White House Proposed FY 2006 Federal Budget

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DEPARTMENT OF AGRICULTURE

AT A GLANCE: 2006 Discretionary Budget Authority: $19.4 billion (Decrease from 2005: 10 percent) Major Programs:  Agriculture Commodities Support Conservation Food and Nutrition Service Forest Service Food Safety, Animal and Plant Health, and Marketing Programs Rural Development

MEETING PRESIDENTIAL GOALS

Promoting Economic Opportunity and Ownership

• Ensuring an economically sound future for American agriculture by providing a financial safety net for farmers and promoting free and fair trade, while promoting more efficient production decisions and reducing agricultural subsidies.

• Supporting rural telecommunications with broadband loans.

Protecting America

• Protecting the food supply by ensuring enforcement of food safety and security standards at meat, poultry, and egg products plants and protecting agriculture from pest infestations and disease.

• Maintaining the commitment to protect the agriculture and food system against intentional or unintentional contamination.

Supporting a Compassionate Society

• Providing important nutrition programs, including the Food Stamp, School Lunch, School Breakfast, and Child and Adult Care Food programs, and the Special Supplemental Nutrition Program for Women, Infants, and Children.

• Helping tenants displaced from traditional rural multifamily housing units.

Making Government More Effective

• Improving the Crop Insurance program by proposing reforms to reduce the need for ad hoc disaster assistance.

• Improving accountability through significant reform of the Forest Service including significantly reducing its indirect costs, and addressing maintenance needs for our national forests by selling unneeded facilities and establishing a working capital fund for facilities.

• Eliminating or phasing out conservation programs, such as the Resources Conservation and Development Program and Watershed and Flood Prevention Operations Program, that do not effectively target Federal resources on need or performance in order to refocus funding to high-priority conservation programs.

• Initiating the process to close the public/private Rural Telephone Bank because of insufficient demand for its privatization and because the Government is able to provide the Federal financial assistance through other programs in a more cost-effective manner.

Agency-specific Goals

• Ensuring that eligible, low-income individuals have access to food stamps and improving program accountability.

• Managing National Forests and Grasslands and assisting private landowners in managing lands in a productive, sustainable way.

• Redirecting funding from lower priority conservation programs in order to fund national-level resource priorities, such as helping animal feeding operations comply with environmental regulations and helping ranchers fight and control invasive species.

PROMOTING ECONOMIC OPPORTUNITY AND OWNERSHIP

Enhancing economic opportunities for agricultural producers

    The cornerstone of the U.S. Department of Agriculture (USDA) is the assistance it provides to improve the U.S. farm economy. By any standard, the farm economy is quite healthy. Net cash income of U.S. farmers in 2004 is forecast to exceed the 2003 record level of $68.6 billion by 13 percent (see accompanying chart). Two consecutive years of exceptionally large crop harvests and very high livestock prices, as a result of strong demand, have benefited the farm sector. This is only the fourth time since 1990 that the value of both crop and livestock production is expected to increase. The combined value of production for crop and livestock commodities is expected to increase by $27.6 billion in 2004, a 13-percent increase, following a $20.7 billion (10.8 percent) increase in 2003. The value of farm sector production, including income from forestry and services earned on farm assets, rose $50.1 billion in just two years. The farm sector contributes significantly to U.S. national economic output. In 2004, it is estimated that the sector contributed a record $118.9 billion in net value added, up $17.5 billion, or 17 percent, from 2003.

    Given this success, the Administration believes that it is appropriate to adjust current levels of assistance to farmers under the 2002 Farm Bill (Farm Security and Rural Investment Act of 2002). The 2002 Farm Bill provided a total of $176 billion in farm-related assistance, a 74-percent increase over the assistance the previous Farm Bill would have provided in the absence of any additional emergency assistance. Not all of this assistance is appropriately targeted, and many of the programs may need to be reformed as a result of any new multilateral long-term trade agreements. Therefore, the Administration is proposing the following legislative changes to reduce agricultural subsidies, promote more efficient production decisions, and extend expiring programs:

• Reducing the payment limit cap for individuals to $250,000 for commodity payments, including all types of marketing loan gains, while removing the three-entity-rule.

