Federal Crop Insurance: Specialty Crops

Summary: The federal crop insurance program offers subsidized crop insurance policies to farmers. Farmers can purchase policies that pay indemnities when their yields or revenues fall below guaranteed levels. While the majority of federal crop insurance policies cover yield or revenue losses, the program also offers policies with other types of guarantees, such as index policies that trigger an indemnity payment based on weather conditions. The Federal Crop Insurance Corporation (FCIC), a government corporation within the U.S. Department of Agriculture (USDA), pays part of the premium—about 63%, on average—across the federal crop insurance portfolio during crop year 2017, while policy holders—farmers and ranchers—pay the balance. Private insurance companies, known as Approved Insurance Providers (AIPs), deliver the policies in return for administrative and operating subsidies from FCIC. AIPs also share underwriting risk with FCIC through a mutually negotiated Standard Reinsurance Agreement. The USDA Risk Management Agency (RMA) administers the federal crop insurance program.

Summary: The federal crop insurance program primarily covers traditional field crops (such as wheat, corn, and soybeans) that are supported by USDA's revenue-support programs. Unlike these traditional crops, specialty crops—defined in statute as "fruits and vegetables, tree nuts, dried fruits, and horticulture and nursery crops (including floriculture)" (7 U.S.C. §1621 note)—have not been a major part of federal crop insurance support. Specialty crops are also generally not eligible for USDA's revenue-support programs. USDA estimates that the statutory definition of specialty crops covers more than 300 agricultural commodities, including fresh and processed fruits and vegetables, tree nuts, nursery plants (trees, shrubs, and flowering plants), herbs, spices, coffee, tea, honey, and maple syrup.

Summary: Legislative changes, coupled with ongoing administrative efforts by USDA, have expanded federal crop insurance coverage for specialty crops, and they now account for a small but growing number of federal crop insurance policies bought by farmers. Among the issues Congress may consider if it seeks to further expand coverage for specialty crops are data collection and price discovery for commodities not sold on exchanges (such as most fruits and vegetables), coverage of quality losses, and the effect of ad hoc payments on the demand for crop insurance.

Summary: Federal crop insurance policies currently cover around 38 specialty crop categories, which include roughly 80 types of fruits, vegetables, tree nuts, and nursery crops. Over the past few decades, total specialty crop insured liabilities rose from nearly $1 billion in 1989 to nearly $18.5 billion in 2017. In 2017, federal crop insurance policies covered about 9 million acres of specialty crops, around 800,000 bee colonies, about 100,000 tons of raisins, and roughly 60,000 fruit and coffee trees. Across all specialty crops, coverage and the premium subsidy paid by the federal government may vary depending on the crop. Moreover, for many specialty crops, crop-specific insurance policies are not available. Currently, about one-half of all U.S. specialty crop acres are covered by federal crop insurance policies. Some specialty crops may be covered under a Whole Farm Revenue Protection (WFRP) insurance policy. WFRP is designed to fill in coverage gaps for producers of uninsured crops that lack individual policy coverage and for producers marketing to local, farm-identity preserved, or direct markets. The average premium subsidy rate for WRFP was about 70% in 2017. Federal crop insurance for specialty crops and WFRP together accounted for about 17% of the entire federal crop insurance portfolio, as measured by liability, during crop year 2017.

T he federal crop insurance program offers subsidized crop insurance policies to farmers. Historically, the federal crop insurance program has covered primarily traditional field crops such as wheat, corn, and soybeans. In contrast, s pecialty crops —covering fruits, vegetables, tree nuts, and nursery crops—have not been a major part of the federal crop insurance program. However, legislative changes, coupled with ongoing administrative efforts by the U.S. Department of Agriculture (USDA), have expanded federal crop insurance coverage for specialty crops, and they now account for a small but growing number of federal crop insurance policies bought by farmers. Over the past few decades, total specialty crop insured liabilities rose from nearly $1 billion in 1989 to nearly $18.5 billion in 2017. Federal crop insurance policies currently cover around 38 specialty crop categories, which include roughly 80 types of fruits, vegetables, tree nuts, and nursery crops.

Many specialty crops, however, do not have crop-specific insurance policies. Currently, about one-half of all U.S. specialty crop acres are covered by federal crop insurance policies. Some specialty crops may be covered under a Whole Farm Revenue Protection (WFRP) insurance policy, intended to fill in coverage gaps for producers of uninsured crops that lack individual policy coverage and for producers marketing to local, farm-identity preserved, or direct markets. Despite this expansion, coverage for specialty crops remains below that for traditional crops. Combined, federal crop insurance for specialty crops and WFRP together accounted for about 17% of the entire federal crop insurance portfolio by liability during crop year 2017.

This report focuses on how specialty crops are covered under the federal crop insurance program. For detailed background and historical information on the federal crop insurance program as a whole, and on how the federal crop insurance program operates, see CRS Report R45193, Federal Crop Insurance: Program Overview for the 115th Congress .

Crop Insurance Program Authority and Operation

Overview of the Federal Crop Insurance Program

The federal crop insurance program is permanently authorized by the Federal Crop Insurance Act, as amended (7 U.S.C. §1501 et seq .). The USDA's Risk Management Agency (RMA) regulates the program, and the Federal Crop Insurance Corporation (FCIC) funds it.

Congress first authorized federal crop insurance in an effort to mitigate the effects on farmers of the Great Depression and of the crop losses seen in the Dust Bowl. In 1938, the FCIC was created to carry out the program, which focused on major crops like wheat in leading producing regions. During the same era, farm programs were established to support crop prices and boost farm income for producers of so-called program crops, including wheat, corn, and cotton.

The availability of federal crop insurance expanded with the passage of the Federal Crop Insurance Act of 1980 ( P.L. 96-365 ), which brought coverage to many more crops and regions of the country. To increase participation, Congress enhanced the crop insurance program in 1994 by raising subsidy levels and in 2000 by expanding geographic availability and again raising subsidy levels. The changes also expanded the role of the private sector in developing new products that would help farmers manage their risks. Today, many banks, when making operating loans, require that farmers purchase crop insurance.

