September 28, 1999
The Administration supports H.R. 2559, 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 will continue 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.
The Administration understands that there will be an amendment offered at the Rules Committee that would establish a program of counter-cyclical supplemental income payments. The Administration endorses this approach and wants to work with the Congress to enact a program of such assistance to smaller farms and producers most in need, with appropriate offsets. The program would work as a complement to the long-term goal of enhancing the farm safety net, along with crop insurance reform. The Administration also recommends this approach as the means to provide income assistance for the 1999 crop in lieu of AMTA payments pending in the FY 2000 Agriculture Appropriations bill.
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.