• Basing marketing loans on historical production.

• Reducing crop and dairy payments to farmers by five percent. Payments to farmers from all commodity programs (e.g., marketing loans, direct and counter-cyclical payments) would be calculated and payments would be reduced by five percent.

• Requiring the dairy price support program to minimize expenditures.

• Imposing a sugar marketing assessment to be paid by sugar processors on all processed sugar.

• Extending the Milk Income Loss Compensation program for two years.

Opening New Markets to U.S. Farmers and Ranchers

    U.S. export revenues have accounted for 20 to 30 percent of U.S. farm income over the past 30 years and also generate significant off-farm income. Trade also provides U.S. consumers access to a wider variety of foods, and provides fresh produce at reasonable prices in the winter months. The Administration is determined to work toward the elimination of trade barriers and trade distortions through the World Trade Organization, as well as a number of regional and bilateral trade agreements, such as the Central American Free Trade Agreement and the recently passed free trade agreements with Australia and Singapore. As a result of U.S. negotiations with China on soybean and cotton trade, U.S. exports of soybeans to China reached an all-time high in 2003 of $2.9 billion, and cotton exports were $733 million, up 431 percent over 2002.

    Following the discovery of a cow that tested positive for Bovine Spongiform Encephalopathy (BSE) in Washington State in December 2003, many beef-importing nations refused to import U.S. beef. The Administration has been working tirelessly to re-open markets to U.S. beef. Most significantly, the Administration is working with the government of Japan to pave the way for a resumption of beef trade. Exports are very important to our cattle and beef industry, accounting for 10 percent of total production. Sales to Japan alone exceeded $1.7 billion in 2003, prior to trade being halted due to the discovery of the BSE-positive cow in the United States.

Increasing Opportunities and Improving Quality of Life in Rural America

    Rural America is home to one-fifth of the Nation’s population. The needs of this population are as diverse as those of the populations in large towns and cities. Communities in rural America rely upon many of the same things as urban areas, including good paying jobs, access to critical services like education, healthcare, and technology, and strong and safe communities. One specific utility that many growing businesses are relying on for further growth is broadband, which allows high-speed data transmission.

    In 2004, President Bush announced an initiative to make access to broadband technology available to every American by 2007. While broadband has begun to penetrate rural America, rural areas still lag behind urban centers. The Rural Utilities Service delivers one of the Department’s programs designed to increase access to broadband for rural residents and businesses. This program provides loans to companies that are willing to provide broadband in rural communities. Since the beginning of this program in February 2003, USDA has approved over $658 million in loans. The 2006 President’s Budget provides funding that will support an additional $359 million in loans.

PROTECTING AMERICA

    Because the agriculture and food systems are vulnerable to disease, pest, or poisonous agents that occur naturally or are introduced externally, USDA works to detect potential plant and animal diseases and pests, and carries out the inspection of meat, poultry, and egg products before they are sold to consumers. The 2005 Budget requested funds to increase USDA’s ability to detect and respond to potential contaminations of the agriculture and food system. The 2006 Budget maintains this commitment by including approximately $376 million for food and agriculture defense activities, a $78 million increase over the amount enacted by the Congress for 2005. Excluding funding for the state-of-the-art animal research and diagnostic facility at Ames, Iowa, for which the Administration requests full funding, the Budget proposes increases of $140 million above the 2005 enacted level.