The federal crop insurance program provides farmers with risk management tools to cope with yield and price declines. Under the program, farmers can purchase subsidized policies that pay indemnities when their production or revenue falls below a producer-selected coverage level. Insurance policies are sold and completely serviced through approved private insurance companies. The insurance companies' losses are reinsured by USDA, and their administrative and operating costs are subsidized by the federal government.

In purchasing a crop insurance policy, a producer selects a level of coverage (i.e., deductible) and pays a portion of the premium that increases with higher coverage levels (or none of it in the case of catastrophic coverage). The federal government pays the rest of the premium (63%, on average, in 2017).

The federal crop insurance program offers two main levels of coverage: Catastrophic Risk Protection (CAT) and buy-up coverage:

1. CAT coverage insures against losses in excess of 50% of normal yield, equal to 55% of the estimated market price of the crop (called 50/55 coverage). The premium is 100% subsidized. Producers pay an administrative fee of $655 per crop per county. Limited-resource producers may have this fee waived. CAT coverage is not available on all types of policies. 2. Buy- up coverage allows producers to obtain coverage beyond the catastrophic level and pay a premium that is subsidized by the federal government. Buy-up provides for additional coverage up to 85% of production per acre and 100% of a specified market price established for each crop and region. The premium subsidy for these policies ranges from 38% to 67%. Producers pay an administrative fee of $30 per crop per county.

The availability of crop insurance for a particular crop in a particular region is an administrative decision made by RMA. The decision is made on a crop-by-crop and county-by-county basis based on farmer demand for coverage and the level of risk associated with the crop in the region, among other factors. In areas where a policy is not available, farmers may request that RMA expand the program to their county. The process usually starts with a pilot program in order for RMA to gain experience and test the program components before it becomes more widely available. Alternatively, a policy can be reviewed and later discontinued if it fails to perform at an acceptable level (e.g., it experiences low participation or high losses).

RMA also regularly responds to requests from commodity organizations or industry representatives for enhancements to existing coverage, such as adding revenue coverage. RMA offers pilot programs with various types of coverage for new crops (particularly specialty crops) or that include new geographical areas. It uses the performance of these programs to inform its decision on whether to extend coverage permanently.

Expansion of Coverage for Specialty Crops

Efforts to expand federal crop insurance coverage to crops that had not traditionally been eligible under the program dates back to the 1990s. The Federal Crop Insurance Reform and Department of Agriculture Reauthorization Act of 1994 ( P.L. 103-354 ) helped initiate efforts to expand federal crop insurance coverage for specialty crop producers. It amended the Federal Crop Insurance Act to require (among other things) additional data collection, reporting to facilitate the development of new crop insurance policies, tracking the progress of newly developed policies, and an expected timetable for expanding crop insurance coverage to include "new and specialty crops." Since then RMA has submitted episodic reports to Congress tracking this progress. The Agriculture Risk Protection Act of 2000 ( P.L. 106-224 ) further emphasized increasing the availability of risk management tools for producers of crops with no individual policy coverage.

Previous omnibus farm bills—including the Agricultural Act of 2014 ( P.L. 113-79 , "2014 farm bill") and the Food, Conservation, and Energy Act of 2008 ( P.L. 110-246 , "2008 farm bill")—also enhanced the federal crop insurance program by expanding its scope and broadening policy coverage for specialty crops, organic agriculture, and crops that are sold directly to local markets. These laws authorized and extended other USDA programs that help facilitate the formulation of crop insurance policies for specialty crop producers, including market data collection programs.

The 2008 and 2014 farm bills further expanded provisions governing how RMA administers and implements Section 508(h) of the Federal Crop Insurance Act, which governs new policy development, including how it is contracted out and funded, how policy ratings are undertaken, and how a policy may start as a pilot and may (or may not) evolve to a full-fledged insurance policy. Additional information on the Section 508(h) process is described in " Development of New Policies and Section 508(h) ."

The 2014 farm bill also directed RMA to develop the WFRP insurance policy as part of an effort to provide additional options for crops that lack crop-specific policy coverage. WFRP policies insure revenue of the entire farm, rather than an individual crop, under a single insurance policy that is not limited to specialty crop production. The types of producers eligible for whole farm policies include direct-to-consumer marketers and producers of multiple agricultural commodities, including specialty crops, industrial crops, livestock, and aquaculture products. Coverage is also expanded for the value of packing, packaging, or any other similar on-farm activity. WFRP can be combined with other policies with buy-up coverage. WFRP does not offer CAT-level coverage and cannot be combined with CAT-level policies. WFRP is discussed further in " Whole Farm Revenue Protection (WFRP) Insurance ."

Despite expansion of the federal crop insurance program, coverage for specialty crops remains below that for traditional crops in terms of individual crop policies and covered acres. Often insurers face technical difficulties in developing new policies such as price discovery, non-weather risks, and premium ratings. In some cases, USDA has not pursued policies for particular commodities because producers have expressed concerns that offering insurance could adversely affect the market (i.e., because an insurance policy reduces producer risk, farmers may plant more acreage, which could drive down prices and total crop revenue). This has been a particular concern for vegetable crops and explains in part lower levels of insured vegetable acreage compared with other crops. These and other challenges are discussed later in " Challenges with Developing Specialty Crop Policies ."

Specialty Crop Insured Coverage and Participation

In statute, specialty crops refers to "fruits and vegetables, tree nuts, dried fruits, and horticulture and nursery crops (including floriculture)" [7 U.S.C. §1621 note]. This definition covers more than 300 individual agricultural commodities. It includes fresh and processed fruits and vegetables, tree nuts, a range of nursery plants (trees, shrubs, and flowering plants), culinary herbs and spices, coffee and tea, and also honey and maple syrup, according to guidelines established by USDA. The statutory definition of specialty crops ties to program eligibility and funding allocations for a number of USDA programs providing marketing and research assistance to eligible producer groups.

