2009 State Budget

Good morning.  I am Joel Rotz, State Governmental Relations Director for the Pennsylvania Farm Bureau.  Thank you for allowing us the opportunity to testify today regarding the funding needs for agriculture in the 2009-10 state budget.  Pennsylvania Farm Bureau has been deeply troubled and concerned with the trend of the past several years’ state budgets as it relates to funding for priorities for agriculture in the state.  Each of the past three years, Governor Rendell has proposed deep cuts in the agriculture budget in many priority areas.  More recently the PA Senate passed a proposed budget that provides even more drastic cuts with the total elimination of nine out of fourteen priority programs in the Pennsylvania Department of Agriculture budget.

Pennsylvania farmers believe these budget proposals for agriculture do not reflect the magnitude and importance of the industry, which generates $5.8 billion in annual cash receipts and translates into $45 billion in total economic benefit to the state’s economy while creating at least one in every seven jobs in the state.  I might also add that these ag related jobs have proven to be highly recessionary proof employment in times like we are experiencing today.
Pennsylvania Farm Bureau understands the significant challenge the legislature has in the coming weeks in passing a balanced budget when revenues have significantly decreased during this economic downturn.  We also understand the huge impact the agricultural industry has in the state’s economy and how small of an investment the industry has asked taxpayers to make in not just maintaining the viability of the industry, but in assuring the benefits provided the public, through job creation, and a safe, affordable, local food supply as well as the open space that contributes greatly to the quality of life in this state. 

Now more than ever, lawmakers need to determine what line items in the state’s budget are wise or essential investments of taxpayer dollars and which are simply expenditures.  Pennsylvania Farm Bureau believes many of the priority lines we have identified in the agriculture budget are either good or necessary investments. 

Conservation Districts
The proposed level of funding for Conservation Districts in the Governor’s proposal and Senate passed budget is reduced over 33 % from 2006-07 and 28 % from just last year.  These cuts come at a time of tremendous increase demand for professional and technical assistance they provide to farmers and local communities.  With production agriculture facing ever-increasing regulation and greater expectations being raised on environmental compliance for non-point sources related to water quality, it is difficult to comprehend why this vital service to accomplishing these goals continues to receive funding cuts when increases are sorely needed.

Nutrient Management Transfer Fund
Another key line in the agriculture budget that directly assists farmers with environmental compliance is the Transfer to Nutrient Management Fund.  Pennsylvania’s Nutrient Management Program is a very successful program that provides technical assistance through conservation districts and plan writers, grants to farmers, and responsible implementation and enforcement of the Commonwealth’s Nutrient and Odor Management Law (Act 38) and associated regulations.  In addition, new program enhancements are included in proposed revisions to the regulations that will require greater program oversight and support at the state and local level.

This program was established with a non-lapsing Nutrient Management Fund in the Pennsylvania Department of Agriculture budget through which monies are provided for the different components of the program.  Adequate funding for this program is essential to the agricultural community and the public to ensure the viability and success of the program.

Regulations in Pennsylvania now mandate that a CAO (Concentrated Animal Operation) or a CAFO (Concentrated Animal Feeding Operation) have written nutrient management plans. Changes to older regulations also increase CAO and CAFO coverage for producers, putting more emphasis on a written plan of Best Management Practices. For CAO’s and CAFO’s, Nutrient Management Plans must be developed by certified Nutrient Management Specialist and approved by the State Conservation Commission. The investment of both time and money that is required to develop these plans, combined with the requirement to have a certified Specialist write the plan, creates a scenario where assistance is needed at the local level to ensure all involved producers are proactive about their nutrient management.

Without additional funding there will be limited ability to manage existing regulatory duties, develop new programs, and plan and implement the Best Management Practices that will sustain not only our land and water, but also our agricultural operations, for generations to come. Also, the Department has the opportunity to apply for matching grant funds from the USDA Natural Resource Conservation Service to provide technical assistance in implementing provisions of the recently enacted Farm Bill.  The required match cannot be absorbed within the current budget.  

Until the 2007-08 budget year, adequate program funding has been available through the use of annual appropriations ($3.28 million) to the Fund in conjunction with reserve monies that resided in the non-lapsing Fund from appropriations made in the early years of the program.  However, the reserve in the program is depleted and increased funding is needed for transfer into the Nutrient Management Fund for FY 2009-2010 to maintain program effectiveness.  Activities were curtailed in 2007-08 due to lack of funding and decreased activity continues into 2008-09.  The Governor has proposed and the Senate passed not an increase, but nearly a six-percent decrease in the 2009-10 budget.

