[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]
AGRICULTURE, RURAL DEVELOPMENT, FOOD AND DRUG ADMINISTRATION, AND
RELATED AGENCIES APPROPRIATIONS FOR 2018
_______________________________________________________________________
HEARINGS
BEFORE A
SUBCOMMITTEE OF THE
COMMITTEE ON APPROPRIATIONS
HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTEENTH CONGRESS
FIRST SESSION
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SUBCOMMITTEE ON AGRICULTURE, RURAL DEVELOPMENT, FOOD AND DRUG
ADMINISTRATION, AND RELATED AGENCIES
ROBERT B. ADERHOLT, Alabama, Chairman
KEVIN YODER, Kansas SANFORD D. BISHOP, Jr., Georgia
THOMAS J. ROONEY, Florida ROSA L. DeLAURO, Connecticut
DAVID G. VALADAO, California CHELLIE PINGREE, Maine
ANDY HARRIS, Maryland MARK POCAN, Wisconsin
DAVID YOUNG, Iowa
STEVEN M. PALAZZO, Mississippi
NOTE: Under committee rules, Mr. Frelinghuysen, as chairman of the
full committee, and Mrs. Lowey, as ranking minority member of the full
committee, are authorized to sit as members of all subcommittees.
Tom O'Brien, Pam Miller, Andrew Cooper,
Justin Masucci, and Elizabeth King
Subcommittee Staff
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PART 3
Page
Farm Credit Administration.................................. 1
Members Day................................................. 113
Commodity Futures Trading Commission........................ 249
Food and Drug Administration................................ 735
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
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Printed for the use of the Committee on Appropriations
U.S. GOVERNMENT PUBLISHING OFFICE
27-041 WASHINGTON : 2017
COMMITTEE ON APPROPRIATIONS
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RODNEY P. FRELINGHUYSEN, New Jersey, Chairman
HAROLD ROGERS, Kentucky \1\ NITA M. LOWEY, New York
ROBERT B. ADERHOLT, Alabama MARCY KAPTUR, Ohio
KAY GRANGER, Texas PETER J. VISCLOSKY, Indiana
MICHAEL K. SIMPSON, Idaho JOSE E. SERRANO, New York
JOHN ABNEY CULBERSON, Texas ROSA L. DeLAURO, Connecticut
JOHN R. CARTER, Texas DAVID E. PRICE, North Carolina
KEN CALVERT, California LUCILLE ROYBAL-ALLARD, California
TOM COLE, Oklahoma SANFORD D. BISHOP, Jr., Georgia
MARIO DIAZ-BALART, Florida BARBARA LEE, California
CHARLES W. DENT, Pennsylvania BETTY McCOLLUM, Minnesota
TOM GRAVES, Georgia TIM RYAN, Ohio
KEVIN YODER, Kansas C. A. DUTCH RUPPERSBERGER, Maryland
STEVE WOMACK, Arkansas DEBBIE WASSERMAN SCHULTZ, Florida
JEFF FORTENBERRY, Nebraska HENRY CUELLAR, Texas
THOMAS J. ROONEY, Florida CHELLIE PINGREE, Maine
CHARLES J. FLEISCHMANN, Tennessee MIKE QUIGLEY, Illinois
JAIME HERRERA BEUTLER, Washington DEREK KILMER, Washington
DAVID P. JOYCE, Ohio MATT CARTWRIGHT, Pennsylvania
DAVID G. VALADAO, California GRACE MENG, New York
ANDY HARRIS, Maryland MARK POCAN, Wisconsin
MARTHA ROBY, Alabama KATHERINE M. CLARK, Massachusetts
MARK E. AMODEI, Nevada PETE AGUILAR, California
CHRIS STEWART, Utah
DAVID YOUNG, Iowa
EVAN H. JENKINS, West Virginia
STEVEN M. PALAZZO, Mississippi
DAN NEWHOUSE, Washington
JOHN R. MOOLENAAR, Michigan
SCOTT TAYLOR, Virginia
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\1\}Chairman Emeritus
Nancy Fox, Clerk and Staff Director
(ii)
AGRICULTURE, RURAL DEVELOPMENT, FOOD AND DRUG ADMINISTRATION, AND
RELATED AGENCIES APPROPRIATIONS FOR 2018
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Tuesday, February 28, 2017.
OVERSIGHT HEARING--FARM CREDIT ADMINISTRATION
WITNESSES
DALLAS P. TONSAGER, CHAIRMAN AND CEO
JEFFERY S. HALL, MEMBER OF THE BOARD
Opening Statement--Mr. Aderholt
Mr. Aderholt. Good morning. The Subcommittee will come to
order. I want to welcome everyone to the Agriculture
Appropriations Subcommittee's second hearing of the 115th
Congress. Today's focus is the Farm Credit Administration.
I would like to note that the last time witnesses from the
Farm Credit Administration came before this Subcommittee was
back on March 12, 1998, almost 19 years ago. So welcome back
after a little bit of a vacation.
Two weeks ago, at our first hearing, I took some time to
detail some of themes that we laid out for the year. I would
like to summarize those briefly: number one, evaluating and
accounting for taxpayer dollars to ensure efficiency and
accountability; number two, investing in rural infrastructure
as a catalyst for growth; third, ensuring support for American
farmers, ranchers, and producers; and, number four, protecting
the health and safety of people, plants, and animals.
Today, the Subcommittee will be performing our oversight
function of the Farm Credit Administration and the Farm Credit
System as a whole. Unfortunately, we will not be able to
discuss the fiscal year 2018 budget, due to the transition with
the new Administration. But we will focus on a few areas that
are important to the Subcommittee, including the operations and
budget of the Farm Credit Administration; the policies and
regulations of the Administration; and the worsening financial
situation in today's farm economy.
Many people outside the agricultural community have never
heard of the Farm Credit System, much less do they know what it
actually does. I must confess I have to brush up on it myself,
having been 19 years since this Committee has actually had a
hearing on this.
What many people don't know is that the Farm Credit System
has been in existence since World War I, and it finances a
large portion of the agricultural community in this country.
With total assets of $314 billion, the System is on par in size
with some of the world's top 10 banks.
The Farm Credit System was created to fulfill a crucial
role to provide financing to farmers, ranchers, and producers
that other banks may not be able to provide. Agricultural
financing is more unique than any other sector in our economy,
with wild, unpredictable swings possible in commodity prices
and land values in our heartland.
This Subcommittee covers every aspect of the USDA other
than the Forest Service. While we do not provide direct funding
to the Farm Credit Administration, we make funding decisions
for USDA and the agricultural stakeholders that have a direct
and real impact on the Farm Credit System. As Chairman Tonsager
notes in his written testimony, the Farm Credit Administration
and Congress make crucial decisions related to rural
infrastructure: broadband, water systems, and housing, just to
name a few. Thus, this Subcommittee's oversight
responsibilities for FCA are just as critical for the other
parts of our jurisdiction as the other vital USDA roles.
Without the farmer and rancher's access to abundant and
affordable credit, the lower the chance all of our citizens
have to access an abundant supply of high-quality, relatively
low-cost foods.
I look forward to discussing the Farm Credit
Administration's updated budget request for fiscal year 2017.
The FCA is unique because it does not receive a direct
appropriation. Instead, Congress places a limitation on the
assessments collected from the System's institutions as its
source of funding. As you mentioned in your testimony, Mr.
Chairman, the FCA has had to do some belt-tightening in the
past year. What you failed to mention is that the FCA
accumulated excess funding totaling $16 million in carryover
balances as recently as 2013. The Subcommittee has kept the
limitations relatively flat in order to require FCA to spend
the carryover. In addition, FCA has a special provision that
many agencies would be very envious of, and that is the ability
to increase its funding by 10 percent with a simple letter to
Congress.
There has been no intention of Congress trying to limit
FCA's funding. This Subcommittee has simply been making sure
responsible fiscal practices are carried out. With that said, I
will be sure to examine your request for an increase in your
limitation for the remainder of the year now that those excess
funds have been expended.
With regard to policies and regulations of the Farm Credit
Administration, I can imagine some of my colleagues will have
questions regarding the complaints from the traditional banking
sector. I have some inquiries from constituents who have from
time to time asked those questions.
Finally, one thing on everyone's mind in rural America, and
especially our constituents, is the state of the farm economy.
2017 will be the fourth year in a row that farm income will
decline, according to estimates by the Department of
Agriculture. I want to discuss the Farm Credit System's role in
supporting farmers during this downturn and, in particular, the
Farm Credit Administration's work to ensure that we do not see
a repeat of the 1980s Farm Credit System failure.
Chairman Tonsager, thank you for appearing here today and
for taking time out of your schedule to appear before our
Subcommittee. I look forward to hearing your testimony and
having a productive hearing as we move forward. I believe this
will be your first hearing in your new role as Chairman of the
Farm Credit Administration.
Mr. Hall, I would like to welcome you in your role as a
Member of the Board and the current Chairman of the Farm Credit
System Insurance Corporation. Your role in providing a backstop
to the Farm Credit System is now more valuable than ever.
So, at this time, I would like to recognize the Ranking
Member of our Subcommittee, Mr. Bishop from Georgia, to see if
he has any comments he would like to make.
Opening Statement--Mr. Bishop
Mr. Bishop. Thank you very much, Mr. Chairman.
And let me also take this opportunity to welcome Chairman
Tonsager back and Mr. Hall. It has been far too long, as the
Chairman indicated, since we have had a hearing on the Farm
Credit Administration. I thank you for taking the time today to
come before our Subcommittee.
The Farm Credit Administration plays a vital role in
helping to finance our agriculture sector. Our farmers and our
producers rely on FCA to foster the providing of credit that is
necessary to get their products to market. Through your role on
the FCA Board, you have the important responsibility of
approving FCA's policies, its regulations, and its enforcement
activities against those who would engage in unsafe and unsound
practices.
I look forward to a robust conversation on the current
strength of the Farm Credit System and on any risk or potential
weaknesses that you might see from your position on the FCA
Board.
I would also like to discuss any personnel limitations or
programmatic needs that could be addressed to further
strengthen our Farm Credit System.
I do note that, while rural communities have had
particularly difficult challenges over the past decade, there
is some good news. Back in 2009, rural America was really
feeling the devastating impact of the recession. Rural
communities were shedding 200,000 jobs a year. Rural
unemployment was 10 percent, and the poverty rates had reached
heights that were unseen in decades. And, of course, the rural
communities were facing stagnant wages, out-migration, and a
shortage of investment capital.
But over the past few years, with the help of FCA, there
are some strong economic indicators that show that rural
America is rebounding. Rural unemployment has continued to
decline. It is now below 6 percent, and it got there in 2015
for the first time since 2007. Rural poverty rates have fallen,
though not as much as we want them to. Median household incomes
in rural areas increased by, I think, 3.4 percent in 2015, and
rural populations have stabilized and are beginning to grow.
Child food insecurity nationwide is an all-time low. So those
are some positives I think we should remember although we have
a great deal of work to do to get Americans back to the point
and to help us increase the quality of life for all of us, and
particularly in rural America.
So I welcome you here, and I thank both of you for taking
the time to come and to share this with us this morning.
I yield back, Mr. Chairman.
Mr. Aderholt. Thank you, Mr. Bishop.
Mr. Tonsager, we will now listen to your testimony, and I
look forward to your comments.
Opening Statement--Mr. Tonsager
Mr. Tonsager. Chairman Aderholt, Ranking Member Bishop, and
Members of the Committee, it is a privilege to appear before
you today to report on the budget of the Farm Credit
Administration. I have a written statement to submit for the
record.
President Obama appointed me to the FCA Board in March of
2015. Last fall, the President designated me FCA Board Chairman
and CEO. I have the pleasure of serving on the board with two
distinguished colleagues: Jeff Hall, who is here today; and Ken
Spearman.
FCA is an independent Federal agency that regulates,
examines the banks, associations, and related entities of the
Farm Credit System, including the Federal Agricultural Mortgage
Corporation, or Farmer Mac.
Our responsibility is to ensure that the System meets its
Congressional mission to provide a dependable source of
competitive credit for agriculture in rural America. The FCA
was created by an executive order of President Franklin
Roosevelt in 1933. During the agricultural credit crisis of the
1980s, Congress gave FCA regulatory and enforcement powers
similar to those of other financial regulators.
FCA is not an appropriated agency. We are funded primarily
through the assessments paid by System institutions. Congress
oversees our administrative expenses and sets an annual cap on
them.
The Farm Credit System, which was established in 1916, is
the Nation's oldest government-sponsored enterprise. It is a
nationwide network of borrower-owned cooperative financial
institutions and affiliated service organizations.
Currently, the System includes 4 banks and 73 direct-
lending associations. The banks provide loan funds to the
associations, which, in turn, provide operating loans and long-
term real estate loans to farmers, ranchers, and other eligible
borrowers. One of the System banks also has the authority to
lend to agricultural cooperatives and rural utilities. Farm
Credit banks and associations cannot take deposits. The System
obtains loan funds by selling securities on the national and
international monetary markets. The securities are not
guaranteed by the Federal government.
For more than 100 years, the System has helped our Nation's
agricultural producers provide abundant and affordable food and
fiber to people at home and around the country. Currently, the
System supplies 41 percent of our Nation's farm credit. I am
pleased to report that the System's banks and associations are
fundamentally safe and sound. For the first 9 months of 2016,
the System reported modest loan growth, solid earnings, and
higher capital levels.
But, as regulator of the System, we do have some concerns.
Debt-to-asset levels are rising while net farm income is
declining. Interest rates, while still low, have begun to
increase, and crop prices are expected to remain weak
throughout fiscal year 2017. These factors are putting downward
pressure on the value of Midwest farmland. Meanwhile, high
production levels are further weighing down prices and profits
in the protein and dairy sectors.
The nonaccrual rate on System mortgages was 0.76 percent as
of September 30, up slightly from a year earlier. The
nonaccrual rate on its production loans was 1.04 percent, up
almost a quarter percentage point from the previous year.
To help the System weather this downturn in the farm
economy, we are monitoring conditions closely, and we are
examining institutions to make sure they are guarding against
both concentration risks and collateral risks. Overseeing the
safety and soundness of a nationwide network of lending
institutions requires more resources during times of economic
stress. For fiscal year 2017, our budget request was $70.4
million. Under the continuing resolution, the agency has been
operating under the cap established by Congress of $65.6
million. As a result of the cap, we have had to delay hiring,
reduce travel and relocations, and postpone IT projects. We
would like to respectfully request that the cap be increased to
$68 million. This will allow us to move forward with targeted
IT investments and to meet pressing human capital needs.
Thank you, and I am happy to answer your questions.
[The information follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
FARM ECONOMY
Mr. Aderholt. Thank you. As I mentioned in my opening
statement, the farm economy is experiencing a significant
downturn at the moment. There are signs on the horizon that
some segments of the agricultural community are going through
difficult times, and USDA estimates that rough waters will
continue.
In looking at the number of assets and outstanding loans in
the System, it appears that risk exposure has grown
significantly over the past 4 years. The amount of assets has
increased by 31 percent to $314 billion, and gross loan volume
has increased by 30 percent. Some have expressed concern that
there could be a repeat of the 1980s farm credit crisis. The
similarities are certainly there. For example, a drop in the
farm income nearing 50 percent over the past 4 years,
increasing debt loads, falling farmland values, increasing
interest rates likely, farm loan delinquencies on the rise, and
1 in 10 farms are highly leveraged.
While there may be reasons why we may or why we may not see
another credit crisis, I would like to hear your reasoning on
this issue and your thoughts as we look down the road.
Mr. Tonsager. Yes. And we agree with the concerns. We, of
course, are very concerned as well. As a farmer, I went through
the 1980s farm crisis in South Dakota and watched very closely
some of the things that occurred at that time. It was dramatic,
enormous numbers of people left rural America, and an enormous
number of farms went through a bankruptcy process. It was just
a horrible situation, and at that time, Congress took several
steps to try to alleviate the potential risks of it happening
again, of credit availability particularly. For us, they
established a Farm Credit System Insurance Corporation to back
the bonds that were associated. Chairman Hall is Chairman of
that group. There are now about $4.5 billion in assets that
have been collected from the System to back it up. They
established this agency as an arm's-length regulator, where it
wasn't prior to that. So we bring a different perspective,
perhaps a more aggressive perspective.
The System's assets have grown significantly. The capital
is now $52 billion. And the System is consolidated to a degree.
The consolidation is of concern, of course, but at that time,
there were over a thousand Farm Credit institutions, and now
there are 77 or so. So capital-bearing is much stronger. At
that time, we had double-digit interest rates. And now, of
course, we have much more modest interest rates that can help
us get through that time.
So there have been a number of steps. And another tool we
have that may come up as a question is our ability to allow
similar entities to lend, an authority that was established by
Congress in order to broaden the balance sheet of the Farm
Credit System where typically it is narrowly focused on
agriculture. That authority allows for a broader opportunity of
loans to be made to support the System.
So, you know, we believe a lot of steps have put us in a
better condition to meet the challenges that you describe.
Mr. Aderholt. Your opinion on the state of the farm economy
as a whole, the System in particular, based on your comments
there, is that you feel confident the System could weather the
shock?
Mr. Tonsager. Yes. I think that we are in much stronger
circumstances. It seems to me, this is a much more corrosive
long-term challenge than it is an immediate one. I think
economically, some of the economists talk about quite a long
cycle of low income coming up. The effect of that over time is
very problematic. It affects agriculture and rural America
together, and I have become concerned about that.
I am concerned about the impact on individual farmers and
producers because, at that time, as we all know, there was an
enormous exodus from agriculture. And how we deal with the
problems of the income stream to producers, when the moment
comes when a loan officer has to have a discussion with the
producer about their future plans, I think that is one of the
most challenging and important elements of this. We have to
look for the best possible outcomes for producers who cannot
simply move forward. In the 1980s, we had the worst possible
outcomes.
And so my hope is that we can generate a dialogue about how
producers who are going through stress, how we help meet that
stress and help them deal with whatever choices they have to
make.
DELINQUENCY RATES
Mr. Aderholt. What is the delinquency rate for loans in the
System?
Mr. Tonsager. The delinquency--there are various numbers
one can focus on. We focus here on nonaccrual loans within
this, and these would be loans that are not actually making
payments at this time.
So the delinquency rate--and I can't recall it offhand, but
it is somewhat higher than this. But the number I tend to focus
on is those that are not making loans for extended period of
time. And so it is relatively low at this time.
Mr. Aderholt. Okay. Can you get that for us, for the
record?
Mr. Tonsager. Absolutely.
[The information follows:]
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Mr. Aderholt. All right. Mr. Bishop.
STAFFING
Mr. Bishop. Thank you very much.
Mr. Tonsager, your written testimony stated that hiring
delays, reduced travel and relocations, and delays to executing
IT projects were due to the fiscal year 2016 funding cap of
$65.6 million, causing FCA to request $68 million for the
fiscal year 2017 to meet your mission.
The hiring freeze was just established in January of this
year. So, while it has the potential to negatively impact
future hiring actions, I would like to understand where you
were prior to that executive order.
Aside from the summer Pathways hiring you mentioned
earlier, can you elaborate for us on what other hiring actions
FCA has been undertaking to fill the current and upcoming
personnel gaps?
And, finally, I would also like to know how FCA has
implemented your published August 8, 2016 equal employment
opportunity and diversity policy to increase diversity within
the ranks of examiner and other positions.
Mr. Tonsager. The challenge for us in the hiring freeze is
it takes up to 4 years to fully train an examiner and
commission them at that point. And so we have approximately 20
percent of our employees at this time that could leave at any
moment, and that number moves up in just a few years to the 30,
40 percent range. And so, since we have to plan in such a long-
term timeframe, our ability to keep a steady stream of people
coming in is the great challenge on the human resource front.
The cap at this point, the effect on us has been, in
relative terms, modest. And, again, we have to look at the long
term. We see anywhere from 8 to 11 examiners a year leaving.
And so that is pretty substantial. We have a pretty good class
of new examiners developing at this time. So we want to be able
to move forward and make sure we have extremely highly-
qualified people for the examination process that has become
very complex.
I hope that answers the first part of your question.
Mr. Bishop. Can you provide us some information, though, on
the, statistics, of the demographics of your equal employment
opportunity and diversity results so we can see overall----
Mr. Tonsager. Yes.
Mr. Bishop [continuing]. What the makeup is?
Mr. Tonsager. We will be happy to. We have implemented the
plan. It requires each of the institutions to identify how they
are going to serve the populations in their business area, and
those plans are examined for, and we look closely at them.
[The information follows:]
In a policy statement dated August 8, 2016, the Farm Credit
Administration (FCA) reconfirmed the Agency's commitment to Equal
Employment Opportunity and employee diversity and its commitment to
providing a workplace free of discrimination. The board updates and
reissues its policy annually as a public demonstration of FCA's
commitment to equality of opportunity for all employees and applicants
for employment. In Fiscal Year (FY) 2016, FCA closed the year with 309
employees. With such a small number of employees, broad-based
statistical data may not lend itself to reliable statistical analysis.
FCA's goal is to build and maintain a workforce that reflects the
rich diversity of individual differences evident throughout this
nation. We will create, maintain, and continuously improve on an
organizational culture that fully recognizes, values, and supports
employee diversity. FCA hires mainly through the Pathways program.
Recruiting efforts include visits to a number of historically Black
Colleges and Universities, Hispanic Serving Institutions, and high-
minority enrollment schools. Kenneth A. Spearman, then Board Chairman
and CEO of the Farm Credit Administration, visited Tuskegee University
to encourage agriculture and business students there to apply for FCA
jobs. The agency recruits for talented candidates to hire and train as
bank examiners, and the agency reaches out to minority institutions in
an effort to strengthen the diversity of its workforce. FCA has been
emphasizing diversity and inclusion for the past few years. In 2012, it
adopted a rule requiring the institutions it regulates to adopt
strategies to increase diversity in their workforce and their customer
base. Mr. Spearman also met in Washington, D.C., with presidents and
deans from the 1890 land-grant institutions, which were established
under the Second Morrill Act to provide higher education in agriculture
and the mechanic arts to African-Americans.
Minorities represented 22.9 percent of the FCA's workforce in FY
2016, an increase of 1.8 percent from FY 2015. Women representation
increased in FY 2016 to 41.08 percent from 40.27 percent in FY 2015.
Individuals with disabilities in FY 2016 represented 13.4 percent of
FCA's workforce, up from 12.5 percent in FY 2015. This is a favorable
comparison to 8.99 percent representation of individuals with
disabilities across the rest of the Federal workforce. In FY 2016, FCA
employed 34 veterans, 6 are disabled and 5 are 30-percent or more
disabled.
Mr. Bishop. Thank you.
OUTSIDE LOANS
There have been some questions regarding some criticisms of
FCA and the FCS by banks. There has been controversy about
loans which your institutions have participated in that some
say are outside the basic mission. And, of course, some folks
refer to--the banks look at a $725 million loan to Verizon and
the reports of loans for casinos and restaurants, and some
people have difficulty understanding how that is consistent
with your mission.
And, also, there is another criticism relating to loans to
wealthy individuals. In the American Banking Association
Journal, they say that half of the loans made by the FCS went
to less than 1 percent of all borrowers in 2015 at an average
loan size of $24.1 million. Some have asked why the FCS
institutions, which are taxpayer-supported to some extent with
certain tax exemptions, should make loans to people who are too
wealthy to get farm payments. Would you respond to those
criticisms for me, please?
Mr. Tonsager. Yes. I will do my best to try and run through
the list.
I guess I would start with the 1-percent number that you
mentioned. Three-quarters of the loans made by the Farm Credit
System are $250,000 or less. So three out of four doesn't jibe
very well with the number provided by the bankers.
Additionally, of course, within the portfolio, the lending
institutions, there are thousands of cooperative institutions--
--
Mr. Bishop. Let me ask you, is that the number of loans, or
is that the value?
Mr. Tonsager. That is the number of loans.
Mr. Bishop. Right. So we also talked about that amount too
besides the loan.
Mr. Tonsager. Yes. And, of course, there are large farms
that are involved. The statute requires us to serve all
producers in areas, big and small.
But also in that, as I was mentioning, there are thousands
of cooperative institutions and borrowers, especially of
CoBank, who have very high credit lines. I am not sure if that
number is included in this particular estimate that they made,
but if it was, it would account for a lot of the size of the
$24 million average just because, you know, they are service
providers to the institutions.
Mr. Bishop. I think my time is about out.
I have 9 seconds, and I yield that back.
Mr. Tonsager. Thank you, sir.
Mr. Aderholt. Mr. Yoder.
FARM ECONOMY
Mr. Yoder. Thank you, Mr. Chairman.
Thank you, sir, for your testimony.
I want to pick up where Chairman Aderholt left off
regarding the status of the agricultural economy. Also, as a
child who grew up in the eighties on a farm, I saw a lot of my
neighbors going bankrupt. We worried every day that we were
next. The farm economy survived, but it changed after that. You
have discussed some factors that are different today, which I
think we have all highlighted. We are not in the same situation
we were in 1980. You have given us a little bit of an idea of
what the status is right now.
Help us understand, as you work with farmers who have high
yields--in Kansas last year was the highest wheat yield in
history. We are the biggest wheat-producing State. We produce a
number of other products very significantly. Yet the commodity
prices are cut in half. And so, as your folks are sitting down
with farmers trying to help them with their portfolio, I am
assuming there is a balance there. On one hand, we need to be
careful that we don't allow farmers to over-leverage
themselves. At the same time, we need to be there as farmers
try to maintain their farms and stretch these dollars.
So give us an idea of how the current agricultural economy
is going to affect how your folks deal with farmers and find
that balance?
Mr. Tonsager. Well, it is certainly a constant discussion
we are having with the Farm Credit System because I think we
have a mandate to serve farmers in good times and bad. We have
had some good times that have helped us build balance sheets
and build the capacity to the System. I think the System has a
real obligation to work very hard with individual producers.
I have spent many years thinking about this particular
circumstance where we work with people. We all want success
stories, and I think, for all producers, we want to see success
stories. But I think how we handled things in the eighties,
where farmers are so committed to their farms, they are willing
to go to the ultimate max to borrow every dime they can just to
stay in business, I think that was one of the lessons of the
1980s. They lost all equity. And I think, somewhere in this, we
need people who provide really good advice to producers on
their decisionmaking going through that period so, if it
becomes almost impossible for them to succeed, that somebody
objectively is helping them make good judgments about how they
take their next steps.
And that is, I think, one of the important elements we
might see coming into this difficult period. It is going to
happen to some degree with producers, of course, and how we
manage that I think is important. But I do believe that there
is an obligation on the Farm Credit System, to the maximum
extent possible, to go as far as they can to help producers get
through and hopefully make it to when we see better economic
growth occur.
Mr. Yoder. One of the partnerships we have here is we want
to ensure that we are doing everything we can to create the
tools available in the markets to help these farmers. We also
want to make sure we are not making it harder on farmers with
undue burdens coming out of Washington, D.C. I think we also
want to make sure we have emerging markets. You know, in
Kansas, we exported more than $4.1 billion in agriculture
products.
As we look to develop agriculture policy, can you talk a
little bit about a couple things: one, undue burdens we might
be placing on the farm economy that you have seen or that your
folks are seeing; and, two, how Farm Credit can help in terms
of exports and helping us open up additional markets?
Mr. Tonsager. Yes. We are in the spirit of the regulatory
review. The President, of course, has talked about that. Every
5 years, we initiate a regulatory review process where anybody
can come forward and say, ``This particular regulation isn't as
useful for us,'' and we go through the process. So we have
chosen to initiate, starting in June, that regulatory review
process.
We don't currently fall under the President's memo because
we are an independent agency, but we want to take up in the
spirit of the regulatory review process in any case.
We can help with exports. Because of the authorities given
to particularly CoBank, based out of Denver, they can finance
international trade opportunities. We will continue to be
focused on that and want to make sure that credit availability
for trade providers can be useful.
Mr. Yoder. As we look to increase markets and we look to
open up opportunities to sell these goods across the world, are
there things that we can be doing to assist with that? Clearly,
trade is going to be a big topic in this Administration. And we
want to ensure in this Committee, that we protect those who are
trying to export goods around the world.
Mr. Tonsager. Yes. And we certainly agree. We know that a
significant portion of agricultural commodities are traded, and
we will do our best from the resources we have to assist that.
Mr. Yoder. Thank you, Mr. Chairman.
Mr. Aderholt. Ms. Pingree.
FCA LOANS
Ms. Pingree. Thank you, Mr. Chair.
Thank you both very much for being here. Nice to see you
again. I know you have visited our State, and so anything I say
about the State of Maine probably will be familiar to you.
I first want to say I echo some of the concerns people have
raised about some of the more unconventional loans. I do think
it is important for all of us to make sure we thoroughly
understand the System and some of the questions that are asked
of us at times. I rarely hear from the bankers in my State
about Farm Credit. And just for the record, I hear from the
bankers in my State quite a bit about other issues. I am always
happy to hear about it.
What I often hear from farmers is that it is hard to find
banks today as familiar with making agricultural, fishing, or
forestry loans as it used to be. A State like Maine, where we
have gone through a transition from being very much of an
agricultural economy to changing quite a bit and now coming
back into that sector, more often than not I hear from small,
beginning farmers, medium-size farmers, farmers who want to
hang onto a family business or a child is coming back in, and
they need some capital to make it grow.
I want to talk to you about a few of those programs. One of
them I want to start with is one that is administered by Farm
Credit East. They are the ones who serve Maine. It is called
FarmStart and has been there for about 11 years. It targets
farming, fishing, and forestry startups that probably wouldn't
get a traditional bank loan. For us, that has been a really
important part of revitalizing our rural economy. I frequently
say it here: we are one of the few States where the average age
of our farmer isn't going up and where we have new farms coming
under cultivation all the time.
We are in a great period of growth in the rural economy,
but it is tenuous growth. It is not easy to make money on a
farm, and it is particularly hard for beginning farmers to get
that capital that they need.
As I understand it, in this program, you can receive up to
a $75,000 investment, and you also have an adviser to help with
the business planning and recordkeeping, which is sometimes
very challenging when you are also trying to run the farm.
You have invested about $7 million in 150 participants in
New England. You are allowed to take on slightly riskier deals
than banks are willing to do. And, as I mentioned before,
sometimes banks are just not as familiar with the challenges of
a farm, and it is harder for them to evaluate it. So this is
really important for our farmers, as I said, who are trying to
pass on to the next generation, sell their farm to younger
people, or young people who are anxious to get involved in it.
Can you tell me, from your perspective, how it is going? I
am interested to know because I understand this is a regional
decision. Does this happen in other regions in the country? Is
it a program that should be encouraged to happen in more
places, particularly those places that are looking for some
stability and growth in the rural economy? Do you think you are
reaching enough young, beginning farmers? Can you just talk
about it a little bit now that I have talked most of the time?
Mr. Tonsager. Yes. Thank you. Thank you for the question.
Congress chose or instructed us, passed a statute that
required us to create a Young, Beginning, and Small Farmer
Program nationally. The way it was implemented was that each
Farm Credit institution had to create their own program. And
they could create different models. In some cases, it would be
a signature loan for a modest loan to help somebody start. In
some cases, it is an interest rate break or a break on
collateral issues. And so every institution has created this
program that is in their own design.
We use our examination staff as part of the examination
process to make sure they are following their own program. So
what they have set down for their institution, in this case
Northeast Farm Credit, is the program they think works best for
their geographic area. But we follow up with our examination
team, ask them how it is going, get data about how it is going,
information we can certainly provide to you. That has been, I
think, a great success.
And so I think the opportunity is for the individual
institutions, if they hear from you or from their constituents
or their borrowers, they can adjust the programs and have maybe
a more unique twist to their area if it takes that. So I think
that is precisely the program----
Ms. Pingree. So, just to follow up on that, I understand
how you would sort of follow that people are following their
own program rules and administering the program appropriately,
but how do you evaluate whether it is reaching enough farmers
and whether it is adequately serving the mission that you are
charged with serving?
Mr. Tonsager. Well, we do look at the performance of the
programs in each area. But as to their adequacy, I think that
is a fair question to ask that I can't respond to. I just don't
know the answer to, say, for Maine, is this enough for that
area?
Of course, they continue to bear the responsibility for the
performance of their institutions, and perhaps some could go
deeper with the subsidy they might provide, but perhaps some
can't.
Ms. Pingree. I am exactly out of time, but I would be
interested in following up with you both on evaluation tools
for our region. Also, I would like to see what happens in other
regions just to see if, in spite of the fact that we seem to be
doing well in my area, is this applying to the rest of the
country where I am sure it is also needed. Thank you very much.
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Thank you, Mr. Chair.
Mr. Aderholt. Mr. Rooney.
CITRUS GREENING
Mr. Rooney. Thank you, Mr. Chairman.
As you know, for more than a decade, we have been fighting
citrus greening in the State of Florida, and that is something
that obviously saps our trees of their vitality and produces a
bitter-tasting fruit. The Florida citrus industry is also
facing a decreased demand for orange juice. Both these problems
are directly impacting our production.
The USDA estimates that the 2017 season will be about 70
million boxes, and that is down a million from their estimates
in January. That is something I believe that we can survive,
but until a cure is found, which we are working on, they need
to get trees in the ground as soon as possible.
So my question to you, a couple of questions, actually:
what role do you think the FCA can play in ensuring our growers
have the access to credit they need in order to make this
happen? Especially in light of the fact that, as farm incomes
drop, credit quality will drop, and that impacts our growers'
access to credit and their repayment capacity. What types of
restructuring policies or programs do you have in place to
ensure my growers can repay in a responsible and suitable way?
What kind of assurances could you offer them at this time?
Thank you.
Mr. Tonsager. Well, one of the unique characteristics of
the Farm Credit System is that it is required to give producers
borrower rights. That means that if a producer does not believe
that the Farm Credit institution is working with them well
enough to adjust to their needs, they can challenge the
decision by the Farm Credit institution about restructuring of
their debt.
And so it is one of the unique requirements of the agency.
It is one of the opportunities for producers that, if the
System isn't working with them as they think it should be, then
they have the right to challenge the decisionmaking process of
the System to correct that.
My belief is that the System will work very hard. I have
had the opportunity to travel to 13 States since I have been
back in the agency, and I plan to get to every State at some
point, meeting with them and making sure that they are
respecting the idea that we are an agency of the Federal
government or a GSE that has this requirement about going to
greater lengths to help producers through difficult times, and
it is precisely that I think the System was created for. So
please be assured that we will press them regarding their needs
to service producers to the extent they can be.
Mr. Rooney. Thank you.
Thank you, Mr. Chairman. I yield back.
Mr. Aderholt. Mr. Pocan.
MERGERS
Mr. Pocan. Thank you, Mr. Chairman.
And thank you to our witnesses.
Mr. Tonsager, as we talked ahead of time, you helped put
together a blue cheese operation in Montfort, the western edge
of my district. I think, actually, Ron Kind probably has a
bigger share of that town, but I have got a little bit of it as
well. So it was very nice to have you here.
In your testimony, you mention the mergers of the financial
institutions that you are dealing with, and specifically, you
said there is some stress because of the staff you already have
and needing more specialized staff because of that. Can you
talk a little bit about the circumstances behind those mergers
and what impact it may have had on access to credit?
Mr. Tonsager. Well, when a merger is proposed, we go
through an extensive process to look at every single element of
the merger proposal, including and primarily how that is going
to affect the service to individuals.
And it is a tough call. I think all of us like to see
smaller institutions be successful because we believe they are
more intimately engaged with the producers in their community.
That is important. But the 1980s taught us that too small an
institution can be overwhelmed sometimes if it isn't careful,
and larger institutions have a bit of a greater capacity. So it
is a constant struggle and a constant debate within the agency
and the System each time there is a proposed merger.
I had the opportunity to speak to their annual meeting a
few weeks ago. I proposed a year of dialogue between the Farm
Credit Administration and the System about the merger process
because we have some enormously strong and large financial
institutions and we have some very small ones that feel very
strongly that they can best serve the needs of their producers.
These are farmer-owned organizations. So they live in these
territories, and they talk to their friends and neighbors. It
is one of the great attributes of a cooperative and the System
in that it has that intimate relationship.
So I appreciate your question. We look very hard at these
individual mergers and hope that we are working toward creating
the right balance in each geographic area about what is
available.