Unlike many traditional commodity crops, specialty crops are generally not eligible for USDA farm revenue support programs—that is, programs such as the Agricultural Risk Loss Coverage (ARC), Price Loss Coverage (PLC), and Marketing Assistance Loans (MAL) programs. The federal government has historically supported specialty crops indirectly through research and marketing grants. The federal government provides direct assistance to individual specialty crop farmers via federal crop insurance and supplemental disaster assistance.

Overview of Premiums, Product Introductions, and Participation

Legislative changes coupled with USDA administrative efforts have contributed to broader federal crop insurance coverage of fruits, vegetables, tree nuts, and nursery crops over the past few decades. Total liability, or the estimated value of the insured portion of the crop, is a useful measure of program growth. Specialty crop insured liabilities rose from nearly $1 billion in 1989 to nearly $18.5 billion in 2017 ( Figure 1 ), reflecting increased production and participation. In contrast, total liabilities for all federally insured crops and livestock was $106.7 billion in 2017. At $18.5 billion, specialty crops represented about 17% of the federal crop insurance portfolio by liability in 2017 ( Figure 1 ).

Table 1 provides summary statistics of federal crop insurance coverage for specialty crops for crop years 2015 through 2017. It provides total premium, premium subsidies, producer-paid premium, liabilities, indemnities (claim payments), and the number of policies earning premium. Premium subsidies across all commodities (not shown in the table) totaled $6.4 billion (63% of total premium), whereas premium subsidies for specialty crops totaled $701 million (64% of total specialty crop premium) in crop year 2017. Producer-paid premiums are the difference between total premium and premium subsidies.

Looking back to 1999, insurance policies then covered 52 specialty crops with planned testing on another nine, according to the Government Accountability Office (GAO). These 61 crops reportedly accounted for a majority of the overall value of specialty crops at that time, but coverage on about 300 additional crops remained unavailable. Coverage expansion for specialty crops continued over the subsequent decade. By 2011, insurance was available for more than 80 specialty crops in counties considered to be major growing areas. Among the crops included were avocados, blueberries, grapes, citrus, onions, pumpkins, and tomatoes.

The cumulative new crop insurance product introductions for specialty crops increased from 10 in 2000 to 52 in 2012 ( Figure 2 ). Figure 3 shows the number of specialty crop policies earning premium under the federal crop insurance program from crop years 2000 to 2017. While the number of specialty crop policies shows a general upward trend from 2000 to 2017, the total liability (amount insured) for specialty crops shows a more consistent upward trend during the same time period ( Figure 4 ). A larger increase in liability than in the number of policies could be attributed to several factors, among them more high-value crop policies, increases in commodity prices, farm consolidation, and inflation.

Specialty Crops: Covered and Uncovered Crops

About 9 million acres of specialty crops, approximately 800,000 bee colonies, about 100,000 tons of raisins, and roughly 60,000 fruit and coffee trees were covered by federal crop insurance during crop year 2017. As of 2015, federal crop insurance policies were offered for 38 specialty crop categories ( Table 2 ), which include roughly 80 types of fruits, vegetables, tree nuts, and nursery crops. In 1999, insurance policies covered about 50 types of specialty crops.

Crops covered by individual federal crop insurance plans include almonds, apples, avocados, bananas, blueberries, cabbage, chili peppers, various citrus fruits, coffee, cranberries, cucumbers, dry beans, dry peas, figs, fresh market beans, fresh market sweet corn, fresh market tomatoes, grapes, green peas, macadamia nuts, mint, mustard, nursery, olives, onions, papaya, pears, pecans, peppers, pistachios, popcorn, potatoes, processing beans, pumpkins, raisins, policies on stone fruit (cherries, fresh apricots, fresh freestone peaches, fresh nectarines, peaches, plums, processing apricots, processing cling peaches, processing freestone peaches, prunes), strawberries, sweet corn, sweet potatoes, table grapes, tomatoes, other types of fruit and nut trees, and walnuts. Bee colonies are also covered.

Although the availability of federal crop insurance has been expanding, it is not available for all specialty crops. Crops without insurance for which the USDA's National Agricultural Statistics Service (NASS) reports planted acreage include artichokes, asparagus, blackberries, boysenberries, broccoli, cantaloupes, carrots (fresh and for processing), cauliflower, celery, dates, garlic, guavas, hazelnuts, honeydews, kiwi fruit, lettuce, spinach, squash, tart cherries, and watermelons. In addition, specialty crops for which NASS does not report planted acreage that do not have crop-specific policies include cashews, chives, dates, eggplants, garlic, hazelnuts, leeks, lettuce, melons, most leafy greens, most herbs and spices, some tropical plants, and most root crops.

RMA reports that nearly 300 million acres were covered by federal crop insurance policies in crop year 2015. Of those acres, about 8.1 million acres (3%) were specialty crops ( Table 2 ). For the 38 specialty crop categories for which federal crop insurance policies are measured by acreage (as opposed to bee colonies, tons, trees, or plant inventory value), the average participation rate in federal crop insurance was about 76% of eligible acres in crop year 2015.

Figure 5 and Figure 6 show these data for selected fruit, tree nut, and vegetable categories. Market penetration often varies widely by crop. For fruits and tree nuts, the share of federally insured acres ranges from less than 1% (strawberries) to more than 80% (citrus and plums/prunes) ( Figure 5 ). For vegetables and melons, insured acres range from 5% of total acres (fresh beans and sweet potatoes) to more than 80% (dry peas, tomatoes) ( Figure 6 ).

Insured acreage as a share of crop acreage is relatively high (about 70% of total specialty crop area) in major specialty crop states, including California, Florida, and Washington. Acreage participation for pulse crops (e.g., dry peas, dry beans) is high in Minnesota, Montana, North Dakota, and South Dakota. The 2015 FCIC report to Congress on specialty crops contains detailed acreage data by crop and state, along with maps showing crop insurance participation.

