EXECUTIVE OFFICE OF THE PRESIDENT OFFICE OF MANAGEMENT AND BUDGET WASHINGTON, D.C. 20503

STATEMENT OF ADMINISTRATION POLICY
(THIS STATEMENT HAS BEEN COORDINATED BY OMB WITH THE CONCERNED AGENCIES.)

September 29, 1999 (House)

H.R. 2559 - Agricultural Risk Protection Act of 1999 (Combest (R) TX and 12 others)

The Administration supports H.R. 2559, as reported by the Committee on Agriculture, a bill to reform the federal crop insurance program, if amended to improve the incentive structure for participants and modify the bill's compliance and governance authorities. The Administration strongly supports crop insurance reform legislation that would best serve the interests of farmers and rural economies, while protecting the interests of the taxpayer. Improving crop insurance is a vital component of strengthening the farm safety net. While H.R. 2559 represents significant progress toward that goal, the Administration is concerned the bill does not provide sufficient incentives for farmers to purchase greater crop insurance coverage. The Administration stands ready to work with the Congress to improve the bill. The Department of Agriculture has proposed an insurance premium structure that clearly offers an increasingly better value to producers as they increase their coverage. This insurance premium structure consists of a flat subsidy rate of 40 percent for coverage levels between 50 percent and 65 percent of yield (at 100 percent of the projected price), and a subsidy rate of 55 percent for all coverage levels above 65 percent of yield. The proposed progressive premium subsidy structure would better address the needs of farmers who now confront steep premium increases on higher coverage levels. In contrast, H.R. 2559 provides higher subsidy percentages (over 60 percent) at lower coverage levels, which could direct more producers toward lower coverage, exposing many of them to greater risk. The Administration, therefore, strongly recommends that the House modify the subsidy structure to encourage producers to purchase higher coverage levels. The Administration strongly opposes the bill's provisions that appear to greatly expand the compliance authority role of the Farm Service Agency in the crop insurance program. These provisions would likely create harmful ambiguity in accountability for ensuring compliance. Moreover, the expense of the provision would greatly exceed the estimated cost of a significant overhaul and enhancement of the Federal Crop Insurance Corporation's compliance operation. The Administration urges the House to delete these provisions and specify that the Risk Management Agency has the authority for overall control of compliance operations. The Administration also strongly opposes the provision restructuring the Federal Crop Insurance Corporation Board of Directors. This provision would increase the non-governmental majority on the Board and allow non-governmental officials to be elected to chair the Board. In light of the Board's ability to commit federal dollars, it should be governed by a Department of Agriculture official, and its membership should not be overly weighted with non-governmental representatives. The Administration urges the House to delete this provision. To ensure effective implementation of the program for new crop insurance policy development through private sector research efforts, the Administration urges the House to amend the bill to provide: (1) mandatory participation in the crop insurance program in order to retain eligibility for other farm program benefits; (2) clearer standards for reimbursements to private policy developers; (3) more flexible contracting authority for the Risk Management Agency (RMA); and (4) a designation for RMA to act as a developer of last resort on narrow-market or highly specialized products that private participants are unable or not inclined to pursue. Pay-As-You-Go Scoring H.R. 2559, as reported, would increase direct spending, therefore, it is subject to the pay-as-you-go requirement of the Omnibus Budget Reconciliation Act of 1990. The bill does not contain provisions to offset the increased direct spending. Therefore, if the bill were enacted, its net budget costs could contribute to a sequester of mandatory programs. The Administration supports enactment of a crop insurance reform bill and will work with Congress to identify appropriate offsets. OMB's preliminary scoring estimates of this bill are presented in the table below. Final scoring of this legislation may deviate from these estimates.   PAY-AS-YOU-GO ESTIMATES (dollars in millions)   2000 2001 2002 2003 2004 Total Outlays 471 1,191 1,394 1,467 1,583 6,106