Mr. Pocan. And has it caused any access to credit problems
that----
Mr. Tonsager. Not that we are aware of, but I think that
needs to be constantly on the table. The System has about 1,100
local offices across the United States, despite there are only
77 institutions. They do have extensive networks of offices.
DAIRY
Mr. Pocan. And, specifically, you talked about the high
production in dairy. Are you noticing any unique trends in that
area? Clearly, that is one of the biggest industries.
Mr. Tonsager. Yes. As a 25-year dairy farmer, I went
through that. Dairy policy is one of the toughest policies of
all because it takes such a commitment on the part of the dairy
farmer to be in it and then have to live with prices that they
don't always control.
My understanding, for this year, there is a belief there
will be some modest improvement in dairy prices because of
reduced production in other parts of the world. And so I am
very hopeful that maybe we will see some strength in the
market.
BROADBAND
Mr. Pocan. I feel like I have to bring this issue up every
chance I get. Rural broadband, obviously is very important in
my district, in many people's districts. Is there any way that,
within your agency, you can help ensure that rural broadband
infrastructure needs are not forgotten in the work that you are
doing?
Mr. Tonsager. One of the direct authorities of CoBank is
rural utilities, including broadband, and they have great
interest in that area. I know it is very difficult in remote
areas because generally there is a need for some kind of
subsidy in order to afford the capital involved with it. But I
think all of us really want to see broadband be as expansively
used as possible. My hope is that CoBank particularly will
engage as heavily as they can in that.
Mr. Pocan. Whatever you can do to encourage that. We are
tracking cows and everything else with it now, and if you don't
have it--I live in one of those areas where we don't have it.
So I hear it a lot from my neighbors. It makes my trips back
home a little better if we help address this. So thank you very
much.
I yield back, Mr. Chairman.
Mr. Aderholt. Mr. Valadao.
SYSTEM STRUCTURE
Mr. Valadao. Thank you, Mr. Chairman.
Mr. Chairman, as the only dairyman up here on the dais, I
appreciate the last questions. Pricing has been difficult and
has been one of the things that we have worked on through the
Farm Bill for California specifically, and hopefully we can get
on a better footing for the future. As far as the Federal
pricing, it is just a headache. Prices actually dropped again a
little more this week.
Mr. Tonsager. Did they?
Mr. Valadao. Yes. My question, though, is, in your remarks
earlier this month at the Farm Credit Council annual meeting,
you talked a lot about System structure. Can you describe any
areas of concern or potential improvement within the Farm
Credit System structure?
Mr. Tonsager. Yes. I think that they do a great job. I
think that they do aggressively go out. I think that we need to
look at the long term, and the number one thing we need to do
is make sure that every potential creditworthy borrower has the
opportunity to have access. I don't have any dramatic proposals
about modification of the System structure, but I think we
should think in terms of three or four criteria going forward
that might make sure, as the System evolves and changes, that
it evolves in a way that first and foremost assures access by
producers and the users of the programs.
CONSOLIDATION
Mr. Valadao. So, on the CRS report that my staff got for
me, it talks about how the consolidation has happened quite a
bit over the last few years, from the 1940s, where there were
over 2,000 lending institutions, now we are down to basically
four regional banks. You mentioned in that speech a point where
the System could be left with too few banks.
How do you reduce a systemic risk? Do you think it would be
beneficial to the System to have more district banks, and if
so, how do you suggest this is achieved? Could some of the
larger associations convert into System banks? And when we had
that really tough time in the dairy industry, 2009-2010, that
was one of the issues. People were running from the industry,
and they wanted nothing to do with it. That was a tough time
for all of us. So I guess those two kind of pile into each
other.
Mr. Tonsager. Well, again, I think, you know, we need to
look at the ability to spread risk. For instance, institutions
that have to make a lot of loans to a lot of producers in the
area, the way that risk is applied. You know, a smaller
institution just can't make a number of credits that might be
larger and take too much risk. And we are constantly pressing
them on how they spread their risk.
So I think the balance point comes as institutions that are
able to provide the intimate service that some producers
especially need but also either to take the risk themselves or
be able to spread that risk with banks, which we do. There is
an enormous amount of risk sharing that goes on with individual
banks across in a particular credit.
I think finding that balance within the System where we can
assure, when an institution makes a loan, they are capable of
dealing with the risks associated with that and working
intimately with the borrower.
HIRING FREEZE
Mr. Valadao. Before I am done, on that hiring freeze,
making sure that you put people on the ground that actually
understand what agriculture is, is something that is amazingly
helpful when you are trying to make decisions. And when you
have to explain to your bank what agriculture is, the amount of
risks involved, and the fact that we are getting water
allocations hopefully in the next few weeks when crops should
have actually been in the ground a few months ago, and it is
just a tough time in California, but having people at least
working with your lending institution that understand or have
some sort of background is always helpful. So thank you again
for your time.
And I yield back.
Mr. Tonsager. Thank you.
Mr. Aderholt. Ms. DeLauro.
INCOME LIMITS
Ms. DeLauro. Thank you very much, Mr. Chairman.
And good morning. Thank you for being with us this morning.
Mr. Tonsager, a number of the Federal programs have income
limits in place to ensure that the resources go to those in
need. Programs, such as food stamps, Medicaid, WIC, Pell
grants, Head Start, school lunch, Section 8 housing programs,
they all have limits in place.
We spend a lot of time investigating fraud, waste and abuse
in the SNAP program; little time investigating abuse in the
crop insurance program, which does not have income limits in
place. In fact, 50 members of the Forbes 400 list of the
richest Americans got at least $6.3 million in farm subsidies
between 1995 and 2014. That is according to the Environmental
Working Group analysis.
It is my impression that lending through the Farm Credit
Administration is not subject to income limits, and that some
of your resources may be going to, while good people in all
respects, but are going to those who are wealthy individuals
who may, in fact, not need the same kind of help that some
other farmers might.
I just mention and, Mr. Chairman, if I can, I would like to
put this article in the record. It is an April 5, 2016, article
by Bert Ely. In 2015, almost half of FCS lending goes to just
4,458 borrowers. My colleague, Mr. Bishop, mentioned the size
of some of those loans. And the issue becomes, as the question
is put here, can taxpayer-subsidized financing be justified for
any of these borrowers?
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My question to you in this regard, and I have a couple of
others, is your view of applying income limits to Farm Credit
Administration, to FCS, and might that allow you to be able to
address the needs of lower income farmers and also reduce the
risk to U.S. taxpayers?
Mr. Tonsager. There are a number of thoughts in there. I
will try to do my best briefly.
There is not a limit to income that exists. The story you
referred to, and I would have to read it carefully, but, as I
mentioned earlier, a number of the accounts--there are large
loans to large institutions. But within the portfolio, there
are also large loans to grain elevators and local cooperatives
and dairy processing companies that take larger lines of credit
that may be part of that number.
In discussions about limitations, I would want to make sure
that we would be looking at those institutions that serve
producers, and we wouldn't want to have particular limits on
them that would interfere with that.
The System does not have a direct subsidy from the Federal
government. It has some advantages that have been given to it
that are important. But its job, by definition for the last 100
years, is to serve all producers, large and small, throughout
rural America. So of course, we could have many policy
discussions about it.
Ms. DeLauro. Certainly, but I think it is probably worthy
to take a look at what the portfolio is, who are the entities
or the individuals who are getting the loans, I think as we do
with other Federal programs in so many ways.
In addition to that, I think it might be that the
Congress--and I won't pursue this--needs to reexamine the
rationale for FCS' similar entity lending authorization that
Mr. Bishop made reference to as well. And those are the kinds
of things I think we ought to ask for for this committee of
your agency.
SMALL FARMS
Let me just talk about the Northeast for a quick second
here. My home State of Connecticut, diverse, large farms, small
farms, part-time farmers. The average size of farms in my
district is about 62 acres. The majority of sales are under
$1,000.
As a regulator, how do you take into account the unique
market conditions of the Northeast and ensure that these small
farms do not get left behind? And do you have a breakdown for
each region of the country on the number, amount, and types of
loans that are given out? And if you do have such a list, I
would like to have you submit that to this Committee. But how
do you ensure that small farms do not get left behind, like
those in my Congressional district?
Mr. Tonsager. I think it is greatly advantageous to us, and
the Congress has wisely created a Young, Beginning, and Small
Farmer Program that we have implemented.
Ms. DeLauro. Right.
Mr. Tonsager. We can provide you plenty of information
regarding the services in your area and the number of producers
that are receiving those services. We examine each institution
for their compliance with the Young, Beginning, and Small
Farmer Program, and we have the data that can show you the
performance of that program in your area as well as nationally.
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Connecticut is served by CoBank, ACB and Farm Credit East, ACA.
These Farm Credit System (FCS) institutions provide credit to many
diverse agricultural operations in the state. The Farm Credit Act
stipulates that each FCS bank must have written policies that direct
each association to establish a program for furnishing sound and
constructive credit and financially related services to young,
beginning, and small farmers and ranchers. A ``young'' farmer or
rancher is defined 35 years old or younger when the loan is made; a
``beginning'' farmer or rancher has been operation a farm or ranch for
not more than 10 years and a ``small'' farmer or rancher generates less
than $250,000 in annual gross sales of agricultural or aquatic
products. As part of the young, beginning, and small farmer and rancher
mission in Connecticut, the System had loans outstanding to 167 young,
279 beginning and 450 small farmers and ranchers at the end of 2016.
Ms. DeLauro. I would love to see that and the amount of
loans that are going to farmers in my community. Not all new
and beginning farmers. There are a lot of dairy farmers and
people who have been there for years and years and years who
need help. Thanks. Thank you.
Mr. Tonsager. Thank you.
Ms. DeLauro. Thank you, Mr. Chairman.
Mr. Aderholt. Dr. Harris.
POULTRY PRODUCTION
Dr. Harris. Thank you very much.
I have a question about the poultry industry, which is
important in my district. At the USDA Outlook Forum last week,
USDA's Chief Economist, Rob Johansson, highlighted that one in
five farms that specialize in wheat, cotton, poultry, and hogs
has a debt-to-asset ratio of over 40 percent and, therefore, is
very susceptible to changes in prices. So it puts the producers
in that category. They are highly leveraged.
Since the poultry industry is a significant economic driver
in my district, I found this statistic to be pretty alarming
and was going to ask you about what kind of stress the Farm
Credit System is currently seeing in the poultry industry,
especially with the possibility of avian flu spreading.
Mr. Tonsager. Well, the Farm Credit System has significant
interest in that, and it has worked closely with USDA loan
guarantee programs to help deal with the risks associated with
that. Quite often a poultry producer will have a Farm Credit
System loan as well as a USDA loan guarantee with it.
As I mentioned to the Chairman earlier, we will be pressing
the System to work hard because we have had some very good
times, and now we have the responsibility to help producers get
through the more difficult times. We will be happy to take a
close look at poultry within the agency to see the exact
conditions and happy to provide you the information regarding
that to any degree you would wish.
Dr. Harris. Do you feel that this statistic, the high
leverage and the susceptibility to the outside influence,
again, of the avian flu could impact the ability for my poultry
farmers and their supporting agriculture industry to get FCS
loans?
Mr. Tonsager. The System will look in loanmaking to the
potential for success. They will make a judgment, wanting to
see a success story coming out of that project. So they will
study individually loans in that context.
But yes, I think they have the capacity to take some risks
associated with that. If we were in the 1980s, loan leverages
would be much higher. And so during the course of what we
learned from that time, the System has corrected and tried to
make sure that the loan ratios are not excessive, and I think
that is one of the lessons that was learned, and it has been
applied into the circumstance.
Now, for your producers, I think, again, the System needs
to work with them in such a way to make sure that they can see
the plan; they can understand the potential results from it. We
don't control the price, and we don't control the income. But
we want to be as responsive as we can to help producers be as
successful during a risky period.
Dr. Harris. So these would be the tools that are available
within the System to work with a highly leveraged borrower, as
you suggest.
Mr. Tonsager. Right.
Dr. Harris. And just a final question. What percent of the
System's loan portfolio is either in poultry or related to
poultry?
Mr. Tonsager. I believe it is 6 percent. We will clarify
that with you.
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Dr. Harris. Thank you very much. I yield back.
Mr. Aderholt. Mr. Young.
SMALL AND BEGINNING FARMERS
Mr. Young. Thank you, Mr. Chairman.
Welcome, gentlemen. One thing I really appreciate about
this committee--in a bipartisan way--is our advocacy for the
small farmer, the beginning farmers as well.
Tagging on to what my colleague Ms. DeLauro, said about
transparency in the number of loans that are out there for
small farmers, how many there are? And I want to get an idea of
the different silos you have with your loans--small producers
and farmers, the agriculture industry--to try and get a better
picture of that. Can you put those into silos for us right now?
Mr. Tonsager. Yes. Three-quarters of the loans made are
$250,000 or less. And if you would just let me glance for a
minute. One out of six loans are to young farmers; one out of
the five loans are to beginning farmers; and one out of the two
loans are to small farmers going by the USDA definition.
Mr. Young. Where can we get information on where your loans
go in our States or districts? That would be very, very
helpful. Do you have that information?
Mr. Tonsager. Yes, we can get that information for you. We
may have to go to the institution involved to get it.
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Mr. Young. When you say ``the institution involved,'' you
mean, who you give the loans to, or----
Mr. Tonsager. The institution that made the loans----
Mr. Young. The regional institution, okay.
Mr. Tonsager. We may have it available immediately, or we
may have to give them a call and say, we need to understand
this member's district and what kind of----
Mr. Young. Because I think that transparency would be great
in helping us get a better understanding of how you are
affecting the agriculture economy, particularly the smaller
farms and beginning farmers.
Mr. Tonsager. Sure.
Mr. Young. And with my colleague from Maine, Ms. Pingree,
regarding beginning farmers, it is a big deal for me, and I
know it is for a lot of people on this Committee, everybody, in
fact.
Mr. Tonsager. Right.
Mr. Young. There are no statutory targets that you have for
getting these loans to beginning farmers. Is that correct?
Mr. Tonsager. That is correct.
Mr. Young. Should there be? What is your real commitment to
the beginning farmer? I am not doubting it, but how forcefully
and aggressively are you really targeting the beginning farmer?
Mr. Tonsager. We have a YBS program established by
Congress, and that program requires the institution involved to
set their targets for what they want to achieve, and we examine
to see if they are doing it. So there is not a statutory
requirement for a certain level, but there is a lot of passion
for it.
Now, these institutions see a real direct benefit for their
future is for beginning farmers to happen, because it means
business to them. And so they have a desire--and it is not just
a complete business desire; it is a passion; it is an
agriculture institution; as farmers, they are farmer-owned
organizations, they have board of directors. They want to see
it too.
Mr. Young. They probably come looking to you for help. What
are you doing to go aggressively market and find these folks
who want to get into agriculture? Do you have any programs? Any
outreach? What are you doing?
Mr. Tonsager. It is generally part of their plan within
their organization. And we could certainly find you an example
of a plan by an institution about what they do to do it.
Sometimes they give an interest rate break, sometimes they give
a collateral break, sometimes they will have a signature loan,
like they do in Ms. DeLauro's area, where they will actually
write a check without collateral.
Mr. Young. You mentioned every 5 years you are going to
start doing a regulatory review process. Have you done that
before?
Mr. Tonsager. Yes. It is done every 5 years.
Mr. Young. It is done every 5 years. Do you make any kind
of report to Congress on that?
Mr. Tonsager. I am not sure, but we will certainly find out
for you.
Mr. Young. If you don't, will you start? We will find that
helpful.
Mr. Tonsager. Yes, it will be useful. Our regulatory
agenda, which we publish, has on it that we will begin in June
our regulatory review where anyone can pose any idea they have
for reduction in regulation.
[The information follows:]
The Farm Credit System Reform Act of 1996 requires FCA to continue
its comprehensive review of regulations governing the FCS to identify
and eliminate unnecessary and burdensome or costly regulations, or
regulations not based on law (12 U.S.C. Sec. 2252, note). As such, FCA
has frequently reviewed its regulations to eliminate those that are
ineffective or burdensome. Further, the FCA board has also developed a
policy statement on its regulatory philosophy to (1) promulgate
regulations that are necessary to implement the law; (2) support
achievement of the System's public mission; and (3) ensure the System's
safety and soundness.
As reflected in FCA's current Regulatory Projects Plan, we plan to
issue a notice this year requesting comment for the removal or revision
of outdated, unnecessary, or burdensome regulations. As we have in the
past, we plan to provide a summary of the results of our review in the
Federal Register.
As required by the Farm Credit Act of 1971, as amended, FCA sends
all proposed regulations to the House Committee on Agriculture and the
Senate Committee on Agriculture, Nutrition and Forestry 30 days prior
to publication in the Federal Register. In addition, we publish and
post on our website the FCA Performance and Accountability Report at
https://www.fca.gov/rpts/performance_reports.html, which provides
detailed information to Congress, the Office of Management and Budget,
FCA stakeholders, and the public as to what we have done and how well
we have carried out our mission. We also post FCA's Plan for
Retrospective Analysis of Existing Rules, Regulatory Projects Plan, and
policy statements on our website at https://www.fca.gov/law/
perf_plan.html.
RURAL INFRASTRUCTURE
Mr. Young. Okay.
Mr. Pocan has left, but he brings up an issue, and I know
it is an issue important to a lot of us, and that is your
investments in lending for rural infrastructure. And the one
that comes up time and time again is if you really want to see
the agriculture and rural economy boom, it is going to be
through broadband and communications, not that we haven't seen
it crack at times.
We have a lot of telecommunication cooperatives in my
district in Iowa. Do you reach out to them? Do you use them? I
mean----
Mr. Tonsager. Many of the local cooperatives you have are
probably financed by CoBank. And so, I can't say that for sure.
They are--yes, they would certainly be in somewhat----
Mr. Young. Okay.
Mr. Tonsager. But CoBank is one of the key providers for
telecommunication cooperatives in rural America.
Mr. Young. But for all of our regional lenders, will we be
able to find out who you are lending to and how much? I mean,
we want to be conscious of the propriety information and
privacy, but----
Mr. Tonsager. Sure.
[The information follows:]
The Farm Credit System is a network of customer-owned cooperative
financial institutions and service organizations serving all 50 states
and the Commonwealth of Puerto Rico. CoBank, ACB, one of the four FCS
banks, is an Agricultural Credit Bank, which has a nationwide charter
to make loans to agricultural and aquatic cooperatives and rural
utilities, as well as to other persons or organizations that have
transactions with, or are owned by, these cooperatives. In Iowa,
CoBank, ACB provides credit to support the telecommunications industry.
As of December 31, 2016, Iowa's telecommunications industry accounted
for about 1 percent of the System's $5.3 billion outstanding loan
volume in the state.
Mr. Young [continuing]. Privacy is another thing I am very
concerned about with IT security, making sure that you are
governing and keeping hackers away from trying to come in and
steal information and putting a lot of people at risk. I hope
you are doing that, and conscious of what is out there.
Mr. Tonsager. We restructured administratively recently to
specifically raise the stature of the IT security process. We
hired a new individual, who has leading experience in that
area, and we are extremely conscious, because there is a very
large portfolio of producers with confidential information.
Mr. Young. Thank you very much.
I yield.
Mr. Tonsager. Thank you.
Mr. Aderholt. So, Mr. Palazzo.
FUNDING LIMITATION
Mr. Palazzo. Thank you, Mr. Chairman.
Gentlemen, thank you for being here today.
In your testimony, you cited several reasons for Congress
to increase the agency's cap from $65.6 million to $68 million.
This is a modest increase, and I understand the reasoning you
put forth in your testimony. However, I am concerned about the
trickle-down effect and what signal it might send to the folks
back home. I will try and explain that.
I don't hear much in terms of complaints from credit
associations of banks in my State of Mississippi, but when I
do, it generally deals with increased regulation and increased
annual fees assessment. They have experienced yearly increases
in their assessment fees, even though their loan volume doesn't
drastically increase. One executive director noted the $70,000
increase in their annual free assessment from fiscal year 2016
to fiscal year 2017, putting them at about $500,000 annually.
In your testimony, you also indicated the desire to revise
and/or implement new regulations. So to bring it together, the
yearly increase in FCA's annual fee assessment issued to system
institutions coupled with the desire to increase or revise
regulations and general oversight results in a logical fear for
them. The fear is that because of the co-op structure of FCA,
increased fee assessments increase the operating costs,
resulting in a decrease patron's dividend, which, in turn,
decreases profit, which could reasonably increase the cost of
borrowing.
So my question for you, Mr. Tonsager, is do you believe
this is a valid concern? And if so, how would you go about
reassuring farmers, lenders, and others that you remain
fiscally prudent, that lifting this cap won't, down the road,
result in increased costs for customer owners?
Mr. Tonsager. The measurement we typically use on the
efficiency side is the dollar cost per $100 lent. And so, 10
years ago, we were costing the system 2.5 cents for $100 of
credit lent, and now it is 1.7 cents. Now, a lot of that has to
do with growth. The system's scale over the last 10 years has
probably doubled from, you know, the mid hundred billions to
now $324 billion of assets, about $270 billion of outstanding
credit.
We have efficiencies in that, but there are additional
challenges to deal with the growth scale and the financial
complexity of the transactions that occur. There is risk shared
events, there is use of the marketplace to do that. So our
people need a very high technical level to do their
examinations, make sure we understand the complex transactions
that are involved with it.
Mr. Palazzo. So the assessments are increasing. What is
driving the increase in assessments? Is it the increased
regulations? Increased oversight, when loan volume, is still
pretty much the same? So I guess that their concern is that
there are actions being taken at the FCA that are going to
drive up their operating costs, which is going to be passed on
to the consumer ultimately. And are you saying that that is
what you are planning on doing? But I am asking you, how can
you allay some of those fears that this isn't going to happen
with your increase in the cap?
Mr. Tonsager. I think we have an obligation to be
transparent with them and talk to them and tell them about our
future plans. My senior staff met with the Farm Credit Council
recently, reviewed completely the budget that we proposed with
them, and made it clear to them. And if we need to go further
to the individual institutions, we will be happy to do that as
well.
We think that, net wise, our efficiency--our costs against
their dollar per lending has dropped significantly over the
time period involved, mostly because of the growth in the
system. And, so, I think we are doing a quite efficient job for
the challenge that we are with, but I certainly understand your
concerns and be happy to set some benchmark with you and talk
with you over time about where we go and help make sure you
have a complete understanding of our costs.
AQUATICS
Mr. Palazzo. Absolutely. I will look forward to checking
back with you on that.
In your testimony, the term ``aquatics'' was mentioned. Can
you dig deeper into that? By ``aquatics,'' what do you mean? I
guess, there are subcategories of aquatics, and are there any
trends? Is this something that is increasing? You know, we have
seen increased activity in aquatic agriculture in Mississippi,
and so are we talking about catfish, oyster farming, or you
know, saltwater species being grown, not in, you know, not on
the coast but in the hinterland? Can you just expand on at
that?
Mr. Tonsager. My belief is we can serve all of those, and I
will rely on one of my folks sitting behind me here to let me
know if I am wrong in saying that. But I believe that
individual catfish farms are financed. I have actually seen
one, but it has been some time, that was financed by the
institutions. Fishermen that go out into the ocean. And in the
plains, there was a substantial amount for a while of fish
farms that were inside buildings and so forth that I believe
were financed by the system.
Mr. Palazzo. Is there any trend that you can point to that
increase loans, increase categories?
Mr. Tonsager. Not off the top of my head, but we will
certainly provide it to you. We can tell you what the growth
is.
[The information follows:]
As of December 31, 2016, FCS had an outstanding gross loan volume
of $248.8 billion. Aquaculture makes up 0.5 percent of the Systemwide
lending activity. In Mississippi, aquaculture lending has increased
over the past five years. The following table highlights aquaculture
loans in Mississippi from 2012 to 2016.
SYSTEM AQUACULTURE LOANS OUTSTANDING IN MISSISSIPPI, DECEMBER
[million $]
------------------------------------------------------------------------
2012 2013 2014 2015 2016
------------------------------------------------------------------------
27.4 24.5 29.6 40.9 39.9
------------------------------------------------------------------------
Source: FCSLoans2 Database.
Mr. Palazzo. Thank you, gentlemen.
Mr. Tonsager. Okay.
Mr. Palazzo. Mr. Chairman, I yield back.
POULTRY
Mr. Aderholt. Thank you.
Let me follow up on the question that Dr. Harris had
mentioned in his line of questioning.
Like him, my poultry industry is very big, very important.
We are the third largest poultry producing State in the
country. It produces at least 14,000 jobs in my Congressional
district alone.
The vitality of the industry is difficult to predict, and I
just want to reiterate that the uncertainty that a lot of these
growers face is very real, and any certainty that the Farm
Credit System can provide to try to combat that volatility is
very important, and I just wanted to reiterate that. Because,
like I said, that is a big concern for the folks in my State,
and especially with the outbreak of the avian influenza, you
know, many growers are forced to exterminate a significant
amount of their flocks at poultry growers in general.
So I want to call that to your attention. But, like I said,
I thank you for your attention on that and for shedding some
light on that. I also wanted to associate myself with the
comments of Dr. Harris and how important that is.
PERSONNEL COMPENSATION
Let me switch to a discussion about your budget situation.
In looking at the fiscal year 2017 request, your largest cost
is personnel compensation. It appears that between fiscal year
2015 and fiscal year 2016, these costs decreased by about $.5
million. On the other hand, your personal benefit cost
increased by $1.5 million. In addition, the number of your
full-time equivalent staff increased from fiscal year 2015 to
2016 by 20 FTEs according to answers to questions for the
record last year.
Can you talk to us a little bit about the cost of personal
compensation and how it decreased from one year to the other in
conjunction with a significant increase in hiring, and why the
cost of personal benefits went down. It would seem that both of
these costs would increase, but please talk a little bit about
that to our Subcommittee.
Mr. Tonsager. Yes, sir.
My belief is that what we see is a group of retirements of
older employees during that period that have significantly
higher salaries, and a group of younger employees that come in
that have lower costs associated with their salaries is
probably the reason why that may have occurred at that time.
We are required, by statute, to study the salary structure
and compensation structure of other financial regulators, the
FIRREA regulators, and to remain competitive with that group.
Our examination people, particularly, are people that have
nearly the same technical skill requirements of bank examiners,
or credit union examiners, or securities exchange examiners.
And, so, we are required by the statute to keep our competitive
nature somewhat in the same range as that particular group.
So we try to put together a package to our folks in some--
it varies some between agencies, so we try to look for the
things at that we think might help us attract examiners,
particularly other employees that would be in the same range.
I am speculating regarding the particular cost of the
employees, why it was a bit less one year over another. The
increase that we have come with is a recognition of our need to
bring along classes of employees because of the very long term
development of examiners.
Only about 60 percent of the people we hire for examination
actually make it to a commissioned examiner status. The program
is tough, and they have a lot of work to do.
Mr. Aderholt. I am sorry. What was that percentage?
Mr. Tonsager. The program is tough for them----
Mr. Aderholt. What percentage was that?
Mr. Tonsager. It was only about 60 percent of the people we
initially hire for examination are successfully commissioned
after 4 years.
Mr. Aderholt. Thank you for that.
Mr. Tonsager. And so it is a recognition, I think on our
part, that we need--we didn't have enough people coming along
to fill the positions we needed filled, and there is a number
that has dropped off during that time.
Mr. Aderholt. Mr. Bishop.
IT INVESTMENTS
Mr. Bishop. Thank you very much.
Ken Spearman provided testimony for a February 2016
hearing, an obligations table for the past 10 fiscal years were
submitted. Information technology was budgeted at zero for
fiscal year 2007 through fiscal year 2015. FCA OIG issued
results of an FCA risk project audit. It was dated March 31,
2016, where IT risks were uncovered. Analysis and data modeling
played a critical role in FCA's safety, soundness in regulatory
functions. With the institutional mergers over the years and as
the system works to maintain public trust by ensuring that
adherence to the safety and soundness standards, can you
discuss why keeping the IT infrastructure updated was not a
budgeted priority item? The current system structure scales
back the benefits of direct customer access to the
institutions, and operating through remote locations removes
the local lender understanding of agriculture and credit needs
as well as commodity types that producers have come to rely on
FCA to embody.
Are we inadvertently setting ourselves up for an economic
crisis in the agricultural community by having institutions
that could be too big to fail? And how is FCA keeping a
watchful eye on the inherent risk that would arise by having
too few banks?
And then, I will just ask my second question to expedite
time.
DROUGHT
As reported in May of 2016, the drought monitor, the
country suffered varying drought conditions ranging from severe
to extreme from California, the midwest, to the southeast. Can
you comment on how the drought conditions impacted your member
banks and institutions, and do you have any recommendations or
suggestions to minimize the financial effects caused by the
drought?
Mr. Tonsager. Well, first of all, the Chairman wisely chose
to create a separate division relative to IT, information
technology, and deliberately worked to adjust the needs
associated with that technology to make sure we had the
adequate security in the area. So I just wanted to respond to
that portion of the question.
When we see a drought condition, we monitor for those as
well, and so when California's occurred, we closely studied----
Mr. Bishop. I am sorry. I didn't--did I--were you
addressing the----
Mr. Tonsager. You raised a question----
Mr. Bishop [continuing]. IT?
Mr. Tonsager. Yes, IT.
Mr. Bishop. You are saying even though you didn't request
money, that you are now setting up a separate division for
that?
Mr. Tonsager. We have always funded the IT division, so I
am a little unclear why you would see a zero report on our
budget panels for that particular area.
Mr. Bishop. It was in conjunction with Mr. Spearman's
testimony, he provided a table for fiscal year 2017, and----
Mr. Tonsager. Okay.
Mr. Bishop [continuing]. The information technology line
item is zero.
Mr. Tonsager. Yes. And my staff just pointed out to me if
you go to management services, it was not broken out as a
separate category. There were certainly funds used for
information technology.
Mr. Bishop. But it wasn't listed in the----
Mr. Tonsager. It was not listed in that category. And so,
we have a substantial commitment to information technology. And
I apologize that it is not broken out specifically for you in
that column.
Mr. Bishop. It would be helpful to us if we could, at
least, see it, it was a little more transparent for us.
Mr. Tonsager. Yes.
Mr. Bishop. Thank you. Now, go ahead with the drought.
Mr. Tonsager. The drought, what we do is we look closely at
the safety and soundness of the institutions involved. And, so,
we will ask them to look at their portfolio under the extreme
drought circumstances, and give us an idea of how much risk is
to the institution. One of the things I want to move us toward
is a more information-based approach about the individual
producers and how that affects them as well. We typically rely
on USDA data when we look at the circumstance in that area. But
I want to grow in our understanding as an agency about the
direct effect.
As the Federal regulator, we look at individual institution
safety and soundness; we need to spend more time looking at the
safety and soundness of the individual producers. So that is
part of my plan, at least, in expansion of that.
Mr. Bishop. Yes. And we have a real concern with the
drought monitor itself, making sure the drought monitor gets
accurate and reliable information in a timely manner. We have
had some issues with that in the southeast, particularly in my
district. I don't know if you could, perhaps, give us some
advice and counsel on what we need to do to make sure that the
drought monitor process works effectively, efficiently, and
timely.
Mr. Tonsager. Okay. We will certainly do so.
Mr. Bishop. Thank you.
Mr. Aderholt. Mr. Young.
UNCONVENTIONAL LOANS
Mr. Young. Thank you, Mr. Chairman.
I am going to bring up the infamous Verizon loan, not
because I want to shame you or anything, but I want to make
sure that this isn't happening again.
I was pleased to learn that last March the FCA issued
guidance through book letter 67 to its lending institutions to
guard against these types of similar entity lending loans. And
so my question is, are you having the proper oversight to make
sure these procedures are in place? What are they? How do you
keep an eye on this? Just give me an overview of what happened
and where we are going with this.
Mr. Tonsager. We provided guidance to the system
institutions regarding each of the programs, in this case, the
book letter. And so they are allowed to make these investments.
Now, the similar and the lending is an initiated loan made by a
bank. And the Farm Credit System has offered the opportunity,
if they choose, to buy into that loan at the request of the
bank making the lending involved. But we have provided this
structure to them. They have also internally gone through a
significant amount of work to improve the guidance. They
recognize the reputation risks they have in making these loans.
Additionally, so they could go out and make the loans, but
when we examine an institution, we look at those loans to look
and see if we can find where they might be out of compliance
with the statute or regulation that we provided to them.
In addition, individual bankers or other parties might have
identified to us a loan that they are concerned about, or
investment they are concerned about into these kinds of loans.
Our regulatory staff and our General Counsel will consider each
of those loans as they are identified, and cause the
institution, if we believe it is out of compliance, to deal
with it.
Mr. Young. So that would be divesting.
Over the last few years, how many times can you think of
some instances where the FCA asked Farm Credit to divest
itself, for whatever reason, because of what may have been
legal, but looked bad and wasn't in the spirit of the law?
Mr. Tonsager. I can think of three or four offhand, but I
will ask my counsel if he recalls.
Is that number correct?
It is a small number, three or four.
[The information follows:]
The Farm Credit Act established the Farm Credit System to ensure a
safe, sound and dependable source of credit and related services for
all creditworthy and eligible persons in agriculture and rural America.
By establishing regulations and examining FCS institutions, the Farm
Credit Administration enforces the lending authorities and limitations
set forth in the Farm Credit Act. We work to create a regulatory
environment that provides for stakeholder confidence in the FCS's
mission, financial strength and future vitality. If we find a loan
outside of the lending authorities and limitations set forth in statute
or regulation, we can and do require the institution to take remedial
action, which in some cases includes divestiture.
The agency has provided guidance to institutions where a loan,
including a similar entity participation, may ``not be in the spirit of
the law''. Bookletter-067 provides agency guidance to FCS institutions
on similar entity lending. It makes clear that the similar entity
authority (12 U.S.C. 2122) may subject the FCS to significant scrutiny
from FCA, Congress, and the public because it permits the System to
participate in loans to ineligible borrowers. For this reason, FCA
expects that all FCS institutions that participate, or plan to
participate, in similar entity loans have policy, procedures, and
internal controls that identify, evaluate, and mitigate various risks
associated with this authority. FCA will continue to study and assess
other issues and risks associated with FCS lending to similar entities
and may issue further guidance in the future.
Mr. Young. Well, thanks for keeping an eye on this, and I
hope you will continue to be diligent.
FARM ECONOMY
Five years ago, the farm economy was doing better than it
is today. It is suffering a downturn. And last month, a Hoosier
Ag Today article referenced a conversation with the regional
vice president for Farm Credit America about the outlook for
2017. The article referenced how many are referring to 2016 as
a year when many farming operations burned up the last of their
working capital, and many farmers would be facing hard
decisions.
So the question is, is the FCS tightening up loans with
farmers and because of the downturn and because of the burning
up of capital that is alleged?
Mr. Tonsager. Well, I would say, certainly, there are some
farmers that have burned up their capital. I don't think it is
a very large number at this point. What we are finding is many
producers who are young don't have established capital in real
estate and so forth, and so they appear to be the most
vulnerable to that kind of thing. So it is of great concern. Of
course, that is the group we want to keep in business. I have
not seen a deliberate tightening or a policy that says we are
going to tighten capital at this time.
Mr. Young. Okay. So if you were to tighten capital for your
farmers, beginning farmer or just your average farmer, where
would your loans go?
Mr. Tonsager. I am sorry. I don't----
Mr. Young. Where would your loans go if you weren't loaning
to them? Where would you focus? Where else would you look if
you found that it wasn't a good deal to be doing as much
lending to the average farmer or beginning farmer?
Mr. Tonsager. I don't know that there would be a look
anywhere particularly. They would take customers as they came
in, I suppose. I don't know of a deliberate strategy that says
we are going to shift from this group of farmers to some other
group. Generally, the system is not restrained other than to
the amount of capital it has that can support lending. So it
doesn't usually have to choose between one or the other. If it
has adequate capital, it can loan. It is not restrained
otherwise.
So if such a thing existed, I would be extremely concerned
if there was a deliberateness in that kind of a movement and a
desire to move away from certainty in a particular group. I
think that is something the regulator would have to intervene
and take some action.
Mr. Young. Well, I hope you will make the majority of your
lending to the beginning farmer, and really come up with a
strategy for them, as well as to your average farmer.
Mr. Tonsager. Yes, I would agree.
Mr. Young. Thank you for being here, Chairman, and Mr.
Hall, and I yield.
Mr. Tonsager. Thank you, sir.
Mr. Aderholt. Ms. Pingree.
