WASHINGTON, DC – U.S. Senator Pat Roberts (R-KS) and U.S. Senator Saxby Chambliss (R-GA) today sent the following bipartisan letter to U.S. Secretary of Agriculture, Tom Vilsack, commending USDA for proposing a Good Performance Refund (GPR) program aimed at strengthening the federal crop insurance program. While the GPR program is well intentioned, the senators expressed concerns that the eligibility criteria would benefit few producers from limited regions of the country, is not designed in the most cost effective manner, and falls short of meeting the intent of the law. Senator Roberts and Senator Chambliss offered to continue to work with Secretary Vilsack to improve the program and address their concerns.

The letter was also signed by Senators Thad Cochran (R-MS), Max Baucus (D-MT), Mike Johanns (R-NE) and Ben Nelson (D-NE).

The following is the text of the letter dated January 27, 2011:

The Honorable Tom Vilsack

Secretary

U.S. Department of Agriculture

Dear Secretary Vilsack:

We appreciate your efforts in proposing a rule to implement the performance-based discount authorized by section 508(d)(3) of the Federal Crop Insurance Act. Successfully implementing this provision will ensure that some of the savings realized from the renegotiation of the Standard Reinsurance Agreement ("SRA") will be used to improve federal crop insurance—something that you assured would happen during the recent SRA renegotiations. Unfortunately, the proposed rule falls short. Without modifications, it will not achieve the goals of the statute and will jeopardize the program’s effectiveness.

Requiring the U.S. Treasury to issue checks to producers regardless of current participation in the program is inconsistent with the statute. The statute states that a discount may be provided to a producer who "has" good insurance or production experience. It does not provide benefits to a producer who "had" good insurance or production experience. According to the proposed rule, a producer must have been a participant in the program previously, with the most recent participation occurring in the base year, which is defined as "the last crop year that has been completed and all claims would normally have been paid." The rule explains that a payment for the 2011 calendar year will be based on the 2009 crop year; and for a 2012 payment, the base year is 2010. Because there is no relationship to participation in the current crop year, the proposed rule allows checks to be sent to producers no longer in the program. It is questionable how this program design constitutes a premium discount. In this time of budgetary constraints, it is unclear if administrative costs have been fully considered. There may be more cost-efficient alternatives of program delivery, including providing a discount on subsequent insurance purchases, that are worthy of consideration.

We are also concerned about the performance metrics in the proposal. The proposed rule states that favorable performance will be measured by a limited number of claims experienced over a specified number of years participating in the program. While this may be the simplest metric to use in determining eligibility, the statute directs the discount to be determined based on a producer’s performance relative to other producers in the same area. Your proposal—if implemented without change—would result in producers from geographic areas of the country with more favorable weather and climate conditions getting a disproportionate share of the benefit, rather than a more geographically-neutral method in which producers are compared with their geographic peers. The need to compare producers with others in their area is crucial in order to ensure that regional production differences do not skew eligibility determinations.

Finally, the proposed rule could negatively impact buy-up coverage. Producers across the country utilize the federal crop insurance program to properly manage risks. Since 1998, the program has grown from covering over 180 million acres at $28 billion of liability to 256 million acres at $78 billion of liability in the 2010 crop year. Congress, the Administration, and insurance providers have worked to make the program more effective over time. However, a common point of frustration is producers’ desire for risk management tools that address shallow losses. The proposed rule is contrary to this point – its stated goal encourages producers not to claim small losses so they may qualify for a refund later. As policymakers who have encouraged greater use of risk management tools, we are concerned that if a producer perceives that higher coverage levels will increase the likelihood of triggering a loss and therefore minimizing opportunity to benefit under the proposed program, the producer will be discouraged from utilizing greater coverage. It would be unfortunate if the proposed rule yielded this unintended consequence.

Again, we commend you for taking the initial steps in the proposed rule. It has the potential to further buttress our crop insurance program by reinvesting some of the recently-achieved savings from the SRA back into the crop insurance program. We look forward to working with you as you analyze public comments and evaluate modifications to the proposed rule.

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