    To improve the safety and security of the food supply, the Food Safety and Inspection Service (FSIS), in coordination with the Food and Drug Administration, is working to create a nationwide food laboratory network that will have the ability to test many different types of food for potential biological, chemical, and radiological contaminants. This laboratory network will have sufficient capacity to respond to emergency needs. Funding of $19 million is provided for FSIS to purchase testing equipment, train staff, and analyze samples at up to 26 State laboratories. These labs will be interconnected through an electronic network that allows labs to rapidly report and exchange data. In addition, $23 million is requested for the Agricultural Research Service to address food safety issues, including early detection of pathogens and bacterial toxins. This research will increase the speed of detection to reduce any negative consequences of the threat.

    To improve the health of animals and plants and protect the agriculture system from plant and animal diseases and infestations, the Animal and Plant Health Inspection Service (APHIS) is increasing pest detection and animal health monitoring. The Budget requests $166 million for surveillance and monitoring by APHIS for the early detection of infected plants and animals. In addition, $148 million in funding is provided for the continuation of other important agriculture defense activities started in 2005, including: a National Veterinary Stockpile to establish a strategic stockpile of vaccines and other therapeutics in case of an animal disease outbreak; a National Plant Disease Recovery System to respond to and recover from a disease affecting a major crop; the expansion of the Regional Diagnostic Network to aid in the rapid analysis of potentially diseased material; research into emerging and exotic diseases of livestock and crops to inform rapid identification and response to an attack on our agriculture or food systems; and the completion of the Ames facility.

SUPPORTING A COMPASSIONATE SOCIETY

    From nutrition assistance to housing assistance to international food and education assistance, USDA works to improve the lives of people across the Nation and throughout the world. USDA is also bringing expertise to school feeding programs in 25 countries throughout the world. The McGovern Dole International Food for Education and Child Nutrition program was permanently authorized in the 2002 Farm Bill with the objective of using U.S. commodities and financial assistance to jumpstart school feeding programs in poor countries. Results from the program show improvement in student enrollment, attendance, and performance. In 2005, over 2.2 million women and children will receive meals under this program. The 2006 Budget expands the program to reach over 2.5 million recipients.

    The Special Supplemental Nutrition Program for Women, Infants, and Children, more commonly known as the WIC program, serves the nutritional needs of low-income pregnant and post-partum women, infants, and children up to their fifth birthday. The Budget provides $5.5 billion for WIC services, full funding for all those estimated to be eligible and seeking services. On July 30, 2004, President Bush signed the Child Nutrition and WIC Reauthorization Act of 2004. This law makes many important improvements to the National School Lunch Program that affect the 29 million children participating in the program on an average school day. The Administration is implementing these changes to increase access to nutrition for vulnerable children, help States and schools fight childhood obesity, improve the integrity of the school meals programs, and strengthen WIC cost containment efforts.

Multifamily Housing

    In September 2004, the Supreme Court ruled that owners of USDA financed multifamily housing projects have a right to prepay pre-1989 loans. This ruling put the tenant population served by those properties at risk of potential displacement (an estimated 1,648 properties with 45,933 units, or about 10 percent of the portfolio, will be affected). The 2006 Budget provides $214 million for a voucher program for these displaced tenants. In addition, the Administration is developing a proposal to provide for the revitalization of USDA-financed multifamily housing projects. Collectively, these proposals will ensure that USDA continues to provide decent, safe, affordable housing to those who need it. The 2006 Budget also reflects the Administration’s preference for loan guarantees and vouchers as a way to promote private ownership and individual control in providing low-income, tenant-based housing in rural America. The multifamily housing guarantees are doubled to $200 million, while no funding has been provided for new construction in the direct loan program.

MAKING GOVERNMENT MORE EFFECTIVE

    USDA is striving to improve its program delivery so that it can provide better, more efficient services. Through Program Assessment Rating Tool (PART) analyses, audits, and other management reviews, USDA has determined that there are many program and management gains that can be made. What follows are several examples that are designed to show the breadth of changes USDA is undertaking.