FORESTRY AND FSMA
Ms. Pingree. Thank you, Mr. Chair.
I have just two more questions, and I will put them
together so you can answer them both.
My first is similar to some of the questions people have
asked about the challenges that farmers are facing around the
forestry industry. In our State, about 39 percent of Farm
Credit East's loan portfolio in Maine goes to forest products.
So that is the largest segment of their loans there. I know
that is a very highly valued relationship; it is well-respected
in the State. The forest industry is worth about $882 million
to our economy and supports about 7,300 jobs. So that is a big
impact. As I am sure you know, there's been a lot of transition
in the forest products industry. We have seen closure of a
tremendous number of mills, and there is a lot of work going on
right now to examine what kinds of forest products we could get
in, how can we be more competitive in another industry, and
what kind of technology could help us looking into the future.
So I would love to hear you talk a little bit about how
Farm Credit has been supporting the forest products industry,
similar to some of the challenges people had in dairy and other
kinds of agriculture. Are you looking at any kind of flexible
lending during these tough times, or have you implemented that?
And my other question, just so you can go into the second
one, I know that you do, in a variety of areas, a lot more than
just credit. You help people with recordkeeping, estate
planning, crop insurance, and really assist farmers in a
variety of ways. So it is possible that, like me, you have
heard a lot about the farmers who have to implement the FSMA
rules (Food Safety Modernization Act). It has raised so many
concerns. There are a lot of uncertainties out there. Just in
Farm Credit East there are 14,000 customers, so they interact
with a lot of farmers. You probably have questions about FSMA,
it seems like Farm Credit could be an important resource to
people, and I think you have done a little bit about that.
Could you talk a little bit more about plans to help
farmers transition, help educate farmers about it, even if it
is just referring them to other places where they can get that
information, because there will be capital issues in that, and
they are both important? I will just give you the time to talk
about those two issues.
Mr. Tonsager. Thank you. I agree completely regarding the
forest industry. And it takes a long-term capital to help do
that, but also, the sale of some of the off-put from the forest
market, such as the pellet industry that is predominant in your
State and in the region. I have seen the use of timber for the
purpose of heating greenhouses, for example, where they use the
extra timber in that area. So it is an important element, and I
appreciate that.
I am sorry, the second part of your question? I was so
wrapped up in thinking about the first, I just----
Ms. Pingree. Do you want to answer about FSMA or more about
the forest products industry?
Mr. Tonsager. FSMA--since Farm Credit institutions are
cooperatives, they have the ability to address other issues
like that. I know particularly in the food products industry,
they provide webinars to individual producers so they can get
the information about the requirement of FSMA in order to make
sure that their food products might be more usable in the more
substantial market in the northeast, particularly, food
products for local food markets in that area.
Ms. Pingree. So what you are saying is you think there is
some activity going on, but it is possible there could be more
or----
Mr. Tonsager. Yes, certainly. I think they--there is
substantial development in the food product markets in the
northeast as well as across the country, and so those
requirements, they have the ability to work with their
producers and giving the information necessary to make sure we
have qualitative as well as quantitative products available.
Ms. Pingree. Great. Well, I hope that continues throughout
the country. Certainly, I think farmers are going to need the
assistance in making the transition, but as I said, there are
also capital requirements to make sure food processing that
happens on farms, and a variety of things, that people have the
finances behind them to make those changes.
So I yield back the balance of my time. Thank you, Mr.
Chair.
Mr. Tonsager. Thank you, ma'am.
Mr. Aderholt. Ms. DeLauro.
FUNDING LIMITATION AND STAFFING
Ms. DeLauro. Thank you very much, Mr. Chair.
First off, I would like to second what my colleague, Mr.
Young, has said. I hope that we can work together, because I
think that this reexamining of the rationale for this similar
entity lending and what this means and what is happening in
this realm is a real concern, and I think that we need to
really have Congress take a look at this again, and to make a
determination as to what it really means for the lending
process.
Let me just ask a couple of other questions, Mr. Tonsager.
In your testimony, you mentioned that the agency spending is
limited annually by Congress.
Mr. Tonsager. Yes, ma'am.
Ms. DeLauro. You further describe the spending limitations
put in place by this body, required you to delay hiring
actions, reduce travel relocations, and delay the execution of
information technology projects.
Do you know why Congress began limiting the spending of
your own funds? I will take a page out of my colleague, Ms.
Pingree's book here, with regard to your testimony, you talked
about the budget cap established by Congress, you had to delay
hiring, all those things that I just said. You further
described over the past few years, some of your seasoned
employees have retired, that you expect many more to retire
over the next few years.
So my question is, can you tell me how President Trump's
January 23, 2017 memorandum regarding the hiring freeze would
further impact the work of the Farm Credit Administration? And
as I asked the Inspector General a week ago, I would like to
hear from you and get a report from you of what that hiring
freeze means, specifically, what you will not be able to do?
Whose loans you will not be able to service? What are the
services that you provide that will be curtailed?
[The information follows:]
The Farm Credit Administration has concerns about a mid-to-long-
term hiring freeze. The FCA is a small agency that currently has 309
employees. Approximately 60 of the agency's employees are currently
eligible for retirement and an additional 50 are eligible to retire
over the next four years. As those employees announce their
retirements, a mid-to-long-term freeze will impact our ability to hire
and train positions necessary to fulfill the agency's mission to
maintain the safety and soundness of the Farm Credit System. The
retirements have affected, and will affect all areas of the agency
workforce including the Office of Examination, the Office of Regulatory
Policy, and the Office of Information Technology. For a smaller agency
such as FCA, each employee performs multiple duties and has many varied
functions, so the loss of those skill sets has a more immediate impact
on the operations of the agency.
So why did the Congress begin limiting your spending of
your own funds, and how will the hiring freeze impact your
work?
Mr. Tonsager. Well, the Farm Credit System is a unique
enterprise. It has been around a very long time. It does not
use Federal funds, but I believe the cap has been in place for
many years. We are required, or obliged, to report to Congress,
talk about that. I think the intention was to make sure that we
don't do something excessively. So it is not something that
concerns us that we have to report to you all, of course, that
what we are doing, and it is an important part of our process
to do that.
The effect on us, of course, we----
Ms. DeLauro. How much oversight do we have?
Mr. Tonsager. Pardon me?
Ms. DeLauro. How much oversight do we have with regard to
you?
Mr. Tonsager. We are generally subject to the Full
Committee. We meet with them and occasionally with the Senate
Full Committee and report to them.
Ms. DeLauro. What does ``occasionally'' mean?
Mr. Tonsager. Every few years.
Ms. DeLauro. Every few years?
Mr. Tonsager. I can't recall the exact number of times it
has been before the Senate, but generally, we have ongoing
contact with your staff all the time. We have a working staff
that provides our information. We provide reports to the
Committee staff and to other member staff about the functions
of our agency. So there is a steady supply of material that is
provided by us to the Congress about our individual activities.
Ms. DeLauro. No, you report to the Senate, you report to
the House. How often do you come and the oversight with regard
to the House? Is that every few years as well?
Mr. Tonsager. Annually? Every 2 years.
Ms. DeLauro. Every 2 years. Okay.
And the hiring freeze, I have asked for the report, but
just tell me about the hiring freeze and your services.
Mr. Tonsager. We have been restrained from hiring some
folks. We have targeted investments that we want to make into
IT technology that we haven't been able to make yet. Travel has
been restrained. And for us, the examiners, we want them to be
in the institutions. We gather a lot of data from them directly
by transmission of data----
Ms. DeLauro. So the ways you have had to curtail your
hiring, your IT, et cetera, is that compounded by the hiring
freeze that the President has proposed?
Mr. Tonsager. Well, yes, it has restrained us from hiring
some people that we would like to hire.
Ms. DeLauro. So that will cause you a further difficulty in
order to carry out your job?
Mr. Tonsager. Yes, ma'am.
Ms. DeLauro. Thank you. And I appreciate the report. Thanks
so much.
Mr. Tonsager. We will certainly follow up with you.
Ms. DeLauro. Thank you, Mr. Chairman.
STAFF RETENTION
Mr. Aderholt. Thank you.
Let me switch to a little bit about the examiners, we
talked a little bit about it earlier. Of course, the single
most important role of the agency is the safety and soundness
of the system, or in layman's terms, is to make sure a similar
event does not occur like the crash of the 1980s.
This is best accomplished by ensuring the integrity of the
system's financial institutions through examinations and other
checks. One issue I have come to understand is your difficulty
in retaining talented examiners, which comprise the majority of
your workforce. Due to the uniqueness of the Farm Credit
System, you provide specialized training for these individuals.
Mr. Tonsager. Yes, sir.
Mr. Aderholt. This requires a significant amount of time
and financial commitment. However, you seem to lose these
individuals relatively quickly, either to the System itself or
other agencies under its purview. You discussed a little bit,
and referred about eight to ten leaving per year. What is your
overall retention rate in the office examination?
Mr. Tonsager. I am sorry, I am struggling to come up with
the number. Doug, if you could help me.
We have about a 10 percent attrition rate. So I suppose
that would mean about a 90 percent retention.
Mr. Aderholt. Okay. What is the average cost in time
commitment for training a new examiner?
Mr. Tonsager. I think the costs over the 4-year period are
close to $500,000.
Mr. Aderholt. Per examiner?
Mr. Tonsager. Per examiner. That is why we very much want
to retain as many as we can----
Mr. Aderholt. Yeah.
Mr. Tonsager [continuing]. Of course, along the way.
Mr. Aderholt. Well, given that significant amount of
investment, it seems it would be wise to require a certain
length of service in exchange. I know other agencies do this,
our retired colleague, who was the Ranking Member of this
subcommittee, Sam Farr, would use the Peace Corps as an
example. He was very supportive and very involved with the
Peace Corps.
Do you have any policies like this or anything preventing
you from putting in place some kind of policy like the Peace
Corps?
Mr. Tonsager. That is a new question for me. I am sorry I
can't directly respond. If my staff could tell me, or I could
provide a direct response to you.
I would say that our Inspector General, as part of her
process, looks at elements of the agency all the time,
including the examination process. And provide a report to us,
I think, not long ago, about the retention in the program and
so forth.
So let me find a good answer for you. I don't know if we
legally can provide that kind of a restraint on them, a sign-up
period, as the Peace Corps may do, but I will certainly get
back to you regarding that.
[The information follows:]
The core mission of the Farm Credit Administration is to oversee
the safety and soundness of the Farm Credit System, a nationwide
network of customer-owned lending institutions. Our Office of
Examination plays a critical role in accomplishing this mission. It
develops oversight plans; conducts examinations; monitors the System's
condition and current and emerging risks to the FCS; and develops
supervisory strategies to ensure that the FCS operates in a safe and
sound manner, complies with the law and regulations, and fulfills its
public policy purpose.
Our examination staff are highly trained. They understand the
unique risks of agriculture and have both financial and regulatory
experience. New examination staff are required to successfully complete
the agency's rigorous commissioning program to ensure the examiner has
the knowledge, skills, and competencies to conduct examinations of the
FCS institutions. The commissioning program is a multi-year tiered
program that includes both formal classroom and on-the-job training to
provide the trainee the various tools necessary to become a
commissioned examiner. To become commissioned, each trainee must
demonstrate competency through rigorous testing.
In the most recent past, the agency has explored proposals for
retention agreement with examiners. We have also consulted with the
other Financial Institutions Reform, Recovery and Enforcement Act
(FIRREA) agencies. For several reasons, we believe that such an
agreement would not be in the best interests of the agency. It would
put us at a competitive disadvantage with the other FIRREA agencies
that do not have such agreements, and Congress has directed us consult
with FIRREA agencies to maintain comparability in pay and benefits.
Such an agreement could discourage qualified and competitive applicants
from accepting a starting position with our agency versus FIRREA
agencies that do not have the same requirement. Further, most examiner
attrition occurs after 8 to 10 years of work, which is typically longer
than the useful life of such an agreement.
Mr. Aderholt. Well, let me just say that, if you do need
some specific legal authority to do this, please let us know.
But like I say, it is a significant amount of dollars that are
invested, as you say, half a million dollars per examiner, and
my understanding is that many of them do leave fairly quickly.
I think this is something that you seriously want to look at
and explore. And if you could get back with us on what the
options might be, I think the Subcommittee would be very
interested in knowing that.
Mr. Tonsager. Certainly. I will say that it takes about 4
years. And those that are leaving are generally in the 8- to
10-year category, where somebody comes in and might compete
with us and cause them to move on to different area. So
generally speaking, we probably have their services--for those
who leave, many are very long term, of course, but that group
that might move on, that is kind of the category, that we--the
area that we lose them at.
Mr. Aderholt. Okay.
Mr. Bishop.
Mr. Tonsager. Yes, sir.
INFRASTRUCTURE
Mr. Bishop. Thank you very much.
The Administration and Congressional leadership on both
sides of the aisle have indicated that rebuilding the Nation's
infrastructure is a priority. Funding infrastructure projects
will be critical, of course, to improving the roads, the
bridges, the ports, in order to energize the economy. Given the
fact that rural communities and agriculture also depend on
infrastructure in order to thrive, do you share my concern that
steps need to be taken to ensure that rural America is not left
behind in this infrastructure-building process? And what do you
see as FCA's role in restoring America's rural infrastructure?
Mr. Tonsager. I think our role and the tools we have give
us access to GSC funding, which has been highly competitive
with the Federal Treasury rates. And so I think in the long-
term financing of rural infrastructure, including broadband, we
can bring access to those resources that do that. And we have
expertise in working with small communities especially on rural
water and rural electric systems, as well as broadband systems.
So I think there is capacity in this system to do that.
Those loans are typically, once they are in place, very
successful loans in the way they are structured. We don't have
the capacity to provide grants, such as the USDA or other
Federal agencies have that capacity that could bring the cost
down into a more affordable range.
Mr. Bishop. Do you partner with them----
Mr. Tonsager. Yes.
Mr. Bishop [continuing]. Rural utilities, for example?
Mr. Tonsager. Yes. Rural electric, rural water, yes.
Mr. Bishop. Broadband, so you can actually partner with
those communities that may be able to get a grant from them and
you can offer----
Mr. Tonsager. Yes.
Mr. Bishop [continuing]. Additional funding through loans?
Mr. Tonsager. We can, and we do. I think it is incredibly
important. We also get into funding hospitals, clinics, fire
halls, we make investments. Those have to be structured as an
investment option for the institutions to be involved with
them. The system has partnerships all over rural America and
does all kinds of things in those categories. And perhaps
another time we can talk about them.
Mr. Bishop. You mentioned hospitals. Rural health care is
really, really critical at this point in time. Rural
Development does have the community facilities programs. Are
you partnering with the Rural Development agency on some
communities that are trying to maintain and expand the
healthcare facilities----
Mr. Tonsager. Yes. Absolutely.
Mr. Bishop [continuing]. Through the community
development----
Mr. Tonsager. Right.
Mr. Bishop [continuing]. Through the facilities program?
Mr. Tonsager. Yes. And we require that a Farm Credit
institution engaged in that must offer an opportunity for a
local bank to be involved with the project as well. So part of
the information we give them or the letters we give them has
that requirement on each of those kinds of projects, that they
seek out local participants.
Mr. Bishop. Is that number increasing or is it decreasing
around the challenges with the ACA?
Mr. Tonsager. I think the demand is increasing. We have
slowed somewhat because we are now improving every project that
is identified individually. We did a test with them where we
allow them all to do it. And as we examined the results from
that, we found that we have to now go through this approval
process to make sure they stay in compliance with the Federal
statutes.
Mr. Bishop. Thank you, Mr. Chairman.
Thank you.
Mr. Aderholt. Mr. Young.
Mr. Young. Mr. Hall.
Mr. Hall. Yes, sir.
Mr. Young. Nice to see you.
Mr. Hall. Thank you.
ASSESSMENTS
Mr. Young. You are Chairman of the Farm Credit System
Insurance Corporation. Is that correct?
Mr. Hall. That is correct.
Mr. Young. Set up to be a backstop to help the FCS if there
is a problem. It currently has a capital of around how many
billion?
Mr. Hall. It is around $4.5 billion.
Mr. Young. $4.5 billion and has credit lines from the U.S.
treasury for about $10 billion.
Mr. Hall. That is correct.
Mr. Young. Okay. Is this a sufficient amount with assets
over $300 billion?
Mr. Hall. We believe it is adequate. When the Farm Credit
Insurance Corporation was established, a 2 percent secure base
amount was determined to be actuarially sound. So as the system
grows, their assessment to fund that insurance fund has gone
up. So we believe, based on what Congress approved, we are
sufficiently covered.
Mr. Young. Okay. So you are not looking to change that in
any way?
Mr. Hall. No, sir.
Mr. Young. Okay. That ratio, compare that to that of the
FDIC in terms of cash of capital on hand.
Mr. Hall. For the insurance fund, I am not sure how it
compares to our FIRREAs. I would say it is pretty consistent
among other Federal agencies.
Mr. Young. Okay. What is the funding mechanism for the
corporation, and are there any reforms that you think need to
take place in your opinion?
Mr. Hall. The funding mechanism is through an assessment.
You mentioned the assessments of the institutions earlier. As
the size of the institutions grow, the amount that they have to
fund the insurance fund does increase. We have seen as the
system grows, that assessment has gone up. If there was a year
where there was no growth, then the assessment would not
increase.
Mr. Young. Okay. And being raised in Indiana, getting a
degree from Purdue----
Mr. Hall. Yes, sir.
Mr. Young [continuing]. And working for Kentucky, who do
you root for in March Madness?
Mr. Hall. Well, it is a complicated thing in my household.
I went to Purdue. My wife went to University of Loyola, and my
daughter is getting ready to attend the University of Kentucky,
so it gets more complicated.
Mr. Young. So I think the safe answer is Alabama or
Georgia.
Thank you, Mr. Chairman.
Mr. Hall. The answer is yes.
Mr. Young. Thank you, Mr. Hall.
Mr. Hall. Thank you.
Mr. Aderholt. Thank you, and thank you, Mr. Young, for
asking that question. Mr. Hall, that was something I had on my
list that I wanted to ask about, because the Farm Credit System
Insurance Corporation is important, and knowing that that is
set up as a backstop to help the Farm Credit System during a
failure is important. So thank you, Mr. Young, for calling
attention to that and getting clarification on that for the
Subcommittee.
So with that, let me say thank you both for being here
today and for your answers to our questions. We appreciate the
work that you do with Farm Credit Administration and your
service there, and we look back to having you in the future,
maybe it won't be another 19 years.
The Subcommittee is adjourned.
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Thursday, March 9, 2017.
MEMBERS DAY
Opening Statement--Mr. Aderholt
Mr. Aderholt. The Subcommittee will come to order. Good
afternoon, everyone. We are here to welcome our colleagues on
both sides of the aisle to give testimony before this
Subcommittee on the agencies that are under the jurisdiction of
the Ag Appropriations Subcommittee. I would like to thank the
Full Committee Chairman, Mr. Frelinghuysen, for his leadership
in encouraging all 12 Subcommittees to hold Member Days.
Despite the general perception that Congress doesn't always
work together, we are here today to listen to a bipartisan
group of Members from all parts of the country and a wide
spectrum of constituencies. We look forward to hearing their
views on the appropriations process, learning more about the
programs, the projects, and the regulations that affect your
particular district and your constituents.
Your input will be critical as we go forward and we fund
the work of the U.S. Department of Agriculture, the Food and
Drug Administration, the Commodities Futures Trading
Commission, and, of course, the Farm Credit Administration and
do that in a fiscally responsible manner.
I would like to remind everyone that we do have a lot of
Members that are going to be testifying before the Subcommittee
today, so we are going to try to adhere to a 3-minute rule. We
were going to do a 5-minute rule, but we are going to have
votes here in a little bit, so if you can summarize in 3
minutes that would be great. We will have your written
testimony, so all of that will be included, but just for the
purposes of moving forward, if you can, we will try to do it in
3 minutes. If you go over a little bit, it is not a problem,
but we want to try to do it to make sure that we hear every
Member in this timeframe.
I do want to thank every Member that has taken time out of
their schedule to come speak. We value the input that Members
have come and their written testimony and appreciate the
interest you have taken in the work of this Subcommittee.
With that, I would like to recognize the Ranking Member of
the Subcommittee, Mr. Bishop, for any remarks that he would
like to make.
Opening Statement--Mr. Bishop
Mr. Bishop. Thank you very much, Mr. Chairman. I also want
to thank all of our fellow Congressional representatives for
joining us for the Ag Approps Members' Day. When Chairman
Frelinghuysen announced that each Subcommittee would host these
events, I knew that agriculture would have a great turnout.
After all, agriculture touches every aspect of our lives from
the paper we write on, the clothing we wear, the food we eat,
the water, beer, and wine we drink, and the raw materials used
to building for each of our homes. So a healthy agricultural
community translates to a healthy society for all of us.
I am pleased that we have Members from both parties here
today providing thoughtful insight as we drive towards fiscal
year 2018. Despite a few philosophical differences we may have,
this healthy showing further demonstrates that agriculture is
important to everyone, no matter where we live.
Georgia agriculture, of course, contributes $71 billion
annually to our State and our national economies, and so I am
right here along with you wanting to showcase all of our
products while remaining fiscally responsible. Without a clear
sense of next year's budget, however, the best we can do right
now is just this, to openly discuss our priorities and to
collaborate with each other on how to implement them, if it is
possible.
With that in mind, I thank everyone for taking the time to
come before the Subcommittee, and I look forward to hearing
from you. I yield back, Mr. Chairman.
Mr. Aderholt. Thank you. The Subcommittee will now like to
recognize the gentleman from California, Mr. Panetta for 3
minutes, whatever remarks he would like to make. Just let me
make a side note here before you get started, that the 20th
District of California is no stranger to this Subcommittee. We
are glad to have you here today, and, of course, Sam Farr was a
close friend to everybody on this Committee, and we know that
you now represent that Congressional district, and so welcome,
we are glad to have you before the Subcommittee.
----------
Thursday, March 9, 2017.
WITNESS
HON. JIMMY PANETTA, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF
CALIFORNIA
Mr. Panetta. Mr. Chairman, thank you very much. I
appreciate those comments. Trust me, I realize, full fledged,
how big a shoe I have to fill with the departure of Sam, but
thank you, and I look forward to it and look forward to working
with you on this. Mr. Bishop, good afternoon.
Thank you for this opportunity to be here. It is an honor
to speak about something that means a lot to me, but also, as
you know, to my district, and that is specialty crops. And,
obviously, thank you for allowing me to advocate on behalf of
specialty crops and organic producers as well.
As you know, the specialty crop industry is a unique
industry; therefore, it does have unique needs and faces unique
challenges. The growers of these high-value and labor-intensive
crops often have to cope with threats from pests and diseases.
They have fewer coverage options for risk management, meaning
that they really don't use any type of crop insurance that I
have found.
And at this point, I believe that they are sort of behind
the curve when it comes mechanization and dealing with the
labor shortages that we have in that area. So it is best to
serve this industry. So in order to serve this industry, I feel
that we must equip them with the most innovative tools
available. That is why I support the work of the USDA's
Agricultural Research Service, including the Agricultural
Research Station there in Salinas, California. That ARS station
has projects focused on specialty crop production, improving
agricultural production systems, increasing sustainability
efforts, and protecting soil and air quality.
It is that type of important research that requires modern
facilities for best results. That is why I urge continued
funding for the ARS buildings and facilities so that we have
state-of-the-art facilities for our researchers. The Salinas
station is considered to be a high-priority project for USDA.
But continued support is needed to ensure that we continue to
have the critical research necessary to best serve the needs of
our growers for specialty crops.
In addition to the work being done by the ARS, the USDA's
National Institute of Food and Agriculture is advancing the
specialty crop industry through the Specialty Crop Research
Initiative. This is something for which I advocate full
funding, because I believe that this initiative is working to
develop innovative solutions through research and extension
efforts as a way to address the major issues facing our
producers, such as plant genetics, food safety, and something I
believe that is very important, improvements in mechanization
to make up for the loss in labor.
I also respectfully request that the focus be placed on
getting rid of devastating pests and diseases that have the
ability to cripple our specialty crops. The USDA's Animal,
Plant, and Health Inspection Service is critical in addressing
those types of threats, so the investments must be made to
ensure the ability of this agency to detect and respond to crop
pests. These investments often are cost-saving in the long run.
I want to thank you, on behalf of our specialty crop
producers, and for the investments in things that we eat every
day. Thank you.
[The information follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Aderholt. Thank you, Mr. Panetta, for providing us with
your firsthand knowledge, and certainly, rest assured that as
we move forward with this process, your views will be kept in
mind by all of us on the Committee.
Mr. Panetta. Thank you, sir.
Mr. Aderholt. So we appreciate your testimony. Also,
without objection, your entire written testimony will be
included in the record.
Mr. Panetta. I appreciate that.
Mr. Aderholt. So thank you, and I appreciate your being
here today.
Mr. Panetta. Thank you.
Mr. Aderholt. Okay. At this time I would like to recognize
the gentleman from North Carolina, Mr. Rouzer. And as I said
earlier, we originally talked about 5 minutes, but we are
fighting votes and the clock, so we are going to try to go down
to 3 minutes if we can, but we won't hold you quite to the
standard we were on the 5 minutes, so, if you can, summarize
your comments, and your written testimony will be included as
well. Mr. Rouzer.
----------
Thursday, March 9, 2017.
WITNESS
HON. DAVID ROUZER, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NORTH
CAROLINA
Mr. Rouzer. Thank you, Mr. Chairman, and thank you, Ranking
Member. I appreciate the opportunity to be here before you
today. As you may know, I am here representing not only myself,
but also the testimony of my good friend and colleague, Richard
Hudson, which is on a totally separate matter, but I will try
to be an all star for you and do it all in 3 minutes as best I
can.
As far as my testimony before the Committee, I am here
specifically to talk about the new Grain Inspection, Packers,
and Stockyards Administration rules, which I know that you all
are very familiar with, two of which have been proposed, and
one that is an interim final rule. All of them were initiated
during the final few months of the previous administration.
Now, these are the same rules that a number of past
appropriations bills specifically prohibited funding for
implementation. And to ensure that these rules are not
implemented, it is critical for the beef, pork, and poultry
industries that language defunding these rules, once again, be
included in the fiscal year 2017, and I would also ask that you
include this language in the fiscal year 2018 appropriations
bill.
Now, these new GIPSA rules present a myriad of problems
that will only negatively affect producers. The agency itself
even concedes that the new rules will result in substantial
litigation against the livestock and poultry industry. This,
obviously, Mr. Chairman, helps no one. The bottom line here is
more litigation and fewer market opportunities for our
producers.
Now, moving over to testimony that I am providing on behalf
of my colleague, Richard Hudson, this is with regard to the
Cole-Bishop amendment that was included previously by this
Committee, and obviously, specifically, we are talking about
for the fiscal 2017 appropriations bills. This amendment passed
the full Appropriations Committee with bipartisan support last
year.
The amendment is vital because it clarifies the predicate
date under FDA's deeming regulation, and even goes further than
FDA's regulation by requiring non self-service new print media
advertising restrictions, additional labeling, and battery
safety standards for vapor products. The Family Smoking
Prevention and Tobacco Control Act of 2009 immediately granted
FDA the ability to regulate cigarettes, smokeless, and roll-
your-own tobacco products. The Act also provided FDA the
ability to deem other tobacco products to be under its
authority.
In May 2016, FDA finalized the deeming rule and extended
its regulatory authority to include cigars, vapor products, and
other tobacco products. The final regulation took effect on
August 8, 2016. While there were many pieces of the final
deeming rule that I support, there was one provision that
clearly needs to be changed, and that is the predicate date.
The date the Tobacco Control Act is February 15, 2007. There is
no magic date to that specific date whatsoever, but it happens
to be the date the bill was introduced in the 110th Congress.
Now, I was a proud cosponsor of Congressman Cole's
standalone bill to change the predicate date in the last
Congress, and, in fact, there were 76 other cosponsors of his
bill. The bottom line of it all, though, is that it makes no
sense that the current predicate date would apply to products
that did not exist in the market in any meaningful way and that
FDA began regulating in 2016.
Without a change in the 2007 predicate date, FDA's
regulation will require all vapor product manufacturers to
submit costly and time-consuming premarket tobacco applications
to obtain FDA's permission to remain on the market.
Without changing the predicate date, the reality is, and
this is the main point, vapor products will have a higher
regulatory burden to get to the marketplace than a cigarette.
This amendment does nothing to cut against FDA's full
authority to regulate these products. And, in fact, it builds
on what FDA has already done in its final deeming regulation
and accelerates action on additional consumer safety and
marketing issues while modernizing the predicate date to
promote a regulatory framework where harm reduction and
innovation have a chance to succeed.
On behalf of many other Members, I want to thank the
Subcommittee for the inclusion of the Cole-Bishop amendment,
and urge your leadership to ensure its enactment. Thank you
very much, Mr. Chairman.
[The information follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Aderholt. Thank you, Mr. Rouzer. I understand those are
very important issues and issues that we have looked at, and we
will certainly be keeping those in mind as we move the process
forward. So, without objection, your entire written testimony
will be included in the record, and we appreciate you being
here today, thank you.
Mr. Rouzer. Thank you very much.
Mr. Aderholt. At this time, I would like to recognize the
Congressman from the 16th District of California, Mr. Costa.
You may proceed.
----------
Thursday, March 9, 2017.
WITNESS
HON. JIM COSTA, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF
CALIFORNIA
Mr. Costa. Thank you very much, Chairman Aderholt and
Ranking Member Bishop, and Members of the Subcommittee, for
allowing us the opportunity to testify on the fiscal year 2017
ag appropriations.
As Ranking Member of the House Agriculture Subcommittee on
Livestock and Foreign Agriculture, I respectfully request that
you retain the bipartisan language provision, known as GIPSA
rule, that was included in the Committee-passed fiscal year
2017 ag appropriations bill.
On June 22, 2010, the U.S. Department of Agriculture's
Grain Inspection, Packers, and Stockyards Administration
proposed a massive rule that referred as the GIPSA rule that
would severely disrupt the livestock and poultry industries,
and at a massive cost to those industries that ultimately would
be passed on to the consumers, in my opinion.
The firestorm of objections from stakeholders and Congress
was swift, loud, and bipartisan. As a result, the Congress has
prohibited the USDA from moving forward with the proposal in
four consecutive appropriation bills, thanks, in part, to the
good work that you have done, and we thank you.
One would think that the United States Department of
Agriculture would have received the message, but at the very
end of the last administration, the Department published an
interim final rule, and two proposed rules derived from the
original 2010 proposal.
Of the three, the interim final rule, or IFR, is the most,
I think, disruptive and immediate. It is currently scheduled to
become effective on April 22. If allowed to become effective,
the extraordinary economic cost, regulatory burden of the rule
will be felt across the entire livestock industry, poultry
industry from producers to packers to processors, and I think
it will result in fewer choices for consumers.
It is insulting that the agency continues to attempt to
accomplish this by rulemaking in what proponents of this rule
have failed to do legislatively. This rule, if implemented,
would fundamentally and negatively change the way that
livestock and poultry are marketed in this country by taking
away the value-added marketing agreements that have been put in
place to help producers get more of a return for their animals
and would open floodgates to baseless litigation. None of us
want that.
When cattle markets are already depressed, the government
should not be limiting marketing opportunities. Initially,
implementation of this rule could lead to retaliatory tariffs
by our trading partners, and we have seen that action take
place in the past, and so it is very real.
If the GIPSA language that would address this issue,
section 767 of the H.R. 5054, is supported by all of the
mainstream livestock and poultry organizations, including the
National Cattlemen's Beef Association, National Pork Producers,
National Chicken Council, National Turkey Federation, support
for the language is bipartisan. I have worked alongside here
with Chairman David Rouzer on this issue, and we hope you, too,
will continue your efforts, as you have in the past, on this
bipartisan matter to ensure that we fix the provisions of this
GIPSA rule.
And then let me also add, it is not part of this testimony
here, but my colleague and good friend, Congressman McGovern,
is going to be testifying on SNAP and WIC, and those are very
important issues as we try to formulate and put together a
bipartisan reauthorization of the Farm Bill, and so the ability
to maintain those funding levels is going to be critical if we
are going to be able to produce a reauthorization of the Farm
Bill, which I will continue to work with my colleagues, and we
want to work with this Subcommittee, which is an important part
of that reauthorization of the Farm Bill. Thank you very much.
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Mr. Aderholt. Thank you for your testimony as well, Mr.
Costa, and of course, as I mentioned with Mr. Rouzer, without
objection, your entire written testimony will be included in
the record. We understand these are important issues that both
of you brought up today, and we look forward to working with
you, as we move forward in the process, so thank you for being
here.
Mr. Costa. Thank you very much.
Mr. Aderholt. Welcome, Congressman McGovern from
Massachusetts. We appreciate your being here today, and you are
recognized. I said earlier, we were originally going to do 5
minutes, but we are going to try to do 3 since we have got
votes on the floor, but we will not hold it strictly, but if
you can summarize to 3, it would be great.
Mr. McGovern. I will try.
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Thursday, March 9, 2017.
WITNESS
HON. JAMES P. MCGOVERN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF
MASSACHUSETTS
Mr. McGovern. Thank you very much. I wish we could do that
in the Rules Committee, get members to summarize, but we don't
seem to have that much success with that.
But let me thank you for having me here today. We live in
the richest country in the history of the world. I find it
unconscionable that 42 million Americans live food-insecure and
hungry. You know, 17 million are kids. I think it is something
that should bother each and every one of us.
Last week, I testified before the House Budget Committee in
support of the SNAP program, and I urged the Committee to
protect the structure of the program, which is our Nation's
first line of defense against hunger, and to oppose any efforts
to cut funding. So let me kind of summarize this briefly here.
With respect to SNAP, I urge the Committee to provide at
least $3 billion for the SNAP reserve account to ensure people
have continued access to benefits, even if the program incurs
unanticipated expenses. I also ask the Subcommittee to provide
robust funding for several discretionary accounts that,
together with SNAP, work to reduce hunger in this country.
The WIC program, the Women, Infants & Children program, I
would strongly urge the Committee to fully fund WIC at $3.36
billion, including at least 90 million for the breastfeeding
peer-counseling program. The Emergency Food Assistance Program,
known as TEFAP, provides highly nutritious food that food banks
pair with donated items to craft packages for their clients,
and although TEFAP commodity funding is mandatory, TEFAP
storage and distribution funds are discretionary. I urge the
Committee to fully fund the storage and distribution account at
$100 million.
I also urge this Committee to increase funding for the for
Nutrition Programs Administration. You know, staffing levels at
the U.S. Department of Agriculture's Food and Nutrition Service
are the same as they were in 2003. Staff at FNS are focused on
SNAP integrity, in large part, due to additional funds provided
in the 2014 Farm Bill for that purpose, but at the same time,
other missions, including child nutrition and regional
operations, suffer.
I would also just like to make a couple of comments about
some of the international food programs. As some of you know, I
am the primary House author of the George McGovern-Robert Dole
International Food for Education and Child Nutrition Program.
This program has provided millions of kids, in the most awful
circumstances and the poorest countries around the world, the
opportunity to have a meal in a school setting, and, each year,
USDA receives more proposals than it can fund, highlighting the
need for this program and the success of the program.
I would urge the Committee, at a minimum, please do not cut
this funding, continue it at the 2017 levels, and if there is
an increase that is possible, I would certainly advocate for
that.
Second, the P.L. 480 Title II Food for Peace program, one
of our most important humanitarian food aid programs, as well
as supporting projects on chronic food insecurity. You know, as
the world faces its greatest refugee crisis since World War II,
we can't cut funding for this program. It is simply
unfathomable to think otherwise, so it needs to be adequately
funded and receive at least the fiscal year 2017 levels, and
more if the budget constraints allow.
I believe both the McGovern-Dole and Food for Peace advance
U.S. national security interests around the world and reflect
the best of our values. And one other thing is that I would
urge that this Subcommittee provide at least $54 million for
tree and wood pests under USDA's Animal and Plant Health
Inspection Service.
It is kind of unrelated to everything else, but I come from
an area that was infested with the Asian Longhorned Beetle, and
saw the devastation firsthand where basically all of our urban
forests had to be removed, and we were grateful that USDA was
able to support us, but, you know, we are not done with that
effort.