Figure 7 shows liabilities for specialty crops with the highest liabilities for crop year 2017. Figure 8 shows a breakdown of crop insurance premium subsidies and producer-paid premium by specialty crop in crop year 2017. That year, the average premium subsidy amount across all specialty crop policies and WFRP was 64%, about 1 percent higher than the average premium subsidy rate for the entire crop insurance portfolio.

Whole Farm Revenue Protection (WFRP) Insurance

RMA provides a WFRP policy option to growers insuring 50% to 85% of revenue for all the commodities on a farm under one insurance policy. WFRP benefits farms with specialty or organic commodities that lack individual policy coverage, as well as those farms marketing to local, regional, farm-identity preserved, or direct markets. RMA estimates that 2,700 such policies received premium subsidies in 2017, up from 1,100 policies in 2015 ( Figure 9 ). WFRP premium subsidies totaled about $102 million in 2017, and producer-paid premium amounted to about $42 million, while total liability was estimated at $2.8 billion, up from $1.1 billion in 2015.

The 2014 farm bill ( P.L. 113-79 ) required that RMA provide a WFRP policy option to agricultural producers and authorized higher premium subsidy levels for whole-farm policies than for other policy types. The WFRP pilot policy was first offered in 2015. Prior to that, USDA offered similar policies under other names (in particular, Adjusted Gross Revenue or "AGR" policies from 1999 to 2002, and AGR and AGR Lite policies from 2003 to 2014). WFRP insures 50% to 85% of revenue for all commodities on a farm under one insurance policy, including (but not limited to) farms with specialty or organic commodities or those marketing to local, regional, farm-identity preserved, specialty, or direct markets.

WFRP is available in all counties nationwide—either as a stand-alone policy or in combination with other policies—to farms with up to $10 million in insured revenue at the 85% coverage level and up to $17 million in insured revenue at the 50% coverage level. WFRP does not offer CAT-level coverage (high deductible, 100% premium subsidy) and cannot be combined with CAT-level policies. WFRP premium subsidies range from 55% to 80%, and coverage levels range from 50% to 85%. In crop year 2017, the average premium subsidy for WFRP was 70%, whereas the average premium subsidy across the entire crop insurance portfolio was 63%. That year WFRP policies accounted for 3% of all federal crop insurance liabilities.

WFRP requires producers to provide five consecutive years of Schedule F from their federal tax forms on which farm income and expenses are reported to determine their historical revenue guarantee. Some speculate that one of the reasons WFRP participation is not higher is that producers are reluctant to provide tax data.

Select Policy Types Relevant to Specialty Crops

Federal crop insurance policies for specialty crops (and all other crops) are generally either yield-based or revenue-based. For most yield-based policies, a producer can receive an indemnity if there is a yield loss relative to the farmer's "normal" (historical) yield. Revenue-based policies protect against crop revenue loss resulting from declines in yield, price, or both.

There are two types of yield-based insurance policies for specialty crops: (1) Actual Production History (APH) plans and (2) dollar plans. APH policies account for about 70% of specialty crops policies, with the exception of nursery crops, which tend to be mostly covered through dollar plans. Text Bo x 1 shows examples of an APH policy for citrus fruit with a 50% coverage level and a dollar plan for nursery products with a 65% coverage level.

APH policies insure producers against yield losses due to natural causes such as drought, excess precipitation, hail, frost, freeze, fire (if due to natural causes), and insects and disease. An indemnity is not paid if crop loss is caused by insufficient or improper applications of pest or disease control measures. The producer selects the amount of average yield to insure, ranging from 50% to 75% (in some areas up to 85%). The producer also selects the percent of the predicted price to insure, ranging between 55% and 100% of the crop price established annually by RMA. If the harvested crop plus any appraised production is less than the yield insured, the producer is paid an indemnity based on the difference. Indemnities are calculated by multiplying this difference by the insured percentage of the price selected when crop insurance was purchased and by the insured share (coverage level).

When purchasing an APH policy, a producer is assigned a "normal" crop yield based on the producer's actual production history and a price for the commodity based on estimated market conditions. The producer can then select a percentage of his normal yield to be insured and a percentage of the price he or she wishes to receive when crop losses exceed the selected loss threshold.

Dollar plans provide protection against declining value due to damage that causes a yield shortfall. Unlike APH policies, a dollar policy guarantees a dollar amount of coverage and not a level of production, with the amount of insurance based on the cost of growing a crop in a specific area. A loss occurs when the annual crop value is less than the amount of insurance. The maximum dollar amount of insurance is stated on the actuarial document. The insured may select a percentage of the maximum dollar amount equal to CAT or higher coverage levels.

The design and implementation of dollar plan policies have been criticized for not insuring actual losses and for covering fraudulent claims. A 1997 USDA Office of the Inspector General audit report on fresh market tomato dollar plans outlined several specific fraud, waste, and abuse concerns. More recently, in December 2017 an RMA-commissioned report on options for improving or replacing dollar plans concluded that the dollar plan as studied (limited area and three crops) "is not sustainable."

Revenue insurance is widely available for major program crops (e.g., wheat, corn, soybeans) and protects growers against losses from low yields, low prices, low quality, or any combination of these events. For specialty crops, designing revenue-based insurance products is challenging. These crops often do not have centralized price discovery mechanism such as a futures exchange for developing price projections prior to planting. They also often lack data on actual harvest-time prices.

To address these types of data challenges, actual revenue history (ARH) insurance plans have been implemented on a pilot basis for certain specialty crops such as navel oranges and cherries. Rather than insuring historical yields, these pilot policies insure historical revenues using historical prices. This approach assumes that historical prices provide a reasonable estimate of expected future prices. This assumption is deemed viable for perishable crops, such as most fruit and vegetables, but is considered less tenable with storable crops where stock carryover from the previous year can affect current market-year prices. ARH insurance plans have parallels to the APH insurance plans, with the primary difference being that instead of insuring historical yields, the plan insures historical revenues. Text Box 2 shows an example of an ARH policy for California navel oranges.

