There is a growing agreement that the way to deal with the credit package, which is moving through, and to deal with this package, is to put them together. Senator Melcher, I think, made that clear. And that is the sense of many of us, that we need to move ahead with a package that deals with the credit question, not only in Farm Credit Services, but FmHA, and we are interested in coming out with a package that makes sense.

But we are very intent on having something that is a consistent policy, a clear and consistent and open policy, on writing down loans in those cases where it makes business sense for the Federal Government to do so, and will allow farmers out there to continue who, by continuing, will mean less of a loss to the FmHA as a creditor and mean that they continue a way of life. It makes not only moral sense, it makes business sense. Thank you, Mr. Clark.

Mr. CLARK. Thank you.

Senator CONRAD. We will also just ask to keep the record open for additional questions that other Senators might have.

Next we will have a panel that will include James Massey of the Farmers' Legal Action Group, Inc.; Gene Severens, the Center for Rural Affairs; the Honorable Sarah Vogel, the assistant attorney general, the State of North Dakota, and Ralph Paige, executive director of the Federation of Southern Cooperatives/Land Assistance Fund.

In this panel, we are going to hold Mr. Paige to the end because Senator Fowler of your State would like to be here. He is in another meeting until 11 o'clock, and if we are not able to have him here, we will just hold on and proceed with others, if that is okay with you, Mr. Paige.

Mr. PAIGE. Fine.

Senator CONRAD. Senator Fowler would very much like to be here for that. Welcome, glad to have you all here. This is a continuation of a series on FmHA. Mr. Massey, if you would want to give your statement, and then we will proceed with the others in agenda order, and then at the end we will have a time for questions. So if you want to proceed, Mr. Massey, we will start with you, then we will go to Eugene Severens and Sarah. If Senator Fowler is here by then, we will go to Mr. Paige. If not, we will go to the next panel and hold off. Please proceed, Jim.

STATEMENT OF JAMES T. MASSEY, EXECUTIVE DIRECTOR,

FARMERS' LEGAL ACTION GROUP, INC., ST. PAUL, MN

Mr. MASSEY. Thank you very much, Mr. Chairman. My name is James Massey, and I am the executive director of the Farmers' Legal Action Group in St. Paul, MN. I am testifying here today at the invitation of the committee. I would like to thank the committee, and the chairman personally, for the invitation and the opportunity to appear here on behalf of my clients.

I represent the 274,000 FmHA borrowers to whom Mr. Clark loans money. As he indicated this morning, these borrowers are involved in a national class action lawsuit against FmHA which my friend from North Dakota, Sarah Vogel, filed in 1983, and handed off to me when she went into the public sector.

The lawsuit, Coleman v. Lyng, is now in its third generation in North Dakota before Judge Van Sickle. I would like to, if I may today, talk a little bit about what has happened in the case and what has spun off of that case that is directly related to the bill before the committee.

First, I am sorry Mr. Clark is not still here. I was prepared to come to this committee hearing today and testify that I have concluded that the Administration's refusal, its absolute, sustained, long-term refusal to enter into commercially reasonable debt restructuring and work out agreements as banks do is an ideologically driven policy of rural displacement.

Having heard Mr. Clark's testimony, I will simply yield to it and suggest that his testimony is the best evidence that my conclusion is accurate. I met with Mr. Clark in December 1986 along with a representative of our Attorney General's office and with our Commissioner of Agriculture from Minnesota. We posed the same questions to him then as the committee has today, following a series of meetings in Minnesota with farmers and Farmers Home personnel in which the issue of restructuring was discussed.

It is quite clear that the bottom line has been reached on this issue. The fact is that Farmers Home Administration's regulations allow broader and more flexible debt settlement or writeoff than Mr. Clark is willing to allow.

His testimony here and his verbal policy pronouncements about the country have had the effect of narrowing even the published regulation that has been on the books for quite some time.

Let me just say a couple of other things with respect to his testimony. I wish I had a couple of hours to do this because it would take at least that to do it justice. First, for him to suggest that the chairman and the Senator from South Dakota have identified and are fanning sparks of discontent that are localized, and in fact, that you have been beating the bushes to find them, is demagoguery of the worst kind.