And I want to thank everybody on this Committee for the
work that you do. I see my colleague, Congresswoman Pingree. I
work with her on a lot of food and nutrition programs, as well
as with Mr. Pocan and Mr. Bishop and my colleagues on the
Republican side as well, but I support Ms. Pingree's efforts to
promote and support organic agriculture, and especially her
efforts to deal with the issue of food waste. We throw away and
waste about 40 percent of what we grow and produce, and we have
a hunger problem. We got to fix that, and so whatever she
wants, I support that, too. That is the end of my testimony.
Thank you.
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Mr. Aderholt. Okay. Thank you.
Ms. Pingree. I didn't pay him or anything to say that.
Mr. Aderholt. All right. Well, that will be noted on the
record. But thank you for your testimony, and certainly those
are some issues that have been very important to this
Subcommittee, and we will continue to take those into
consideration as we move forward with the appropriations
process. And of course, without objection, your entire written
testimony will be included in the record----
Mr. McGovern. Thank you.
Mr. Aderholt [continuing].--So again, thank you for being
here.
Mr. McGovern. Thank you very much.
Mr. Aderholt. All right. At this time, we have a vote on
the floor. We have got about 6 minutes left in the vote, so we
are going to go ahead and take a recess until this series of
votes is over, and we will reconvene shortly after the last
vote in this series.
[Recess.]
Mr. Aderholt. Okay. The Subcommittee will come back to
order. And we will continue our Member Day hearing with Mr.
Thompson from the Fifth District of Pennsylvania.
----------
Thursday, March 9, 2017.
WITNESS
HON. GLENN W. THOMPSON, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF
PENNSYLVANIA
Mr. Thompson of Pennsylvania. Chairman, thank you so much.
Thank you to you and the Ranking Member and all the Committee
Members for the privilege and opportunity to be able to present
some priorities on behalf of the Subcommittee.
I serve as the vice chair of the Agriculture Committee,
Chairman of the Nutrition Subcommittee, and represent one of
the more rural Congressional districts east of the Mississippi.
And so what you have responsibility for is certainly important
to the folks I serve, and it is appreciated.
You know, proper land stewardship, active management, and
conservation are critical to the health of our economy, our
environment, farms, forests, and watersheds. And under the 2014
Farm Bill, the Agriculture Committee reformed and consolidated
over 23 different conservation programs within Title II.
I had the privilege of serving the last three terms as the
former Chairman of the Subcommittee on Conservation and
Forestry in Agriculture. I saw firsthand how critical these
programs are to farmers, private landowners, communities, and
the environment. As such, I would respectfully request full
funding for the conservation programs in general, administered
by the Natural Resources Conservation Service, consistent with
the Farm Bill.
These important programs work in partnership with States,
local governments, farmers, landowners, conservation districts,
and other key stakeholders in providing conservation planning
as well as financial and technical assistance.
With the continued efforts to improve the Chesapeake Bay
and its ongoing total maximum daily load mandate, the NRCS
continues to play a critical support role in my region. With
that, I would also like to register my support for the Farm
Service Agency, which is responsible for administration of
these programs and providing that technical boots on the ground
for all involved.
Two key agencies within USDA, the Agricultural Research
Service and the National Institute of Food and Agriculture,
play an instrumental role in supporting agricultural research
and extension work at higher education institutions and land-
grant universities.
A recent study completed by the Northeast Regional Center
for Rural Development, which is a program funded through NIFA,
found that 137,000 farmers stayed in farming as a direct result
of extension and associated university research programs. The
long-term benefit of that program is connecting land-grant
universities and academic research with the public, State, and
Federal partners and, ultimately, the farmers.
So, with that said, I would express my support for the
Agriculture and Food Research Initiative that I strongly
believe needs continued funding.
The McIntire-Stennis Cooperative Forestry Program provides
essential funds for forestry research.
Also, the Hatch Act is used to directly address issues at
the various levels for production agriculture for plant and
animal systems, food, and nutrition. It is across the board.
As well as continued support for cooperative extension
under the Smith-Lever program, the Regional Rural Development
Centers that serve as trusted sources of economic and community
development.
And, finally, as Chair of the Subcommittee on Nutrition, I
would just ask for your continued support for the Supplemental
Nutrition Assistance Program. Funding this title allows us to
support those in need of supplemental assistance as well as our
farmers, who grow the healthy food and fiber that sustains our
Nation.
I appreciate the privilege and the opportunity to be able
to spend some time before you this afternoon.
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Mr. Aderholt. Thank you. And, of course, your role as Vice
Chair of the Agriculture Committee is very important. And we,
of course, as you know, have a close working relationship, and
we look forward to working with you on these issues.
So thank you for your testimony and for being here today.
And, of course, without objection, your entire written
testimony will be included in the record.
Mr. Thompson of Pennsylvania. Appreciate it.
Mr. Aderholt. And we appreciate your being here this
afternoon.
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Thursday, March 9, 2017.
WITNESS
HON. ROBERT PITTENGER, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF
NORTH CAROLINA
Mr. Aderholt. At this time, I would like to recognize the
gentleman from North Carolina, Mr. Pittenger, for his
testimony.
Mr. Pittenger. Thank you, Mr. Chairman, Ranking Member, and
Members of the Subcommittee. Thank you for offering me the
opportunity to speak today.
As you know, last year, North Carolina redrew its
Congressional districts, making my Ninth District much more
rural, with seven of my eight counties being rural counties. So
I very much appreciate the focus that you provide to rural
America.
Over the last few months, I have spent countless hours
getting to know the hardworking North Carolinians in Union,
Anson, Scotland, Richmond, Robeson, Cumberland, and Bladen
County and hearing about the issues that they face,
particularly in Robeson County.
It has been afflicted by chronically slow economic
development. Identified by the USDA's Economic Research Service
as a persistent-poverty county, at least 20 percent of Robeson
County's population has lived under the Federal poverty level
over the last 30 years. Last fall, the situation was
exacerbated by the severe flooding from Hurricane Matthew, the
effects of which will be continued and felt for many years to
come.
Robeson is the poorest of all 100 North Carolina counties,
the most ethnically diverse, and the largest by geography.
These factors, combined, should alter how we determine grants
so we do not preclude cities like Lumberton, the county seat of
Robeson County, which is a prime candidate for USDA Rural
Development grants.
As it stands, Lumberton recently crossed the 20,000
population threshold, effectively disqualifying the town from
eligibility programs like the Community Facilities Direct Loan
and Grant Program or the Economic Impact Initiative Grants.
Lumberton's current population stands at 21,800 people.
Chronically distressed towns who are the support system for the
larger counties so close to the population cutoff should at
least be considered for these grants and loans aimed at ending
chronic poverty.
With these factors in mind, I humbly request that the
members of the Subcommittee accept my language request for
increased flexibility of eligibility criteria for the USDA
Rural Development grant and loan programs. I believe it is
common sense that we create the necessary flexibility when
making these important determinations and not prevent critical
funding from reaching those who are truly in need as a result
of arbitrary population metrics.
Thank you again for your consideration, and I look forward
to working together with you to help find a solution for this
national issue.
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Mr. Aderholt. Thank you, Mr. Pittenger.
We are familiar with Lumberton and this issue. Your
predecessor for that area, Mr. McIntyre, has been a very strong
advocate for this as well. So what you are saying does not fall
on deaf ears, and we want to be of help on that. We want to try
to see what we can do to try to find a way to be helpful from
this Subcommittee.
So thank you for your testimony. And, as I mentioned with
Mr. Thompson, without objection, your entire written testimony
will be included in the record. We thank you for being here.
Mr. Pittenger. Thank you, Mr. Chairman. I really appreciate
it.
Mr. Aderholt. Well, thank you, and welcome to the
Subcommittee today.
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Thursday, March 9, 2017.
WITNESS
HON. STACEY PLASKETT, A DELEGATE IN CONGRESS FROM THE VIRGIN ISLANDS
Mr. Aderholt. And we would like to now recognize the
gentlelady from the Virgin Islands.
Ms. Plaskett. Thank you so much, Chairman Aderholt, Ranking
Member Bishop, for the opportunity to testify on appropriations
for the Department of Agriculture and related programs over the
next fiscal years.
In the United States territories, despite being home to
nearly 4 million Americans, we are too often left out of
important programs or underfunded compared to benefits
available to Americans living on the mainland United States. As
a result, it is often more difficult for the islands to improve
economic conditions.
The islands, as a whole, must transition from 100-percent
reliance on imported oil to a clean, sustainable energy future
and relief from power costs that are more than double the
national average. Here in the Maryland area, individuals pay
about 14 cents per kilowatt, whereas in the Virgin Islands we
pay between 36 to 42 cents per kilowatt hour. So the assistance
from Rural Development is very important.
We are fortunate to have Federal Rural Development support
that assists our communities in maintaining decent housing and
infrastructure, with Department of Agriculture programs
providing a critical lifeline to low-income families in the
Virgin Islands. Through low-cost loans, grants, and other
assistance, USDA Rural Development assistance improve
conditions and quality of life, and, frankly, we desperately
need more from them.
The Rural Housing Service's single-family housing loans,
for example, are one of the most critical tools to help
smaller, lower-income, and more remote rural communities gain
access to mortgage credit. Section 502 lending is the only
Federal homeownership program that exclusively targets low- and
very low-income rural families. The program provides essential
funding for families in my district to fill in the gap of
private market, since we have banking which is very limited in
the Virgin Islands, allowing those who would otherwise be
unable to access affordable mortgage credit achieve the
American Dream of homeownership.
Robust infrastructure development, including electricity,
broadband, telecommunications, water and wastewater, and
construction of essential community facilities, is foundational
for rural viability. At this time, we have no mental health
facility in our islands. Our schools and other structures,
medical centers, are barely doing repair work and have not been
able to expand their services.
The Virgin Islands are particularly in need of broadband
infrastructure. We are currently at a disadvantage in accessing
broadband technologies, in part because of the higher costs
than on the mainland. So we need greater broadband grant
funding in the Rural Utilities Service budget.
Many of the people living in the Virgin Islands do not have
ordinary access to a computer connected to the internet, and
this continues to have a negative impact on educational
opportunities and workforce development to grow our economy. As
a remote location, internet and broadband would serve a
critical and vital role in creating jobs in our community. And
because of our children's inability to physically access
resources on the mainland, increased broadband would make a
greater impact to education to close the now-existing digital
divide.
Regarding agricultural research services, the University of
the Virgin Islands maintains an Agricultural Experiment Station
as part of its research and public service component. The AES
conducts basic and applied research to meet the needs of the
local agriculture community, which is growing, and increasing
production, improving efficiencies. Financial support for this
enterprise comes from both public and private resources.
However, the most significant funding source is the Federal-
State partnership maintained by the National Institute of Food
and Agriculture.
Lastly, as to your purview over the FDA budget, I
understand that your bill last spring provided the requested
$10 million for activities related to the response to the Zika
virus and other emerging threats. This funding is very
important to the Virgin Islands, and I very much hope that this
will be included in your legislation this year.
Appropriation bills are oftentimes a lot of numbers, but
behind each of these numbers are individuals and people that we
all care deeply about. And I believe that must be kept in mind
when funding of all these accounts is considered.
With that, I thank you again for the opportunity to present
my testimony today.
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Mr. Aderholt. Thank you for being here, and we appreciate
your testimony. And, as I mentioned, without objection, your
entire written testimony will be included in the record. And we
look forward to working with you on these issues for not only
help for the Virgin Islands but also for the entire country. So
thank you for taking time to be here.
Ms. Plaskett. Thank you so much.
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Thursday, March 9, 2017.
WITNESS
HON. ROGER MARSHALL, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF
KANSAS
Mr. Aderholt. At this time, I would like to recognize the
gentleman from Kansas, Mr. Marshall, for his testimony.
Mr. Marshall. Good afternoon, Chairman Aderholt and Ranking
Member Bishop as well as other Members of the Committee. Thank
you for the opportunity to share a few thoughts about the
fiscal year 2018 ag appropriations bill.
Agriculture is the backbone of my district, representing a
full 60 percent of the district's economy, which makes matters
pertaining to agriculture policy paramount, especially when we
consider the scope of the downturning commodity prices that is
driving farm revenue to multidecade lows.
Consider that the latest year we have data for, 2015,
Kansas net farm income averaged less than $6,000 per farm. We
already know that 2016 will be worse, and 2017 even looks worse
yet. Can you imagine trying to raise a family on less than
$6,000 a year?
With that broad agricultural economic outlook in mind, I
ask that your Committee take the medical profession approach of
``first, do no harm.'' As American farmers and ranchers ride
out these difficult financial times, the worst thing Congress
could do is weaken the safety net they are counting on.
Beyond the traditional safety net programs, access to
credit is a key need that we ask your Committee to ensure
remains viable. The FSA guaranteed and operating loan programs
help provide certainty and liquidity for growers as they face
these challenging times.
I also ask that your Committee take a long look as we think
how to ensure American agriculture remains viable and
competitive into the future. Ag research investments,
particularly through the National Institute of Food and
Agriculture, are key to developing tomorrow's genetics,
production methods, and end uses. While NIFA is a small portion
of the overall budget, they have an outsized impact and fund
research infrastructure and critical projects in areas that
matter to my district, including plant and animal health,
biosecurity, and nutrition.
Of particular interest within NIFA are the Hatch Act funds
that match State dollars to fund our research experiment
stations, the Smith-Lever Act that matches State dollars to
fund cooperative extension services, and the Agriculture and
Food Research Initiative, which provides competitive grants to
researchers across the country. An increase to the overall NIFA
budget would allow expansion of these programs and build a
foundation for the future of our agriculture industry.
If I could, I would like to take a brief moment and deviate
from my prepared remarks and briefly highlight a potentially
urgent need developing as wildfires have swept across Kansas,
Oklahoma, Texas, and Colorado. In Kansas, nearly 650,000 acres
have been burned, with at least one confirmed death, dozens of
homes and other structures destroyed.
I appreciate the initial State and Federal response and
will have the opportunity to learn more about the damage and
needs this weekend. In the meantime, I appreciate the
Committee's considerations of USDA programs that help producers
rebuild after disasters like this, including the Emergency
Conservation Program and emergency loan programs.
Thank you so much for listening to me today, for your
concerns, and your continued support of American agriculture.
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Mr. Aderholt. Thank you, Mr. Marshall, for being here. And
we appreciate your testimony and look forward to working with
you.
You know, we understand that agriculture is very important
to your district and Kansas in general. So we want to work with
you, as we do all Members, on these issues wherever this
Subcommittee can work to be more helpful and more effective and
to do our job.
So your entire written testimony will be included in the
record, and we look forward to working with you.
Mr. Marshall. Thank you, Mr. Chairman.
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Thursday, March 9, 2017.
WITNESS
HON. BILL POSEY, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF FLORIDA
Mr. Aderholt. At this time, I would like to recognize Mr.
Posey from the Eighth District of Florida.
Mr. Posey. Thank you, Mr. Chairman, Ranking Member, and
Members, for the opportunity to testify about a Food and Drug
Administration rule that is having devastating impacts on small
businesses across the country.
And, first, I want to thank you, Members of the Committee,
for including my proposed language in last year's agricultural
appropriations bill, which would have defunded the
implementation of the FDA rule to regulate premium cigars in
the same manner as cigarettes and smokeless tobacco.
Back in 2009, Congress rightfully passed the Tobacco
Control Act with a key objective in mind of preventing our
youth from accessing tobacco products. Traditional handcrafted
cigars, however, are absolutely, positively, and unequivocally
not a product used by, marketed to, or accessible to children
and, therefore, were not included within the Tobacco Control
Act scope.
Unfortunately, that hasn't stopped the FDA from advancing
regulations that are now crippling the cigar industry from top
to bottom.
Some regulations ignore the distinction of the premium
cigar market, which has established, artisan traditions and a
cultural niche. Premium cigars are sold in mom-and-pop stores
and enjoyed by adults in moderation or during celebratory
occasions. They are not the type of cigars you get at your
local gas station, the ones with plastic tips, filters, or
nontobacco mouthpieces.
Instead, what I am describing are traditional large and
premium cigars, which I have clearly defined in legislation
that I have introduced every Congress since the FDA proposed
these overreaching regulations. Our legislation has drawn
strong bipartisan support in the past, and I expect it will in
the future.
Premium cigars have a rich history in Florida, with more
than 50 manufacturers headquartered in the State and more than
250 premium cigar retail shops, several of which are owned by,
employ, or serve my constituents. On a national level, tens of
thousands of American jobs are sustained by the industry.
Using the narrow definition in my bill, which is included
in the fiscal year 2017 Subcommittee bill, we can ensure that
Americans will continue to have the freedom to enjoy these
legal products, while also allowing the FDA to use their
authority as Congress intended, and that is to prevent children
from using tobacco products.
We must act quickly, though. The FDA's rule has already had
negative consequences across the country and even overseas,
where our troops are now being told they can no longer receive
donated premium cigars. You heard that correctly. Our
warfighters, who put their lives on the line for our freedoms,
are now being told by bureaucrats at the FDA that they can no
longer enjoy a donated cigar in their downtime.
For the record, it is not only our troops who have fallen
victim to the FDA's lack of common sense, but also
manufacturers have been forced to raise prices and reduce
production of new blends.
The goal of the Tobacco Control Act was never to regulate
premium cigars but, rather, to regulate tobacco products that
are marketed to youth. Let's refocus the FDA to serve this
purpose by including language to exempt premium cigars from
this one-size-fits-all, wrongheaded policy.
I thank the Committee for their time, and I am happy to
answer any questions. Thank you.
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Mr. Aderholt. Thank you, Mr. Posey, for your testimony.
Certainly the issue that you raise is something this Committee
has been very concerned about. And we want to continue to work
on it, quite honestly, as we finish the fiscal year 2017, but
certainly as we go into fiscal year 2018.
So thanks for your testimony here, and we will look forward
to continuing working with you. And, as I mentioned, your
entire written testimony will be included in the record.
Mr. Posey. Thank you, Mr. Chairman and Members.
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Thursday, March 9, 2017.
WITNESS
HON. JOHN FASO, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEW YORK
Mr. Aderholt. All right. Mr. Faso from New York, we welcome
you to the Subcommittee, and I look forward to hearing your
testimony. The floor is yours.
Mr. Faso. Mr. Chairman, Members of the Committee, Ranking
Member Bishop, I appreciate the opportunity to come before you
today.
I wanted to address the Committee on a program that has
worked very well in my rural district in upstate New York, the
USDA Circuit Rider Program, to enhance rural water systems
around our State and around our Nation.
It is no secret that our water infrastructure is outdated
and distressed in many places around the Nation. It is
estimated, over the next 20 years, over $300 billion will need
to be invested in our Nation's aging water systems. This is
particularly a problem in rural areas because many rural
communities simply cannot afford the upgrades or the
establishment of rural water systems for their area.
And that brings me to part of the solution--that is, the
USDA Circuit Rider Program. It consists of 117 full-time
employees that work throughout various rural water associations
throughout the States. They provide support for nearly 31,000
utility system members around rural areas in our country.
The Circuit Riders provide a variety of services, including
support for day-to-day, routine operational issues, such as
leak detection and water contamination. Riders also provide
advice on financial and management issues to keep operators up
to date with the best industry practices.
And I can give you a very, very cogent example of the
benefit of this program. Hoosick Falls, a small rural community
in Rensselaer County in my district, in 2015 discovered that
the water supplies of the village of Hoosick Falls were
polluted with PFOA, perfluoro-octanoic acid. Initial tests
indicated that the water contained PFOA levels above 600 parts
per trillion, well above the then EPA guideline of 400 parts
per trillion for short-term exposure.
That guideline, by the way, is in the process, I believe,
of being dramatically lowered. In Vermont, for instance, the
guideline is 20 parts per trillion. In New Jersey, it is 40
parts per trillion. New York has adopted a lower standard as
well.
Circuit Riders were the first on the scene and worked with
the village over the course of a week, in conjunction with
local operators, to flush the entire system and clear out large
amounts of PFOA. And, incidentally, the community was dealing
with this polluted water--they didn't know it--for over 2 to 3
years before it was discovered.
Additionally, Circuit Riders were the first advisers to
recommend the use of carbon filtration systems to remove the
PFOA from the water and worked closely with engineers and
village officials to implement a filtration plan.
While this program is small, it is integral to ensuring
clean water in rural areas. In the last few years, the program
has received an annual 3-percent cost-of-living factor built
into the competitive-bid, fixed-price contract. To sustain the
current workforce of 117 full-time employees, who work in
States all around the Nation helping rural areas, I would
request that the committee appropriate $17,404,000 to meet the
contractual obligations.
The rural water systems are already facing financial and
technical strain, and decreasing the Circuit Rider Program
would dramatically affect their ability to provide pure and
clean water for our rural communities throughout the Nation.
So, Mr. Chairman, Members of the Committee, I appreciate
your attention today and hope you will give consideration to
this request.
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Mr. Aderholt. Thank you. Certainly, we know that the
Circuit Rider Program is very important. I represent a rural
district as well. And so we very much appreciate your weighing
in on this issue and look forward to working with you on this.
Your written testimony will be included in full in the
record. We look forward to working with you, and thank you for
being here.
Mr. Faso. Thank you, Mr. Chairman.
----------
Thursday, March 9, 2017.
WITNESS
HON. SCOTT DESJARLAIS, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF
TENNESSEE
Mr. Aderholt. All right. Mr. DesJarlais of Tennessee,
welcome to the Subcommittee. We look forward to hearing your
testimony as to how we can work together as far as helping not
only Tennessee but also other parts of the country. The floor
is yours.
Mr. DesJarlais. Thank you, Chairman Aderholt and Ranking
Member Bishop, distinguished Members of the Committee.
As a Representative from Tennessee, I would like to take a
moment to discuss the ongoing issue of communications and
engagements between the Animal and Plant Health Inspection
Service and the Tennessee Walking Horse industry.
As the Committee is aware, under the previous
administration, APHIS proposed changes to the Horse Protection
Act that, if enacted, would have a detrimental effect on an
important industry in many States across the country. Not only
would APHIS' proposed rule cripple the Walking Horse industry,
but it would also have negative impact on the individuals,
small businesses, and local communities that operate within or
benefit from it.
Although the industry has experienced its share of
setbacks, due in large part to a small number of bad actors who
generated negative stories, the industry as a whole has worked
tirelessly over the past few years to rid itself of this
minority. In fact, according to the U.S. Department of
Agriculture's own data, the industry has an average inspection
compliance of 96 percent over the past few years and is working
diligently towards achieving a 100-percent rating.
As the Representative for Tennessee's Fourth Congressional
District in Shelbyville, Tennessee, the home of the National
Walking Horse Celebration, I worked with my constituents, horse
show organizers, managers, and participants to ensure the
industry has the necessary tools to continue their reforms and
eliminate wrongdoers.
While APHIS has opened the channel of communication between
itself and the industry stakeholders in recent months to
discuss changes in compliance to the HPA, there is still much
progress to be made, as evidenced by their final rule that, if
enacted, would gravely affect the Walking Horse industry.
First, the proposed rule seeks to prohibit action devices
and weighted shoes from competition, which would effectively
displace more than 85 percent of a $3.2 billion industry.
In addition, the APHIS final rule fails to address a
critical component of the issue by continuing to allow current
subjective inspection methods instead of requiring peer-
reviewed, objective protocols. It is indisputable that a
process where an inspector is required to watch for responses
to pain is a process susceptible to human error, agenda-driven
bias, or multiple mistakes.
In the 2016 celebration alone, there was a 22.6-percent
error rate as a result of disagreement over compliance between
the initial veterinary medical officer assessment and the
secondary VMO's inspection. In addition, 52 percent of the time
a horse was disqualified, the two VOMs could not agree on the
cause of pain.
These inspection results for the celebration mirror issues
across the industry as a whole and point to the error of
government inspectors, signifying a clear need for change.
Following little change in communication efforts between
APHIS and the industry up until late 2016, the fiscal year 2017
Agriculture Appropriations Act directed APHIS to provide
greater and more consistent transparency, to work more closely
with stakeholders on rules and regulations, and to move away
from the subjective nature of current inspection methods in
favor of objective measurements.
The fact that I am making this same request of APHIS for
the third year in a row emphasizes that communication and
engagement could be improved vastly. While APHIS may disagree,
the industry and APHIS have the same goal: to ensure full
compliance with the Horse Protection Act for safe competition.
The only way to ensure objective inspection methods and full
compliance with HPA is through bilateral communications between
parties regarding rules and changes to the HPA.
For the reasons stated earlier, I ask the Committee to
continue to encourage APHIS to utilize objective, science-based
inspections versus the current system of subjective inspections
of Walking Horses.
I also ask the Committee to continue to push APHIS to keep
open and enhance the channel of communications, particularly
during the final rule negotiations of any discussion of changes
to existing protocol. The industry must have some consistency
within the overall inspection process and within specific areas
or definitions within the process.
Finally, I request the Committee encourage APHIS to work
closely with horse inspection organizations and organizations
such as the Veterinarians Advisory Committee to develop any new
protocols. By collaborating across these organizations and
industry, we can ensure the continuation of the Tennessee
Walking Horse tradition and ensure safe and fair competition
for all involved.
Thank you for your time.
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Mr. Aderholt. Thank you, Mr. DesJarlais, for your
testimony, and we look forward to working with you. That is
certainly an issue that we are very well aware of, and we want
to continue working with you on that.
So thanks for your testimony. Without objection, your
entire written testimony will be included in the record. Thanks
for being here.
----------
Thursday, March 9, 2017.
WITNESS
HON. CLAY HIGGINS, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF
LOUISIANA
Mr. Aderholt. At this time, I would like to recognize Mr.
Higgins from the Third Congressional District of Louisiana. The
floor is yours.
Mr. Higgins of Louisiana. Thank you, Mr. Chairman, Ranking
Member Bishop, as well as the rest of the Members of the
Appropriations Subcommittee on Agriculture, for granting me
this opportunity.
I am here today not to ask for your support regarding
funding for particular projects or programs, nor to laud a
project in my district to sway favor with this Committee. I am
here to talk about innovation, to ensure that a competitive
system is in place which includes next-generation materials in
the completion of federally funded infrastructure projects.
The chemical industry transforms abundant supplies of
natural gas into the building blocks of thousands of consumer
products and innovations.
There has been unprecedented investment in the U.S.
chemical manufacturing sector in recent years. Two hundred and
eighty new chemical industry projects are pending across the
country, more than $170 billion worth of private endeavor
projects, and tens of thousands of jobs. In Louisiana alone,
there is over $50 billion in planned investment and a total of
74 projects. We have over 25,000 employees in the chemical
industry in Louisiana and 110,000 related jobs. These are good,
high-paying jobs, averaging 47 percent more than the average
manufacturing wage.
Currently planned projects will bring thousands more of
these jobs to my district. It is critical that our national
policies allow for free and fair bidding on projects. This
Congress has been presented with a historic opportunity to set
our Nation on a path of economic prosperity.
However, this will not be accomplished with words alone.
There are significant barriers to the completion of our
mission, and we must find ways to navigate challenging issues.
One of the most obvious hurdles is the drastic need to update
and restore our infrastructure, not only our systems of
interstates, bridges, rails, and waterways, but also utility
systems that provide services to every American.
Some of the most significant need for infrastructure
updates and repairs can be found in rural America, and consider
the fact that many of the small towns and municipalities in
rural America lack the necessary assets to maintain and upgrade
important services, like water and waste management.
While there are numerous Federal programs to help out with
funding, such as the United States Department of Agriculture's
Rural Development Programs, it is imperative that we enhance
competition wherever possible. We must ensure that innovation
has an opportunity to succeed in such programs. We are duty-
bound to save money where possible and to seek the wisest
investment of taxpayer dollars.
USDA's Rural Water Development Program is a prime example
of a program that promotes open competition. However,
currently, some municipalities may hold bidding processes that
require bidders to use so-called ``legacy materials'' for
pipeline and other infrastructure projects. It is important
that, while incumbent materials like traditional metals may
well hold advantages in certain scenarios, we must not
disregard innovation, manifested in many cases by the inclusion
of modern materials like plastics and hybrid composites as
foundational materials for pipelines and other projects.
To intentionally exclude innovative, modern, 21st-century
materials from Federal infrastructure projects, perhaps only to
protect entrenched interests, is not right. It is not in the
best interest of the citizens we are sworn to represent, and it
does not reflect our constitutionalist principles. Mr.
Chairman, we should ensure consideration of modern materials
for every infrastructure project.
Science has given us access to new construction materials
that meet or exceed standards for safety, strength, and
performance. The principle of open competitiveness and free
market enterprise should be staples of any plan to upgrade our
current infrastructure, most urgently needed in any upgrades to
our system of water management. Allowing new innovators to
compete with traditional or entrenched players pushes the
United States forward. All we have to do is release the free
market from the restraints of antiquated mandates that
currently exist. Very quickly, costs could plummet, and
projects could be finished more efficiently.
In closing, I just want to state that I am not against
legacy materials. However, we should ensure that there is a
level bidding process for materials which meet the same
standards for safety, strength, temperature, and performance as
their legacy counterparts. Excluding newly developed materials
from a bidding process is bad for the economy, bad for the
taxpayer, and bad for innovation.
Thank you, Mr. Chairman, Ranking Member, and Members of the
Committee, for allowing me to speak today.
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Mr. Aderholt. Thank you, Mr. Higgins, for your testimony.
Without objection, your entire written testimony will be
included in the record.
We appreciate your testimony here before the Subcommittee
and look forward to working with you on this issue and other
issues that impact not only the Third District of Louisiana but
also other parts of the country. Thanks for being here.
Mr. Higgins of Louisiana. My sentiments exactly. Thank you,
Mr. Chairman.
Mr. Aderholt. Thank you.
----------
Thursday, March 9, 2017.
WITNESS
HON. TRENT KELLY, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF
MISSISSIPPI
Mr. Aderholt. At this time, I would like to recognize the
Congressman from the First District of Mississippi, Mr. Trent
Kelly.
Mr. Kelly. Thank you, Chairman Aderholt, Ranking Member
Bishop, and Members of the Agriculture, Rural Development, Food
and Drug Administration, and Related Agencies Subcommittee.
Thank you for time to share with you my priorities for the
fiscal year 2018 Agriculture Appropriations bill. I am a member
of the House Ag Committee, and I know we share the same goal of
supporting the American farmer.
Agriculture is the number-one industry in Mississippi and
employs roughly 260,000 people. Over 37,100 farms cover over
10.9 million acres of land, and agriculture income makes up 22
percent of the total income of my State. I often say that a
country must be able to defend itself and feed itself in order
to be secure, and I am proud to say that the men and women of
Mississippi are contributing to both these objectives.
No one on this Committee is unaware of the tough times in
farm country today. I would like to take this time to highlight
a few issues that are affecting my constituents and the farmers
in my State. If these issues aren't addressed soon, I am
fearful for not only the individual families and farms that are
affected, but the risk to our national security as well.
Cotton producers are about to enter their sixth year where
the cost of production will exceed market prices. I know
providing relief to cotton farmers is a priority for the
Agriculture Committee in the next Farm Bill, but I am afraid
that if we wait to address this issue it will be too late.
For farmers in Mississippi, even if they have been able to
weather those circumstances, they are facing uncertainty over
whether or not the additional infrastructure they need to get
their crop to buyers will still be in place. If the cotton gin
goes out of business, they do too.
Making these products eligible for agriculture risk
coverage, ARC, and price loss coverage, PLC, programs by
designating cottonseed as an ``other oilseed,'' as authorized
in the current Farm Bill, would provide temporary relief until
a long-term solution can be worked out in the next Farm Bill.
On catfish, after many years of debate and delays, a rule
has finally been issued by the Food Safety Inspection Service
to allow for the inspection of catfish. While it will not be
fully implemented until later this year, this rule has already
protected public safety, as we have seen shipments of imported
catfish-like species choose to turn back rather than face USDA
inspectors at our ports.
Despite the clear successes of this policy, there are those
who would like to take this responsibility from USDA. I urge
this Subcommittee to reject any proposals that put public
health at risk by removing this rule.
As to poultry, the poultry industry directly employs 25,268
people in the State of Mississippi. In 2016, the State had over
730 million broilers on 1,400 farms. In order for this industry
to remain competitive, rules affecting producers and growers
must be fair, vetted, and founded on actual facts, not
political agendas. I have concerns about the proposed GIPSA
rules impacting this industry, and I was pleased to see the
administration put a freeze on the current rule. It is
important that USDA work with the stakeholders in producing
workable reforms instead of acting unilaterally. I urge the
Committee to defund this rule in the fiscal year 2018 bill.
In closing, the agriculture producers in my State are
working hard to provide for their families and for our Nation.
As their voice in Washington, I want to make sure they have
access to resources that will make them competitive across the
globe. I am committed to working with you to ensure that the
American farm and farmer can continue to feed our country and
the world.
Thank you again for this opportunity to speak with you
today. I yield back, Mr. Chairman.
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Mr. Aderholt. Thank you, Mr. Kelly, for your testimony. We
understand the importance. Of course, as you well know, our
districts are adjacent to each other, so we share a lot of the
same issues. And so we appreciate you bringing those to the
Subcommittee's attention.
So, without objection, your entire written testimony will
be included in the record. And, again, we thank you for being
here this afternoon.
----------
Thursday, March 9, 2017.
WITNESS
HON. DANNY K. DAVIS, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF
ILLINOIS
Mr. Aderholt. At this time, I would like to recognize the
Congressman from the Seventh District of Illinois, Mr. Davis,
for his testimony before the Subcommittee.
Mr. Danny Davis of Illinois. Thank you very much, Mr.
Chairman and all Members of the Committee. First of all, let me
thank you for the opportunity to be here and to testify before
this very prestigious Committee.
When I heard the gentleman mention cotton in Mississippi, I
got homesick. I grew up in rural Arkansas, even though I have
lived in Chicago all of my adult life, and I get nostalgic just
thinking about the countryside and the air and all of that.
But the issue that I came to talk about is that of urban
farming, or developing an approach to urban farming, where it,
in actuality, is much more than pipe dreams that people talk
about.
I have come into contact with two groups; one is a group of
churches who band themselves together, and they call themselves
the Urban Transformation Network. It is about 50 churches. And
they have vacant lots and all of the other things. And they are
really looking to start, in a big way, an urban farming
program.
They have also hooked up with the Safer Foundation, which
is an organization that has been in effect for about 50 years
that deals with reentry and assists individuals who have been
to prison and jail and are trying to work their way back into
society.
The two of them together have developed an approach that we
hope will become a large entity. And they are actually working
with Aramark, big farm distribution entities, State facilities
like the Illinois Department of Corrections, and several of the
hospitals and museums that understand that they could use the
product that is produced.
And, also, it could serve as a training program for
individuals who are returning home from jail and prison. The
Safer Foundation is one of the top entities in America in that
line of activity.
So, jointly, they have a tremendous amount of potential and
are looking to find a program that can assist them. They work
closely with the University of Illinois, its agricultural
extension outlet. And the former president of the university
has actually been a consultant to them, because he was an ag
guy before he became president of the university.
So it has a tremendous amount of potential. And we are
looking to try and find a program that can assist in developing
the entity to an operating unit, and we hope that the Committee
will give some thought and consideration to how this might be
done. And we are hoping that maybe there will become some
resources that could be used for further development of this
entity.
Thank you, and I yield back.
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Mr. Aderholt. Thank you, Mr. Davis, for your testimony. We
certainly appreciate your taking time to come before our
Subcommittee to bring our attention to some of these issues,
and we look forward to working with you. We will certainly have
our staff follow up if we have any questions, and we look
forward to working with your staff as we move forward in the
process.
So, again, thank you. And, without objection, your entire
written testimony will be included in the record.
----------
Thursday, March 9, 2017.
WITNESS
HON. EARL BLUMENAUER, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF
OREGON
Mr. Aderholt. At this time, I would like to recognize the
gentleman from Oregon, Mr. Blumenauer, for any comments or
remarks that he would like to make before the Subcommittee.
Mr. Blumenauer. Thank you very much, Mr. Chairman, Ranking
Member Bishop, Members of the Committee. It is a pleasure to be
with you.
I just would key off what my friend Mr. Davis just said.
One doesn't think of central Chicago as maybe the province, but
you know that the programs that you are involved with touch
everybody across the country. Everybody eats, and we are
watching applications for agriculture spread out--urban
agriculture, suburban areas.
I represent an area that people don't think of, in
Portlandia, as being agricultural, but there are a number of
people who make a good living being involved with agricultural
production and trying to connect rural and small-town Oregon
together.