Designed as a catch-all for a variety of crops that may not have individual revenue insurance plans, WFRP policies insure 50%-85% of revenue for all commodities on a farm under one policy. For more information on WFRP, see " Whole Farm Revenue Protection (WFRP) Insurance ."

RMA offers a few index-based policies, which trigger claim payments based on a predetermined index that is entirely independent of the individual farm operation (e.g., rainfall level). Indemnities are automatically triggered whenever the index falls below a producer-selected coverage level instead of requiring insureds to file claims. One of those policies covers a specialty crop—the Apiculture Pilot Insurance Program (API), which covers honey production. Text Box 3 provides detailed information on producers' choices under API.

Development of New Policies and Section 508(h)

The Federal Crop Insurance Act provides two methods for developing new crop insurance programs, including (1) internal products developed by RMA or under contract and (2) external products submitted through procedures specified in Section 508(h) of the Federal Crop Insurance Act (7 U.S.C. §1508(h)).

Section 522 of the Federal Crop Insurance Act (7 U.S.C. §1522) grants RMA authority to develop new crop insurance policies. This authority was partially removed in 2000 but later reinstated by the 2014 farm bill ( P.L. 113-79 ). Before the enactment of Agricultural Risk Protection Act of 2000 (ARPA, P.L. 106-224 ), products were typically developed internally. ARPA added paragraph (e)(4) to Section 522, which stated, "on and after October 1, 2000, the Corporation shall not conduct research and development for any new policy for an agricultural commodity offered under this subchapter." The 2014 farm bill repealed paragraph (e)(4).

ARPA expanded the role of the private sector, allowing private entities to participate in conducting research and development of new insurance products and features. With the expansion of the contracting and partnering authority, Congress authorized RMA to enter into contracts or to create partnerships for research and development of new and innovative insurance products. Private entities could also submit unsolicited proposals for insurance products to the FCIC Board of Directors for approval. In considering such proposals, the board is to evaluate whether the products (1) are in the best interests of producers, (2) follow sound insurance principles, and (3) are actuarially appropriate.

Section 508(h) governs new crop insurance policy development, including how it is contracted out and funded, how policy ratings are undertaken, and how a policy may start as a pilot and may (or may not) evolve to a full-fledged insurance policy. FCIC is authorized to reimburse private entities for research, development, and maintenance costs if they develop insurance programs that are approved by the FCIC board.

Private sector individuals may submit to the FCIC board (1) crop insurance policies, (2) provisions of policies, or (3) rates of premium. These submissions are commonly referred to as 508(h) submissions. If a private individual prefers, a concept proposal can be submitted to the board prior to fully developing a 508(h) submission. The board may approve an advance payment for the concept proposal for up to 75% of expected research and development expenses to aid in the development of the 508(h) submission.

If approved by the board, these insurance products can receive reimbursement for research, development and operating costs, in addition to any approved premium subsidies and reinsurance. Private submitters are eligible to recoup maintenance costs for up to three years after products are offered on the market if they continue to provide support for the products. After three years, the private entity has the choice of turning the product over to RMA, thereby relinquishing all ownership rights in the product, or retaining ownership of the insurance product and continuing to update it in return for a user fee as approved by the board and paid by Approved Insurance Providers who sell the product.

The FCIC board must approve all new products. This process can take up to a year and generally depends on the quality and thoroughness of the submission package presented to the board, as well as the responsiveness of the submitter to issues raised by the board and the reviewers, among other factors. In most cases, an independent external panel of experts reviews a proposed product and assesses its actuarial weakness and suggests product improvements. The revised product is submitted to the FCIC board for approval. Once approved, the product is typically implemented as a pilot program in a limited area to test it for effectiveness while limiting financial exposure.

Pilot programs typically operate for four years but may be extended for additional testing if needed. Eventually the FCIC board either converts the pilot to a regular program or terminates it. Under law, RMA is not allowed to conduct pilot programs if insurance against the risk to be covered is generally available in the private sector without governmental support.

RMA's 2010 Report to Congress describes selected pilot programs that have been developed through the internal procedure and authority, covering quarantine and policies based on actual revenue history (e.g., rather than yields). It also describes a range of private sector initiatives covering pumpkins, apiculture, plantains and bananas, sugarcane, and fresh market beans.

Challenges with Developing Specialty Crop Policies

Even though new crop insurance product introductions for specialty crops have been increasing, USDA and the industry continue to face a number of challenges when developing and making available new insurance policies for specialty crops that are not currently covered. Most challenges stem from the basic structure of the specialty crop industry, which is often characterized by relatively small acreages, multiple crop varieties (often targeting niche markets), differences in farming practices (which contribute to greater complexity and cost), quality and price discovery issues, grower interest, non-weather risks, and other coverage limitations. Factors such as these affect the potential marketability, actuarial soundness, and feasibility of an insurance policy.

A small market reduces sales incentive for companies selling insurance while contributing to higher per-unit costs for developing the product, training staff, modifying computer programs, and other activities. Small acreage also results in low market volume or the establishment of production contracts between producers and buyers. Crops grown and marketed in smaller quantities and/or targeting niche markets often command a price premium, resulting in often highly variable market prices, further complicating price discovery. Moreover, most specialty crops are intended primarily for sale in the higher-value fresh market versus the typically lower-value crops sold for further processing. Fresh product is highly perishable and non-storable, unlike the field crops that are more widely covered by federal crop insurance policies.

In general, lack of reliable pricing data for crops not traded on commodity exchanges has been an ongoing challenge for USDA in the federal crop insurance program. RMA's price discovery for specialty crops largely relies on Agricultural Marketing Service, NASS, and other USDA agency data and academic and industry sources. In the absence of a well-developed cash market, such "thin market" conditions make it difficult to observe and forecast market prices. For example, in 2015 FCIC cancelled the Dry Bean Revenue Endorsement because USDA did not have sufficient market data from processors to establish a harvest price from which to calculate whether indemnities would be triggered under the endorsement.