Pennsylvania agriculture needs to remain economically competitive with the rest of the nation and the world to sustain its viability.  However, more and more is expected of production agriculture to meet ever-increasing standards to achieve environmental goals particularly as they relate to the Chesapeake Bay watershed.  I noted with interest that just last week our own Department of Environmental Protection was announcing yet another renewed emphasis on nutrient reduction to the Bay watershed and the statement was made in that press release that Pennsylvania is “leading by example” in efforts to reduce nutrient loading to the Bay.  If we are leading by example in efforts to clean up the Bay, the Bay is in big trouble.  Is it leading by example to cut conservation districts by 38% in the agriculture budget the past three years and to reduce funding to a bankrupt nutrient management fund, or to possibly eliminate the REAP tax credit program all programs which  farmers highly utilize in getting best management practices on farms to address environmental concerns. 

Animal Health Commission
The Governor has proposed and the Senate has passed a budget reducing the Animal Health Commission funding by 27% from 2007-08 and a 19% reduction from last year’s adopted level of funding.  With the proposed level of funding for the AHDC the Pennsylvania Animal Diagnostic Laboratory System (PADLS) would most likely lose its American Association of Veterinary Laboratory Diagnosticians (AAVLD) Accreditation.  Loss of AAVLD Accreditation will make it difficult for producers to get required testing or funding to participate in federal disease programs.  Federal disease programs may not even be available to producers if the State did not have an AAVLD accredited laboratory.  Loss of AAVLD Accreditation will make it difficult for producers to get acceptable testing for interstate and international export of animals and products.

With under-funding of the PADLS or loss of AAVLD Accreditation many of the best professionals and technical staff will leave and go to other institutions.  This can cause breaks in the disease surveillance capability or disease diagnostic issues.  This could delay turnaround times for cases. Early diagnosis is the producer’s best defense of a large outbreak.  Diseases like; Ecoli 0157 H7, salmonella, rabies, BSE (Mad Cow Disease), avian influenza, TB, brucellosis and numerous other pathogens that affect animals and humans could get a foot hold if adequate testing is not available.

Producers could lose valuable products if timely testing cannot be done to release a herd or flock from an out of state/in state or federal product trace back.  AHDC funding reductions may not allow the PADLS to purchase required reagents to perform required testing for producers.  AHDC funding reductions may prevent the PADLS from using modern technology and equipment to provide rapid and more sensitive testing for producers.

A reduction of 27.34% in the AHDC line item from two years ago could cause any of the above circumstances to develop singularly or in combination to cause an economic disaster for a producer or the industry.

Agriculture Research
Funding for ag research under the Pennsylvania Department of Agriculture was passed by the Senate and is proposed to be reduced in the Governor’s budget by 83 % from funding provided in 2006-07 and 73 % from just last year.   It is vital that the Pennsylvania Department of Agriculture’s research line in the state budget be funded in order to develop and promote new technologies and scientific advancements that support our industry, promote a safe and substantial food supply and protect and promote consumer health.  An example of a research program that received state funding dealt with avian influenza detection and response.  The results were the discovery and industry implementation of an AI Quick-test which enabled the Department to better protect both the population of Pennsylvania and the poultry industry in the event of an avian influenza outbreak.

A second example of vital state sponsored research is examining colony collapse disorder in honeybees.  Since Pennsylvania’s fruit and vegetable farmers rely on these bees for pollination, it is necessary for state investments aimed towards preventing this disease from affecting harvests in order to safeguard both farmers and the consumers from potential effects of colony collapse disorder. Because of a reduction in the line for the 2008-09 budget year, there were only enough dollars to fund two new projects for 2009.  Funding proposed by the Governor for 2009-10 would only allow for the completion of ongoing research.

Crop Insurance Incentive
This year’s proposed budget from the Governor for federal crop insurance state assistance is 76 % below what was allocated in the 2006-07 fiscal year and down 60 % from last year’s adopted budget. The Senate has passed a budget eliminating funding completely.  The Pennsylvania legislature began funding the crop insurance incentive after the devastating drought of 1999 to assist Pennsylvania farmers in protecting their own risks to avoid the need for costly disaster relief when crop failures occur due to weather conditions.  In 1999, the incentive funded 33.7% of the farmer’s costs for crop insurance after the federal subsidy is provided.  In 2006 17.2% was covered with funding at the $3 million level and in 2007 only 9.4% of the farmer’s cost was provided out of the $1.5 state incentive. It is estimated that only 5% of the farmer’s cost was covered by the state incentive in 2008.