The Department of Agriculture is the only department that
can build a community from the ground up. You have a tough job
in terms of allocating resources, but I hope there is an
opportunity to spend more time and attention on some of these
things that don't quite get in the spotlight as much as some of
the major activities that come before you.
For the last 2 years, I have spent a great deal of time
traveling my State, talking about what people want in
agricultural programs in Oregon. And I find that there are a
number of areas where people are in agreement.
One I would point out deals with placing a higher priority
on conservation. These are programs that put money in the
pockets of farmers and ranchers and provide benefits for people
wherever they live, in terms of hunting, fishing, water
quality. It is an area that is overlooked. I was sad that it
was cut in the last Farm Bill. I hope we are able to maintain
this, in terms of its importance for agriculture.
Second, investing in innovation and research has
exponential benefits. We do a lot at Oregon State University,
but being able to invest in sustainable agriculture research,
the agricultural research program, develop practices to
preserve topsoil, protect farmlands, extreme weather events--
these are areas that have, again, multiple benefits.
We should increase investment in small- and medium-sized
farms; increase funding for outreach and assistance for
socially disadvantaged and veteran farmers and ranchers. These
help minorities and veterans learn to farm through outreach,
education, and technical assistance. It helps them, and it
strengthens people's connection to agriculture.
We can address farmers' worries about consolidation and
disappearance of the American small farm by funding the
Beginning Farmer and Rancher Development Program at a higher
level. I encounter people all over my State--and I am finding
it around the country--who want to go into agriculture, but it
is hard to break into. The average age of the American farmer
is pushing 60, yet there are young people who would add
vitality and energy to this industry. I hope you will find ways
to invest in it.
Increased funding for the Organic Transition Program is an
example of value-added agriculture. It is an area that, again,
is creating a great deal of value, putting money in people's
pockets, and giving them a program that they can benefit from.
And the Value-Added Producer Grant Program helps farmers
and ranchers take fruits and vegetables and turn them into
products that command higher prices. And, again, this is a
phenomenon we are seeing across the country.
I know this is a tough time. Budget resources are in short
supply. But being able to focus on things that will be able to
expand this playing field, provide greater value in things that
we don't necessarily think about as much--I assure you that
food and farm policy has a vast constituency, and look forward
to working with you to see if there are ways to augment it.
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Mr. Aderholt. Thank you, Mr. Blumenauer, for your
testimony. And, as I mentioned, we look forward to working with
you on these issues that you brought before the Subcommittee.
And we look forward to following up with your staff, and we
encourage your staff to do the same.
Without objection, your entire written testimony will be
included in the record.
As I mentioned, we look forward to working together, not
only for your district but also for all of the districts. And,
as you mentioned, every district in the entire Nation depends
on agriculture one way or the other, so we are glad to work
with every Member that is in the U.S. House.
So thank you for being here, and thanks for your testimony.
Mr. Blumenauer. Thank you for your courtesy.
Mr. Aderholt. We have one more Member that we understand
may be en route to the Subcommittee as we speak. So we are
going to just hold off for just a minute, and hopefully they
will be here in just a minute before we conclude the hearing.
[Pause.]
----------
Thursday, March 9, 2017.
WITNESS
HON. MATTHEW CARTWRIGHT, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF
PENNSYLVANIA
Mr. Aderholt. Thank you for being here, Mr. Cartwright. We
have been saving a seat for you. So welcome to the
Subcommittee. We appreciate your work on the Full Committee,
and we appreciate you taking time to come before our
Subcommittee.
We are taking 3 to 5 minutes just to go over some of the
issues that are important to your constituency in your
district. And so the floor is open for whatever remarks you
would like to make at this time.
Mr. Cartwright. Well, I thank you, Chairman Aderholt and
Ranking Member Bishop. Thanks for having me here today, and I
am honored to join all of you on the House Appropriations
Committee. I want to talk today about a couple of issues.
In Congress, one of my priorities has been nutrition
programs for our most vulnerable citizens. While all Americans
need to eat healthier--I include myself--fruit and vegetable
access and affordability is particularly limited for low-income
Americans. That is why in the 114th Congress, Congresswoman
Rosa DeLauro joined me in introducing the SNAP Healthy
Incentives Act.
As you all know, the Supplemental Nutrition Assistance
Program, SNAP, is one of our country's most vital and
successful safety net programs. Unfortunately, recent price
increases in healthful foods have put the purchases of fruits
and vegetables out of the reach of many SNAP recipients. So our
legislation would expand a test program to incentivize SNAP
recipients with a rebate of 30 cents for every dollar they
spend on fruits and vegetables.
Increased fruit and vegetable intake is associated with
lower rates of heart disease, cancer, and other major causes of
death in the U.S., including diabetes. Parts of south Texas
have alarmingly high diabetes rates, and we all know how
expensive that is, diabetes and the medical sequelae from that.
And the American taxpayer seems to pick up the tab for a lot of
that.
So it is with this in mind that I wish to testify today on
the necessity for full funding for the Women, Infants and
Children, the WIC Nutrition Program. As you know, the WIC
program provides nutrition education, access to healthy foods,
breastfeeding support, health screenings, and referrals to
health and social services for pregnant and breastfeeding
women, infants, and children under 5. WIC has earned the
reputation of successfully protecting and improving the health
and nutritional status of the families who participate in it.
Across the United States, particularly in rural districts
like mine, WIC's time-limited services and benefits ensure that
children get a strong, healthy start in life. There is clear
evidence that good nutrition during pregnancy and in the first
few years of life has long-term positive impacts on health.
It is important to note, particularly as Congress now
begins to debate the future of American health care, that WIC
helps to lower healthcare costs. Participation in WIC reduces
the likelihood of adverse birth outcomes, including very low
birthweight babies, improves birth outcomes for high-risk
mothers as well.
Preterm births cost the U.S. over $26 billion a year, with
average first-year medical costs for a premature baby of
$49,000, compared to $4,500 for a baby born without
complications. WIC, which costs about $775 per participant per
year, is directly contributing to substantial healthcare cost
savings.
The Pennsylvania WIC program ranks as one of the top 10
States in respect to overall participation. In my district
alone, over 22,000 women, infants, and children rely on WIC
every month.
Secondly, Mr. Chairman, I wish to testify in strong support
of the Department of Agriculture's National Institute of Food
and Agriculture, NIFA. USDA's extramural science agency, NIFA,
provides leadership and funding for the research and
technological innovations that will enhance American
agriculture and make it more productive and environmentally
sustainable.
Within NIFA, there are five programs that I wish to invite
the Subcommittee's attention to: Regional Rural Development
Centers; Smith-Lever Cooperative Extension; Hatch Act;
McIntire-Stennis Cooperative Forestry Research Program; and
Regional Rural Development Centers.
These programs collectively provide essential research,
education, and public outreach that sustains U.S. food, fiber,
and renewable fuel production. Full funding for these accounts
will address critical, contemporary rural development issues
affecting the well-being of people in rural areas like my
district that often do not have access to the necessary
resources or training to advance local economic and community
development.
For example, in Pennsylvania, Penn State has utilized NIFA
funding to address behavioral health issues such as substance
use and abuse, like opioids, conducting scientific research on
effective ways to improve farm incomes, and administering
training programs to help rural areas compete for economic
development funding.
I thank you for your time.
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Mr. Aderholt. Thank you, Mr. Cartwright, for your
testimony. We look forward to working with you and your staff
on the issues that you have highlighted here, and your entire
written testimony will be included in the record. Again, thanks
for taking time to come over before the Subcommittee.
Mr. Cartwright. Thank you, sir.
Mr. Aderholt. At this time I would like to recognize the
gentleman from Texas, Mr. Green, for any testimony and remarks
that he might like to bring before the Subcommittee.
----------
Thursday, March 9, 2017.
WITNESS
HON. GENE GREEN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS
Mr. Green. Thank you, Chairman Aderholt and Ranking Member
Bishop, Members of the Ag, Rural Development, and Food and Drug
Administration Subcommittee. Thank you for the opportunity to
testify this afternoon.
My name is Gene Green, and I have the honor of representing
the 29th District in Texas, covering the eastern half of the
city of Houston in Harris County. As the Subcommittee begins to
develop the fiscal year 2018 appropriations bill, I urge the
Subcommittee to increase the funding for The Emergency Food
Assistance Program, popularly known as TEFAP. The Texas 29 is
home to nearly 110,000 food-insecure residents, one out of
every seven individuals living in our district. Hunger,
unfortunately, is a problem in every community in America
according to the U.S. Department of Agriculture's latest
household food security report. Over 42 million Americans lived
in food insecure households in 2015, including over 13 million
children.
Research conducted by the National Foundation to End Senior
Hunger found that there were nearly 6 million food-insecure
seniors in our country in 2014. Food-insecure households do not
always know where their next meal is coming from, and are often
forced to make tough decisions over whether to choose between
food and medicine, or food and cooling. I know in some parts of
the country, it is heating, but in our area it is cooling.
The Houston Food Bank and other food banks around the
country cannot meet the needs of these families without the
support of TEFAP. My home State of Texas received $29.6 million
in TEFAP funds in 2016, and $25.8 million TEFAP bonus dollars
in 2015. These funds are vital in helping food banks and other
charities in Texas and around the country meet their mission to
help feed the most vulnerable in our society.
In fiscal year 2016 alone, the Houston Food Bank
distributed 16.8 million pounds of emergency food and nutrition
assistance provided by TEFAP throughout our 18 county service
area in southeast Texas.
TEFAP is a highly efficient program that simultaneously
supports our agriculture economy, is a vital resource for our
Nation's food banks and charities. With strong TEFAP support,
we are supporting our emergency food providers on the ground
and protecting our most vulnerable constituents. Without
adequate funding for TEFAP, food banks and charities would be
hard-pressed to continue to provide current levels of food
assistance to the 42 million Americans suffering from food
insecurity.
I want to thank you for the opportunity to testify, and I
have been to our food bank, and it is just amazing some of the
work that they can do in a very urban area, and I want to thank
you for the past support and hopefully the future support. I
would be glad to try to answer any kind of questions.
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Mr. Aderholt. Thank you for your testimony. I think we have
the information we need as we move forward in this process of
appropriations, and we appreciate you taking time. Of course,
your entire written testimony will be included in the record,
and we appreciate your willingness to come and share with us
some issues that are important to your district. I know that it
is important to other parts of the country as well.
I want to thank everyone for testifying before our
Subcommittee today. We have had between 15 and 20 Members that
have come before this Subcommittee to talk about the projects
and the programs that are important to their constituents, and
their input will be invaluable as we move forward in trying to
make sure that we hold the agencies accountable and make sure
the funding is appropriate for each of the different agencies
under our jurisdiction.
At this time, I would like to recognize Mr. Bishop, our
Ranking Member, for any comments that he would like to make
before we close.
Mr. Bishop. Thank you, Mr. Chairman. I certainly would like
to join you in thanking all of our colleagues who took the time
to come and express themselves on the programs over which we
have jurisdiction, and that was, of course, very enlightening
for us.
Since we requested and received testimony from a number of
Members who were not, for one reason or another, able to
attend, I would like to move that we include, for the record,
the testimony that was submitted, although they did not
testify.
Mr. Aderholt. Without objection.
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Mr. Bishop. Thank you. I yield back, Mr. Chairman.
Mr. Aderholt. Thank you, Mr. Bishop for your comments, and
there being no further witnesses to testify, the hearing will
now be adjourned.
Thursday, June 8, 2017.
COMMODITY FUTURES TRADING COMMISSION--BUDGET HEARING
WITNESS
J. CHRISTOPHER GIANCARLO, ACTING CHAIRMAN, COMMODITY FUTURES TRADING
COMMISSION
Opening Statement--Mr. Valadao
Mr. Valadao [presiding]. Good morning. I will be filling in
for Chairman Aderholt briefly in my role as Vice Chairman of
the Subcommittee, and kicking us off with the opening
statement. The Chairman will be joining us shortly.
Before we get started, I want to remind everyone that there
are a lot of hearings going on this morning, both on our
Committee and, of course, on the other side of the Capitol.
Members will be coming and going as we try to manage our time
and assignments to other Subcommittees. Please be courteous as
you enter and exit the room.
The Subcommittee will come to order. Good morning. Welcome
to the Agriculture Appropriations Subcommittee's sixth hearing
for 2017, where we will examine the fiscal year 2018 budget
request for the Commodity Futures Trading Commission.
As mentioned in previous hearings, four primary goals have
been established for this Subcommittee as we progress through
the fiscal year 2018 appropriations process. The first goal is
evaluating accounting for taxpayer dollars to ensure efficiency
and accountability; second is investing in rural infrastructure
as a catalyst for growth; third is ensuring support for the
American farmers, ranchers and producers; and, lastly,
protecting the health and safety, of people, plants and
animals.
What began as a small agency nestled within the United
States Department of Agriculture is now a quarter of a billion
dollar independent regulatory agency that oversees the futures,
swaps, and options markets. The Commission's budget has grown
123 percent in just a few short years and there has now been a
constant stream of activity related to the fiscal matters at
the Commission.
Acting Chairman Giancarlo, thank you for being here with us
today. We hope the Senate can swiftly confirm you as the
permanent Chairman. As part of our question and answer session,
we will discuss the President's fiscal year 2018 budget request
of $250 million and other matters related to the Commission.
There is no doubt that your agency and its budget have been the
subject of much discussion over the past few years. Many of the
matters that will be discussed today occurred on someone else's
watch. Frankly, the previous Administration handed you an
agency with a wide assortment of problems that stem from
political games being played with CFTC's budget and employees.
The President's budget request clearly laid out a flat
funding level for $250 million. I will briefly acknowledge that
in both your prepared testimony and your Congressional
justification, you are requesting $281.5 million for fiscal
year 2018. However, as in past years, this number will be
considered as your annual ``Passback'' submission to the Office
of Management and Budget and nothing more, as you are required
by law. The President's budget will be the main topic of our
discussion today and in examining it we can use the detailed
information provided for fiscal year 2017 as our guide for
reaching a request of $250 million.
Some of the topics we will cover today include management
and labor issues, such as the recent labor negotiation impasse
that occurred between CFTC and its union. Due to what could be
called a loophole in federal labor laws, CFTC is one of the few
federal agencies that is required to negotiate with its union
over personnel compensation and benefits. The negotiation in
2016 almost resulted in CFTC employees having to be furloughed
for 17 days. This discrepancy in labor laws allows employee
unions or leaders in government to place civil servants at the
mercy of aggressive negotiation tactics and attempts to coerce
Congress to provide more funding.
There is no guarantee that providing the CFTC an increase
would further your major priorities, such as improving economic
analysis or the financial technology sector. Without addressing
the inclusion of salaries and benefits in collective bargaining
negotiations, I fear that instead an increase would simply be
absorbed into maintaining the status quo. By government
standards, your employees are already paid substantially higher
than average and this allows you to recruit very qualified
employees. Mr. Giancarlo, I know this did not happen under your
watch, but it is possible that it could happen again. I would
prefer that neither you nor this Committee have to deal with
it.
I also know that this Committee is exhausted with the
rumors of furloughs at the agency. Last year during this
negotiation, it was the second time in the last few years that
the CFTC has said it would be forced to furlough employees
unless it received more money. The first occurred in 2013. Both
times a solution was clearly attainable and furloughs were
unnecessary. I look forward to discussing this matter.
Additionally, I hope to get the chance to discuss other
issues such as your leasing costs and plans for the remainder
of the current fiscal year. The entirety of the Federal
government is facing fiscal challenges, and the Commission is
unlikely to be exempt.
I also look forward to covering issues related to the
regulations and policies coming out of the CFTC. I am
optimistic about what your Commission will be able to
accomplish in the years and months ahead to help our nation's
farmers, ranchers and producers. Your recent statement
regarding the future of the agency and its direction is
refreshing. Finding the right mix of regulation while still
allowing our economy to grow is new to many people who have
experienced over-regulation in the last eight years.
I am also encouraged by your initiative in the financial
technology space to work with industry instead of against it,
to find an appropriate balance between regulation and
cooperation. This Committee has been a big proponent of
investing in information technology at your agency and has a
history of including funding set aside for this very purpose at
the Commission.
One particular area of regulation that needs revising is
the swap dealer de minimus level. End users that were never
intended to be subject to the thousands of regulatory
requirements that come with being a swap dealer have been
anxiously awaiting the automatic 60 percent reduction in this
level for years. Hopefully, we can find a permanent solution
for this issue.
I look forward to discussing these and other matters with
you. There is a lot of work before this Congress, the
Administration and your agency to get our economy moving again.
I hope you would agree that a fully functioning and thriving
derivatives market can co-exist with adequate controls and
without overly burdensome regulations. As this Administration
begins to implement its policies and restore order to the
Commission, I hope we can identify whose areas that need to be
addressed and begin working toward solutions.
Again, I want to thank you for being with us today and I
look forward to our discussion.
Now let me ask our distinguished Ranking Member Mr. Bishop
if he has any opening remarks. Mr. Bishop?
Opening Statement--Mr. Bishop
Mr. Bishop. Thank you very much. A lot of Members who are
not on this Subcommittee may have never heard of the CFTC. The
agency itself was founded in 1974, but it has a much longer
history that began about 1922 when Congress put USDA in charge
of administering grain futures. Given its origins in USDA, I am
happy that we still have jurisdiction over CFTC in our
Subcommittee.
Representing an agricultural district, I am very much aware
of CFTC's continued relevance to our farmers and ranchers, as
well as other industries, who use financial instruments to
hedge their risk.
Turning to your budget, I want to thank you for submitting
a budget request that, based on our previous discussions, is
based on what is needed to perform the important CFTC mission
and strays away from legacy areas that may be unnecessary in
today's environment. At $281.5 million, it's below the average
of requests from 2011 through 2017, which were about $303
million, but it is still a healthy increase over the $250
million that the agency has received for the past three years.
When you look at the historical scope and the exigencies in
the financial world, the year 2008 was devastating for our
country. Let me just briefly note the damage that was done. We
lost about eight and a half million jobs, the unemployment rate
increased from 4.7 percent to 10.1 percent in October 2009, 10
million families lost their homes, and nearly a quarter of a
million small businesses had to close their doors for good.
In response, Congress dramatically expanded CFTC's
responsibilities in the Wall Street Reform and Consumer Action
Act, which we called Dodd-Frank. I always agreed with our
former colleague, Congressman Sam Farr of California, in
categorizing the CFTC as a financial first responder. And
Congress would never deprive first responders of the resources
necessary to perform their duties. Unfortunately, CFTC has been
held at the same $250 million funding level since 2015, which
makes performing your duties as a financial first responder
very difficult, especially when it comes to the daunting task
of assuring the economic utility of the futures markets by,
one, encouraging their competitiveness and efficiency; two,
ensuring their integrity; three, protecting market participants
against manipulation, abusive trading practices and fraud; and
four, ensuring the financial integrity of the clearing process.
I find this particularly ironic, since CFTC has more than
paid for itself. Between 2006 and 2014, actual fines collected
against wrongdoers were more than 175 percent greater than the
agency's budget during that entire period.
I would like to take this time to thank you for working
across the aisle and reaching out, not only to me as Ranking
Member, but also to my colleagues on the Subcommittee. We hear
reports of departments and agencies being nonresponsive to
Congress and making the operation of the country appear to be a
partisan circus. But I am glad that the departments and
agencies that are under our Subcommittee have stayed above the
fray, are remaining professional, collaborative, and focused on
their respective missions.
I look forward to your testimony today and an increased
understanding of the identified needs to make CFTC successful
for our country's farmers, ranchers and other businesses, and
giving them the ability to manage costs and hedge risk as a
result, positively impacting the price that Americans pay for
food, energy, and other goods and services.
Mr. Vice Chairman, thank you for the opportunity to welcome
the Acting Chairman. And at this time, I will yield back.
INTRODUCTION OF ACTING CHAIRMAN GIANCARLO
Mr. Valadao. Well, Acting Chairman Giancarlo, without
objection, your entire written testimony will be included for
the record. I will recognize you now for your statement and
then we will proceed with questions.
Opening Statement--Mr. Giancarlo
Mr. Giancarlo. Thank you. Good morning, Vice Chairman,
Ranking Member Bishop and Members of the Subcommittee. I thank
you for this opportunity to testify on the CFTC's fiscal year
2018 budget.
As you know, for more than a hundred years, American
farmers and ranchers have used derivative markets to hedge
their costs of production and their delivery price. It assures
that we Americans can find plenty of food on grocery store
shelves. But derivative markets are not just helpful for
agricultural producers. They influence the price and
availability of heating in American homes, electric power in
offices and factories, interest rates on homeowners' mortgages,
and returns on retirement savings.
These markets allow producers to manage changing production
costs, like the price of raw materials, energy, foreign
currency, and interest rates. They enable business risk to be
transferred from those who can't bear it to those who can, and
they free up capital for investment and boost economic growth,
job creation and American prosperity. Yet today, in a number of
ways, these markets are more fragmented, more concentrated,
less liquid, and less supportive of economic growth than in the
past.
The overly prescriptive regulation of American derivative
markets is part and parcel of the over-regulation of the U.S.
economy that thwarts broad-based prosperity. The time has come
for these markets, and the efforts of those of us who regulate
them, to be put more fully in service to the American economy.
Turning to our budget request, a request that was approved
by both the Republican and the Democrat member of our
Commission, the CFTC is requesting, 281.5 million and 739 FTEs
for fiscal year 2018. This is an increase of $31.5 million and
36 FTEs over the fiscal year 2017 level. The $31.5 million in
additional funds is not an ad hoc number, but a careful
assessment of what the CFTC needs to execute its mission in
fiscal year 2018.
Now, I recognize the enormous task of setting the Federal
government's $4 trillion budget, and I respect the priorities
of this Congress and President Trump to balance the budget
rather than pile up more debt on American citizens. And I know
this Committee's essential role in appropriating and allocating
the resources provided to it by our fellow Americans.
Therefore, we do not take lightly the use of bypass authority
to present our 2018 budget directly to Congress.
Now, this is my first time directing a federal agency and
its budgeting process. Previously, I spent 30 years in the
private sector where I was last a senior executive of a public
company. And from that perspective, it seemed to me that the
budgeting process of government agencies always started with
last year's number, to which was added an additional
percentage.
When I became Acting Chairman a few months ago, I
approached the budget differently, the way I did back in
business. I sat down with the heads of every unit, I reviewed
their missions and their spending, and together we built this
budget up from zero, based upon real needs and expenditures.
Now, no surprise, I found areas where the agency can be more
efficient. For example, by returning to regular order in our
operations. That means taking greater care and precision in our
rule drafting, adopting less contracted time frames for public
comment to our rule proposals, and reducing the docket of new
rules and regulations to be absorbed in a short period of time
by market participants.
We are also looking to reestablish the agency's core
structure of a central service agency. We are not going to
over-interpret our mission and we are going to share duties
with other federal agencies and self-regulatory organizations.
While I hoped that by implementing changes, I could have
reduced our 2018 budget request perhaps below prior year levels
or even held it steady, but it will take some time to see these
efficiencies realized in our budget. But instead, I also
discovered three critical areas where the agency falls short of
its mission. These are the Commission's budget priorities for
fiscal year 2018, and they explain the modest increase in our
budget request.
First, our Office of the Chief Economist is under-resourced
currently to meet the challenges of the rapidly changing nature
of global derivative markets. We must conduct a more thorough
cost/benefit and economic analysis to support better regulatory
policy.
Second, as clearinghouses grow in size and scope, so too
has the complexity of the counterparty risk management
oversight programs and procedures of the firms we regulate. Ben
Franklin said an ounce of prevention is worth a pound of cure.
The better our process of examining derivatives clearinghouses,
the less taxpayers are at risk of bailing them out if something
goes wrong. So we must strengthen our examinations capacity to
keep pace with the explosive growth in the amount and value of
cleared swaps here and abroad.
And third and finally, to avoid being a 20th century analog
regulator of new 21st century digital markets, the CFTC must
keep pace with emerging technology. Our world is changing. Our
parents' financial markets are gone. A digital transformation
is well under way in our markets and shows no sign of stopping.
For this reason, we have launched something called Lab/CFTC, an
important financial technology initiative that will help our
agency catch up with the changing nature of markets for which
it is responsible.
So in conclusion, U.S. derivative markets should be neither
the most regulated nor the least regulated in the world, but
the best regulated. Providing effective oversight and robust
enforcement of our laws motivates the talented men and women of
the CFTC. The standard of our agency is operational and
regulatory excellence. Our proposed budget will meet this
standard for the American people. It will allow the CFTC to
keep pace with innovation and oversee risk transfer markets
that are durable and competitive here and abroad.
I submit my written testimony for the record and welcome
your questions. Thank you.
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MEASURING SUCCESS
Mr. Valadao. Thank you. I would like to begin by taking a
look at the future. Over the past eight years, many of us have
been consistently challenged with your agency's policies,
actions and decision making. Your budget was used as a
political tool to convince people that Republicans were in the
tank for Wall Street. CFTC would oftentimes ignore input from
businesses that wanted to do the right thing on regulations.
The President has laid out several executive orders to
provide for reforms. These reforms include a review of the core
principles of financial regulation and a proposal for
reorganization of agencies to achieve greater efficiencies and
effectiveness.
Mr. Giancarlo, I want to get your thoughts on how you plan
to change the direction of the agency, both in terms of policy
and management. Can you tell me how you are complying with the
President's executive orders and also how you plan to implement
your own initiatives and ideas for the future of the agency?
And in the past, CFTC measured success by the amount of
fines and penalties imposed on the private sector. What types
of outcome-based performance measures do you plan to put in
place?
Mr. Giancarlo. Thank you very much. And I think your
comment about how to measure success is a very important one. I
think the right way to measure the success of an agency like
the CFTC is whether U.S. derivative markets attract the world's
capital because the world recognizes them to be the most
durable, the most vibrant, but also the most stable and the
best regulated.
There is a reason why the world flocks to U.S. IPO markets,
the reason why capital from all over the world wants to have
their initial public offerings in the United States. It is not
because our regulations for public companies are in any way
lax. In fact, most people would say that the requirements for a
public offering in the United States are some of the most
stringent. But the real reason capital flocks here is because
they are perceived to be the best, the best combination of
sensible regulation, of transparency, but also flexibility.
Capital will go where the rules are the best. They will not
go where they are the most lax, they will not go where they are
the most unreasonably stringent. They will go where they are
the best. And I think derivative markets, by their very nature,
are global in scope. If we operate the best markets, we will
see capital attracted to those markets and those markets will
flourish, and that is how I would measure success for the
agency. As an overseer of those markets, are we developing the
best rules and the best policies to make our markets attract
global capital.
REGULATORY REFORM
Mr. Valadao. And on the first part of that question, how
are you complying with the President's executive orders and how
you plan to implement your own initiatives and ideas for the
future of the agency?
Mr. Giancarlo. So, to that end, in terms of making our
rules the best, one of the things that I think is required, not
just in a federal agency but, quite frankly, in any operation
is to occasionally step back and take a look at your rules and
see whether the rules that have been accumulated over dozens of
years, or in the case of the CFTC, four decades, are still
relevant and still make sense.
And so we have started a new initiative at the CFTC, which
I have called project KISS--it goes back to something my father
used to say when I was a young man, and that was, ``keep it
simple, stupid''. And sometimes you just need to take a look at
your rule set and say, are they still relevant? Do they still
make sense for the current times? And if they do, is the agency
applying them in a way that is just straightforward. It is not
a matter of necessarily changing policy, but does the
application of the policy make sense?
So we have launched this initiative. We are looking at our
rule sets to see whether they are applied in a way that is the
least burdensome, the least costly and the least drag on the
economy. We have identified a number of areas and with the
support of my fellow commissioner, Commissioner Bowen, we have
announced two new reapplications of some of our existing law
already.
In one case, we have gone back in a recordkeeping
requirement and taken out of it some technology requirements
that are decades old in terms of the technology used and made
those rules technologically neutral.
So what we are trying to do at the agency is regulate in a
way that is just more streamlined and better, without
necessarily having to rewrite the rule, but can we apply it in
a simpler fashion.
Mr. Valadao. All right, thank you. My time is about
expired, so I am going to give it over to our Ranking Member,
Mr. Bishop.
TECHNOLOGY SUPPORT
Mr. Bishop. Thank you very much, Mr. Valadao.
Mr. Giancarlo, I would like to commend you again for
exercising your legal authority in submitting the CFTC's budget
request directly to Congress. You have stated that this $281.5
million request is based on a bottom-up requirements
identification. The systems engineering approach is advisable
for all departments and, of course, I applaud you for doing so.
However, with the past two years of flat funding, I want to
make sure that the CFTC is advocating for what's required to
perform your very important mission. For example, in fiscal
year 2017, CFTC requested $42.29 million for data and
technology support. But now in fiscal year 2018, you are
requesting an additional, $43.59 million for the same mission
function. Was the fiscal year 2018 request for data and tech
support submitted because fiscal year 2017 was completed half
way into the fiscal year, or is an additional, $43.59 million
absolutely required to complete the IT uplift?
And I am asking, because Congress has seen a lot of hard-
earned tax dollars spent on IT that hasn't met the projected
return on investment. So we want to know if we are applying the
funds appropriately here.
Mr. Giancarlo. One of the things I discovered upon taking
over as Acting Chairman is that the way the agency goes about
defining its technology needs within the agency really doesn't
accord with best practices in the private sector. When I was an
executive in a public company, no technology would be purchased
or built without a proper internal specification process. The
internal customer, say the Division of Market Oversight, would
go to our Office of Data and Technology and say, we need the
following technology to do our mission.
Previously, that would just be built without a lot of
documentation, without a lot of careful specification at the
agency. Now, where I was in the private sector, that couldn't
be the case. There would have to be a careful, back and forth
process and everything would be written down. And the reason
why that is important is accountability. Once that technology
is then delivered, if the internal buyer of it said, well, it
doesn't work for me, the builder of it could say, well, it
meets the specification, you agreed to the specification, and
provide accountability.
We haven't engaged the agency in a proper specification.
And so I am a little cautious in speaking to previous budgets
for technology, because I don't believe they were done with the
rigor that I think they deserve and I think that the American
taxpayer deserves. Going forward within the agency we will not
complete technology builds without a specification process.
Now the total, if I have the figure correctly, the total
amount we are asking for in our 2018 budget is $57 million.
Some of that includes some new build and some of that includes
just the escalation of costs for systems we already deploy with
renewed licenses and the cost of technologies going up. But I
have been through that $57 million with our staff and I believe
that, with proper specifications going forward, that is a real,
hard number that we will be able to live with and will meet our
technology needs quite adequately.
DIVERSITY
Mr. Bishop. Thank you. I want to get to a question that may
not be quite as long.
Let me ask you about diversity. You have previously
indicated that diversity was a goal and I was glad to see that
CFTC began targeting outreach to minority-serving institutions,
such as HBCUs, to identify future candidates for internship
opportunities. You and I discussed this when we met in March
and at that time, funding wasn't allocated that would allow for
internships to be CFTC-paid experiences.
It wasn't clear from the budget request, has this funding
been accounted for within the Office of Minority and Women
inclusion portion of the budget? If not, we stand ready to
connect you with programs that would allow you to reach out to
excellent HBCUs such as Fort Valley State, Albany State, South
Carolina State, Morehouse College, Howard University, and
Tuskegee University, that produce high-caliber graduates in
finance as well as agriculture economics fields. Is it your
intent to have these introductory internship opportunities
progress into permanent full-time employment for these
students? Because you will have invested money in them and it
seems like it would be a waste if you did not take advantage of
that investment. Can you describe your strategic workforce plan
that includes increasing minorities and women in positions at
CFTC?
Mr. Giancarlo. Thank you for that question, Ranking Member.
I am very pleased that since we met you with you a month or so
ago, we have been able to progress that initiative, our
outreach, to historically minority and underrepresented
communities. And, in fact, we have extended 18 offers for
summer internships and received 11 acceptances. We now have 11
terrific candidates at the agency.
In fact, if I might, at the risk of embarrassing him,
introduce you to one of our summer interns, Zach Shepperd, who
is a student at Howard Law School, and really we were lucky to
get him and 10 other students that will be with us this summer.
But I think your point is extremely well taken. It is one
thing to recruit interns. It is another thing altogether to see
them as the basis for our future hiring needs and bring them
into the organization. That is something we very much intend to
do. We look upon this program not as something that is just a
one-time thing, it is something we want to use as the basis for
our future work force.
And to that end, we also have the capability built into our
budget to pay our interns for their service to the agency. So
if the Committee sees fit to grant our budget, we will look to
do that.
Mr. Bishop. Thank you. My time is up.
Mr. Valadao. I would like to recognize the gentleman, Mr.
Palazzo.
STAFFING
Mr. Palazzo. Thank you, Mr. Chairman. Given the changes
over the last several years in how the markets you regulate are
traded or, as you put it, the new digital world, how much of
your request is for technology resources not human resources?
And I ask, because the CME Group, for example, continues to
trade more of their product electronically rather than in the
trading pits, so manipulation, spoofing and other market
disruptions have grown.
While I see the budget includes an increase in funding for
full-time employees, I am wondering where they are being added
and will the new funding and the new employees be enough for
you to do your job, to protect farmers and ranchers who utilize
futures contracts as a risk-management tool?
Mr. Giancarlo. Thank you for that question. The budget
increase that we are looking to apply to the areas of FINTECH,
to the Office of the Chief Economist, and to examinations of
the clearinghouses that play a central role in this
increasingly digital marketplace also includes the technologies
and the tools they will use to do their functions.
One of the challenges of this new digital world is really a
deep understanding of where it is going. There is a quote that
I like very much by the hockey star, Wayne Gretzky. He said the
reason he was so successful during his championship years is
not because he skated to where the puck was, because he skated
to where the puck was going. I think what this budget request
really represents is an effort by us as an agency to try to
start skating to where the puck is going.
I think a lot of what we have done over the last few years
has been somewhat backward looking, perhaps by necessity,
because the backward looking was to the last crisis, but not
sufficiently forward looking, to my view, as to how these
markets are dramatically changing the nature of risk transfer.
And if we don't look forward, if we don't look very much
forward into the future, I don't think we are going to be able
to keep up. The questions we get repeatedly from farmers and
ranchers are what is the impact of high-frequency trading in
the markets? What are the roles of algorithms in the markets?
And the answers to those things are extremely complicated. The
role of these new market participants is truly challenging. And
I can't say we yet have all the answers.
Which is why I am looking to bring our level of econometric
analysis back up to an historical level. The CFTC decades ago
was considered primarily an econometric point of excellence in
the Federal government, and we have really lost that in the
last several decades, and I would like to bring that back. And
that is why we are seeking an increase to our Office of the
Chief Economist and we are looking to recruit some of the
nation's best economists to come to the agency, to help us
understand the changing nature of the markets. They will use a
lot of data in their work and a lot of analytical capability,
and we have built that into the budget as well.
FINANCIAL TECHNOLOGY
Mr. Palazzo. You mentioned FinTech and, specifically,
Blockchain in your testimony. My understanding is that you are
excited about the possible application of this technology. How
do you see Blockchain developing over the next several years,
and is the U.S. developing an appropriate set of rules for this
new digital universe? And if so, what is the CFTC's role in
this?
Mr. Giancarlo. Thank you for the question. Unfortunately,
we are behind. The United States is behind in Blockchain and
technology. Let me make that more precise. The U.S. government
is behind. Our innovators are state-of-the-art. Some of the
best work in blockchain is being done today in New York and
Silicon Valley. But as regulators, some of our overseas
counterparts are way ahead of us. The British have something
called Project Innovate, and it is a unified approach between
their Treasury, their Central Bank, the Bank of England, and
their Financial Conduct Authority to encourage financial
technology innovation, including Blockchain, to be done in
London and to bring the jobs that that innovation brings with
it there.
A study by PricewaterhouseCoopers looked at financial
technology innovation around the globe and rated the U.S.
against Europe and said, despite our lead in funding and
scientific excellence, Britain is ahead of us because the warm
welcome that the regulators give to innovation and the rather
indifferent approach we, as regulators, have taken to it in the
United States. Our LabCFTC aims, at least within our own
agency, to be a step, we think, in the right direction. And
that is we want to take some of the regulatory risk out of
innovators. I was at a conference in New York recently, and I
met a venture funder of technology. And he said that 18 months
ago he was prepared to invest in a startup company in New York
that was doing some very interesting work.