Setting price guarantees correctly is critical for encouraging participation, the actuarial soundness of the program, and maintaining the overall market dynamics for the crop. If the insurance is priced (rated) too high, producers who tend to have few losses might decide against purchasing insurance, leaving only high-risk farmers in the pool (known as "adverse selection"). If the insurance is priced too low, premiums may not cover expected indemnities, potentially inflating the federal cost of the program by providing a greater premium and higher administrative and operating subsidies than was intended. Artificially low premiums might encourage additional crop production, further contributing to weak market prices, thereby adversely affecting financial returns for producers.

Another challenge for insuring specialty crops is the diversity and multitude of crop varieties and production practices. Compared with field crops, specialty crops tend to have a wider variety of farming practices that depend on the crop variety, adding complexity to the policy and its development cost. For example, a vegetable crop may need to be grown on raised beds, use plastic, or have specific crop rotations. Various marketing claims made for products (such as that they are organic or other production or sustainability claims) can contribute to product complexity. Understanding how these factors affect potential yields is required for determining what practices can be insured and for developing and establishing underwriting standards. Variation across crops and variety within crop types also complicate the loss adjustment process (i.e., assessing the effect of weather on crop production).

Finally, in some cases, USDA has reportedly not pursued policies for particular commodities because some producers have expressed concerns that offering insurance could adversely affect the market (i.e., because an insurance policy reduces producer risk, farmers may plant more acreage, which could drive down prices and total crop revenue). This has been a particular concern for producers of vegetable crops and explains in part lower levels of insured vegetable crop acreage compared with other crops.

Producer interest in the availability of a new policy often starts at the local level and is channeled through RMA's regional offices. In general, for a policy to be viable, a crop must have established cultivars, defined farming practices, developed markets, and identified known perils. Significant producer interest (demand for the policy) is also critical. Perhaps more importantly, insurance policies are dependent on the availability of high quality data. High quality data , from an insurance standpoint, refers to data being timely (so that claims can be paid quickly), relevant (so the product offers reliable protection), audited to international reinsurance standards, and available over a sufficiently long time horizon (time series). Data availability and data quality often pose a challenge for crop insurance purposes.

USDA offers several programs to help farmers recover financially from natural disasters, including droughts and floods. These programs help to provide assistance to producers of noninsured crops or crops with no current individual policy coverage, including some specialty crops. Other supplemental disaster programs further provide assistance to some specialty crop producers from tree losses and the loss of bee colonies. USDA also provides low-interest emergency loans and land rehabilitation assistance to help farmers return land to production following natural disasters.

Among the issues that may arise if Congress continues to consider the role of the federal crop insurance options for specialty crop producers are:

Availability of crop-specific policies . Crop-specific policies have not been developed for a number of specialty crops, including artichokes, asparagus, blackberries, boysenberries, broccoli, cantaloupes, carrots (fresh and for processing), cashews, cauliflower, chives, celery, dates, eggplants, garlic, guavas, hazelnuts, honeydews, kiwi fruit, lettuce, spinach, squash, tart cherries, watermelons, most leafy greens, most herbs and spices, some tropical plants, and most root crops. Private submitters proposing to develop new policies must present evidence of marketability to FCIC and RMA. Congress might consider whether there are opportunities for USDA to facilitate market research and publish market data to assist with the development of new policies and spur greater competition among private submitters. Development cost benchmarks . Section 11120 of P.L. 115-334 modifies the definition of reasonable research and development costs related to policies that have been approved by the FCIC board for reimbursement. Costs are to be deemed reasonable if based on (1) for employees or contractors, wage rates equal to not more than two times the Bureau of Labor Statistics hourly wage rates, plus benefits; and (2) other actual documented costs incurred by the applicant. That section also limits the FCIC board's review of user fees. Given that Congress reinstated RMA's authority to develop new products in the 2014 farm bill ( P.L. 113-79 ), Congress might inquire whether costs incurred for RMA-developed policies could provide a benchmark for the reasonableness of private sector requests for reimbursement of development costs. Limited participation in WFRP policies . WFRP is available in every county of every state. Its premium subsidies range from 55% to 80%, and coverage levels range from 50% to 85%. In crop year 2017 the average premium subsidy for WFRP was 70%, whereas the average premium subsidy across the entire crop insurance portfolio was 63%. That year WFRP policies accounted for about 3% of all federal crop insurance liabilities. Some speculate that part of the reason that WFRP participation is not higher is that producers are reluctant to provide tax return data. These policies require producers to provide five consecutive years of Schedule F from their federal tax forms. Given the benefits of risk pooling achieved by insuring a whole farm's revenue and the fraud prevention benefits from requiring tax returns to set historical revenue guarantees, Congress might consider whether there are efficiencies to be gained from incentivizing greater participation in WFRP. Determining a " market price" for commodities not sold on exchanges . Lack of reliable pricing data for crops that are not traded on commodity exchanges has been an ongoing challenge for USDA in the federal crop insurance program. RMA's price discovery for specialty crops largely relies on Agricultural Marketing Service, NASS, and other USDA agency data and academic and industry sources. In the absence of a well-developed cash market, such "thin market" conditions make it difficult to observe and forecast market prices, which affects RMA's ability to set the appropriate level of price guarantees. Setting price guarantees correctly is critical to the actuarial soundness of the program and for maintaining overall market dynamics for the crop. Increased farm-level price data for commodities not sold on exchanges could also assist producers of those commodities in negotiating contracts and in their financial planning. Congress might consider whether there is a role for the federal government in supporting data collection of farm prices of commodities that are not sold on exchanges. Coverage of quality losses . Many crops are vulnerable to lower prices or to becoming unmarketable due to quality losses. Small markets for specialty crops that are not sold on commodity exchanges may be particularly price-sensitive to variations in quality (e.g., herbs and spices, certain fruits and vegetables, honey). Certain federal crop insurance policies cover some quality losses, but the range of such coverage is limited. Congress might consider (1) whether the current coverage for quality losses is available for all crops that are vulnerable to quality losses, (2) whether loss adjustment procedures for quality losses accurately assess the variations in quality and the effects on marketability and prices, and (3) whether the procedures for assessing quality losses properly balance cost efficiency and fraud prevention. Effect of ad h oc payments on demand for crop insurance . One of the stated policy goals of federal crop insurance has been to reduce the agricultural sector's reliance on supplemental or "ad hoc" disaster assistance payments. However, according to the Congressional Budget Office, it is difficult to assess whether this policy goal has been achieved. The 115 th Congress authorized ad hoc disaster assistance, and USDA has separately implemented a "trade aid" package, both of which apply to some specialty crops. Given the lower participation levels for certain specialty crop insurance policies as compared to non-specialty crops, Congress might consider whether repeated ad hoc payments in response to adverse events may have an effect on demand for federal crop insurance for crops generally and for specialty crops in particular.