My staff and I have been in 31 States in the last year and a half, every State represented on this committee with the exception of Vermont. We have met with farmers, ranchers, lawyers, clergy, farm credit counselors, public officials, school teachers, and others, and I want to say that this is no spark. It is a major brush fire. And that if anything, the kind of attention that this committee, that the chairman, Senator Daschle, and I believe my staff, have given to these problems serves to keep the flames down, to offer reasonable and viable alternatives and legitimate means of communicating discontent and dissatisfaction.

The day that we stop having these kinds of hearings, the day that we stop going out and listening, the day that I stop filing lawsuits on behalf of my clients, is the day that the crazy people, the right wing, if you will, extremists, the people that advocate violence, the people that are out there peddling offshore money, secret trusts, interest free loans, land patents and all the rest of that garbage, and at the same time peddling it with anti-Semitism and racism and other kinds of intolerance, is the day that we are really going to have a problem, the day that the sparks that are not brush fires and the brush fires that are brush fires will all turn

into a conflagration that we are not going to have any ability to deal with.

Mr. Clark also suggested that this lawsuit that "has been reported in the press" is simply representative of a misunderstanding of their loan servicing policies. I disagree.

We have spent several thousand hours in this case doing a very close reading of FmHA regulations. We publish a book that interprets FmHA regulations for lay people that has sold 40,000 copies. I personally feel at least somewhat qualified to disagree with Mr. Clark about what the regulations say. The FmHA letter involved in the litigation tells an FmHA borrower that "FmHA intends to liquidate and foreclose on your loan and terminate your living and operating expense releases." This is step one of the liquidation process. For Mr. Clark to suggest that those 80,000 FmHA borrowers who received this letter are just sort of proceeding along handin-hand with the Government toward a mutual sort of accommodation in the normal course of things is, in my judgment, dissembling of the worst kind.

It is quite clear what the Government is doing. When FmHA came to court 10 days ago to urge Judge Van Sickle not to enjoin the Government from using a procedure that he had already declared unconstitutional on May 7, this is what they said:

"Your Honor, you must let us continue with these loan accelerations at the pace of 1,000 a month, and you must not set aside the 13,000 accelerations that we have already completed. If you do, the 13,000 deaccelerations will not allow us to strip $969 million out of the local communities economy that we are now taking right off the top and sticking into the Treasury.

"The additional 1,000 per month will not allow us to strip an additional $8 million a month out of those local communities and stick it into the Treasury. And if you enjoin us from selling our inventory property, as the plaintiffs have requested, so that the harmed farmers who have lost it illegally might have a shot at getting it back, it will cost us $20,000 per property per year to maintain that property in inventory."

I have heard recently people talking about the Farm Credit System having gotten off the track of its traditional mission. If that is the case, then the Farmers Home Administration is simply a major train wreck.

The litigation that we are involved in now-to summarize—is essentially law enforcement work. Most of it comes out of the Food Security Act of 1985. We are suing to enforce the debt settlement provision in a case we filed recently in the district court in Minnesota. We are suing to enforce the income releases that Mr. Clark claims that they are making, and about which my clients have a different view.

We have filed another lawsuit attacking FmHA's complete assault on any notion of fair elections in implementation of the 1985 farm bill provision requiring county committee elections as opposed to appointments by the Secretary. We have found major technological violations in 45 of 57 election procedures in Minnesota. Borrowers have been excluded from running for the committee. No notice was given in many places. The national office told our State direc

tor that he did not have to publish the notice required in the Federal Register if he could not make the time and so on.

We are suing because the Government does not allow appeals as the statute requires from determinations on debt settlement. We are suing because the homestead and lease back programs do not work.

And finally, we are suing to enforce Minnesota's mediation law in which Farmers Home Administration stands alone among every creditor in our State thumbing its nose at the State legislature and saying we are not going to sit down at the table you have created to try to alleviate this crisis and provide a meaningful dialog between debtors and creditors.