But his diligence showed that they might have a regulatory
issue with another financial regulator. I am happy to say it
wasn't us. And he said that, 18 months later, they were still
waiting for a response to a letter they sent to that regulator
as to whether they were subject to that agency's regulation
and, therefore, he decided not to fund that company. So that is
a company that is not going to get funded because a U.S.
government agency couldn't give them an answer in 18 months as
to whether they were subject to its regulation. Our LabCFTC
aims to take that regulatory risk by being much more responsive
to some of these innovative companies.
Mr. Palazzo. That is good. Thank you. I yield back.
Mr. Aderholt [presiding]. Mr. Pocan.
STAFFING
Mr. Pocan. Thank you, Mr. Chairman. I appreciate it. And
Mr. Giancarlo, very nice to meet you. I really appreciate you
explaining the thought process, how you came up with your
budget coming into that position new and thank you for that.
That helped me ask some questions. First question I did want to
ask, because I know in your short time that you have been in
the position you are in, you have developed a very good
relationship with your agency's employees.
And one of the concerns, I think, that I am looking at is I
know you have had a lot of turnover from folks going to either
other agencies or the private sector because of the very
specialized type of skills they have. You have had some loss,
and I know you are looking for a little additional money in the
budget to try to address that. Can you just talk just briefly
about that?
Mr. Giancarlo. I think the turnover we have had--actually,
I think it actually may be, percentage-wise, compared to other
agencies, a little bit lower. But, you know, in the change of a
government, it is often the case that people will move on to
the private sector or to another government agency. So I
haven't been either surprised or disappointed in the loss. But
we are always looking to bring in quality people, whether they
come from the private sector or other government agencies.
The area of the Office of the Chief Economist is an area
where probably we are asking for the biggest increase. I think
it is vitally important that we attract some world-class
econometric thinking to these marketplaces that are changing so
rapidly, so we get ahead of the curve. When we compete for
talent at the CFTC, we are often competing against the
financial sector and in many cases, I think, increasingly
against Silicon Valley for the right level of talent.
These are the world's most sophisticated markets. With
great respect to my colleagues at the SEC, the derivative
markets are the world's most sophisticated. And the United
States' are the biggest in the world. We are world leaders. We
are the only country in the world that has a separate regulator
devoted just to derivatives.
And while some people may challenge that, I think it makes
absolute sense because of the sophistication and the complexity
of the markets we oversee. Order of magnitude, the over-the-
counter swaps market is measured in the hundreds of trillions
of dollars. These are extremely complicated markets, and we
need very, very sophisticated people.
REGULATORY REFORM
Mr. Pocan. Let me build on that in two questions, if I can,
in the derivative area. One of my concerns is that part of what
brought us to the financial crisis of 2008. You know, we all
have to deal with our constituents who have lost homes during
that area. And my brother is a circuit court judge in
Milwaukee. Every judge had to take time off on Mondays just to
deal with foreclosures during that period for months. I mean,
it is devastating impact. So this is really important, I think,
to the American people.
Two things. One, you talked about the current process you
thought was overly prescriptive, but you did also say you
didn't want to have the most or the least. You want to have the
best regulation, if you could just talk a little bit about
that. And then secondly, if the budget request comes in at the
level that the President has, not what you are requesting, what
does that difference mean to making sure that we have got this
market under control?
Mr. Giancarlo. Okay. So when I say ``neither the least nor
the best,'' I am not a foe of regulation. I am a believer in
good regulation. In fact, I support Title VII of Dodd-Frank. I
did as it was making its way through Congress. I have done ever
since. I have said repeatedly, in Title VII, Congress got it
right. I have been a critic of some of the CFTC's
implementation, but most of it, I have been supportive of. But
in terms of the swaps provisions, I think got it Congress
right.
Now, I will tell you I think Congress got it right because
it took the best practices from the private sector and embodied
them and made them into mandates. The notion of moving
bilateral swaps into central clearing was already moving in the
private sector. It was the right thing to do, and Congress
rightly adopted it as part of Title VII. Similarly, at the
heart of the financial crisis was the opacity in what swaps
were being held on bank balance sheets and the inability to
understand whether, if one bank would fail, whether another one
would fall because of their interrelationship in terms of swaps
exposure.
So reporting swaps transactions to swaps repositories makes
sense. Similarly, it was already started in the private sector,
but it needed to be advanced, and it has been advanced
tremendously since. Requiring swaps transactions take place on
licensed platforms absolutely made sense. I think Congress got
it right.
So I believe with the right regulations, these markets are
better for it. And done properly, they can be more stable, more
durable and, yet, still vibrant at the same time and attract
the world's capital. I think those are all very important
objectives. And that is what we aim to do at the CFTC.
Mr. Pocan. Just you got 15 seconds on the budget side. What
if you wound up with the $30-some million less?
Mr. Giancarlo. So the three initiatives that are built into
the additional $31 million are additional economists,
additional examinations people. Our approach to central
counterparty clearinghouses is a rigorous process of
examinations.
The amount of capital, of margin that has gone into these
clearinghouses since Dodd-Frank was adopted, is in the hundreds
of trillions of dollars. And some of that is done off in London
and, yet, we are the London Clearinghouse's primary regulator.
We have to have the resources to be able to oversee that
clearinghouse. And finally, we wouldn't be able to do our
FinTech initiative without these resources as well.
Mr. Pocan. Thank you very much.
Mr. Aderholt. Mr. Valadao.
ENFORCEMENT
Mr. Valadao. As you might know, I represent a rural part of
California with an economy that is highly dependent on
agriculture. Farmers in my district need to have reliable and
efficient markets in order to compete in the global economy.
One contributor to market uncertainty which may negatively
affect prices is how the CFTC investigates and enforces the
Commodity Exchange Act and the Dodd-Frank Act.
I am certain you are aware that the House will be voting on
the Financial Choice Act later today. And there are a number of
ideas related to the SEC operations reforms that were included
in the bill and I believe could also be applied to the CFTC. Of
particular concern is the transparency and the enforcement
practices of your agency. Have you considered how publishing an
enforcement manual could improve regulatory compliance and, in
turn, market certainty? Do you believe that transparent
guidelines could help market actors better meet the
expectations of the CFTC? And if so, what additional resources
would your agency need to achieve this?
Mr. Giancarlo. Thank you very much. I am a believer that
strong enforcement is a critical part of our regulatory
mission. I spent 14 years in the markets, and I am not naive
about how markets operate and that vigorous enforcement is
needed because there unfortunately always have been and always
will be bad actors in the markets.
From time to time, regulators need to be seen to be taking
those persons out of the markets so that the majority of good
actors in the markets know that those markets are safe for them
to operate. So I think strong enforcement is vitally important.
I supported an initiative by the former head of our
Enforcement Division at the end of last year at the CFTC to put
forward guidelines for cooperation agreements with registrants
and other firms subject to our regulations, where they would
self-report wrong behavior that they would become familiar
with. Those guidelines have been made public. I believe that
the more the public understands the rules of engagement that we
utilize in enforcement, the more they can direct their conduct
in a way that is satisfactory to the market. So, yes, I do
support greater transparency in our rules of engagement.
Mr. Valadao. All right. Thank you. That is all I have, so I
yield back.
Mr. Aderholt. Ms. DeLauro.
REGULATORY IMPACT ON THE ECONOMY
Ms. DeLauro. Thank you very much, Mr. Chairman, and
welcome, Mr. Giancarlo. Pleasure to be with you today. First of
all, let me commend you for fighting for a budget increase. I
think it is critically important. I think the continued
underfunding of your agency has been a mistake on our part and,
as such, I have fought over the years for increased funding for
the CFTC because I think it does impact your ability to deal
with enforcement, monitoring and surveillance. So I just want
you to know that I will be an ally with you in fighting for
increased funding for the agency.
With that said, let me move to two areas. One is the issue
of regulation. In your opening testimony, you state that, and I
quote, ``regulation of American derivative markets is part and
parcel of the overregulation of the U.S. economy and thwarts
the revival of American prosperity''. I looked into the issue,
and I talked with several experts in the area. I can't find the
evidence to support your claim. Can you say specifically how
regulation of the derivatives market held back, quote, ``the
revival of American prosperity''? And if you can give me hard
data on that----
Mr. Giancarlo. Sure. I will point to areas within our
oversight at the CFTC. In 2007, there were 157 futures
commission merchants serving farmers and ranchers and smaller
manufacturers in the United States with their hedging needs. We
are now down to about a third of that number serving the same
constituents in the markets.
And, unfortunately, of the 50 or so futures commission
merchants that are left, the ones that are serving the lion's
share of market participants are several banks on Wall Street.
The last 10 years have been devastating for those financial
institutions serving smaller market participants. Now, we have
seen the same thing in community banks and smaller banks around
the country. We are seeing a dwindling number of broker-dealers
registered. The intermediaries in markets, especially the ones
serving smaller market participants, have been dramatically
reduced over the last decade. Now, not all of that is due to
regulation.
Ms. DeLauro. Right.
Mr. Giancarlo. Some of that is due to the lack of economic
growth in the economy, but some of it has been due to
regulation as well. We have had to reverse some of the
regulations we imposed on some of these smaller firms because
they were just too draconian.
Ms. DeLauro. I would just say to that, and I will move on
to enforcement, it wasn't me, but I think some wise person said
that the most dangerous time after a crisis--you know, we had a
crisis, serious crisis--is when things are going well because
that is when one relaxes and risk, again, begins to creep in.
That may be where human nature takes us, but it does not have
to be government policy.
And I think we have to be very, very careful here about
what we pull back on so that we don't find ourselves in the
same set of circumstances and we put in place--we had nothing
before. And so, again, the claim that that has thwarted the
revival of the American prosperity, my view, I think it is
overstated and I want to just say that.
Mr. Giancarlo. I understand. I understand. You know, the
way I look at it is I feel that the regulation reform that came
out of the financial crisis, I would call it like almost like
software, 1.0, and I think it is now time to go to version 2.0.
ENFORCEMENT
Ms. DeLauro. If you could give us some hard examples of
where, in fact, this has, that would be useful for me, for the
Committee, I hope, to move past the generalization. But you
gave a couple of examples and specific examples of
overregulation. I will start with the enforcement piece here.
Your budget makes a startling statement. ``As a civil law
enforcement agency, CFTC has a duty to protect and serve
derivative market participants.'' I would say that the duty of
a law enforcement agency is to enforce the law. And this
suggests a coziness with industry that is, frankly, disturbing
to me.
Even OMB talks about CFTC's mission as being to protect
market users and their funds, consumers and the public from
fraud, manipulation and abusive practices related to
derivatives and other products. So, in your view, which is it?
Are we going to serve the market, or are we going to protect
the users?
Mr. Giancarlo. Well, our mission is to oversee markets. And
as part of that, we have a strong enforcement capability to go
after bad actors who would seek to manipulate or commit fraud
or spoof or commit other violations of our rules in the
marketplace.
Ms. DeLauro. All right. But, again, you said, ``CFTC has
the duty to protect and serve derivative market participants.''
Now, again, I think it is the market users that we have to
protect, consumers and their funds rather than those folks who
are directing the derivatives. You seem to agree with that.
Mr. Giancarlo. By ``participants,'' I include all
participants in the markets, big or small, farmers, ranchers,
manufacturers as well as larger participants.
Ms. DeLauro. Just final comment. Thank you very much, Mr.
Chairman, but the public needs to be protected from fraud,
manipulation, and abusive practices related to derivatives and
other products. Sorry, Mr. Chairman.
Mr. Aderholt. Mr. Yoder.
LIQUIDITY
Mr. Yoder. Thank you, Mr. Chairman, and, Acting Chairman,
welcome to the Committee.
Thanks for your testimony today. It has been very
enlightening. You know, I think it also could be said that the
greatest risk following a crisis could also be swinging the
pendulum too far. I think we all agree we need to get this
right. We are all here to protect our constituents, small
businesses, farmers, people who are trying to create jobs and
make America prosperous and create opportunity for everyone.
And they can't do that without access to capital. They
can't do that without being able to protect risk. They can't do
that without liquidity in markets. And so you have a real
balance to play here and it is important. But the goals are the
same. I know my colleague from Connecticut, we share the same
goals. We just sometimes disagree about whether the regulations
in place might be undermining those goals; right? I think that
is the challenge we have here, and that is the debate we
continue to have on this Committee, and we are having it on the
floor today in the House. I think you would agree that
regulations that reduce liquidity, regulations that actually
create more risk by reducing the amount of participants in
markets, actually harm our consumers, actually make
transactions that they do in our districts and across this
country riskier, less protective, less safe.
And so we have seen across the country every day there are
less small banks than there were the day before. We see big
banks getting bigger. We see, in many cases, consumers not
being protected as was laid out in Dodd-Frank. And so I think
that is why this Congress attempts to try to get this reform
right to protect those very consumers.
One of the items you had mentioned this morning in your
recent back and forth with the Committee related to the futures
commission merchants, I continue to hear concerns from market
participants that the supplemental leverage ratio impact on
clearing members is causing significant losses, not only with
access to central clearing but also hampering market liquidity
by artificially constraining customers who provide liquidity.
While I recognize this is not a regulation that your agency put
in place, it certainly is having an impact on the markets you
regulate. Could you help the Committee understand how the CFTC
is working with your fellow regulators to find a solution to
this growing problem?
Mr. Giancarlo. Thank you very much. The issue of futures
commission merchants' consolidation is a real issue for
America's farmers, ranchers and smaller manufacturers. Within
the past year, we saw the sale of one of America's most storied
names in this area, Beisch, a name that probably goes back 100
years in providing services to smaller market participants.
And when the firm was sold, and they were sold because
their owners felt they couldn't make a go at it, thousands of
customers were basically let go and forced to find another
service provider. And the customers that were let go were the
smallest in the spectrum, the very small constituents that I
think we are all concerned about.
The supplementary leverage ratio, as it is known, is part
of the problem that we are seeing with the consolidation of the
smaller futures commission merchants. Because it really falls
on them. One of the core reforms to the financial crisis that
was agreed by the G-20 in Pittsburgh in 2009 and embodied in
Title VII of Dodd-Frank was that we would address part of the
problem of the crisis by requiring more bilateral swaps to not
be on bank balance sheets but to be in the central
clearinghouses. That was one of the key reforms. And, yet, this
leverage ratio actually penalizes that very activity. It is
counter to our own prioritization of central clearing as one of
the ways of addressing the crisis.
We have done our own estimate at the CFTC, which I
announced a few weeks ago, that if the supplementary leverage
ratio were kept but reformed in two very simple ways, it could
free up as much as 70 percent of capital for use of these very
smaller market participants that are--as you quite rightly say,
Representative, struggling to be able to utilize adequate
trading liquidity in the markets.
So, yes, the supplementary leverage ratio is something that
is very important. It is something that I have shared with the
Treasury Secretary, and I'm hoping that some of the other
agencies that are responsible for it will see the way to making
the amendments necessary so we can actually achieve the
purposes of Dodd-Frank, achieve the purposes of reg reform,
which is greater central counterparty clearing.
HRW FUTURES CONTRACT
Mr. Yoder. I appreciate your leadership there. Briefly,
with the time we have remaining, Kansas, that I represent, is
the leading wheat-producing state in the country. And after
last year's huge crop, we saw significant spread between
farmers' local cash price and the futures price. So not only
were farmers having to deal with a futures market with
historically low prices. We had farmers that were getting a
cash price more than a dollar less than was on the board. In
April, the CME group announced that it would implement a
variable storage rate on the Kansas City HRW futures contract
beginning in March 2018, pending approval from the CFTC. Could
you share with us the process CFTC is undertaking considering
this request and what your thoughts are about establishing a
VSR on the hard red winter wheat contract.
Mr. Giancarlo. Thank you for that. In fact, I had the
pleasure of visiting Kansas in February and visiting with some
of your constituents that farm wheat in the state. And I am
familiar with the issue that you mentioned with regard to the
Kansas City wheat contract, the hard red winter wheat contract.
We are processing that application. I think it is due by early
July.
We are on schedule with that application. I understand from
our team that is looking at it that it is going very well. I
expect a successful result in that, and I must commend the CME
for listening to concerns of users of that contract and
responding to those concerns and taking the steps and not only
that, but we will watch the outcome of this to make sure it
solves the problem that has been addressed.
Mr. Yoder. I appreciate your support. Thank you.
Mr. Aderholt. Mr. Young.
NOTIONAL VALUE OF MARKETS
Mr. Young. Thank you, Mr. Chairman, and welcome, Mr.
Giancarlo. I see you are looking at converting notional amounts
of swaps into actual measures of risk. This is probably
overdue, don't you think? Is that your idea or something that
the CFTC has been wanting to do for a while? How did this come
about where you are really going to take a look at this?
Mr. Giancarlo. So it is a complicated subject. And I
probably am guilty of something that I find problematic, and I
know probably you and your other Members do as well. And that
is, when we refer to these markets, we cite the same
astronomical levels of notional value.
Mr. Young. $600 trillion market is what I hear.
Mr. Giancarlo. And yet there is no other way of presenting
what that means in terms of real risk to the system. But we
need to find a better way. We need to not just cite a big
number and say, therefore, the house is on fire. We all need
to, you know, do whatever it is that the proponent is calling
for.
Mr. Young. That is a big number. The world's GDP doesn't
even add up to that.
Mr. Giancarlo. And yet----
Mr. Young. So how do you find it?
Mr. Giancarlo. So our Office of the Chief Economist is
going to be charged with coming up with better ways of
understanding the risk to the financial system that is present
in big numbers like that. Now, the number I understand after
that $600 trillion has been netted down----
Mr. Young. So you have a preliminary number?
Mr. Giancarlo [continuing]. Is closer to $250 trillion.
Mr. Young. Okay.
Mr. Giancarlo. Still a ridiculously big number. But what
does that really mean in risk to the system? That is something
that I don't have an answer for, but as you note, that is
something we are going to search for an answer for.
Mr. Young. Who do you reach out to--to help you find this
number? I mean, there are some really smart people who work
within the government. There are equally smart people outside
of the government. Can you contract out to specialists,
quantitative specialists, under your information technology
account--a line item and bring folks in to achieve this work to
find out what that number is?
Mr. Giancarlo. So our Office of the Chief Economist now
surveys all the best literature in the field, speaks at all the
major important conferences. We welcome in academics. It is
always a bit challenging because we have proprietary data, and
we have to be very careful how that data is used and whether it
is used by outsiders. Could it be commercialized? Could it be
disclosed? So that is always a challenge. We work very
carefully with the legal team to make sure we get that right.
In our budget request for 15 additional economists, we are
going to be looking to bring in nationally and internationally-
ranked economists who specialize in the area of risk to be able
to take these grand numbers and reduce it down to what it
really means in terms of risk to the financial system.
Mr. Young. Well, I appreciate taking those steps to find
the true size of the market and the tools that you are using,
not just internally but also looking at what folks are saying
on the outside who study these things for a living. Keep us
posted. I understand now that you have moved that down to $250
trillion mark. But keep us posted. We all have a vested
interest in this issue. So thank you for your work on this, and
we will be prepared to have further conversations about this.
Thank you, Mr. Chairman.
DE MINIMUS
Mr. Aderholt. Welcome. I was a little bit late arriving
this morning, but thank you for proceeding with your testimony,
and I look forward to getting a chance to visit with you as
well. I wanted to ask about the CFTC swap dealer de minimus
regulation.
Of course, it sets the threshold of annual financial
activity when a market participant must register as a swap
dealer, as you well know, and it's scheduled to be
automatically reduced to 60 percent from $8 billion in annual
swap activities to $3 billion. Thankfully, your predecessor
included a one-year delay on the scheduled reduction, but that
revised deadline is fast approaching.
So, time is of the essence as we address this issue. CFTC
has now completed two studies on this rule. The vast majority
of feedback, as I understand it, the Commission received was in
favor of maintaining the level of revising it even higher,
saying there's no benefit to our economy, no increased
protection preventing another financial crisis from allowing
this threshold to be reduced.
It would only serve to crush our job creators and add even
more burdens and regulations. The entities that would be
captured by the reduction would be the end users of
derivatives. They had nothing to do with Wall Street or the
financial crisis.
In fact, the levels set by the majority of U.S. financial
regulators that subjects financial entities to more stringent
regulation is $50 billion. Many even consider that level to be
too low. Becoming a swap dealer brings with it 4,000 additional
regulatory requirements. Some businesses just cannot afford
this cost.
They would be forced out of the market. In numerous recent
appropriation laws, we've included provisions related to this
issue, including the recently passed Omnibus.
One of these provisions directed your agency to keep the
swap dealer de minimus level at no less than $8 billion.
Preferably, we'd like to see it higher. Can you talk a little
bit about your plans for addressing this issue and whether or
not the agency will follow this directive?
Mr. Giancarlo. Thank you very much, and thank you Chairman,
and I appreciate you coming so far. I know you traveled far to
get here.
Mr. Aderholt. Yes.
Mr. Giancarlo. Let me just--if I could, start from first
principles, and then work down. So, one of the reforms that was
embodied in Title VII of Dodd-Frank was that the dealing of
swaps should be a regulated activity. And it sought to regulate
the traditional dealers of swaps.
All the household names you'd expect on Wall Street. Well,
in fact, we have done that. We have 104 swap dealers registered
with us today. So, the question of de minimus is really a
question of just how far out that goes. Do we go from 104 to
124, but where is the tail-end of that set of registrants?
It was the Wall Street Reform Act. We have all the Wall
Street firms. When we talk about de minimus, we're talking
about going way further out into the field, into non-Wall
Street firms.
We're now talking about firms--that their primary business
is being a power utility, an electric company, a refinery,
distributor of agricultural products, that may have, as a small
subcomponent of their business, a market making activity where
they will offer some liquidity into the markets, in addition to
their own trading activity.
I've spoken to most of these firms right now who are
keeping their trading activity below the $8 billion, simply
because they cannot be registered as a swap dealer, because it
will change their whole business model. Their investors that
see them as a power utility will suddenly say, ``Wait a minute,
you're a swap dealer? I need to compare you against Goldman
Sachs in terms of your earning potential?''
I won't do it. Their CEOs simply have told their trading
operations, ``You have to stay below the de minimus, because we
cannot be considered as a competitor to Goldman Sachs.'' If we
lower the de minimus level, all these firms will do is reduce
trading to a lower level again.
What I fear is by lowering the level, we're not going to go
from 104 registrants to 124. We're not even going to go from
104 to 108. I'd be surprised if we go from 104 to 105, because
they're all going to lower their trading activity to a lower
level to stay out.
So, we're not going to gain anything, but what are we going
to lose? We're going to lose the liquidity they provide, and
often they're providing liquidity to the smaller players in the
market place.
Now, I've worked very well with Commissioner Bowen at the
SEC. She feels differently. She feels it should be lowered, and
I respect the thoughtfulness that she brings to these issues.
But I've said publicly I don't feel it should be lowered.
So, right now, we are in that situation where she feels it
should be lowered. I feel it would be counterproductive to
lower it. I don't feel we'll gain any more registrants. I think
we'll just force them out of the market, and I don't think that
helps anybody. But I do respect her view on this, but that's
where we are today.
Mr. Aderholt. Quickly, can you provide a timeline of how
long it would take to complete a new rule making on this issue?
Mr. Giancarlo. Oh, I don't think it would take long at all,
but I don't think right now there's a consensus at the
Commission. I think we're at----
Mr. Aderholt. Right.
Mr. Giancarlo [continuing]. An impasse.
Mr. Aderholt. Exactly. All right. Mr. Bishop.
GLOBAL MARKETS
Mr. Bishop. Thank you, Mr. Chairman. Let me talk about your
anticipation of future needs. I'm glad that we both agree that
the recent growth in the number of designated clearing
organizations and swaps are only going to expand further.
Can you outline CFTC's plan for keeping pace with industry?
Do you have the financial and human resources necessary to get
ahead of industry, and to ensure that consumers are protected?
And along the same lines of anticipatory needs with the
UK's looming withdrawal from the EU, there's uncertainty on how
Brexit will affect business planning and investment decisions
of U.S. firms operating in the UK.
So, I'd venture to guess that this uncertainty translates
into the commodity trading markets CFTC is responsible for
overseeing. Do you have planning efforts underway in
preparation for Brexit's impact on the U.S. commodities
markets, and if so, what are they?
In light of the perceived diminishing prominence of the
U.S. in the global financial marketplace, what is CFTC doing to
take a leadership role in influencing our global commodity
financial standards?
Mr. Giancarlo. Well, there's a lot of challenges in the
world we live in today, and Brexit is certainly one of them. I
know it's a great challenge for our colleagues in the UK, and
our colleagues in continental Europe to resolve the challenges
that presents to their place in the global financial markets.
And there's currently an issue as to whether the clearing
that we've talked about before that takes place on the London
clearing house would be forced to relocate to continental
Europe for at least that portion of the swaps market that's
denominated in euros.
I have made the point that, while we in the US have
historically been comfortable with regulating clearing houses
offshore--in which US market participants participate--if
Europe were to take a different view, and euro denominated
instruments need to be cleared on European soil, then it could
rightly raise the question on the United States' side. Why are
we comfortable with offshore clearing houses if continental
Europeans are not?
And if the whole world were to go to that regime, I think
that would actually be detrimental to global markets, and to
global trade, to the dollar standing as the world's reserve
currency.
So, I think there are tremendous ramifications that come
out of how the negotiators on both sides of the Brexit debate
consider the consequences of this, and I don't envy their job,
but I do hope that they get it right in the end.
WHISTLEBLOWER REGULATIONS
Mr. Bishop. Thank you. I was pleased to see that CFTC
finalized rules that were proposed last year to protect
whistleblowers. In particular, whistleblowers would be better
protected from interference or retaliation by their employers,
and CFTC would even be empowered to bring legal action against
an employer who retaliated against an employee.
I assume, that in part, this was to conform CFTC's rules on
whistleblowers to those at the SEC. Beyond that, can you tell
us what prompted the Commission to take this action, and also
can you discuss the role that whistleblowers play in CFTC's
work?
Mr. Giancarlo. Thank you. I was proud to support those
enhancements to our whistleblower program. It was done in part
because we are cognizant of the SEC's rules, but it was also
done because we felt it was the right thing to do.
Whistleblowers play an important part in alerting us at the
Commission to areas where we need to take enforcement action.
That's not to say that whistleblowers always have it right.
They need to be careful. As I said, I believe it was the right
thing to do, and they're now part of our framework.
USER FEES
Mr. Bishop. Okay. Let me talk about user fees. Previous
CFTC Chairmen have indicated support for funding some or all of
the agency's costs with user fees. The National Futures
Association, for example, is funded by those types of fees.
In fact, NFA recently cut the amount of money collected
because it was getting too much. Every President since Ronald
Reagan has proposed user fees. What is your position on user
fee funding for the CFTC?
Mr. Giancarlo. This is an area where there is a broad range
of views, and I know quite reasonable people, and as you say,
every President since Ronald Reagan, although I don't think the
current President has proposed user fees.
But many people have proposed that, and a number of
financial regulatory agencies, like the SEC, also are paid with
user fees. Our markets are a little different. Unlike the SEC's
markets, which are primarily domestic, our markets are quite
international in scope.
Our markets also already have a form of user fees in NFA,
which our registrants are required to be members of and which
charges user fees. Our markets have also seen a dramatic
increase in transaction costs in the form of clearing costs, in
the form of execution costs that had been brought on in the
last few years.
Our markets suffer right now from challenges in liquidity
formation, something I've been talking about and writing about
in great detail for the last two and a half years. I'm very
concerned that imposing transaction costs on our markets would
contribute to greater liquidity challenges than we have now,
and so, I do not support user fees.
Mr. Bishop. Thank you. I think my time has expired. I thank
you very much.
Mr. Aderholt. Ms. DeLauro.
TITLE VII OF DODD-FRANK
Ms. DeLauro. Thank you, Mr. Chairman. Let me just repeat
something that I said on the first go-round. If you could
provide us with the statement--and I know a lot of people take
the statement seriously that this is about the issue of
regulation and how much regulation we should have or shouldn't,
and what is overregulation.
But how specifically--and you can please get back to us on
this--has regulation of the derivatives market held back the
revival of American prosperity? And I would really like to see
hard data because otherwise, honestly, it becomes--and I am not
suggesting it is rhetoric on your part, but it certainly on our
part often becomes rhetoric. So that would be enormously
helpful.
[The information follows:]
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Ms. DeLauro. Another point before I get to my question,
which is, I want to make sure that with the enforcement efforts
that you are making that the emphasis is about market users, as
I said, their funds, consumers, how do we keep the public from
being exposed to fraud, manipulation, and abusive practices
that have been related to derivatives and to other products,
and not make sure that enforcement focuses in that area and is
not about a coziness, as I said, with the industry and that
effort?
I think that robust oversight of derivatives is not
overregulation. It is the right thing to do, so that we don't
have the crisis that we had with Wall Street, and its hurting
Main Street. I believe that thanks to Dodd-Frank we have more
clarity into the derivatives market than ever before; more
swaps trades take place on the swaps execution facilities than
over the counter.
You are going back to an era where derivative trades could
take place over the phone without any documentation more than a
post-it note. That is a recipe for financial crisis.
Let me just ask you, prior to Dodd-Frank, there was no way
to track real-time data about trades happening in the swaps
markets. Now the swap data repositories created by Dodd-Frank
capture and archive key information about every single trade,
so that we can identify problems that may arise in this multi-
trillion dollar market.
Do you believe that a reform as straightforward and
important as this is overregulation?
Mr. Giancarlo. So let me just absolutely be clear: I
support Title 7 of Dodd-Frank.
Ms. DeLauro. You said that earlier.
Mr. Giancarlo. I support all of its elements. That is,
moving bilateral swaps into central clearing, requiring that
swaps trading take place on licensed platform, and, the point
you made, swap data reporting. Completely support it.
In fact, my only disappointment is that it is not greater
realized; that today, nine years after the crisis, seven years
after Dodd-Frank was passed, that we still don't have the full
transparency of swaps transactions through the swap data
repository that Dodd-Frank promised.
I am doing everything possible. We will soon put out a
roadmap to completion of that project at the CFTC. I am fully
committed to that. In fact, one of the reasons why I am so
enthusiastic about financial technology is because it will
enable us to take it to what you just said, to real-time swap
data analysis.
Even if we complete the current project set out in Title 7,
we won't get to real-time data analysis. It will still be
after-the-fact data analysis because swap repositories have to
collect the data, scrub the data, provide the data, and then
piece it together. We need to piece together CFTC-regulated
swaps with SEC-regulated swaps with European- and Asian-
regulated swaps.
The Blockchain could actually give us the opportunity to
see all those swaps in real time, and so the financial
technology I think is going to be the way we are going to get
to realize the promise of Dodd-Frank. But I completely support
it.
Ms. DeLauro. Okay.
Mr. Giancarlo. Completely.
Ms. DeLauro. And just reference--you may have seen it--it
is a tongue-in-cheek piece. It is an op-ed called ``Dangerous
Stability Threatens America's Banks''. This was early in
February. It is the Editorial Board of the Reform Broker. I
think that there is this move to look at how we unravel Dodd-
Frank, which seems to be a movement here. I am not suggesting
that you are there, but we certainly are, and that is going to
loom large this afternoon on the floor of the House.
We have seen stability in the markets. Your agency is doing
the job, though you don't have enough money to do the job that
you have been charged with doing. We have paid back in a prior
time--and we heard this from Mr. Massad in 2016--we got the
$182 billion back from AIG, but the $182 billion is 600 times
your budget request.
So what your agency does is critically important. I do not
want to get caught up with this notion that somehow the banks
are suffering. They are not suffering. If there are people who
are, we need to know who they are and how we can bring remedy
to that, rather than looking at ways in which we can unravel
the legislation that has created this stability, which it seems
that sometimes our banks feel is too big a constraint on them.
So thank you very, very much for your work.
Mr. Giancarlo. Thank you very much.
Mr. Aderholt. Dr. Harris.
CUSTOMER PROTECTION FUND
Dr. Harris. Thank you very much, Mr. Chairman. And thank
you for appearing before the subcommittee. I apologize for
being a little late, but we are busy.
I have just a couple of things. First of all, I know the
issue of the de minimus thresholds have been brought up. I
would just like to echo the concern that the limits, especially
if it reverts back to $3 billion, really would be pretty low.
So, again, I just want to echo what you heard before.
The only question I have for you involves the Consumer
Protection Fund, the Consumer Protection Whistleblower Fund.
The balance that I see is a quarter of a billion dollars. And
even in Washington, that is a lot of money. The balance in that
fund exceeds the budget for the entire Commission annually, and
the payouts, I understand, have been peaking at around $20
million a year.
So if you just do the math you have got a dozen years'
worth of payouts if you had the maximum payouts you have had up
until now, the peak payouts. At some point, given that we run a
$500 billion deficit and have a $20 trillion debt, do you feel
that at some point statutorily we ought to be able to take the
excess monies in the fund and perhaps use it to fund the
Commission? I mean, what amount do you think you need? A
quarter of a billion seems like a lot to keep in this fund.
Mr. Giancarlo. Yes. So our fiscal year 2018 budget for use
of that fund is about $15.7 million.
Dr. Harris. 15?
Mr. Giancarlo. $15 million.
Dr. Harris. Yes.
Mr. Giancarlo. So, clearly--I think it is $238 million
balance in the fund right now. Clearly, there are adequate
resources for us to fund our whistleblower awards and our
consumer protection. But that is something ultimately for your
Committee and for Congress to determine how that should be
funded. But, certainly, it is adequate as it stands today, and
would be adequate at a lower level as well to fund our needs at
the Commission.
Dr. Harris. And you would need a statutory change, right,
is my understanding----
Mr. Giancarlo. That is my understanding as well.
Dr. Harris [continuing]. To do that. Okay. Perhaps you can
work on that because we are looking for ways to make sure that
we would return monies to the federal taxpayers that perhaps
are excessive in accounts like this.
Mr. Giancarlo. Let me share with you, we are exploring ways
that we can enhance our customer protection efforts to perhaps
use that even more broadly. One of the areas that a number of
your colleagues have been concerned about is the role of HFTs
in markets, and we are looking to perhaps conduct an open
request for academic work on this, and perhaps even do some
work in terms of hosting a conference where we can bring some
of the best minds to bear on this, and perhaps we could utilize
some customer information and consumer information in that.
But as I say----
Dr. Harris. There would still be an excess. Okay.
Mr. Giancarlo. But we would still be well within our----
Dr. Harris. Thank you very much.
Mr. Giancarlo [continuing]. Budget.
Dr. Harris. Thank you very much. I yield back.
UNION NEGOTIATIONS
Mr. Aderholt. Last fall, the CFTC approached our Committee
about ongoing negotiations with its labor unions. We were
informed that these negotiations were under a worst-case
scenario that could have resulted in the CFTC being forced to
increase its financial commitments to $281 million. That is an
increase of $31 million just to maintain the status quo and to
satisfy the demands of the union's proposal.
Negotiations could have resulted in furloughs of up to 17
days for CFTC staff. Essentially, it seems someone was sending
a message that if this Committee didn't increase the budget for
CFTC, that the employees would suffer the consequences.
Thankfully, cooler heads prevailed in that situation, and the
negotiation increased the agency's commitments by only a tiny
fraction of that original $31 million, and I understand that no
furloughs are going to happen.
I don't know who was behind the effort to coerce Congress
to increase the budget, and certainly we don't want to focus
too much on what all went on in the past, but we remain
concerned about similar moves in the future. There is nothing
preventing this from happening again.
And let's be clear: neither this Committee nor Congress
will give in to the manufactured crisis that we faced in the
last Administration when making its funding decisions for CFTC.
I would like to explore how we can prevent that scenario from
occurring in the future.
According to the Congressional Research Service, quote,
``Most federal employees cannot bargain over wages and
benefits.'' Somehow CFTC is part of a potential loophole in the
federal law.
My question would be to you, can you give us an update on
the situation and how it is affecting your day-to-day
operations?
Mr. Giancarlo. Thank you for that. Since I have assumed the
role of Acting Chairman, I have worked very hard. In fact, the
very first call I made was to our union representative in
Washington to signal to them that I desired good working
relations with them, that the staff of the CFTC have chosen to
be represented by a union. That was the decision that was made
back in 2014 in Washington.