Crop Insurance

    Crop insurance was designed to be the primary risk management tool for all farmers. Such insurance helps farmers cope with natural disasters, such as flood and drought, so they do not have to leave farming. In addition, the widespread use of crop insurance was meant to eliminate the need for ad hoc natural disaster payments. However, even though the farmer’s subsidy for crop insurance was raised in 2000, the Government continues to make large disaster payments on top of the insurance payouts. Since 2000, four ad hoc disaster programs have been authorized covering six crop years for a total cost of  $10 billion.

    The pressure for supplemental disaster payments is often driven by anecdotal stories of suddenly destitute family farmers without crop insurance, or with minimal crop insurance. Part of the problem stems from the low coverage level of catastrophic crop insurance (CAT), which was designed primarily to encourage widespread participation by charging farmers only a $100 fee. However, as CAT provides a maximum of 27.5 percent of the crop value for a total crop loss, the low coverage can result in tremendous pressure from farmers to obtain more relief.

    While the cost to assist just these farmers might not be large, the Congress does not want farmers who bought adequate crop insurance to be put at a disadvantage or to discourage their purchasing insurance. Consequently, disaster payments are structured to ignore crop insurance payments in determining eligibility for assistance. As a result, the income of farmers with crop insurance increases with the size of crop loss, once the 35 percent threshold for receiving disaster payments is met. Ultimately, taxpayers pay the bill for this system. The chart shows how a farmer’s revenue varies as crop loss increases, when the farmer is receiving disaster payments on top of crop insurance that prevents a loss greater than 35 percent.

    In continuing the Administration’s efforts to more effectively budget and administer disaster insurance programs, the 2006 Budget includes a proposal to require a higher minimum coverage level and compel farmers to purchase insurance by tying the receipt of Federal commodity payments to the purchase of crop insurance. This change will ensure that the farmer’s revenue loss would not be greater than 50 percent. Other changes include modifications to the fee for catastrophic coverage to make the program more equitable in its treatment of both large and small farms, restructuring premium rates to better reflect historical losses, and reductions in delivery costs. The combination of changes being proposed is expected to save the Federal Government approximately $140 million per year. In total, this change should ensure that farmers of major commodity crops have crop insurance with a minimum coverage level that is sufficient to sustain most farmers in times of loss.

Improving the National Forest System

    The Forest Service has improved its management and performance in recent years through implementation of the President’s Management Agenda. Through competitive sourcing studies and administrative reforms, the Forest Service is consolidating upwards of 1,400 information technology, financial management, and human resources jobs from around the United States and is locating them in a consolidated single services center located in Albuquerque, New Mexico. These efforts will save taxpayers more than $115 million over three years.

    Even with these improvements, however, inefficiencies are impeding Forest Service performance. The Budget includes additional reforms to enhance ongoing Forest Service efforts to improve its accountability and focus on measurable results in the management of our national forests. These reforms will:

• Significantly reduce overhead, business management, and other indirect costs to improve efficiency and program delivery; and

• Establish a working capital fund for facilities and allow the sale of unneeded facilities, with receipts being devoted to maintenance or replacement of needed existing facilities.

Research

    USDA provides more than $2 billion in funding for research, including over 1,000 ongoing projects by USDA scientists at over 100 locations, and more than $1 billion through grants and other support to individuals, as well as to institutions such as land grant universities and State agricultural extension agencies. It is important that these funds be used as effectively as possible. For that reason, the Administration supports research funding that is provided on a competitive, peer-reviewed basis, to ensure that the Government funds only the highest quality research targeted primarily toward national concerns.

    The Budget proposes to expand the use of competitive research grants by increasing the National Research Initiative by $70 million, to $250 million, and establishing a new $75 million program to provide research grants targeted to regional, State, and local priorities. Funding for these programs would come from reductions in formula-based research programs, which are generally allocated to institutions on a non-competitive basis rather than allocating based on performance.