Older Americans Act: Funding Formulas

Summary: The Older Americans Act (OAA) is the major vehicle for the delivery of social and nutrition services for older persons. The act's statutory funding formulas determine allotments to states and other entities under the following OAA Titles: Title III, Grants for State and Community Programs; Title V, the Community Service Senior Opportunities Act; Title VI, Grants for Older Native Americans; and Title VII, Vulnerable Elder Rights Protection Activities. This report describes the OAA statutory provisions that allocate funds to states and other entities under various titles of the act.

Summary: Title III accounts for 73% of the act's total FY2019 discretionary appropriations ($1.498 billion out of $2.055 billion). States receive separate allotments of funds for the following six programs authorized under Title III: (1) supportive services and senior centers, (2) congregate nutrition services, (3) home-delivered nutrition services, (4) the Nutrition Services Incentive Program (NSIP), (5) disease prevention and health promotion services, and (6) the National Family Caregiver Support Program (NFCSP). Formula grants are allotted from the Administration on Aging (AOA), within the Administration for Community Living (ACL) in the Department of Health and Human Services (HHS), to State Units on Aging (SUAs) in all 50 states, the District of Columbia, Puerto Rico, and the U.S. territories. The states, in turn, award funds to approximately 629 Area Agencies on Aging (AAAs).

Summary: Title V authorizes the Community Service Employment for Older Americans Program (CSEOA). Administered by the Department of Labor (DOL), Title V is OAA's second-largest program and is the only federally subsidized employment program for low-income older persons. Its FY2019 funding of $400 million represents 20% of the act's total discretionary funding. DOL allocates Title V funds for grants to state agencies in all 50 states, the District of Columbia, Puerto Rico, and the U.S. territories, and to national grantees who are typically nonprofit organizations that operate in more than one state. The total Title V state allotment is the sum of its respective state agency grantee allotment and national grantee allotment.

Summary: Title VII authorizes the Long-Term Care (LTC) Ombudsman Program and elder abuse, neglect, and exploitation prevention programs. Most Title VII funding is directed at the LTC Ombudsman Program, the purpose of which is to investigate and resolve complaints of residents of nursing facilities and other long-term care facilities. Funds for LTC ombudsman and elder abuse prevention activities are allotted to all 50 states, the District of Columbia, Puerto Rico, and the U.S. territories.

Summary: The Older Americans Act Reauthorization Act of 2016 (P.L. 114-144) authorizes appropriations for most OAA programs through FY2019. P.L. 114-144 also made changes to the statutory funding formulas for several programs under Title III of the act. Appendix A of the report provides a detailed legislative history of the Title III funding formula changes, including changes under P.L. 114-144, as well as the OAA reauthorizations of 2000 and 2006. Appendix B provides an analysis of the state-based population data for the U.S. population age 60 and older. Appendix C compares FY2016 allotment amounts for states and other entities with actual allotment amounts under the statutory funding formula change in P.L. 114-144 for FY2017 to FY2019 for Title III Parts B, C, and D programs.

First enacted in 1965, the Older Americans Act (OAA, P.L. 89-73, as amended) is the primary federal vehicle for the delivery of social and nutrition services for older persons. The majority of OAA grant funds are provided to states and other entities based on statutory formulas that exist in the following titles:

Title III, Grants for State and Community Programs on Aging; Title V, Community Service Employment for Older Americans; Title VI, Grants for Older Native Americans; and Title VII, Vulnerable Elder Rights Protection Activities.

These formula grants fund programs that assist older Americans with supportive services in their homes; congregate nutrition services (meals served at group sites such as senior centers, community centers, schools, churches, or senior housing complexes); home-delivered nutrition services; family caregiver support; community service employment; the long-term care ombudsman program; and services to prevent the abuse, neglect, and exploitation of older persons. The OAA also supports grants to older Native Americans for nutrition and supportive services. ,

Since enactment of OAA, Congress has reauthorized and amended the act numerous times. Most recently, the Older Americans Act Reauthorization Act of 2016 ( P.L. 114-144 ) authorized appropriations for OAA programs for FY2017 through FY2019, and made other changes to the act, including changes to four Title III programs that receive funding under statutory formulas. Prior to the 2016 OAA reauthorization, the OAA Amendments of 2006 ( P.L. 109-365 ) reauthorized all programs under the act through FY2011. Although the authorizations of appropriations under the OAA expired at the end of FY2011, Congress continued to appropriate funding for OAA-authorized activities through FY2016.

For most OAA programs, entities such as states, U.S. territories, and tribal organizations are allotted funding based on a population-based formula factor (e.g., aged 55 and over, aged 60 and over, or aged 70 and over). Some statutory requirements for program funding allocations include a "hold harmless" provision, which guarantees that states' or other entities' allotments will remain at a certain fiscal year level or amount, provided sufficient funding in a given year (e.g., FY2000 levels or FY2018 levels less 1%). The following describes the OAA statutory provisions that allocate funds to states and other entities under the various titles of the act.

