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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.
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.
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