Prioritizing Resource Conservation and Development Funding

    Currently, the Resource Conservation and Development (RC&D) Program provides assistance to local communities to develop strategic plans that address their locally identified natural resource and economic development concerns. The program’s long-term goal is to improve the capability of local communities to plan and deliver improvement projects.

    A PART assessment of the program, however, found that it is duplicative of other USDA and Federal resource conservation and rural development programs. Also, the RC&D Program does not prioritize and target funding based on need or performance. Accordingly, the 2006 Budget proposes a new policy for the RC&D Program that phases out Federal support for the local planning areas after 20 years of support. At that point, these local communities should have the experience and capacity to identify, plan, and address their priorities. This policy would cancel Federal support for 189 RC&D areas in the 2006 Budget.

    In addition, the Budget proposes to eliminate funding for watershed and flood prevention operations. The resulting savings would be redirected to other high-priority conservation activities within the Natural Resources Conservation Service budget, most notably to accelerate technical assistance to help agricultural producers meet regulatory challenges, particularly in the areas of managing livestock and poultry waste.

Dissolving the Rural Telephone Bank

    The Rural Telephone Bank (RTB) was designed to provide a commercial source of financing once it was privatized after 1985. Though RTB has been moving towards privatization for 20 years, the Bank is still controlled by the Federal Government. When RTB was created in 1972, there were limited options for rural telecommunications providers to obtain financing outside the Government. However, a recent analysis estimated that 50 percent of the rural telecommunications capital needs each year are provided from internal funding, 10 percent from the Rural Utilities Service, seven percent from RTB, and the remainder (33 percent) from other sources, including the Rural Telephone Finance Cooperative (private) and the Government-run Universal Service Fund. In addition, funding for RTB has significantly exceeded demand for financing of rural telecommunications investments. Currently, there is over $1.3 billion in undisbursed loans.

    The Administration proposes to establish the process and terms to implement a dissolution of the Bank. Dissolution will allow RTB to close as the demand for private lenders has been fulfilled through other sources. In addition, the stock holders will obtain a cash payout for their stock while removing this cumbersome program from the Government. This proposal avoids the privatization of a bank that will either fail or need continued Government support to remain in operation.

Update on the President’s Management Agenda

    The table below provides an update on USDA’s implementation of the President’s Management Agenda as of December 31, 2004.

	Human Capital	Competitive Sourcing	Financial Performance	E-Government	Budget and Performance Integration
Status
Progress
Over the past year USDA updated and refocused its Strategic Human Capital Plan. Under the Plan, USDA implemented a new Performance Management System for 60 percent of its employees that ties individual performance to accomplishment of USDA’s strategic goals and effectively differentiates among performers. USDA has strengthened its workforce planning which will help avoid significant gaps in mission critical occupations through aggressive recruiting for new employees and development of current employees. In addition, the newly launched online learning system expands training opportunities for employees and provides better human resource tools for managers. While USDA initially had difficulty with competitive sourcing, in 2004 USDA completed several studies estimated to yield $174 million in savings. USDA made significant progress on financial management. This past year, USDA submitted its third clean audit opinion on November 15, two months earlier than last year, and resolved six material weaknesses. USDA completed security certifications on 98 percent of its information technology systems up from zero last year. USDA continues to make progress in the Budget and Performance Integration initiative by developing meaningful performance measures and reducing the number of programs that are rated as Results Not Demonstrated.

Initiative	Status	Progress
Faith-Based and Community Initiative
Real Property Asset Management
Eliminating Improper Payments
Since 2004, USDA has raised its status for the Faith-based and Community Initiative from Red to Yellow. USDA published Department-wide regulations affirming the ability, rights, and responsibilities of faith-based and community-based organizations to participate in USDA programs, initiated pilot projects and related evaluations to encourage greater involvement by such organizations, and enhanced outreach and technical assistance capabilities. As part of the Real Property Asset Management Initiative, USDA is improving its management of its vast resources (total asset value of $8 billion, consisting of 22,000 buildings and facilities and 3,600 leases) by completing a draft framework asset management plan; development of an automated inventory database system; and establishment of a department-wide council to oversee implementation of asset management performance measures. USDA currently has nine programs, representing 68 percent of total outlays, that are at risk of or susceptible to improper payments. Efforts include developing measurement plans and beginning statistical sampling. (Because this is the first quarter that agency efforts in the Eliminating Improper Payments Initiative were rated, progress scores were not given.)

