a good 
illustration of the level of the Trust's resources.
    At this time, the Administration is not planning to request funds 
to replenish the Trust. However, in 2 recent years, $20 million was 
transferred annually from the Public Law 480 program to the Commodity 
Credit Corporation as reimbursement for commodities previously released 
from the Trust, and those funds were, in turn, assigned to the Trust. 
The Administration may consider future transfers of Public Law 480 
funds that can be used to replenish the Trust, but current statutory 
authorities preclude annual reimbursement and replenishment above the 
$20 million level.

                             CROP INSURANCE

    Question. Wouldn't the Department's request to utilize mandatory 
funds to cover data mining and computer hardware costs cover some of 
the same costs that the user fee proposal would pay for?
    Answer. No. The data mining operation is conducted on separate IT 
systems than those that would be funded through the user fee proposal. 
The existing IT system used by the Risk Management Agency (RMA) is 
outdated and is not capable of conducting the data mining activities. 
Consequently, RMA contracts with Tarleton State University to perform 
the data warehousing and data mining activities mandated by Congress.

                NATIONAL VETERINARY MEDICAL SERVICES ACT

    Question. In 2003 Congress passed the National Veterinary Medical 
Services Act to address the shortage of large animal veterinarians 
across the country. Four years later the regulations have yet to be 
issued for this program even though Congress has appropriated $1 
million for the program. At last year's agriculture appropriations 
hearing, you said the regulations would be done in 18 months.
     When can we expect to see USDA release the regulations for this 
program?
    Answer. We plan to publish a Final Rule delegating the National 
Veterinary Medical Services Act program to CSREES in the Federal 
Register on March 19, 2007. Although there are additional 
administrative steps that must be completed prior to the distribution 
of funds, a framework for the program has been developed by CSREES.

                     CONSERVATION SECURITY PROGRAM

    Question. As part of the Continuing Resolution for fiscal year 
2007, it is my understanding that the CSP includes a funding cap that 
will result in farmers and ranchers receiving a pro-rated reduced 
payment for contract modifications, which they are required to complete 
despite reduced payment.
    How much of a reduction from the contract level will producers have 
to accept? Is there consideration of giving farmers the option of 
delaying their compliance with the modified contract if the Federal 
Government is not living up to its side of the bargain to make payment? 
If a farmer receives a partial CSP payment this year, will USDA pay the 
rest of the balance next year (or out of any supplemental funding 
provided in fiscal year 2007)?
    Answer. Unmodified contracts and those that were modified but did 
not exceed their 2006 payment level, are fully funded in 2007. 
Participants with 2007 contract obligations that exceeded their 2006 
level will receive just over half of the amount above what they 
received in 2006.
    If the producer is not in compliance with the modified contract, 
the State Conservationist has the flexibility, on a case by case basis, 
to make adjustments to the participant's contract.
    CSP is annually funded and payments will be made up to the level of 
funding made available by Congress.

            APPROPRIATE TECHNOLOGY TRANSFER FOR RURAL AREAS

    Question. In 1985, Congress authorized the implementation of a 
sustainable agriculture information service, Appropriate Technology 
Transfer for Rural Areas (ATTRA), to provide technical assistance and 
information to farmers, ranchers, extension agents, educators and 
others involved in sustainable agriculture. ATTRA now supports more 
than 20 agricultural specialists working in six locations across the 
Nation. I strongly urge USDA to not consider ATTRA an earmark given it 
was authorized in the 1985 farm bill.
     What will USDA do to ensure ATTRA's funding level remains intact 
for fiscal year 2007?
    Answer. Under the first Continuing Resolution $936,000 was 
obligated in 2007 for ATTRA compared to about $2.5 million that was 
provided in 2006. The revised Continuing Resolution reduced funding for 
rural cooperative development grants and no further funding was 
provided for ATTRA. No funding is included in the 2008 budget request 
for ATTRA, although the budget request does include funding for similar 
competitive grants.
                                 ______
                                 

             Questions Submitted by Senator Byron L. Dorgan

                          ARS RESEARCH FUNDING

    Question. Secretary Johanns, in your statement you describe how the 
President's fiscal year 2008 budget request for USDA meets the 
challenges of the agricultural community by ``funding our highest, most 
important priorities.'' That is why I was disappointed to see harsh 
cuts to important agricultural research across the country, 
particularly in North Dakota.
    The President's fiscal year 2008 budget cuts research at the Fargo 
and Mandan ARS Centers. These cuts include research into wheat and 
barley scab, sclerotinia--a white mold disease that wilts or rots 
broadleaf crops, and precision agriculture.
    Can you please explain why these research programs are singled out 
for cuts in the fiscal year 2008 budget?
    Answer. The 2008 Budget for ARS proposes to discontinue funding for 
a number of research projects added by Congress that provide mostly 
localized benefits and do not have a nationwide impact. Doing so will 
enable the Department to focus limited resources on higher priority 
research and on addressing important national goals such as emerging 
and exotic diseases of plants and animals, renewable energy and 
obesity.