In fact, the CFTC staff in New York had been represented by
a union since the 1970s, and that is a choice that they made,
and so, therefore, we are obligated, as you know, under our
statute to negotiating pay and benefits and other issues with
them. And we have worked hard. We have approached those
discussions in good faith.
Again, when I took over, there was an impasse panel over
our 2016 pay and benefits, and we had still had 2017 to resolve
and a collective bargaining agreement. We successfully have
resolved the issues regarding 2016. We reached a good result
with the union over 2017, and now we are getting ready to
negotiate our collective bargaining agreement going into 2018.
So I think that we have taken the right steps to come to a
good place right now with our union. As I say, our employees
have chosen to be represented by a union. We are required to
negotiate with good faith.
Now, we have a commitment in our statute to provide pay and
benefits equivalent to FIRREA standards, and the union is very
aware of that standard, and that is something that has come up,
and I imagine will continue to come up in our negotiations with
our union. That is our obligation.
So we will endeavor to continue to be successful, to have a
good working relationship, to negotiate and bargain in good
faith, and I think the union is well aware that we are an
appropriated agency, that if all our money goes to pay and
benefits, at some point we will have a dwindling number of
employees.
So we have to get that balance right. I see them come to
the table with an understanding of what is reasonable and what
is not, and we do the same.
Mr. Aderholt. Is it possible to place a precondition or
certain parameters on your future collective bargaining
agreements with the union through your current memorandum of
understanding, for example, to prevent any negotiation from
placing the agency employees at risk of furloughs or layoffs?
Or do you need an act of Congress to close the loophole on
this?
Mr. Giancarlo. Well, I think in terms of reaching
permanence, there is nothing better than an act of Congress to
address this in a way that is permanent. I would be happy to
meet with my staff and take a look at it from a memorandum of
understanding perspective.
Mr. Aderholt. At least from a temporary standpoint.
Mr. Giancarlo. Yes.
Mr. Aderholt. Thank you. We would be interested in
following up with you on that.
Okay. Mr. Bishop.
REGULATORY REFORM OFFICER
Mr. Bishop. Thank you. As you know, shortly after taking
office, President Trump issued a series of executive orders
related to regulations and government operations. Among other
things, the Administration required departments to appoint
regulatory reform officers. Does that requirement apply to
CFTC? If so, have you appointed a regulatory reform officer and
who is that person and where do they report within the new
organizational structure in Appendix 1 of your budget request?
Mr. Giancarlo. Thank you very much. I am advised by our
counsel we are not strictly subject to that executive order as
an independent agency. Nevertheless, we have adopted it in
spirit, and it is reflected in our initiative that I call
Project KISS. And my Chief of Staff, Mike Gill, is our
regulatory reform officer or, as I refer to him, he is stupid.
[Laughter.]
And I say that jokingly because he is quite intelligent and
also has taken this effort very much to heart. We have quite a
few proposals in front of us to streamline our operations that
we are now working through our divisions and I will be speaking
about with my fellow Commissioner, Commissioner Bowen.
But we take very much to heart the need--and I think it is,
quite frankly, not a partisan need. I don't think it is a
political need. I think all government agencies from time to
time should take stock of the implementation of their rules to
see whether they can be streamlined and done in a way that is
most productive, quite frankly, most efficient in achieving the
policy goals set by Congress.
Mr. Bishop. Going back to Ms. DeLauro's questions in
identifying regulatory burdens, CFTC operates under numerous
rules and regulations, and this exercise is--well, let me ask
you, is this exercise directed at Dodd-Frank, or is it a deeper
dive into the various rules and regulations that you enforce?
I agree that streamlining is beneficial to the solvency of
our financial markets, but I ask you whether or not the current
request of $281.5 million is sufficient to cover CFTC if it
looks like a major overhaul is going to be called for? If it is
not enough, were you provided a regulatory budget by OMB? And,
if so, how much?
And, to date, what progress has the taskforce made in
reducing regulatory burdens without sacrificing your core
mission to foster open, competitive markets while protecting
the public from fraud and manipulation? What is the
adjudication process for comments and the ideas that are
generated from the public? So that it won't turn into a never-
ending land of good ideas, what is the expected implementation
rollout date?
Mr. Giancarlo. Thank you very much. So let me be very
clear. Project KISS is not directed at Dodd-Frank. It is a
general agency-wide initiative. Secondly, the budget request is
not designed for any attempt to rollback Dodd-Frank. In fact,
one component of it--the need for greater examiners--is
reflective of the need that Dodd-Frank has put more swaps into
clearinghouses, and we need to do a better job examining them.
The other two components of it--more economists and a
FinTech initiative--are really a forward-looking exercise. You
know, to some degree, I have said in my testimony I think the
era of Dodd-Frank implementation is now winding to a close. I
really don't join in the debate as to if Dodd-Frank is good or
bad. I accept it as done, and I am moving forward into the
future. My focus is on, where do we go next? How do we digest
what we have done and make it work in a way that is helpful for
the U.S. economy?
My former chairman, Tim Massad, admitted there is fine-
tuning that needs to be done. There are tweaks needed. There
are areas of Dodd-Frank where I think Congress got it right. I
think the CFTC got some of the implementation wrong. There are
other areas where we got it right.
But, you know, we are still fine-tuning the Securities Acts
that were passed in 1933 and 1934, and we have still got to get
them right. But the law is the law; there is nothing in the
CHOICE Act that repeals Title VII. I haven't called for it. It
is going to be the law, I am sure, for the rest of my career.
What I want to do is get the implementation of it right, and I
want to start focusing on where things are going on into the
future.
As I have said, these markets are changing dramatically.
And as comprehensive as Title VII of and Dodd-Frank is, they
don't address high-frequency trading. Dodd-Frank doesn't
address cyber, and we haven't discussed cyber yet. Cyber is the
biggest threat to our market and, unfortunately, Dodd-Frank
doesn't give us any instructions as to what to do about the
cyber threat to our market.
So these are the things that, really, going forward in our
budget request, is to focus on the future, not on the past.
Mr. Bishop. Thank you.
Mr. Aderholt. Okay. Thank you so much for being here today
and for your testimony before our Committee. We look forward to
working with you. Again, we wish you the best in your
confirmation process as it moves forward.
And so, with that, the Subcommittee's hearing is adjourned.
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Thursday, May 25, 2017.
FOOD AND DRUG ADMINISTRATION
WITNESS
DR. SCOTT GOTTLIEB, COMMISSIONER, FOOD AND DRUG ADMINISTRATION
Opening Statement--Mr. Aderholt
Mr. Aderholt. Well, good morning. Welcome to the
Subcommittee. The Subcommittee will come to order. I want to
welcome everyone to today's hearing. It looks like we have a
nice turnout for this hearing, and we are pleased to have the
new Commissioner of the FDA, Dr. Scott Gottlieb, testifying
before the Subcommittee today.
Dr. Gottlieb, welcome. You are no stranger to the Food and
Drug Administration or the Department of Health and Human
Services. You have served in various leadership roles and on
committees that make you well-qualified to lead the Food and
Drug Administration. Again, welcome to our Subcommittee, and we
look forward to working not only with you, but also with your
team as we move forward with the budget process.
The intent of this hearing is to examine the Food and Drug
Administration's fiscal year 2018 budget request. In addition
to this committee's review of the budget request, the Members
of the Subcommittee will seek information on the agency's use
of current and past resources, including the activities,
policies, and practices supported with appropriated funds.
As I have mentioned in previous hearings, we have
established four primary goals for this Subcommittee as we
progress through the 2018 appropriations process. The first
goal is evaluating and accounting for taxpayer dollars to
ensure efficiency and accountability. Number two, investing in
rural infrastructure as a catalyst for growth. Three, to ensure
support for American farmers, ranchers, and producers. And
last, and probably most pertinent to FDA, protecting the health
and safety of people, plants, and animals.
Congress has passed a number of noteworthy pieces of
legislation over the past 10 years involving FDA's role and
responsibilities. Included in this would be the Tobacco Control
Act, the Food Safety and Modernization Act, the Food and Drug
Administration Safety and Innovation Act, the Drug Quality and
Security Act, and, most recently, the 21st Century Cures Act.
Each of these major acts has resulted in new funding streams
and a constant need for the Appropriations Committee to
increase our oversight of the agency.
Our oversight not only covers the expenditure of resources,
but also the corresponding action, the efficiency in delivering
those actions, and the degree to which the agency delivered or
failed to deliver meaningful and measurable outcomes.
At the end of the day, our constituents demand that limited
resources are spent wisely. The FDA's fiscal year 2018 budget
request is not unlike any other agency's request, because the
Administration proposes to scale back some of the activities
and to decrease spending.
As I reminded everyone at the budget hearing yesterday when
we had Secretary Perdue here, our Nation's debt is
unsustainable as this year it will exceed $20 trillion--that is
trillion with a T.
In terms of your funding request, FDA is proposing a total
of $4.9 billion at the program level for its salaries and
expenses account. Of this total, $3.1 billion is delivered from
user fees and $1.8 billion comes from discretionary budget
authority. This change in budget authority represents a
decrease of $939 million. While the budget proposes to recoup
$769 million from additional user fees, the agency is proposing
an overall reduction of $171 million.
We will likely have questions and comments about these
proposed changes and some of the budget gimmicks of yesterday
that we are seeing today.
In looking at the proposed user fees, FDA is, proposing to
collect and spend $725 million in renegotiated user fees for
the drugs, medical devices, generic drugs, and biosimilar user
fee accounts. I give someone credit for coming up with the very
creative proposal, but the legislation currently before
Congress reflects agreements that take up to 2 years to work
out. You are asking the Authorizing Committee to reopen their
nearly finished product and renegotiate over $700 million in
user fees without additional benefit in return.
These reauthorizations need to be complete by July or, as I
understand it, FDA will begin the process of reducing their
medical product review staff. At a time when the Administration
is talking about speeding up medical product reviews, it would
not help to lay off the very people you need to complete those
reviews.
Lastly, I am skeptical of FDA's reopening user fee
agreements for unexpired animal drug user fees to recoup an
additional $53 million. This is a long way of saying that the
agency's chances of offsetting budget authority with user fees
face a very steep uphill battle in the future.
FDA oversees 20 cents of every consumer dollar, resulting
in one of the safest medical product markets and the safest,
most highly productive food and agricultural sectors in the
world. The United States government plays a unique role
ensuring that all of these sectors maintain their current
vitality. We must continue to explore ways in which the FDA can
fulfill its public health mission successfully, but do so in a
way that regulated industry has clarity on the rules of the
road and are not burdened with unnecessary regulation.
On a related note, I would like to express my appreciation
for the FDA's recent decision to review the previous
Administration's regulatory actions. Your agency can achieve
the same ends as those required by Congress, but without the
costly and burdensome means of some FDA's previous regulatory
action.
I look forward to hearing about the agency's new priorities
as well as the continuation of past priorities, such as
reducing of opioid abuse or your progress in implementing
provisions of the Food Safety Modernization Act.
We expect to hear more about the planned changes to the
medical product review process. The agency's recent fast
approval of the cancer drug Keytruda may indicate FDA's greater
willingness to utilize the latest medical advances to improve
your regulatory process and make drugs accessible prior to the
completion of a lengthy drug trial.
I also want to open up a dialogue about the orphan product
review process so that Congress can determine whether
underlying law or administrative changes are necessary to weed
out the unscrupulous actors in this space.
At the end of the day, we want to hear from you that
resources are adequately aligned with policies that will
advance public health.
As I and my colleagues are keenly aware, the work you and
your colleagues perform at FDA touches the lives of every
American, and we appreciate the dedicated service not only you
make, but also your entire team makes. You have no shortage of
work, as there are many challenges that face the Food and Drug
Administration today, from drug safety and effectiveness to
opioid abuse to animal and food safety, just to name a few. We
will look forward to hearing from you today about the
President's budget proposal and what you are doing with the
newly approved resources in the current year.
So at this time, I would like to ask Mr. Sanford Bishop,
who is our Ranking Member from Georgia, if he has any opening
remarks that he would like to make.
Mr. Bishop.
Opening Statement--Mr. Bishop
Mr. Bishop. Thank you very much, Mr. Chairman.
And welcome to you, Commissioner Gottlieb.
Chairman, I am pleased to be back here again today as we
have our Subcommittee's second hearing on the Administration's
budget request released on Tuesday. It also gives me great
pleasure to welcome Commissioner Gottlieb before the
Subcommittee today.
Your background as an internist trained at Mount Sinai
School of Medicine and policy expertise are impressive and will
no doubt help you in executing the wide variety of
responsibilities as the FDA Commissioner.
We have a big job ahead of us, and I look forward to
working with you in order to help FDA fulfill its mission of
protecting the public health by ensuring the safety, the
efficacy, and security of human and veterinary drugs,
biological products and medical devices, and by ensuring the
safety of our Nation's food supply and cosmetics.
Mr. Chairman, I am very concerned about the impact of the
proposed budget before us. It proposes replacing all of the
discretionary budget authority that currently funds medical
product reviews, largely for drugs and devices, with user fees,
which would reduce discretionary spending by $769 million. The
user fee reauthorization is very far along in the legislative
process on the authorizing side. It is doubtful whether these
fees would be authorized for 2018, resulting in a $769 million
hole in the FDA's budget.
Also, the proposed budget cuts $174 million, mostly in the
food safety arena. And, specifically, this affects State and
local health organizations that play key roles in education and
inspection, as well as international work geared towards
raising the food safety standards of countries and companies
that export to the U.S. And, as such, these cuts would walk
back much of the progress made in food safety over the last 5
to 6 years. We simply cannot afford to go backwards in food
safety, and the proposal before us would lead us in that
direction, I am afraid.
Commissioner Gottlieb, I look forward to working with you,
Mr. Chairman, our Subcommittee, our colleagues in both the
House and the Senate, to fill the holes that this budget
presents and to ensure the safety of our Nation's drugs, food
supply, and cosmetics.
Mr. Chairman, thank you for the opportunity to welcome the
Commissioner and share my concerns, and I am delighted to yield
back.
Mr. Aderholt. Thank you, Mr. Bishop.
Also joining us this morning we have the Ranking Member of
the Full Appropriations Committee, Mrs. Lowey. She is with us.
I would like to recognize her for her opening statement.
Opening Statement--Mrs. Lowey
Mrs. Lowey. I thank you, Mr. Chairman.
I thank Chairman Aderholt and Ranking Member Bishop for
holding this hearing. I am delighted to welcome Commissioner
Gottlieb.
You have such an extraordinary responsibility, and I know
the passion of all the Members on this Committee, and so we
look forward to working closely with you. Congratulations.
The FDA regulates more than $2.4 trillion worth of products
consumed by Americans, including food, cosmetics, prescription
drugs, medical devices, and tobacco. That amounts to Americans
spending about 20 cents of every dollar on FDA-regulated
products.
Existing sequestration caps for the fiscal year 2018
appropriation bills are already insufficient and would lead to
reduction in services that American families and communities
need, like a robust FDA to ensure the safety of our food supply
and other consumer products. It is time for a new budget deal
to end sequestration once and for all.
And yet, the Trump budget would cut $54 billion from
nondefense discretionary programs, threatening the health and
safety of Americans and putting crucial government services,
such as the FDA, at risk. By relying on user fees which have
not been authorized by Congress, the Trump fiscal year 2018
budget proposal would, in effect, cut $943 million from FDA's
discretionary authority.
This astounding 34 percent cut would do a great deal of
harm, slowing the approval process of drugs qualified to come
to market or pressuring researchers to approve items that, if
additional staff or resources were available, might necessitate
more in-depth review.
This budget would certainly inhibit FDA's ability to
implement the new 21st Century Cures Act, combat a growing
opioid epidemic, curb antibiotic resistance, and enforce
crucial public health regulations on tobacco products. We
cannot allow these national priorities to go by the wayside in
order to meet an arbitrary spending cap or to pay for a
wasteful, unnecessary border wall.
Before I close, I would like to note my concern about FDA's
recent announcement to delay enforcement of the tobacco deeming
rule for 3 months. This decision seems to encourage tobacco
companies to use a new playbook: to engage in litigation in
hopes of achieving a regulatory delay. I sincerely hope the
FDA, whose central mission is to protect public health, will
not allow itself to be bullied by the tobacco lobby.
I look forward to discussing this topic more during my
questions. I look forward to working with you. You have an
extremely important responsibility. I know how committed the
colleagues are on both sides of the aisle to your success. So
thank you very much.
Thank you so much, Mr. Chairman.
Mr. Aderholt. Thank you, Mrs. Lowey.
Dr. Gottlieb, without objection, your entire written
testimony will be included in the record. At this time, we
would like to recognize you for your opening statement, and
then after that we will proceed with the questions. So the
floor is yours.
Opening Statement--Dr. Gottlieb
Dr. Gottlieb. Thanks a lot, Chairman Aderholt, Ranking
Member Bishop. I appreciate the opportunity to testify before
the Committee today regarding the President's budget.
I have been in my new role at FDA for 2 weeks, and I am
eager to have the opportunity to work with Members of this
Committee to ensure that FDA has the resources it needs to
fulfill its critical mission to protect and promote the public
health.
FDA values our partnership with Congress and this
Committee, and we very much appreciate the funding that you
have provided for fiscal year 2017.
As a physician, a cancer survivor, and a father, I know
personally the importance of FDA's role in improving and
protecting the lives of Americans. More than $2.4 trillion
annually, roughly 20 cents of every dollar, are spent by
consumers on products that FDA regulates.
The President's budget recognizes our significant public
health challenges and opportunities. FDA's fiscal year 2018
budget requests $5.1 billion, a nearly 10 percent increase over
the fiscal year 2017 continuing resolution funding level. I
look forward to discussing with you how FDA's budget will
support the agency's key priorities.
Based on my discussions with Members of Congress about your
concerns, I want to focus on one of those key priorities in my
opening remarks today. That is the issue of how FDA can take
steps to make the market for prescription drugs more
competitive and help increase access to the medicines that your
constituents rely on.
Simply put, too many patients are priced out of the
medicines they need. While FDA does not play a direct role in
drug pricing, we can take steps to facilitate entry of lower-
cost alternatives to the market and increase competition. This
is especially true when it comes to safe and effective generic
medicines.
Towards these goals, we are working on a drug competition
action plan that I will unveil soon. We believe FDA can be
doing even more to improve our processes and communication with
generic drug developers, both individually during the drug
development process and through more helpful guidance
documents. We believe better and more frequent dialogue can
make the generic review process more efficient and easier for
applicants to bring generic products to the market for a
broader range of drugs.
At the same time, FDA also needs to take steps to make sure
its regulatory processes are not being used inappropriately in
ways that take advantage of patients. To these ends, we want to
do three things.
First, curtail gaming by industry of our regulations, which
can extend monopoly periods beyond the timeframe Congress
intended, hindering competition.
Second, improve the processes that enable generic versions
of complex drugs to be approved for marketing.
And finally, increase the overall efficiency of the generic
drug review process while completely eliminating the backlog of
generic applications, something that requires action on the
part of both FDA and the generic drug industry.
FDA has an important role to play in preserving the balance
between innovation and access and making sure that its
statutory and regulatory processes are working as intended and
not being manipulated in ways that FDA and Congress didn't
intend. We will be announcing soon a public meeting to solicit
input on situations where manipulation occurs so that we can
assess the ways our regulatory processes may not properly
balance innovation with competition, as Congress intended.
For example, we know that processes related to the Risk
Evaluation and Mitigation Strategies (REMS), which are intended
to ensure that certain drug products are used safely, are
sometimes used in ways that slow generic competition. We are
going to be taking steps to address this.
To this end, we are evaluating ways to streamline the
process FDA uses to determine whether to waive the requirement
that a generic drug applicant and brand company share a single
system for ensuring safe use. We are asking can FDA waive this
requirement more readily than we have in the past in situations
where sponsors cannot reach agreement after a reasonable period
of time in implementation of a shared system.
We also want to take steps to improve the overall
efficiency of the generic drug review process to help increase
product competition. This includes additional guidance to
reduce the multiple cycles of review that generic drugs often
undergo before their applications can be approved.
We also want increased transparency in those cases where
competition is absent by highlighting situations where off-
patent drugs lack approved generic competitors. We believe
greater transparency in these circumstances can help entice
competitors into the market.
To provide such transparency, we will publish a list of
those drugs that are off-patent but for which FDA has not
approved a single generic applicant, and we will update this
list regularly. We will consider whether we can provide further
transparency by disclosing additional information to help
generic manufacturers target drugs with little or no market
competition.
In closing, current law strikes a delicate and critical
balance between drug innovation and access. New drug innovation
is essential; it creates new and improved therapies. But access
to lower-cost alternatives once the market protections that
Congress intended to have lapsed is equally and essentially
important to the protection and promotion of the Nation's
public health.
With your support and the resources outlined in the
President's budget, FDA is poised to take on these and other
challenges and opportunities with our public health mission.
From improving patient access and choice when it comes to
medicines they take, to implementing the 21st Century Cures
law, to continuing implementation of the Food Safety
Modernization Act (FSMA), the resources proposed in the
President's budget and provided by this Committee are critical
for carrying out the public health mission you and your
constituents are counting on us to fulfill. I look forward to
discussing these and other issues with the Committee today and
working together with you to fulfill FDA's critical public
health mission.
I am happy to answer any questions you have.
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Mr. Aderholt. Thank you.
We were just discussing the vote schedule this morning. Of
course, today is designated as a day for Members to fly out to
their respective districts, so they are moving votes earlier in
the day than usual. It looks like late morning we will probably
be called for votes, which will keep us on the floor for about
an hour.
So what we are going to try to do is to go ahead and make
sure everybody gets a round. We are going to do 4 minutes for
each Member so that we can be sure to get at least one round in
before we have to leave for votes being called.
So, with that, I will begin.
FY2018 PRIORITIES
As I mentioned in my opening statement, you are certainly
very familiar with the Food and Drug Administration, its
functions and responsibilities, and I foresee you agreeing with
some of the policies of the last administration, but
disagreeing with some of the other policies.
You and your team have an opportunity to define your vision
and your priorities for the agency itself. If you could take
just a brief moment to tell us what you believe are the top
three most pressing issues that you hope to address as the new
FDA Commissioner.
Dr. Gottlieb. Thank you for the question, Congressman.
I have outlined some of my top priorities in a talk I gave
to the entire FDA staff about 2 weeks ago when I came on board.
I am going to be focusing very hard on the problem of
addiction to opioids, looking at places where we can address
the issue of high-cost drugs. While FDA doesn't have a direct
role in drug pricing, we do have a role to play in trying to
bring competition to the market.
And also looking at places we can help facilitate more
innovation by looking at the regulatory rules that we create,
making sure that they are efficient, they are science-based,
they are modern and up to date.
And in that regard, I plan to use the 21st Century Cures
Act as a touchstone and a strategic plan to help guide our
implementation of policies that can help facilitate innovation.
OPIOID ADDICTION
Just to back up on the first issue, if I may, two days ago
we announced the beginning of an initiative to try to address
the opioid addiction crisis. And where I think FDA has a
critical role to play is on the new addiction problem.
We know that most people who are going to become addicted
to opioids are going to first be exposed to opioids through a
legitimate prescription that they will receive from a
physician, but a certain percentage of people who receive an
opioid prescription go on to be addicted to the products.
And so what we need to do, as a matter of public health, is
to make sure that patients are only getting exposed to opioids
in appropriate clinical circumstances and only for the
appropriate duration that is needed. So no more 30-day
prescriptions for tooth extractions.
We think that there are steps we can take to help
facilitate these goals, and that is going to be a focus of
mine.
Mr. Aderholt. All right. Let me move on quickly since time
is running out.
DRUG REVIEW PROCESS
In the President's first speech to a Joint Session of
Congress in March, he called the drug review process slow and
burdensome. You too have voiced concerns about the pace of drug
development and the length of time it takes to get human drugs
to the patient.
Your fiscal year 2018 budget request, as well as your
written testimony, indicate that you have ideas of how the
agency can make the process more efficient. And there is a
quote in your testimony that says: ``Improved regulatory
science and policies will not only lead to more efficient
approvals and increased competition that can help reduce costs
to consumers, but more importantly, they will improve patient
outcomes.''
Could you give a quick summary of how you might speed up
development costs, which will deliver reduced costs to
consumers, improve outcomes, and maintain the gold standard for
safety and effectiveness?
Dr. Gottlieb. Congressman, I believe that there are parts
of the agency that work exceptionally well and have implemented
Congress' laws, like the breakthrough therapy pathway, in a
very robust fashion. And I would single out the Oncology
Division, which I think has been very forward-leaning with
respect to some of the new legislative authorities and how it
has implemented them.
You know, unfortunately, as in any organization, there is
not always uniform adoption of those kinds of principles. And
so one of my goals would be to try to make sure that there is
uniform adoption of the principles that Congress has outlined
in laws like the creation of the breakthrough therapies
pathway.
I think another critical goal in this regard in trying to
help facilitate new innovations coming to market is just to
make sure that the regulatory tools that we are using, the
science that is informing our regulatory decisionmaking, is as
modern and up to date as possible, so that we have the right
metrics by which we are judging the safety and effectiveness of
products.
This might mean things like looking at different kinds of
trial designs, as Congress outlined in the 21st Century Cures
Act. It might mean looking at new scientific tools that could
be used to help judge efficacy and safety and help make our
process even more rigorous, like the use of modern biomarkers,
another thing that is outlined in the 21st Century Cures Act.
So these are the kinds of ideas that I think can help
facilitate new innovations coming to market and lower the cost
of the development process.
Mr. Aderholt. All right. Mr. Bishop. I understand you want
to defer to Mrs. Lowey.
Mr. Bishop. Yes. I would like to yield to the Ranking
Member of the Full Committee. She has some varied
responsibilities. She is riding circuit on Appropriations
hearings this morning. I would like to defer to her so that she
can get on to her next stop.
E-CIGARETTES
Mrs. Lowey. Thank you. Thank you, my friend.
I understand, Dr. Gottlieb, you served on the board of
directors of Kure, a vaping retailer. During your confirmation,
you stated you would sell your investment in the company. Have
you done so?
Dr. Gottlieb. I have, Congresswoman.
Mrs. Lowey. To be clear, you no longer have any financial
interest in vaping or any tobacco products you now regulate,
including investments or other deferred compensation, correct?
Dr. Gottlieb. I was fully divested from all my holdings the
day I was sworn in.
Mrs. Lowey. Thank you very much.
Last week, the Appropriations Committee welcomed several
NIH directors, including National Institute on Drug Abuse
Director Volkow, who confirmed that e-cigarettes used to
deliver nicotine are an addictive substance and a gateway for
teenagers to use tobacco.
Here is what Dr. Volkow had to say: ``Teenagers that
otherwise would have no transition into smoking combustible
tobacco are doing so after they first get exposed to electronic
cigarettes. So we are concerned that all of the advances we
have done on prevention of smoking may be lost by the
accessibility of these electronic cigarette devices.''
The FDA recently delayed enforcement of its tobacco deeming
rule for 3 months. I really hope the Administration will not
back off from enforcing this law at a time when e-cigarettes
are the most commonly used tobacco product among kids. For
years, I have seen efforts by the tobacco industry to change or
weaken the deeming rule, and FDA has stood strong with science
and public health.
Commissioner Gottlieb, will you commit to preserve and
fully implement the deeming rule, including through the courts,
if need be?
Dr. Gottlieb. Congresswoman, thanks for the question.
I share your concerns around the youth use of e-cigarettes.
And as you know, the issue of youth initiation when looking at
reduced-harm products is a mandatory consideration as part of
our regulatory process.
I have been on the job now 2 weeks. In those 2 weeks, I
have spent probably 6 collective hours with the leadership of
the Tobacco Center and met with them for about 2 hours on my
first day, because I am concerned about this issue and I take
it very seriously.
I will confess that, in that time, given the fact that this
is a new statute for me and the Tobacco Center didn't exist the
last time I was at the agency, most of that time has been spent
basically going through 101 briefings and coming up to speed on
the issue and not discussing the policy going forward.
But I will assure you that anything we do with respect to
the policy and the regulatory infrastructure that is going to
be in place is going to be science-based and it is going to be
designed in a way to make sure we are maximally achieving the
public health goals set out by Congress in this regard and
creating a sustainable infrastructure for doing that.
I am committed to this goal. I am not going to preside over
a period of time when teenage smoking went back up in this
country. As a cancer survivor and a physician, that is not
going to be my legacy in this position, and I am committed to
that.
Mrs. Lowey. Just in closing, as a father, would you be
comfortable with your children having such easy access to e-
cigarettes and other flavored tobacco products?
Dr. Gottlieb. Congresswoman, as a father, I am not
comfortable with any child being started on a nicotine product.
Mrs. Lowey. I hope you will keep that thought in mind in
your new role.
Millions of teenagers now have easy access to these
products. And if the FDA does not do its job, these numbers
will continue to rise and we will face a new epidemic of
addictive substances that threaten the public health of our
children.
Thank you very much.
And thank you, Mr. Chairman.
And thank you, my friend.
Mr. Aderholt. Dr. Harris.
Dr. Harris. Thank you very much.
And thank you, Dr. Gottlieb, for being with us today. I
know we have limited time, so I am just going to briefly run
through a group of topics that are of interest to me and then
you can comment at the end.
E-CIGARETTES
Look, everyone agrees that we don't want teenagers to start
a bad habit with regards to e-cigarettes, but clearly, no one
is suggesting that it be legal for these products to be sold to
children. And we certainly have to acknowledge, as I think
Public Health England has, that there is definitely some use to
tobacco vapor products to break the cycle of addiction to
combustible cigarettes for adults. I know we all know people
who have been able to use vapor products, in order to break the
addiction to combustible cigarettes, which are certainly more
harmful.
NUTRITION LABELING
One other issue is dietary fiber, which is a complicated
issue. Obviously, the food manufacturers are concerned that the
deadline for compliance is fast approaching. It is difficult.
The products into which dietary fibers are added is an immense
number of products. There are labeling issues, all kinds of
things.
I would like you to make sure that the manufacturers have
the ability to comply with these. Look, they want to comply
with the laws, but there have to be realistic timeframes so
that we don't harm manufacturers or industry with these well-
intentioned rules.
SODIUM
With regard to sodium, I know I have mentioned this in the
past. I know the FDA will issue guidance based on the DRI
review. I just hope that the DRI review is scientifically
founded and realizes that extreme restrictions on sodium would
be harmful to some people.
Restrictions on sodium in general, large amounts of sodium,
are probably a good thing, but large restrictions on some
people--athletes, people who live in different climates,
whatever--may actually be harmful, so that we take an approach
that considers that it may not be one size fits all. And I know
public health approaches frequently are one size fits all, but
let's keep in mind that that may not be the best for everyone,
and I would like the FDA to take that in consideration.
NUTRITION LABELING
We obviously know that we have a problem with obesity in
the country, no question about it. It leads to a wide variety
of issues, including diabetes. I still remember, as you
probably do, when eggs were bad, but now they are good, when
margarine was good and now it is bad. Now we are going to turn
our attention to sugars and we are going to talk about added
sugars versus non-added sugars and things like this.
Don't lose sight of the fact that a single-nutrient
approach hasn't worked in the past, I don't think it is going
to work in the future. We need a much more complex approach
than that. Take that in consideration.
PROTECTING FOOD-RELATED PROPRIETY INFORMATION
There is some concern that when the FDA implements rules
that there is this protection of food-related trade secrets and
whether or not the FDA has adequate protections. You have
statutory obligations to protect trade secrets, and I hope that
when you ask various regulated entities to share trade secrets
with you that they stay protected. These industries, again, are
concerned about that.
NUTRITION LABELING
Finally, the last thing is the regulatory impact of food
labeling. I mean, look, I think everybody agrees that food
labeling is a good thing, but that the timeframes for
implementing food labeling really have to take into account
that there are 300,000 food products on the market, it costs a
certain amount of money to change food labeling.
Again, I have one of the largest bakeries, H&S, in
Maryland. I am very, very concerned that there won't be an
adequate timeframe to initiate the new food labeling
requirements and that there will be one change this year and
then you will decide, well, there is going be to another change
next year. You have to take industry into consideration so that
we don't harm industries as we make progress in these topics.
So, with that, I think I have a minute left, if you want to
address any of these.
Dr. Gottlieb. I would look forward to following up with you
on all of them. I will pick up where you left off.
NUTRITION LABELING
We are sensitive, as well, to the issues around the
timeframes on the implementation of the nutrition facts label
and food labeling and are going to be taking a hard look at the
implementation schedule.
I will say with respect to dietary fiber, we have been
working through the petitions we have been receiving, and also
plan to put out guidance to better clarify how sponsors can
bring forward those new fibers.
SODIUM
I will just pick up on the other point you made, since we
are on this realm, with respect to sodium and 10-year targets I
think you address. We won't do anything until the National
Academy's report is ultimately issued and has completed its
review. So we will look forward to following up with you on
that and continuing that discussion.
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Dr. Harris. Thank you very much.
I yield back, Mr. Chairman.
Mr. Aderholt. Mr. Bishop.
Mr. Bishop. Thank you very much, Mr. Chairman.
COMPOUNDING
I have got two lines of questioning. The first I want to
get right into, and I will offer to submit the question in
writing with some background material. It is relating to
compounding.
Mr. Bishop. The budget justification says that you are
unaware of any compounded medications needed for office
administration that are unavailable from the large outsourcing
facilities.
It is my understanding that healthcare providers who have
been getting their compounded medications from local pharmacies
have been unable to get many of these same medications from the
outsourcing facilities in limited quantities and short
timeframe that they need in order to meet their patients'
needs. And because the FDA has taken the position that local
pharmacists cannot compound for office use, this is creating a
problem of patient access to these critical medications.
I applaud the exhaustive work that has been done on trying
to reconcile this issue to find a solution that balances public
safety and patient access. I was provided a list of dozens of
compounded medications identified by pharmacist and provider
groups highlighting what they cannot get from the large
outsourcing facilities.
Are you aware of this list? If not, I can provide it to
you, because I would like for FDA's review and policy on office
use of compounding by local pharmacists to appropriately
balance public safety with patient access. And I will let you
submit that to us in writing, but I will also be happy to
provide that list of compounds for you.
E-CIGARETTES
My other question, which I would like to spend more time
on, relates to the subject matter of e-cigarettes, which my
distinguished Ranking Member discussed in her questions. I
wanted to thank you for announcing the 90-day delay in the
requirements of the final Deeming rule to allow additional
assessment time, particularly in light of the numerous legal
challenges to the final Deeming rule.
As coauthor of the Cole-Bishop amendment, the topic is near
and dear to my heart, and we believe it will help to address
many of the public health community's concerns about youth
access to e-vapor products. I am a strong advocate for getting
it right the first time. I am not sure that 90 days is enough
time for the Deeming review. If so, that is great. But I would
like for you to describe for us how FDA and HHS are reviewing
the final Deeming rule.
Public Health England and the Royal College of Physicians
both conclude that e-vapor products are 95 percent less harmful
than combustible cigarettes. The predicate date in the Deeming
rule creates a severe problem for existing e-vapor companies,
and not changing the predicate date will result in e-vapor
products having more onerous and costly process to come to the
market than cigarettes have.
I don't know if we really want to stifle innovation in a
product category which is 95 percent less harmful and is
effective in moving people off cigarettes. I have numerous
constituents who are being referred by their physicians, in an
effort to stop smoking, to the e-vapor products, and many of
them testify that they, in fact, have found that to be the most
feasible step for them as they get away from the combustible
tobacco products.
The Cole-Bishop legislation would protect what I think the
public health community wants: To require keep out of reach of
children and underage sale prohibition language on the label of
the products. It would restrict advertising only to
publications that meet the FDA's existing regulatory criteria
of an adult-only publication, prohibit self-service displays,
require nicotine content to be labeled, require vapor retailers
to register with the FDA, and require FDA to issue a final
product standard for vapor product batteries.
All of this is designed to help foster the protection for
youth and at the same time protect the public health.
Can you comment on that, please, sir?
Dr. Gottlieb. Thank you, Congressman.
Look, I believe in Congressional intent, and I think that
there is a reason why Congress wrote 2,400 words into section
911 of the Tobacco Control Act, because Congress intended for
there to be a pathway for modified-risk products. And I think
that there is a place for modified-risk products in the risk
continuum and helping smokers move off of combustible tobacco,
which we know kills, onto products with lower risk associated
with them.