AGENCY-SPECIFIC GOALS

Nutrition and Health

    Food stamps alleviate hunger and malnutrition among low-income individuals. In 2006, the Food Stamp Program will provide approximately $33.1 billion in benefits to 29.1 million people. The Budget proposes to tighten overly broad waivers from the program’s eligibility criteria. Households which receive Supplemental Security Income or Temporary Assistance for Needy Families cash assistance would continue to be automatically eligible for food stamps, while all other individuals would apply under regular program rules. Additionally, the Administration proposes to work with the Congress to rename the Food Stamp Program to better represent the Program’s mission of providing nutritional support to low-income families.

    The Administration is committed to improving integrity in the Food Stamp program with the goal of reducing the national average error rate from 6.64 percent for 2003, to 6.20 percent for 2006. This improvement is projected to eliminate $146 million in over- and under-paid food stamp benefits in 2006. The Budget provides a new tool for program integrity by allowing States to use the National Directory of New Hires to verify employment and wage information on food stamp applications and reports.

Protecting the Nation’s Environment

    Healthy Forests Initiative. The President’s Healthy Forests Initiative is reducing the risk of catastrophic wildfires by restoring forest and rangeland health. The Budget funds activities that advance the goals of the Healthy Forests Initiative that will thin overcrowded forests, protect forests from unnatural insect and disease infestation, and improve wildlife habitat and air and water quality. The Budget provides $281 million for USDA’s Forest Service and $211 million for the Department of the Interior for high-priority brush removal and other projects that provide the greatest reduction of risk posed by catastrophic wildfires. The Budget also includes $167 million to monitor the environmental effects of these and other projects on our national forests. By supporting watershed enhancements, vegetation management, and forest health research, the Budget improves forest and rangeland health to protect communities, wildlife habitats, and municipal watersheds from catastrophic fires.

    Focusing Conservation Dollars on High Priorities. To help meet scientific, regulatory, and financial challenges, the Department’s primary conservation agency, the Natural Resources Conservation Service (NRCS), provides assistance to agricultural producers. The 2006 Budget targets funding to national-level conservation priorities and provides new resources to enhance NRCS’s cooperative efforts as envisioned in the President’s August 2004 Executive Order. Cooperative conservation ensures that Federal agencies collaborate with their State, local, tribal, and non-governmental partners to enhance natural resources and protect the environment.

    Specifically, the Budget includes an increase of $37 million to provide more conservation technical assistance to livestock producers to comply with environmental regulations. With this additional funding, NRCS will work with farmers to develop 3,800 comprehensive nutrient management plans and apply nutrient management on over 470,000 acres of agricultural land.

    To help ranchers fight and control invasive species, the 2006 Budget includes an increase of $10 million. The National Invasive Species Council has identified several invasive species that heavily impact western range lands, such as the yellow star thistle, leafy spurge, and tamarisk.

    In the 2006 Budget, the Administration is requesting $274 million for the Conservation Security Program (CSP), a 35-percent increase. During the first year of enrollment in 2004, the Department signed long-term CSP contracts with 2,200 farmers and ranchers in 18 priority watersheds around the country. In 2005, the USDA will enlarge the program by offering enrollment opportunities in about 200 watersheds, and in 2006, the Budget anticipates that USDA will continue to expand the program by delivering it in an additional 200 watersheds. The CSP rewards farmers and ranchers for their existing levels of conservation and provides incentives for them to enhance their environmental stewardship.