In short, the bill before the committee is really a legislative version of much of what we have been trying to enforce in the courts in a very expensive and inefficient process. I think the bill would do a great deal to close the loopholes. I read the bill one more time on my way out here last night and said to myself, "maybe I should oppose this bill because if it passes I may not have anything to do but go fishing, which would be fine except that it might not put food on the table."

I think the bill is solid. It calls for reasoned business judgments, commercial judgments, by the Government in the principal part of the bill concerning debt settlement and restructuring. If the banks are doing it, it cannot be very crazy. Thank you, Mr. Chairman.

Senator CONRAD. Thank you. We would love to send you fishing. Mr. MASSEY. I would love to go. I have not been yet this year. Senator CONRAD. It is fascinating. You have just recounted almost every section of this bill as being the subject of a lawsuit. Mr. MASSEY. I think every section is, with the exception of the council and the broadening of the eligibility standards to include tribal members. Everything else is the subject of litigation either in the national lawsuit in North Dakota or in two other lawsuits in Minnesota. Oh, one other exception is the guaranteed loan program. I can assure the committee that if the bill does not pass that will soon be the subject of litigation as well. The bankers do not want anything to do with it because, when it is time to get paid, they go to Farmers Home and all of a sudden they feel like a borrower and not a creditor. They end up spending a great deal of time and legal fees trying to collect on those guarantees.

I was in my home State of Oregon last week, out in Pendleton, OR, in wheat and ranch country. I was told there that the FmHA State director, Mr. Chen, has recently said that the farm_crisis must be over in Oregon or never have gotten there because FmHA has all these millions of dollars of guaranteed loan authority that they just cannot loan. Nobody wants it apparently, and they cannot make any loans. I think there are two or three in the whole State. If that is any indication from an empirical standpoint, at least in one State, I think that tells us how the guaranteed loan program is going.

Senator CONRAD. Thank you very much, Mr. Massey.

Mr. MASSEY. Thank you, Mr. Chairman.

[The prepared statement with attachments of Mr. Massey follows:]

TESTIMONY
OF

JAMES T. MASSEY

Before the Senate Committee on Agriculture,

Nutrition, and Forestry

JUNE 9, 1987

My name is James T. Massey. I am an attorney in St. Paul, Minnesota, and am lead counsel in the national class action litigation Coleman v. Lyng. In that case, formerly Coleman v. Block, the plaintiffs challenge FmHA's liquidation and foreclosure proceedings in the United States District Court for North Dakota.

I am testifying today at the invitation of the Committee, and appreciate the opportunity to represent my clients in this forum. Judge Bruce Van Sickle of the United States District Court for North Dakota held in an order on May 7, 1987, that the liquidation and foreclosure proceedings being used by FmHA were unconstitutional. Between November 1, 1985 and the judge's order, FmHA had issued some 78,000 notices to its borrowers across the country indicating that FmHA intended to liquidate or foreclose on their farms. In his May 7, 1987 order, the judge declared that the procedures used by the government caused a deprivation of a protected property interest without due process of law. On June 2, 1987, Judge Van Sickle issued an injunction temporarily halting further liquidations and foreclosures under these procedures for 13,000 borrowers across the nation and permanently halting them for the other 65,000. The judge ordered FmHA to change its procedures and to suspend any liquidation or collection activities until it does so.

These most recent rulings continue a line of court decisions that go back to 1983 in Coleman. Since that time, Judge Van Sickle has declared various aspects of FmHA's collection and liquidation procedures to be a violation of the Constitution and contrary to the intent and purposes of FmHA's enabling legislation. Indeed, in first order in 1983, he held that FmHA's refusal to implement a 1978 statute in which Congress authorized the Secretary to grant loan payment deferrals was a direct violation of the intent and purpose of that legislation.

The Coleman case symbolizes a much broader problem. Simply stated, the FmHA, under Secretaries Block and Lyng, has undertaken consistent and repeated attempts to undermine the very purposes that its loan programs were designed to serve. Congress has repeatedly stated that the intent of these programs is to