As I mentioned, I am still working through these issues. I
want to make sure that I am fully grounded in the facts before
I begin a policy discussion, a substantive policy discussion
with the career professionals inside the Tobacco Center, and I
am still working through that process, having only been at the
agency for 2 weeks. But I can assure you whatever we do in this
regard is going to be science-based and is going to be
dedicated towards the long-term goals of the Tobacco Control
Act.
COMPOUNDING
I don't know if I have 60 seconds to address the first part
of your question on compounding. I would be happy to do it.
Mr. Aderholt. This is an important issue, so go ahead and
take a second.
Dr. Gottlieb. I appreciate it.
I deeply respect the role for the practice of pharmacy. I
think it provides critical differentiation for patients. But we
have seen in the marketplace bad actors operating under the
guise of a pharmacy license with tragic outcomes, and the Drug
Quality and Security Act (DQSA) was a response to that.
I think ultimately the question we are going to need to
grapple with in this regard is the prescription--the line of
demarcation for regulation. I believe it is. Historically, it
has always been the line of demarcation for the practice of
pharmacy.
I think if we want to revisit that as a matter of
regulation we are going to have to revisit it as a matter of
statute, because the statute, in my interpretation, clearly
defines the prescription as the line of demarcation for the
legitimate practice of pharmacy.
But, make no mistake, I believe in the practice of pharmacy
and the local practice of pharmacy, and I believe that
compounders do provide critical differentiation when
compounders are practicing local pharmacy.
Mr. Bishop. Thank you.
Mr. Aderholt. Mr. Palazzo.
Mr. Palazzo. Thank you, Mr. Chairman.
SEAFOOD SAFETY, TRACEABILITY
Commissioner, thank you for being here today.
Commissioner, over the past decade, the worldwide
consumption of fish and seafood has increased 17 percent. This
means more seafood is being imported and exported around the
world from more countries into the U.S.
According to a CDC study reported in February, 97 percent
of fish and shellfish consumed in the United States are
imported, of which the GAO estimates only 2 percent is
inspected by the FDA on an annual basis.
Although the number of foodborne illness outbreaks reported
per year dropped by more than half from 2000 to 2014, during
the same time period the number of outbreaks reported from
imported food doubled. In the same period, the CDC reported
that fish and shellfish were responsible for 55 percent of
outbreaks and 11 percent of outbreak-associated illnesses. I
think we can safely classify seafood imports as high-risk.
However, this is not a new issue. Here is what I know. As
mandated by the 2011 Food Safety Modernization Act, FDA and
USDA and the Institute of Food Technologists conducted pilot
projects for improving product tracing and recordkeeping
requirements for high-risk foods. The report was released on
March 4, 2013. The report contains recommendations to FDA for
improving the tracking and tracing of food and also establishes
best practices.
I know that the seafood industry has used the Global Food
Traceability Center to survey best practices, so I know they
are reputable. I also know that this is still a huge problem,
made evident in the CDC study I mentioned. What I don't know is
what FDA did with those recommendations and established best
practices.
Now, correct me if I am wrong, but FDA has not issued a
final rule to implement the recommendations made in these
pilots and studies, the very ones that were mandated by
Congress and commissioned by FDA.
Now, Commissioner, I am a firm believer that the Gulf Coast
produces the best seafood in the world, so having tainted
imported seafood saturating our markets is a big concern for
me. Now, I understand that FSVP puts pressure on importers to
audit and verify the safety of the foods, but without this
traceability portion of the FSMA food safety mandates, how do
we know if the foreign suppliers are actually the source of the
seafood that is being imported?
So my question to you is, if you have not already, when
does FDA intend to utilize the work that has already been done
and finalize these food traceability rules to improve the
safety of our food system?
Dr. Gottlieb. Congressman, thanks for the question. I would
be delighted to follow up with your office and work with you on
some of these provisions. It is not, admittedly, an area that I
have had the opportunity in the last 10 days to sink deeply
into.
I will tell you that, thanks to Congress, the FDA has
vastly greater authorities with respect to foreign imports. We
have extraterritorial jurisdiction, owing to the Food and Drug
Administration Safety and Innovation Act (FDASIA), and greater
ability to enter into multilateral collaboration with foreign
bodies to help augment our food inspection system more broadly.
So I think that we are operating off a much better platform to
achieve many of the goals that you have outlined in your
question. I would be happy to work with you on achieving them.
[The information follows:]
seafood safety, traceability
FDA issued its recommendations on enhancing the tracking and
tracing of food and recordkeeping in the FDA Food Safety Modernization
Act (FSMA) section 204(a) report to Congress, dated November 11, 2016.
The Agency's recommendations were based on the findings and
recommendations from pilot projects and focus primarily on establishing
a uniform set of data elements, a method of linking product along the
supply chain, as well as measures to advance FDA's ability to receive
and analyze these data. FDA's recommendations also encourage voluntary
and proactive science-based international and industry-led food
traceability initiatives. Implementation of some of these
recommendations is already underway. The extent to which FDA can
implement these recommendations will depend on resources, information
technology support, and engagement by industry and government food
safety partners.
Mr. Palazzo. Okay. I look forward to working with you,
Commissioner.
I yield back.
Mr. Aderholt. Ms. DeLauro.
Ms. DeLauro. Thank you very much, Mr. Chairman.
And, Dr. Gottlieb, welcome this morning. It is a pleasure
to get a chance to meet you and talk with you.
USER FEES
Two very, very quick things, because my colleagues have
covered this. I just want to say that your proposal for a user
fee increase, quite frankly, is not going to happen. On both
sides of the aisle, we have been dealing with that for a very
long time.
FOOD SAFETY
And I would also like to associate myself with Mr.
Palazzo's remarks with regard to food safety, an issue on which
I have spent a lot of time on over the years.
MEDICAL PRODUCT SAFETY
But I want to focus my time on what your interest is to
reduce the agency review times in terms of approvals, whether
they be for devices or for drugs. FDA has already been
reporting faster review approval periods and that Americans
have access to new drugs sooner. This has come at the cost of
rigorous scientific evaluation.
Approval of medical devices on limited scientific data can
have life-threatening consequences. I am going to give you
several examples.
Thirteen models of St. Jude's defibrillators are currently
being recalled for battery failure linked to two deaths, people
fainting, people feeling dizzy, and sudden and unexpected
failure of the defibrillator battery. Two hundred thousand
people in the United States have a defibrillator included in
the recall.
These medical devices were approved without any clinical
data under an already-existing FDA expedited pathway. The risks
of the device were known for 22 months before the FDA issued
any formal safety communication.
Further, GAO has reported that FDA's medical device
approval process underscores that new devices do not need to be
proven as either safe or effective before consumers begin to
use them.
That is the defibrillators. There are others. A recent
article: A deadly form of cancer being linked to breast
implants. Essure, a contraceptive device, more than 60,000
adverse event reports filed by doctors and patients. In each
one of these cases, FDA has failed in its responsibility as a
regulatory agency. You have refused to take corrective actions
to protect consumers.
There is also the issue of faulty lead tests, which
recently FDA announced that certain devices have been found to
provide inaccurate results, jeopardizing the lifelong health of
8 million Americans who utilized the test. They went through
the FDA's 510(k) pathway program.
I know you want to speed up the process; there are others
who want to speed up the process. First I want to know is, what
are the regulations that you would roll back to accomplish the
goals of reducing barriers?
Why does the FDA--and it is not you, because you are just
there. You are there for 2 weeks. But this is, quite frankly,
an agency that has a history of erring on the side of industry
and not the public, refuses to pull faulty devices off the
market.
Will you use your mandatory recall to deal with that? And
why do we continue to use a pathway that has been proven
ineffective in ensuring patient safety?
A lot of questions, not a lot of time to answer them, but I
will submit for the record as well.
Dr. Gottlieb. I will use my 15 seconds, if I may,
Congresswoman. I appreciate the question.
Ms. DeLauro. Maybe the Chairman will give me a little bit
longer time.
Dr. Gottlieb. Thanks a lot. I appreciate the question and
the concerns.
MEDICAL PRODUCT SAFETY
I would like to go back to the original premise of the
question and the issue of speed versus safety. I think that
what we need to think about isn't speeding up the review
process or speeding up review times. We know review times are
very short and the agency is very efficient in terms of how it
approaches the review of applications.
I think the question we need to be asking is the overall
efficiency of the development process itself, and do we have
the right tools, are we asking the right scientific questions
to make sure that that part of the process isn't just
efficient, but we are learning all we can about both the safety
and the efficacy of products in the development process.
That is where I would like to focus attention, making sure
that we have the right guidance in place, the right rules in
place, the right scientific tools in place, and we are working
with the broader scientific community to make sure that we have
the right framework in the drug development process, in the
medical device development process, to make sure that it is not
only efficient, that we are not imposing costs without benefit
to consumers, but that we are learning all we can about both
the safety and the benefit of new products. I think that there
is more we can do in that regard.
That is the framework in which I have always talked about
trying to make the drug review process better. I haven't talked
about speed historically. I have talked about the efficiency of
the development process.
Ms. DeLauro. I understand that, but you have got some
products that are on the market now that have been demonstrably
putting the public health and safety at risk.
My question to you, and you can't answer them now because
we have run out of time, but we need to know from you what this
agency is now going to do. It has a past history of erring on
the side of industry, not recalling products, waiting 22 months
before we do anything about a product. You need to act on those
products we now know are putting people's lives in danger.
Dr. Gottlieb. I will be happy to follow up with you on
this.
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Ms. DeLauro. Thank you.
Mr. Aderholt. Mr. Yoder.
Mr. Yoder. Thank you, Mr. Chairman.
Dr. Gottlieb, welcome to the Committee. I appreciate your
testimony this morning.
E-CIGARETTES
I would like to associate myself with the comments of Mr.
Bishop, Dr. Harris, and partially Mrs. Lowey on the issue of
the Tobacco Control Act. You know, the Act itself had some
unintended consequences, and I think we are seeing those play
out here.
First of all, all of us, I think, on this Committee
strongly agree that we must keep tobacco products out of the
hands of kids and that we need smart regulations to do that,
and we appreciate your leadership in that regard.
But in some ways we are actually regulating, as Mr. Bishop
laid out, e-cigarettes or vaping products more significantly
than combustible cigarettes, which I don't think was the
intent. I don't think that is what Congress wanted to do. And I
think you saw this Committee, with the amendment it passed last
year, with the Cole-Bishop amendment, try to fix that.
You have significant regulatory authority. I think where we
are now is we created some real uncertainty in our community,
in terms of the regulations relating to stopping kids from
receiving e-cigarettes, but also the deeming rule and the
regulations that are affecting these new products.
Would you be willing to consider reviewing this and
extending this deadline beyond the 90 days, maybe to a year, to
allow the Committee to continue to advise the FDA on how we
think you should proceed, and to create more certainty and not
rush this process and really overregulate products that I don't
think was the intent to overregulate them more than we are
regulating cigarettes.
And so I would ask, one, if you would be willing to extend
that deadline and to review the process using your regulatory
authority.
Secondly, on the issue of keeping tobacco products out of
the hands of children, we know that premium handmade cigars are
also a product that really is being overregulated in a way that
does not help keep products away from children. The deeming
rule's one-size-fits-all regulations in this regard are
actually causing job losses, uncertainty about the future of
many of these products.
And so I would also ask would you to be willing to
reevaluate the overreach of the Tobacco Control Act as it
relates to a one-size-fits-all model that affects this very
small industry that is different than cigarettes, it is
different than other tobacco products, and doesn't fall in the
hands of children.
Dr. Gottlieb. Thank you, Congressman.
In my discussions with the leadership of the Tobacco
Center, I am fully aware that a lot of thought has gone into
precisely the issues that you outlined by the career leadership
in the Tobacco Center, and they share your concerns and I share
your concerns.
Whatever we do with respect to the deeming regulation and
the 90-day pause that is in place right now and how we go
forward after that is going to be based on our own scientific
evaluation of what is the best pathway to make this framework
sustainable for the long run in achieving its public health
goals, and that is the touchstone that I am going to be
entering into policy discussions with the leadership of the
Center once I feel I am firmly grounded in the facts and
decisions that have been made to the point to date.
With respect to cigars, whatever we do needs to be science-
based here. We are currently reconsidering aspects of the rule,
as you know. I understand the concerns that have been voiced,
and we are going to be having a discussion around those
concerns. And if Congress acts, I am also happy to work with
you to mitigate any unintended consequences that might flow out
of the effort to try to address some of the concerns that you
raised.
Mr. Yoder. Thank you. I appreciate your leadership and your
consideration to the comments the Committee has made and the
work of Congress in trying to have smart regulations.
21ST CENTURY CURES
I wanted to ask you quickly about the 21st Century Cures
Act we discussed earlier this week, your leadership to ensure--
the 21st Century Cures Act is a very bipartisan bill, strongly
supported by Congress--that the dollars that go to the FDA,
that those are appropriated properly. Can you talk quickly
about the Oncology Center of Excellence and the work that we
can do to make sure it gets the resources necessary to carry
out its mission?
Dr. Gottlieb. Right. So I believe the model that we have
created with respect to the Oncology Center of Excellence could
be a regulatory model going forward for how we think about a
broad range of therapeutic areas. I think the idea of trying to
consolidate different domains within a center of excellence in
that way makes a lot of sense in certain therapeutic areas, and
oncology is probably the one that is most prominent in that
regard.
Obviously, what we do in that regard also needs to be
resourced, and there were some resources that I believe were
intended to be allocated to the Oncology Center of Excellence
that haven't flowed to the Center yet.
I would be happy to work with Congress to make sure we can
properly resource that, not just because I think it is vitally
important that we make that Center viable, but I do believe
that there is a more sustainable model for how we might
regulate therapeutic spaces more generally. And if we get it
wrong in this first instance, then we can't skate towards that
goal.
Mr. Yoder. Thank you for your testimony.
Mr. Chairman, this is an issue that we need to resolve, and
there are dollars that we intended to get to the FDA to create
these Oncology Centers of Excellence, to get drugs to market,
to help people who are suffering from cancer, and because of
basically technicalities it is not happening. I think this is
something we need to take up and fix.
Mr. Aderholt. I am happy to follow up on it.
Mr. Pocan.
Mr. Pocan. Thank you, Mr. Chairman.
And welcome, Commissioner Gottlieb. I really enjoyed
hearing some of the things you said in the beginning of your
testimony, about people being priced out of prescription drugs
and some of the work that you are talking about on generics,
and I want to come back to that in a minute. If I can just do
two other subjects, I think one really quickly, hopefully.
ARTISANAL CHEESE
Before you were there, in 2014, there was a problem that we
had with the FDA when they were trying to ban the aging of raw
milk cheese on wood boards. Talk about a small issue, but in my
district it is a very big issue. This was a bipartisan outcry
from Congress, working with some of the other stakeholders. We
were able to get it put on pause.
The only problem is, I had a very unproductive circular
conversation with the former Deputy Food Commissioner within
the FDA who would not give me a concrete ``we are not going to
keep going after this.'' There were no health problems
whatsoever. There were a couple of ordinance violations. I have
been in many cheese facilities where they are doing it on wood
boards.
I just want to know, is this an issue that you are done
trying to ban or trying to increase regulation on the aging of
cheese boards that has been done for centuries?
Dr. Gottlieb. As a consumer of artisanal cheese, I share
your concerns around making sure we have enough prepared.
But it is an issue that I am aware of and I am happy to
follow up with you and delve deeper into it. My current
understanding is that wood boards can be used as long as they
are adequately cleanable and properly maintained for their
intended purpose. So there is a framework in place to allow
them to be used. Whether or not that is having unintended
consequences on certain manufacturers, I am happy to try to
work with you on this issue.
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Mr. Pocan. Great. I appreciate that. Thank you.
KRATOM
Another issue and the only other issue I had a little
conflict with the FDA in the past on was an issue around a
plant called Kratom that was being by the DEA trying to put as
a Schedule I drug, because they said because of FDA actions
saying that there were problems with Kratom. This is a plant
that we are finding a lot of people with PTSD and opioid
addiction especially are getting weaned off of opioid addiction
through this process.
Mr. Salmon from Arizona and I led a bipartisan letter, 35
of us, it was almost 50/50 bipartisan, it was a really strong
bipartisan letter, to try to get this to stop the scheduling of
as a Schedule I drug. Since then, that has happened. They put
it on pause. But they are waiting for the FDA to do an eight-
factor analysis, which has, I think, already been done by
people from the Kratom Association.
I think this all started, quite honestly, because there was
a synthetic heroin that one of the components people were using
was kratom. Yet, this has no addictive properties that any
study has shown.
Where are we at on this eight-factor analysis, and has the
FDA changed its position on some of the earlier claims they had
that led this to becoming a Schedule I?
Dr. Gottlieb. Thank you, Congressman.
I think you rightly noted FDA in 2014 expressed concerns
around the product based on the potential for toxicity to
multiple organs. And the eight-factor analysis that DEA asked
us to do in 2016 is currently underway. I actually don't know
currently what the status is. It is another question I would be
happy to look into and follow up with you on. But I know it is
underway within the center.
[The information follows:]
kratom
On August 30, 2016, the DEA published in the Federal Register a
notice of intent to temporarily schedule mitragynine and 7-
hydroxymitragynine, which are the main active constituents of the plant
kratom. DEA announced its intention to place these active constituents
into Schedule I of the Controlled Substances Act (CSA) to address an
imminent hazard to public safety. On October 12, 2016, the DEA
announced it would discontinue its pursuit of the temporary scheduling
and asked that FDA expedite its scientific and medical evaluation and
scheduling recommendation for the active constituents in kratom (8-
Factor Analysis).
The CSA requires the FDA to complete its analysis and scheduling
recommendation within a reasonable time. As a part of FDA's 8-factor
analysis and scheduling recommendation, the Agency is examining the
currently available data on the abuse potential and risks to humans of
kratom and its active constituents. Consistent with these processes,
FDA and DEA must take a number of steps prior to DEA issuing a final
regulation. FDA is diligently working towards finalizing and sharing
our recommendation with DEA. The Agency is committed to ongoing and
vigorous efforts to provide a recommendation as expeditiously as
possible so that the process can continue.
Mr. Pocan. Great.
GENERIC DURGS
And then the final question, just to go back to the
generics, one of the other issues I know is there is this pay-
for-delay by some of the companies that is going on when it
comes to generic drugs. Are you looking at that issue as well?
Dr. Gottlieb. I think that is probably an issue more for, I
believe, the FTC.
What I will say is that, as I said in my opening remarks, I
am concerned that there are places where I believe certain
companies might be gaming the regulatory process in ways that
Congress didn't intend to extend exclusivity periods beyond
what Congress intended. If we are going to balance innovation
and access and have a place for market-based returns to bona
fide innovations, we need to make sure there is the capacity
for market entry of competition after patents have expired,
patent periods that Congress intended.
I don't want to be in a position of playing whack-a-mole
with companies. What I want are clear rules and bright lines in
place that prevent these kinds of abuses. We are going to be
having a hearing, a Part 15 hearing soon, to try to solicit
these ideas from the consumers and the broader public on where
these things might be happening.
Sorry, Mr. Chairman.
Mr. Aderholt. Thank you very much.
Mr. Valadao.
Mr. Valadao. Thank you, Chairman.
Thank you, Commissioner for taking some time, and
congratulations on your appointment.
FOOD SAFETY MODERNIZATION ACT
The Food Safety Modernization Act, FSMA's purpose is to
shift the focus of food safety towards prevention. I believe
this is a positive approach for producers, processors, and
consumers. However, it is important that implementation is done
properly in order to avoid unintended consequences to a supply
chain that do not improve food safety.
With the understanding that the foundation of FSMA is based
on risk, there is a concern over the definition of a farm and
whether it is consistent and accurate in accounting for risk. I
have heard from my constituents in the tree nut and cotton
industries who have expressed concern regarding the flaw in
using ownership of the commodities that are hulled, shelled,
and ginned at their facility as one of the determining factors
for a secondary activities farm.
This inconsistency is of great concern to my constituents
who grow and process these products, and I am under the
impression that it is likely to cause mass confusion among
industry and regulators.
What is the best way for FDA to address this issue, and do
you believe guidance is sufficient or is opening up the
rulemaking the only option?
The compliance deadline for the produce safety rule is
roughly 8 months away, January 2018. Will this farm definition
issue be addressed in a timely manner, allowing the industry
enough time to get compliance measures in place? And if clarity
is not reasonably provided prior to the compliance date, will a
compliance date extension be given for the produce rule, given
the lack of guidance as how to apply to the rule?
Dr. Gottlieb. Congressman, I have to confess this isn't an
issue that I have broached in my first 2 weeks on the job. I am
happy to follow up with you on it and see what the issues are
and what we can do to accommodate any concerns that you and
others might have if it is causing unintended consequences.
Mr. Valadao. Yes, it is a serious issue. And it is
literally the definition on how the ownership or what the
ownership of a facility is. And there is no reason for the
ownership to play any role in how to regulate it. So I would
appreciate it.
Dr. Gottlieb. Happy to work on it.
[The information follows:]
Farm Definition
FDA is aware of industry's concerns regarding whether certain
entities are classified as farms or facilities, as that distinction
determines which regulations apply. The Agency recognizes a desire by
stakeholders for similar activities to be covered by the same
regulation where feasible or treated similarly by different
regulations. FDA is looking at how to draw the line between farms and
facilities differently to better accomplish this goal in certain
situations, without creating unintended consequences.
To facilitate this effort, on August 23, 2016, FDA announced an
extension for compliance dates on several issues related to the farm
definition, including ownership. Also in August 2016, FDA shared draft
guidance for industry entitled, ``Classification of Activities as
Harvesting, Packing, Holding, or Manufacturing/Processing for Farms and
Facilities.'' When finalized, the guidance will provide information
about FDA's current thinking on farming and processing activities.
FDA will continue to dialogue with industry stakeholders as we work
to address their concerns about the farm definition.
Mr. Valadao. Thank you.
ANIMAL DRUG COMPOUNDING
The Omnibus budget agreement for fiscal year 2017 that was
just signed into law contained report language expressing the
Committee's concern regarding a draft guidance on compounding
from bulk ingredients for animal drugs, GFI No. 230.
I appreciate the response to this report language included
in the budget justification, which seems to indicate that it is
attempting to apply a provision similar to 503A and 503B to
animal drug compounding, even though these provisions are
limited by statute to human drug compounding.
Can you provide the Committee with specific statutory
provisions that support the implementation of GFI 230 for
animal drug compounding, and does the FDA plan on requesting
statutory changes to support these protocols?
Dr. Gottlieb. Again, Congressman, I am generally familiar
with the issue, but in the interest of making sure I don't
misspeak before Congress, I am going to defer and let you know
that I would be happy to work with you on this issue. So I
appreciate the question, and I will follow up with your office.
Mr. Valadao. I look forward to seeing your follow-ups on
these. I know they are both important issues and I would love
to get a response on that.
Dr. Gottlieb. Thanks a lot, Congressman.
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Mr. Valadao. Thank you.
I will yield back the rest of my time.
Mr. Aderholt. Thank you.
Ms. Pingree.
Ms. Pingree. Thank you very much, Mr. Chair.
Welcome, Dr. Gottlieb. It is nice to have a chance to have
you before our Committee, and I appreciate you being here
today. I am sorry, I was in my other Committee and I didn't get
to hear your opening remarks. I will follow up with those, to
make sure I connect on those.
DRUG PRICING
I am interested to hear more of what you had to say about
drug pricing. It is an issue I have cared about for a very long
time, going back to when I was a State legislator. And we don't
have time to get into the topic today.
But particularly on that topic of reimportation of drugs
from Canada. I am from Maine, a border State. I have
accompanied many busloads of senior citizens who have taken
that trip across the border, gotten a duly licensed physician
to rewrite their prescription, and bought virtually the same
drugs in Canada for a much lower price.
And drug pricing overall, our inability to negotiate for
better pricing, is a huge issue. The President has brought it
up several times, so he seems to be willing to talk about this.
Yet there was nothing in the budget around it.
I know there have been safety concerns raised about
prescriptions being filled in Canada. It is a much longer
topic, but I would be interested in taking that up with you at
some point. And I will submit some questions for the record
around that.
FOOD SAFETY MODERNIZATION ACT
Just a couple of other topics, and I appreciate you have
only been there for 2 weeks. This is a lot to absorb. I know
you already know a lot about it, and you have given some very
detailed answers already today. But I am going to bring up two
other topics that I will submit to you and we can follow up on
later, because I am pretty sure you are going to say, as you
did to my colleague from California, you don't have a lot of
experience with the Food Safety Modernization Act.
I have worked quite a bit on the issues of how that is
practically applied to farmers. I represent a lot of small to
medium-sized farmers, and I have a farm myself. So the
implementation is close, and working with the Department to
make sure it is not a one-size-fits-all plan has been really
critically important, and it is something we have focused a lot
of attention on.
Food safety, obviously, is critically important to us. But
if you have three rows of lettuce, it is different than having
a thousand acres of lettuce, and the application has to be
different.
There are some outreach and training efforts going on right
now. I will say in advance I don't expect you to know the
answer to this question, but with the deadlines coming up soon,
the training issues for farmers are very critical. This is
complicated stuff to learn, and everyone wants to be in
compliance with the law when it is out there. But for a lot of
small to medium-size farmers there is just not enough time.
We are waiting on FDA to provide some alternate curricula
guidance. I am anxious to know when that will be out there so
more of the training can be developed. And, like I said, I
don't expect you to know that answer today, because it is a
specific question. But it means a lot to a lot of organizations
who are hoping to do some of that training and particularly the
farmers who need it.
MAPLE SYRUP
Secondly, I want to just talk to you a little bit about
food fraud, which is actually quite a big issue. And,
specifically, right now I want to talk about maple syrup.
It is about a $15 million industry in my State. We, of
course, think that we have the best maple syrup, no matter what
Vermont says. Our producers yielded about 675,000 gallons of
maple syrup last year. So it is an important industry to us.
In 2016, I sent a letter to the former Commissioner, with
some of my colleagues, about maple syrup fraud issues.
Frequently, cheap, industrially produced sweeteners and
artificial flavors are added to products, yet they still have a
real maple syrup label. So you can imagine the consumers, who
pay a premium price, don't want to think that their food is
adulterated or, in fact, it is not what they purchased.
So, again, I am going to run out of time. But I will send
you that more detailed question in writing. And I also have a
lot of concern about the cheese board issue, because we have a
lot of cheese producers in our State as well.
So you've got 3 seconds.
Dr. Gottlieb. Thanks. I will just say quickly, as someone
who produces his own maple syrup and lives in Connecticut, that
I am not subject to FDA's regulation, because I am an
individual manufacturer. And also, I raise seven egg-producing
hens. I am sympathetic to the concerns of small farmers and
producers. I am happy to work with you on these issues,
particularly the maple syrup issue.
Ms. Pingree. Great. We will follow up with all that. And we
are thrilled to know that you are an agriculturist in your
spare time.
Dr. Gottlieb. Thank you.
Mr. Aderholt. Mr. Young.
Mr. Young. Thank you, Mr. Chairman.
Welcome, Commissioner. Nice to see you here today.
I share many of the thoughts many of my colleagues have
brought up today. The food labeling issue, thank you for taking
the extra time to get that right.
DRUG PRICING
Following up on my colleague from Maine, Ms. Pingree, said
regarding prescription drug costs, all of us hear about this
issue from our constituents. I have heard this in my
roundtables with doctors, nurses, hospital administrators,
specialists and pharmacists. We have seen spikes from EpiPen to
insulin.
How do we address this issue? I understand competition, and
I love competition, but it seems to me that without
transparency, how can you really have competition if you don't
know what the pricing is out there?
Can you address things like transparency and the pricing of
prescription drugs? As you talk about the FDA review process
and the approval of drugs, and we want these drugs to be safe
when they are approved, what are your comments and criticisms
about the current process?
Dr. Gottlieb. Thank you for the question, Congressman.
I think where FDA can play an important role with respect
to the drug pricing issue more broadly is in making sure that
we have adequate product competition, especially when
exclusivity periods that Congress intended have lapsed, and
drugs should be subject to vigorous competition.
In some of the cases that you highlight and some of the
cases that I would highlight, and we all have our own personal
examples of where markets aren't working efficiently, there are
different problems at work. I mean, in some of these cases it
is issues of complex drugs that are hard to genericize under
current scientific standards.
There are things FDA can do from both a policy and
scientific standpoint to facilitate to market more generic
competition to complex drugs. That is where we have seen some
drugs sort of be monopolized in perpetuity because it was hard
to bring on generic competition.
There are issues with the overall efficiency of the generic
drug review process itself historically, although it has gotten
a lot better, and the commitments that the agency is making now
are for very rapid review times. But we do have situations
where speculators, for lack of a better word, can come in, buy
a low-volume generic, jack up the price, knowing that it is
going to take potentially years for a generic competitor to
come on to the market, and so they have sort of that
exclusivity period.
We need to make sure we are prioritizing applications in
those cases, we intend to do that, and also making sure that
the generic drug review process itself is working as
efficiently as possible so that competition can enter.
GENERIC DRUGS
Mr. Young. We are due to reauthorize the generic drug law
soon, and I hope you will bring forth some ideas that you think
could work better.
Now, you talk about within current laws, and in some places
we need to clearly brighten that line and highlight it because
you think some companies may be out there gaming the system.
But you don't want to mention them publicly, because you don't
want to play whack-a-mole.
I think there is a power to shaming, and Congress has
proved that before. Industry has proved that before. Our
constituents have proved that before. Sunlight is the best
disinfectant to put people in place and try to get to better
behavior. So don't be so shy about playing whack-a mole
sometimes.
Dr. Gottlieb. I would be happy to work with you in a
shaming initiative.
Mr. Young. I am sure you can. But this is a serious issue
that all of our constituents hear about, and we want to make
sure that they are given safe products----
Dr. Gottlieb. I agree.
Mr. Young [continuing]. But affordable as well, because
many are choosing between some of those important things in
life, sometimes food, sometimes their rent check, or their
medicine.
Dr. Gottlieb. With respect to legislation--and I realize
how serious this issue is. That is why this is one of the first
issues that I am trying to tackle in my first 2 weeks on the
job.
Mr. Young. Thanks for that priority.
Dr. Gottlieb. You know, there are things that I think we
can do administratively but potentially Congress can do better.
And if there are areas where new statutory definitions or
frameworks can be helpful in trying to achieve some of our
goals and making more competition available to consumers, I
would be delighted to work with you on that.
Mr. Young. I think Congress, in general, would like to work
with you on that.
Thank you, Mr. Chairman.
Dr. Gottlieb. Thanks a lot.
Mr. Aderholt. Thank you.
We successfully got through one round and they have called
the votes. We will go for just a few more minutes before we
have to leave for votes.
ORPHAN DRUGS
I want to follow up on where I left off about orphan drugs.
I want to hear your thoughts on another more specific subject,
about drug approval process, the orphan product review for rare
diseases, and the dramatic increase in the number of orphan
drug designations requested and some rather unusual approvals.
In particular, tell us your thoughts on the situation with
Marathon Pharmaceuticals and how it can be fixed. It is very
hard for us to go and explain to our constituents, whether it
be in Maryland or Wisconsin or Alabama, that the only way a
parent can improve their child's quality of life from the
terrible effects of Duchenne is if they spend over $89,000 a
year, versus $1,000 a year they were paying the year before.
So if you could, we would appreciate hearing your thoughts
on that.
Dr. Gottlieb. Thanks a lot, Congressman, for the question.
There is an issue, a statutory issue, with respect to a
whole host of drugs that are unapproved drugs, currently, that
when they do come in for FDA approval, under current statute,
they are entitled to New Molecular entity (NME) exclusivity.
They are entitled to a period of exclusivity.
That is the current framework. Periodically there are a
number of drugs that continue on the market and continue to be
sold that aren't FDA approved. And periodically drugs will come
in for approval and gain exclusivity, and then you will see
high prices sometimes result. A monopolist will behave like a
monopolist when it has the opportunity.
I think that this is a difficult issue, because we try to
strike a careful balance between having drugs that are FDA
reviewed--Congress wants us to do that--but also concerns
around the situations that you highlighted. I would be happy to
work with Congress on this.
I know from my prior experience at the agency, periodically
the agency will get criticized for the fact that there are a
lot of these drugs out in the market that aren't FDA approved.
And then we would bring them in for FDA approval and they gain
NME exclusivity, then sometimes you see prices increase.
And so there is a very difficult balance there between
safety and access that I think needs to be struck, and I would
be happy to work with you on that.
Mr. Aderholt. Thank you very much.
I think you are going to yield to Ms. DeLauro?
Mr. Bishop. I am. Mr. Chairman, I would just like to
request that I be allowed to submit my additional questions for
the record.
And, with that, I would yield my time to Ms. DeLauro.
Mr. Aderholt. Yes. Because all of us have had limited time
because of the vote schedule, if anybody wants to submit
questions for the record, that will be fine.
Mr. Aderholt. Ms. DeLauro, go ahead.
Ms. DeLauro. Thank you, Mr. Chairman.
Many, many thanks to the Ranking Member for his courtesy.
I, too, will submit and follow up on the questions that I
already asked on the safety issue versus the approval process.
I think it is critically important these days.
FOOD SAFETY
Let me move to something that a couple of my colleagues
have mentioned, and that is food safety. The budget is $119
million in a cut, roughly 9 percent. No mention of FSMA funding
in the budget, which is very, very troubling to me. The agency
has finalized seven of the rules and is conducting outreach to
ensure that the stakeholders understand the new requirements.
I want to get your view, both domestically and
internationally, that we are shortchanging our ability to
inspect and to review the safety of our food products. I
believe that the budget, reflecting a 9 percent cut, $119
million, is shortsighted. Do you agree that that is a
shortsighted approach?
Dr. Gottlieb. Congresswoman, I wasn't, as you know,
involved in the formulation of the budget. As the new
Commissioner of the agency, I am going to do everything I can
to work with the Administration, and in particular work with
Congress and this Committee, to make sure that the agency has
the resources it needs to fulfill its mission.
There could be perhaps no more critical mission than food
safety because of the potential for distributed harm if we get
it wrong and if something does go wrong with the food supply.
So this is something I am extremely focused on.
I have spent time talking to the leadership at FDA's Center
for Food Safety and Applied Nutrition (CFSAN) on how we could
continue to move forward in implementing FSMA and making sure
we fulfill the intent of Congress and protect consumers,
whether this budget is enacted or we work with Congress to make
sure that we have the right framework in place.
Ms. DeLauro. I am just going to express a view to you which
I have had for the number of years I have served on this
Committee, and that with the mission of the FDA with food,
drugs, devices, and tobacco, that in the past food safety has
become a stepchild at the agency, in addition to which it has
struggled to get the resources. I would just say, I am proud of
the time that I spent as Chair of this Subcommittee to increase
resources in a whole number of areas, including food safety.
Foodborne illness causes $36 billion a year in medical
costs, 3,000 deaths, 128,000 hospitalizations, and 48 million
foodborne illnesses every single year. We know the answer to
this issue, and not providing the resources to deal with this
because of its potential results. This is not a road, park, or
bridge. This is about people's lives.
On the international side of this--and I don't know what
the hiring freeze--and you might want to address that--has done
to an inspection regime that you have, but we inspect less than
2 percent of the product that comes in from overseas. And you
all have the bulk of the jurisdiction with regard to food
safety.
So that wherever the decisions were made on this budget, my
hope--and I would like a commitment from you and continue to
have this conversation--is that this lack of focus on food
safety by this agency will change under your directorship.
Dr. Gottlieb. There will be no lack of focus by me,
Congresswoman, I can assure you that. The hiring freeze was
lifted at 9 a.m. this morning. I sent an e-mail out to the
staff informing them of that.
I was at FDA during a period of time when I believe the
food program was underresourced and we didn't have adequate
authorities. Thanks to Congress, we now do have much more
robust authorities and resources. I don't want to go back there
either.
Ms. DeLauro. I want you to be able to use the authority.
Sometimes there has been reluctance to use the authorities when
it comes to food safety.
Thank you, Mr. Bishop and Chairman Aderholt.
Mr. Aderholt. I think this Committee has been very
committed to funding for food safety, and I think the record
will show that. I want to go on record and say that.
Let me say thank you, again, Commissioner, for being here.
I'm sorry, we have had a little bit condensed session today
because of votes. As I mentioned, votes have been called. There
are about four minutes left in the votes, so we will go ahead
and adjourn so we can cast our votes on the floor.
All the best to you. We look forward to working with you.
Thanks for following up with these questions.
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