October 7, 2013
To: NATIONAL COTTON COUNCIL
Producer, Merchant and Cooperative Interest Organizations
From: Mark Lange
President and CEO
Subject: Report from Meeting with USDA Regarding Sequestration of Marketing
Assistance Loans and Delays in Loan Processing
Earlier today, the National Cotton Council joined other commodity organizations for a meeting with USDA officials regarding the recent announcement (see attached USDA release) that sequestration of 5.1% would apply to 2013-crop marketing assistance loans (MAL) distributed after October 1.
USDA attendees were: Deputy Secretary Krysta Harden, Under Secretary Michael Scuse, David Grahn from Office of General Counsel, Candy Thompson of FSA Price Support Division; Deputy Chief of Staff Anne McMillian, and FSA Administrator Juan Garcia (by telephone).
A representative of American Cotton Shippers Association also participated in the session, along with staff from peanuts, rice and sugar organizations.
The group thanked USDA officials for meeting during the government shutdown and conveyed the serious concerns regarding the impact on producer income resulting from reduced loan proceeds and the detrimental constraints on cash flow due to the combination of lowering proceeds and delays in loan processing. The group also reminded USDA that sequestration did not apply to 2012 crop MALs and that sequester on DPs was actually increased to 8.5% to avoid having to “claw back” SURE payments. USDA was asked to consider using similar discretionary authority to make adjustments so that they would not have to apply sequestration to 2013 crop MALs beginning Oct. 1, and as result, loan software would not have to be rewritten, which further delays loan processing beyond the delay that occurs due to the shutdown.
OGC David Grahn explained that under the statute, MALs are defined as payments, and therefore must be subject to sequestration. It is not a matter of finding an alternative way to save an equivalent amount of money. Grahn did confirm that any 2013 crop loans made before Oct. 1 would not be retroactively reduced. When asked about the redemption process, he could not confirm whether redemptions of 2013 crop loans will be adjusted by sequestration, but understands an answer is needed as soon as possible.
FSA official Candy Thompson confirmed that loan entries and redemptions will both be suspended while software changes are being made. Under Secretary Scuse pledged to get the loan process running as soon as possible once government is reopened, but added that the 14-day estimate for software updating referenced in the Sept. 30 announcement was probably accurate. The 14-day delay would be measured from the date the government reopens.
The NCC and the other groups briefed the House and Senate Republican Agriculture Committee staff on the USDA discussions. Staff were asked to contact the USDA OGC to seek further clarification of the statutory authority being used and the reasons for 2012 and 2013 MALs being treated differently. A possible legislative fix was discussed, but it was acknowledged that no legislation is likely to move through Congress in time to change the process for 2013-crop loans. The more likely solution is for new farm legislation to be enacted that turns off future sequestration.
It should be noted that if sequestration is applied to the 2014 crop MALs, the reduction factor is projected to be 7.2%.