The annual investment by the Commonwealth has been extraordinarily effective.  Farmers responded to the challenge. In 2008, the amount of insurance protection purchased was $409 million, up from about $111 million of coverage in 1999.  During those nine years, a contribution from the Commonwealth of $17.5 million helped farmers increase their crop insurance protection by about $225 million. In other words, every dollar of crop insurance assistance produced nearly $13 of crop insurance coverage purchased by farmers. Most notably, the economic risk from a natural disaster has been shifted from Pennsylvania’s taxpayers to farmers themselves and the crop insurance they rely upon.

After the crop insurance assistance program was reduced by $1.5 million in last year’s state budget, crop insurance protection disappeared on 10,000 acres because the coverage became unaffordable for many farmers. The proposed reduction of crop insurance assistance to $700,000 for the 2009-10 budget is expected to further shrink the economic protection for our farms. If cuts to federal crop insurance proposed by President Obama at the federal level and by the Governor and the Senate at the state level are passed into law, there is little doubt that many farmers may find it necessary to abandon the protections of federal crop insurance, due to the lack of affordability from the limited cash flow many of our farms are experiencing because of low milk and other commodity prices and high cost inputs such as seed and fertilizer.

Hardwoods, Fairs, FFA and etc.
The Hardwoods Development Council (HDC) has generated an extraordinary return on investment for the taxpayers throughout its history by producing $121 million in new reported sales since 2002, providing a return of $173 for each dollar invested by the Council in overseas trade activities, and helping Pennsylvania outperform other states in the international marketing of hardwood lumber and wood products.  The HDC’s other economic development focused efforts have improved the competitiveness of the state’s hardwood companies, allowing them to outperform the state’s overall manufacturing sector in terms of job creation and retention.  The entire staff and operating budget of the HDC is funded through the Hardwood Research and Promotion line item in the Department of Agriculture’s budget, accounting for less than one percent of the Department of Agriculture’s overall budget, and less than one-tenth of one percent of the Commonwealth’s total economic development spending. 

It is also not a coincidence that the HDC is recognized by other states as a model worth replication.  New York is looking to create a similar council in their state as a way to jump start the competitiveness of their forest products industry at the very same time Pennsylvania is considering abolishing its program.

It is also worth noting, that like other farm sectors, the small size and resources of individual companies are insufficient to conduct these comprehensive marketing or research efforts on their own.  The entire HDC program (including staff) come from this line item.  Elimination would terminate the expertise and vast range of international contacts and relationships that have been developed by HDC staff.  It could take a decade to redevelop this capacity. 

There are numerous other lines in the Governor’s proposed budget for agriculture that have been significantly reduced or zeroed out that are of great concern to Pennsylvania Farm Bureau.  I will not take the time to discuss these in detail other than to mention them by name.  The zeroing out of Fairs, Product Promotion, Ag and Rural Youth as well as deep cuts for the FFA all are in need of a significant restoration of funds from what the Governor and the Senate has proposed.

Legislative Restoration Recommendation
Pennsylvania Farm Bureau is keenly aware of the fact that revenues have fallen far short of projected expenditures in this year’s budget due to the economic downturn.  The drop in revenue will likely continue into the foreseeable future making this a very tough budget year for everyone.  Despite the significant cuts to agriculture in recent years when budget surpluses were realized or projected, Pennsylvania Farm Bureau understands the need for agriculture to take its fair share of the burden to have a balanced budget in these bleak times. 

The Governor has proposed a General Fund reduction in spending by 8.8 percent in all areas other than Education, Public Welfare, Corrections and Probation and Parole for the 2009-10 budget.  Even if you were to agree to these areas not being cut and in fact receiving increases as proposed by the Governor, agriculture’s 15 percent cut from funds available in 2008-09 goes far beyond what is it’s fair share, while the Senate cuts go even deeper.

Pennsylvania Farm Bureau is asking the legislature to restore funding for agriculture to levels that better reflect cuts equal to that 8.8 percent the Governor has identified as being needed across the board.  This would provide over $7.7 million dollars to be redistributed to agriculture budget priorities testified to here today.  The table attached to my testimony indicates Farm Bureau’s recommendations for increased funding over the Governor’s proposed budget for individual lines contained in the Pennsylvania Department of Agriculture’s budget.

Pennsylvania Farm Bureau believes that our modest request for restoration of less than $8 million for essential agriculture programs in either a $29 billion or $27 billion state budget can be found if the Governor and General Assembly do what Pennsylvanians expect during good times and bad.  Namely, it’s time to do the hard work of discovering and deciding priorities for our Commonwealth. We know it’s not an easy task, but we believe that a line-by-line review of the Governor’s proposed budget will identify spending which has not produced results, pet projects which cannot be justified and programs of lower priority.

Thanks again for the opportunity to testify before you this morning and I will be happy to entertain your questions.