assist low income, beginning and troubled farmers to get on the land and stay there. The administration has repeatedly ignored these purposes and has done everything within its power to eliminate a great number of FmHA borrowers. examples make this clear. Several other In 1985, as part of the Food Security Act, Congress passed various amendments to the FmHA legislation. Attached as part of this testimony is an article written by my colleague, Lynn Hayes, and me, which outlines numerous ways in which FmHA has undermined the 1985 legislation. In short, where there has been an opportunity to continue to frustrate the purposes of Congress, this FmHA administration has done so. The bill before the Committee today addresses many of the problems we have experienced. It requires FmHA to consider loans for debt settlement or write off when the debt is unsecured without forcing the farmer to liquidate all of the property and lose the farm as a condition of obtaining that debt settlement. It broadens and expands the protections of the dwelling retention and leaseback/buyback programs to assure that the former owners and operators of FmHA-financed farms have a fighting chance to qualify to retain some or all of their farms after they are taken into inventory by the government. The bill strengthens the FmHA appeal process and assures that FmHA borrowers will continue to receive releases of income sufficient to pay living and operating expenses throughout the course of their dealings with FmHA. In short, this legislation addresses many issues that are currently pending before United States District Courts in Minnesota, North Dakota and elsewhere which seek to correct the directions of FmHA's administration in these programs. This legislation will benefit the more than 270,000 FmHA borrowers throughout the country and will be at least a step toward assuring compliance with the historical mandate and purposes of the FmHA legislation. For the record and for the Committee's interest, I attach to this testimony a written testimony that was submitted earlier in the spring to this Committee, as well as the article mentioned above. Again, I appreciate having had the opportunity to appear and testify before this Committee on behalf of my clients. Guarany James T. Massey We submit this testimony in response to the Committee's invitation to appear to testify on April 28, 1987. The Farmers Home Administration exhibits stunning contempt for its historical mission, and continuing disregard of the congressional will and mandate carried in FmHA programs. Proposed regulations published by the agency on January 15, 1987, along with several policy initiatives begun in the early 1980s and intensified in late 1985, threaten fully one-third of all FmHA borrowers with liquidation, and much of rural America with large-scale displacement and depopulation. On behalf of our clients throughout the country, we ask the Senate Agriculture Committee, and Congress as a whole, to take immediate legislative action to stop what can only be termed a radical departure by FmHA from its legal obligations. We respectfully request this Committee to conduct emergency, detailed, oversight hearings to gather direct testimony and evidence of the problems outlined in this summarized testimony. Farmers' Legal Action Group, Inc. (FLAG) is a nonprofit organization that provides legal education, training and support to farmers and ranchers, their lawyers and advocates, and to public policy makers throughout the country. FLAG attorneys also undertake major, systemic litigation on behalf of farmers and ranchers. Executive Director James T. Massey and Attorney Lynn A. Hayes have been counsel to the national class of FmHA borrowers in Coleman v. Lyng (formerly Coleman v. Block) since 1985. Massey and FLAG attorney Juliet M. Tomkins also represent more than 10,000 Minnesota FmHA borrowers and over 100,000 Minnesota farmers in Hedge v. Lyng, a class action challenge to FmHA's implementation of county committee elections required in the 1985 Farm Bill. FLAG staff attorneys have been assisting FmHA borrowers since 1982. James Massey was involved in the initial preparation of the Coleman v. Block case. In 1983, he and Hayes filed a companion case in Minnesota. Since 1983, Massey, Hayes and, in 1986, the remaining FLAG staff have provided education, training and direct legal support to thousands of FmHA borrowers across the country. They have delivered well over 100 lectures, workshops and seminars in over 30 states. Seventy-five such sessions have been held since June 1986, with total attendance of over 4,000 farmers, attorneys and community members. FLAG staff have taken hundreds of telephone calls during this period, and have written numerous books, articles and newsletters. Farmers' Guide to FmHA, written and edited by FLAG staff, has sold over 40,000 copies in three editions. FLAG's newsletter, Farmers' Legal Action Report, is distributed nationwide. These combined experiences have generated an abundance of direct observation of FmHA practice and conduct. FLAG staff have learned firsthand from FmHA borrowers, attorneys, advocates, community and church leaders, agricultural extension agents and others just how FmHA is conducting its business. It is--sadly--an ugly picture. Since 1981, FmHA has steadily, consciously and systemically ignored, refused to implement, misinterpreted, narrowed or otherwise undermined