Department of Defense Appropriations Act, 2008--Conference Report --
Floor Speech
DEPARTMENT OF DEFENSE APPROPRIATIONS ACT, 2008--CONFERENCE REPORT -- (Senate - November 08, 2007)
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Mr. SESSIONS. Mr. President, I just have a comment to add to those of Senator Bond about the danger to farmers of making mistakes on energy policy. Energy prices are rising significantly. I saw some numbers recently that indicated for an average family, where one person commuted 29 miles to work every day, $3-a-gallon gasoline could mean $60 to $80 a month more than they would pay for gasoline alone. That is after-tax money out of their pockets. That is a real cost.
We absolutely need to strengthen the energy portion of this bill. We need to do more to have a domestic supply of energy. But we also need to be sure we are not driving up the cost of energy so it falls hard on people such as farmers who utilize a lot of energy and a lot of gasoline and diesel fuel. It could be a real problem for them. I agree with Senator Bond that we need to be careful about this because we should not have as our goal driving up the cost of energy.
A lot of the policies I am hearing about are going to have little impact on the environment but a lot of impact on our wallets. My thoughts about the Ag bill are that I hope we will be able to pass a bill we can be proud of. I hope to be able to support it. That is what I am looking to do. I will offer an amendment or file it a little later--I know we are not voting on them now--to deal with assisting farmers who suffer losses from disasters in their region. It can be painful for them. I would like to share some thoughts on this.
Our current crop insurance, as valuable as it is, has not proven to provide a fully adequate financial safety net for our farmers. The current system can be too expensive and not flexible enough. Farmers come to me all the time and say: I would like to plow under this crop and replant now, but the insurance people think if I let it go to full maturity, I might make enough money off of it that I wouldn't have to claim any insurance. So you have to wait on the insurance people before making a decision. They come out there. They have to make judgments. This is a burden. It can eliminate quick decisionmaking and can be costly.
According to the Congressional Research Service, the Government-subsidized Crop Insurance Program has expanded significantly over the last 25 years, and that is what we wanted to happen. We wanted more farmers to take out crop insurance. But yet CRS has found that despite this expansion, the ``anticipated goal of crop insurance replacing disaster payments has not been achieved.'' Indeed, CRS reports that since 2000, ``the federal subsidy to the Crop Insurance Program has averaged about $3.25 billion per year, up from an annual average of $1.1 billion in the 1990s and about $500 million in the 1980s.
During this same time, from 1999 to 2006, CRS reports that the average per year ad hoc periodic disaster payment to fund persons who need payments in addition to the crop insurance has totaled $1.3 billion a year. Since 2002, CRS reports that the cost to the Federal Government of Crop Insurance Programs combined with ad hoc supplemental disaster payments has averaged $4.5 billion per year.
According to the Risk Management Agency, a group that supervises crop insurance, the average subsidy rate for this year--that is the average subsidy rate, the amount of money the taxpayers provide to subsidize a farmer's crop insurance--amounted to 58 percent of a producer's total crop insurance premium. The average amount of the Government subsidy is $3,359. I am convinced for some farmers--I don't know how many--more flexibility could result in more benefits for those farmers. That is, of course, what we are about, trying to make sure we get the maximum possible disaster risk protection we can for our farmers.
Farmers do have a real need for a viable risk management strategy. Certainly, farmers need some form of protection when disasters strike. But these numbers do demonstrate the traditional crop insurance coverage on a
commodity-by-commodity basis alone often does not provide the kind of adequate risk protection every farmer needs.
In 1999, a committee formed by the Alabama Farmers Federation, our largest farm group affiliated with the Farm Bureau and tasked with developing ways to improve traditional crop insurance, proposed a solution to many of the problems farmers experienced with crop insurance. This is not an idea I came up with; it was an idea the farmers themselves came up with.
Ricky Wiggins from South Alabama has farmed all his life and was one of the people who really captured this idea and has pushed it. So this committee recommended that the farmers be given a choice between traditional crop insurance and opening a new account in which they could deposit some of their own money and then receive a modest contribution from the Government. Money that would normally have gone to subsidize insurance would go into this farm security account.
My amendment would simply direct that the Secretary of Agriculture implement a pilot program creating these accounts. My pilot program would be limited to 1 percent of eligible farmers or approximately 20,000.
These farm savings accounts would allow the farmers to create a whole-farm risk management plan based on the income of the entire farm. Because you have a lot of complications now. If one crop succeeds, and another one fails, or two of them are weak and two of them are the kind of crops for which there is no insurance available at all, then things do not work out fairly for the farmer. Farm savings accounts would serve as a possible alternative or supplement in these instances to traditional crop insurance.
Under this proposal, participating producers would deposit money, previously utilized to buy crop insurance--money they would normally be paying to a crop insurance company--into a farm savings account, a tax-deferred, interest-bearing account. The Department of Agriculture would then contribute to the account rather than subsidizing a portion of the producer's crop insurance premium, which is, on average, 58 percent. The producer would put the government contribution into the same account, subsidizing the account in that fashion. Then there would be no further liability on the Department of Agriculture after this point. The farmer, the producer would be self-insured and would not be calling on the Government for additional disaster relief.