           NATIONAL ANIMAL HEALTH LABORATORY NETWORK FUNDING

    Question. The National Animal Health Laboratory Network (NAHLN) was 
established to create a greater infrastructure that enabled a rapid and 
adequate response to animal health emergencies. In addition to 
protecting animal health and the agriculture industries, these labs 
also play an important role in protecting public health.
    The Network was started with 12 ``pilot labs'' around the country, 
and has since been expanded to include diagnostic labs from virtually 
every State. My State of North Dakota is a full partner in the network 
and is certified to respond in four areas, including avian influenza 
(AI), exotic Newcastle disease (END), foot and mouth disease (FMD), and 
classical swine fever (CSF).
    Of the funding provided for the NAHLN, some goes to maintain the 12 
pilot labs, and the rest is distributed to some of the remaining 
diagnostic labs. It appears that there are inadequate resources going 
into the NAHLN to adequately fund all participating labs or support the 
infrastructure that was created.
    Will the President's fiscal year 2008 budget request for NAHLN 
support some operating or structural costs of each participating 
diagnostic lab (as supported by the American Veterinary Medical 
Association, the American Association of Veterinary Laboratory 
Diagnosticians, and the National Institute for Animal Agriculture)?
    Answer. The NAHLN is a cooperative effort between the Animal and 
Plant Health Inspection Service (APHIS) and the Cooperative State 
Research, Education, and Extension Service (CSREES). CSREES provides 
infrastructure support to the 12 NAHLN pilot labs, while APHIS provides 
infrastructure support to other laboratories in the network as funds 
become available.
    APHIS' fiscal year 2008 budget request will support upgrading three 
laboratories to biosafety level (BSL)-3 requirements. The agency is 
currently conducting disease risk assessments to determine the highest 
priority labs for the upgrade. The assessment will determine those 
areas that have the greatest risk of the introduction of a disease for 
which diagnostics would require this level of bio-security.
                                 ______
                                 

            Questions Submitted by Senator Richard J. Durbin

              FRESH FRUIT AND VEGETABLE PROGRAM IN SCHOOLS

    Question. With the President's Budget request, how many new States 
will be able to join the Fresh Fruit and Vegetable Snack Program this 
year?
    Answer. The Department is not proposing to expand the Fresh Fruit 
and Vegetable Program. Instead, our Farm Bill proposal would increase 
mandatory spending for fruits and vegetables in the National School 
Lunch and School Breakfast Programs by $500 million over 10 years. In 
addition, the Farm Bill proposal would increase section 32 spending on 
fruits and vegetables by $2.75 billion over 10 years, some of which 
would likely go to schools. The Department considered a range of 
approaches to increase the availability of fruits and vegetables in 
schools, and ultimately selected this approach because it has the 
potential to increase fruit and vegetable access to the greatest number 
of school children.
    The Administration is committed to increasing fruit and vegetable 
consumption, given their importance to health and the specific 
recommendations of the Dietary Guidelines for Americans. Increased 
funding for fruits and vegetables in the school programs will help 
support the Administration's implementation of the 2005 Dietary 
Guidelines for Americans in the more than 31 million lunches served 
every school day.
    Question. Is there a set of selection criteria at USDA for 
admittance to the program?
    Answer. Almost all of the States currently participating in the 
Fresh Fruit and Vegetable Program were designated by Congress. Since 
the Department is not proposing to expand the Fresh Fruit and Vegetable 
Program, we have not developed selection criteria for additional 
States.
    Question. Which States are poised to be accepted to the program 
soonest?
    Answer. The Department is aware that a number of additional States 
have expressed interest in participating in the Fresh Fruit and 
Vegetable Program. The program has been well received by students and 
by State and local school administrators in those places where it 
currently operates. However, we believe that the policy emphasis is 
best placed on our Farm Bill proposals. The Administration's Farm Bill 
proposals have the potential to increase fruit and vegetable access to 
school children in every State.

        BROADBAND AND DISTANCE LEARNING AND TELEMEDICINE FUNDING

    Question. The President's Budget decreases funding for the set of 
broadband programs housed at USDA Rural Utilities Service (RUS). The 
budget proposes to cut the Distance Learning, Telemedicine, and 
Broadband Program from $85 million in 2006 (actual) to $31 million 
(fiscal year 2008 Budget). Grants are cut from $70 million in fiscal 
year 2006 (actual) to $25 million (fiscal year 2008 Budget). Total 
direct loan levels are decreased from $1.155 billion in fiscal year 
2007 (estimated) to $300 million (fiscal year 2008 Budget). Direct 
loans for distance learning and telemedicine are eliminated entirely, 
from a level of $156 million in fiscal year 2007 (estimated).
    Can you explain the reasons why funding levels for these programs 
were decreased?
    Answer. The distance learning and telemedicine program has received 
only a few applications for loans since the program was established a 
number of years ago. The 2008 budget maintains the grant portion of the 
program at its current level of about $25 million although it does not 
include funding for other broadband grant programs for which about $20 
million is available for 2007. The 2008 budget also includes funding 
for $300 million in broadband loans which is expected to be enough to 
meet the needs of those rural communities that have no or only limited 
access to broadband services.
    Question. How do these decreases fit within the President's stated 
policy objective of making broadband universal and affordable by 2007?
    Answer. USDA is providing a sufficient level of funding to meet the 
expected demand for loans. Moreover, program regulations are being 
revised to focus on areas that do not already have existing broadband 
providers. These revisions are expected to improve the performance of 
meeting the President's goal of universal and affordable service 
budget.
    Question. Are there alternative funding streams or mechanisms in 
the President's Budget that make up for these decreased funding levels?
    Answer. Currently the USDA's telecommunication loan programs 
finance technology that supports Broadband ready capabilities. Further, 
the Administration's 2007 Farm Bill proposal addresses the need for 
enhancing rural infrastructure by providing an additional $500 million 
over 10 years. Both the broadband access and the distance learning and 
telemedicine programs are included among the programs that would be 
eligible for this funding.
    Question. Last, have you heard of Connect Kentu