the programs it is charged with implementing--it has, for financially troubled farmers, become a government collection agency. This development raises a substantial and immediate policy question for this Committee: Should FmHA be returned to its roots as the lender of last resort, charged with assisting rural families and communities to continue a family farm system of agriculture; or should it, indeed, become a collection bureau for largely uncollectable debt, and a major farm liquidator? That choice is crystalized by the January 15, 1987 proposed regulations. The January 15, 1987 proposed regulations suffer from myriad problems--some legal, some policy-based, some pragmatic. We submit for the record, attached to this testimony, our formal comments on those regulations. However, to fully understand the significance and potential impact of these proposed regulations, one must view them as part of a continuum of FmHA policy drift which began in 1981. In August 1978, Congress enacted the FmHA deferral statute which has been the subject of more than a score of federal lawsuits since 1981. Under that statute, the Secretary of Agriculture was authorized to defer loan payments, and forgo foreclosures, when circumstances beyond an FmHA borrower's control made it impossible for him/her to make all scheduled payments to the government without unduly impairing the farm family's standard of living. Secretary Block refused to implement the program; farmers and ranchers sued repeatedly, and the courts unanimously agreed that Congress intended the program to be enacted. FmHA did not publish deferral regulations to implement the program nationally until November 1, 1985. During the seven-year period from August 1978 through November 1985, tens of thousands of FmHA borrowers went out of business. At the same time FmHA enacted the deferral regulations, it began a wholesale effort to collect delinquent debts from its borrowers. Since that time, FmHA has sent to nearly 90,000 FmHA borrowers--more than onethird of all FmHA borrowers--a series of notices informing them of the government's intent to foreclose on their farms. Buried in complex, contradictory and, at times, nearly incomprehensible language, FmHA has included skimpy information on deferral eligibility and how to apply. The plaintiffs have mounted new legal challenges to this notice procedure claiming, among other things, that the notice procedure was adopted without compliance with the Administrative Procedure Act, that it is constitutionally inadequate, that it is unreadable to the average FmHA borrower, that it fails to provide the borrower with an adequate method for response, and that it does not comply with the statute or earlier court orders. То date, more than 12,000 of these 90,000 FmHA borrowers' accounts-13 percent--have been accelerated, and the farmer faces liquidation or foreclosure. And, of these 90,000, only 2,700-fewer than 3 percent--have been granted some form of deferral. These grim statistics result directly from the FmHA policy embodied in the November 1, 1985 and subsequent regulations. In short, most FmHA borrowers are unable to qualify for deferrals because: 1. FmHA refuses to provide borrowers with an 2. FmHA refuses to consider debt restructuring or settlement for continuing borrowers. Only those liquidated, or those who can pay off the government, are considered for any debt settlement. the 3. FmHA bases future repayment assessments on full amount of unrestructured debt-irrespective of appraised value of assets or the borrower's net worth situation. Today's low commodity prices--projected to continue for several 4. FmHA requires all applicants for deferrals to demonstrate a positive cash flow after five years of deferral, without regard for the nature of the borrower's operation, the circumstances that got the borrower in trouble or the alternatives that might exist. For some borrowers, five years is too short a period--they simply need more time to put their houses back in order. For others, five years is too long--the remaining amortization period on loans after the deferral period crowds payments into such a short period that a positive cash flow cannot be shown. The point is, no single arbitrary time frame is necessary or appropriate to the implementation of the statute. 5. FmHA prohibits change or expansion of the farm operation during the deferral period. This prevents many borrowers from demonstrating a positive cash flow by prohibiting the flexibility that all farmers need to make adjustments to their operations during times of financial stress. 6. FmHA uses "crystal ball" figures for costs and prices which assume the worst and which the agency is completely unable to justify on an objective basis. The figures, taken together, make it virtually impossible for any FmHA borrower to demonstrate a positive cash flow. 7. FMHA evaluates farmers' "actual" production costs and yields during the several years prior to application, without regard for abnormal years of disaster, extremely high costs or low prices. These are merely highlights; the regulations and FmHA procedures contain a great number of additional problems that render the deferral program virtually nonexistent. The 1985 Farm Bill In the 1985 Farm Bill (the Food Security Act of 1985), Congress again enacted several amendments to the Consolidated Farm and Rural Development Act that were designed to assist FmHA |