Under farm savings accounts, a minimum contribution by the producer of at least 2 percent of their 3-year average gross income would be required annually, up to a maximum amount of 150 percent. Interest and income to the account would not be taxed as earned income, but withdrawals would be treated as regular income. Account funds would be invested in low-risk guaranteed securities such as CDs or Government securities.
Withdrawals from farm savings accounts would be allowed if gross income in any given year falls below 80 percent of the farmer's 3-year average gross income. The amount of the withdrawal would be restricted to the difference between 80 percent of the 3-year average and the actual gross income of that year.
For example, if a producer, who typically earns $100,000 a year, makes $70,000, then they would be allowed to withdraw $10,000 from their farm savings account, their emergency insurance account, to bring their annual income up to $80,000. However, if the producer made $90,000 that year, a withdrawal would not be allowed at all.
Catastrophic coverage would still be required to participate in this pilot program, because if you have a total loss, then an individual savings account would not be enough to cover it.
The producer would be eligible to purchase any additional crop insurance, but it would be completely unsubsidized. In addition, farm savings accounts could be used as collateral in obtaining loans connected with the farming operation. These accounts would be closed if the producer ceased farming for nonfarm employment, retirement or bankruptcy. The remaining balance would be taxed as regular income.
The USDA has reported that farm savings accounts may overcome some of the disadvantages of current crop insurance programs. These accounts would encourage farmers to manage risks unique to their operation by saving money in high-income years and using it during years in which income is low.
While coverage would depend on the reserves in individual accounts, these accounts would be applied to a variety of farming situations. In addition, the USDA has found these accounts could encourage greater participation in the agriculture safety net by farmers than is currently experienced. Some producers are not even offered the opportunity to purchase insurance for their crops--because of the nature of their crops and the nature of crop insurance, they cannot get insurance--making them more dependent on the ad hoc disaster payments we wrestle with on the floor of the Senate.
For example, CRS reports that specialty crop and livestock producers are not afforded the same level of protection for their commodities as the major commodities.
Recently, my amendment has been mischaracterized as undermining the level of risk protection provided for farmers. Yet simply taking Government funding previously used as a subsidy for insurance premiums and, instead, using it as an incentive to encourage savings for disasters is not undermining the level of risk protection for the farmers. This is an important distinction. Giving farmers a choice between traditional crop insurance and a new program based on producers saving their own money in a tax-deferred, interest-bearing account actually increases, I submit, the level of risk protection for farmers, particularly since we would require catastrophic coverage to participate in the Farm Savings Account pilot program.
Allowing for more approaches to risk management actually gives farmers the opportunity to choose the plan they consider to be better suited for their particular operation. By providing a choice between different risk management strategies, our Government can offer more protection to a greater number of farmers at less of a cost by decreasing the need for these ad hoc disaster payments we so often do.
Purchasing crop insurance coverage commodity by commodity, as we do now, may make sense if you grow one or two crops on your farm, but traditional crop insurance may not be the best option if you grow four, five or six commodities in your area of the country.
Instead of countless premium payments that are paid by producers each year but not necessarily used, the participating producer can save that hard-earned money himself and receive a modest Government contribution to assist in providing his own risk protection.
Farm savings accounts can also provide producers much needed flexibility in managing their operation by overcoming some of the constraints of traditional crop insurance. Under the current system, producers who want to make decisions on how to manage their farm operation when a disaster strikes are often forced to jump through numerous bureaucratic hoops before they are allowed to execute their own decision on their own farm about how they want to manage the crops that are being damaged by a disaster--a drought or flood or freeze.
For example, under the current system, producers who want to cut their corn for silage to feed their cattle in a drought year--because they realize the corn crop is not going to be sufficient to actually harvest in the fall--must first get permission from the crop insurance companies and the Federal Government. So you have to have people come out and inspect the farm and argue over whether you should be able to cut the corn prematurely or let it stay in the field in the hope that there will be more rain and maybe a worthwhile crop at the end.
Why not give that decisionmaking authority to the farmer? It would save a lot of overhead, I submit. And there is, as we know, some sizable amount of fraud in the crop insurance program. Farm Savings Accounts would greatly eliminate the risk of fraudulent behavior by those participating in the pilot program.
Farm Savings Accounts will allow the producers to make their own choices on how to manage their farm operations. If their income drops, they will be able to draw into that account to bring it up to 80 percent of their 3-year average income. I think it has great potential.
Simply put, this plan would offer an alternative to some producers who might choose it, and it could encourage broader participation in risk management plans than we have today because a lot of farmers do not participate in any insurance or risk management plans. In combination with traditional crop insurance, farm savings accounts, I believe, will save the taxpayers money by reducing the need for continual bailouts in the form of ad hoc payments and will give farmers more flexibility. If things go well, the farmer may, indeed, create a savings account that can help take care of them in their retirement years.
I ask my colleagues to consider this pilot project amendment. It in no way represents a major shift in what we are doing now. It represents a pilot project for 1 percent of farmers. The regulations would be set forth by the Department of Agriculture. At the conclusion of the program several years from now, perhaps we will see it was not a very good program. But perhaps we will find it has great potential--and the farmers who are using it like it--and perhaps more farmers might like to participate. We should consider that in the years to come.
I thank the Presiding Officer and yield the floor.
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