Title III: Grants for State and Community Programs on Aging

Title III authorizes grants to State Units on Aging (SUAs) and Area Agencies on Aging (AAAs) in all 50 states, the District of Columbia, Puerto Rico, and the U.S. territories to act as advocates on behalf of, and to coordinate programs for, older persons (defined in the law as those aged 60 and older). The Administration on Aging (AOA) within the Administration for Community Living (ACL) in the Department of Health and Human Services (HHS), allocates Title III funds to SUAs. The states, in turn, award funds to more than 600 AAAs, which are designated by states to operate within specified planning and service areas. States must develop an intrastate funding formula for distribution of Title III funding within the state that takes into account the geographical distribution of older individuals in the state as well as the distribution of older individuals with greatest economic and social need (with particular attention to low-income minority older individuals) among specified planning and service areas. The state formula for distribution of Title III funding must be developed in accordance with AOA guidelines and approved by the Assistant Secretary for Aging.

As the OAA's largest component, discretionary spending under Title III accounts for 73% of the act's total FY2019 appropriations ($1.498 billion out of $2.055 billion). States receive separate allotments of funds for the following six programs authorized under Title III: (1) supportive services and senior centers, (2) congregate nutrition services, (3) home-delivered nutrition services, (4) the Nutrition Services Incentive Program (NSIP), (5) disease prevention and health promotion services, and (6) the National Family Caregiver Support Program (NFCSP). States are required to provide a matching share of 15% in order to receive funds for supportive services and congregate and home-delivered nutrition programs. A matching share of 25% is required for the NFCSP; no match is required for NSIP and disease prevention and health promotion services. To determine state allotments, a separate allocation is calculated for each of the six grant programs. The same formula is used to determine state allocations for supportive services and senior centers, congregate nutrition services, home-delivered nutrition services, and disease prevention and health promotion services. The formulas for the NSIP and NFCSP use different factors.

The funding formula for four of these Title III programs—supportive services and senior centers, the congregate and home-delivered nutrition programs, and disease prevention and health promotion services—has been a major point of contention during the past three OAA reauthorizations of 2000, 2006, and 2016. Appendix A of the report provides a detailed legislative history of the Title III funding formula changes and describes the debate surrounding changes to the Title III funding formula during the OAA reauthorizations of 2000, 2006, and 2016. Appendix B provides an analysis of the state-based population data for the U.S. population age 60 and older for these Title III programs. Appendix C compares FY2016 allotment amounts for states and other entities with actual allotment amounts under the statutory funding formula changes in P.L. 114-144 for FY2017 to FY2019 for Title III Parts B, C1, C2 and D programs.

Allocation for Supportive Services and Senior Centers, Congregate and Home-Delivered Nutrition Services, and Disease Prevention and Health Promotion

Separate state allotments for (1) supportive services and senior centers, (2) congregate nutrition services, (3) home-delivered nutrition services, and (4) disease prevention and health promotion services are based on a population formula factor that is defined as each state's relative share of the total U.S. population aged 60 years and older. For the purposes of this calculation, the total U.S. population aged 60 and older includes all 50 states, the District of Columbia, Puerto Rico, and the U.S. territories. Population data are from annual population estimates published by the U.S. Census; the reference date for estimates is July 1. There is a two-year time lag between the reference year of the population estimates and the respective appropriation year. For example, FY2019 state allotments are calculated using 2017 estimates of the population aged 60 and older.

For the purpose of determining state allotments, the law requires that allotments meet two criteria. The first criterion is the "small state minimum." This ensures that all states (including the District of Columbia and Puerto Rico) receive a minimum amount of funds, which is defined as 0.5% (one-half of 1%) of the total grant appropriation for the respective fiscal year. Guam and the U.S. Virgin Islands each are allotted no less than 0.25% (one-quarter of 1%) of the total grant amount, and American Samoa and the Commonwealth of the Northern Mariana Islands are each allotted no less than 0.0625% (one-sixteenth of 1%) of the total grant amount.

The second criterion is the "hold harmless" provision. The OAA Reauthorization Act of 2016 Amendments ( P.L. 114-144 ) reduces state and U.S. territory hold harmless amounts (previously referenced to FY2006 funding levels) by 1% from the previous fiscal year as follows:

For FY2017, no state receives less than 99% of the annual amount allotted to the state in FY2016. For FY2018, no state receives less than 99% of the annual amount allotted to the state in FY2017. For FY2019, no state receives less than 99% of the annual amount allotted to the state in FY2018. For FY2020 and each subsequent fiscal year, no state receives less than 100% of the annual amount allotted to the state in FY2019.

Allocation for Nutrition Services Incentive Program

The Nutrition Services Incentives Program (NSIP) provides funds to states, territories, and Indian tribal organizations to purchase food or to cover the costs of food commodities provided by the U.S. Department of Agriculture (USDA) for the congregate and home-delivered nutrition programs. NSIP funds are allotted to states and other entities based on a formula that takes into account each state's share of total meals served by the nutrition services program (both congregate and home-delivered meals) in all states and tribes during the prior year.

Allocation for the National Family Caregiver Support Program

The National Family Caregiver Support Program (NFCSP) provides direct services for caregivers in five core service areas:

Information about health conditions, resources, and community-based services. Assistance with accessing available services. Individual counseling, support groups, and caregiver training. Respite care services to provide families temporary relief from caregiving responsibilities. Supplemental services on a limited basis that would complement care provided by family and other caregivers (e.g., adult day health care, home care, home modifications, and assistive devices).

Funds for NFCSP are allotted to states based on each state's relative share of the population aged 70 years and older. States receive a minimum grant amount, which is defined as 0.5% (one-half of 1%) of the total grant appropriation for the respective fiscal year. Guam and the U.S. Virgin Islands are allotted no less than 0.25% (one-quarter of 1%) of the total grant appropriation, and American Samoa and the Commonwealth of the Northern Mariana Islands are allotted no less than 0.0625% (one-sixteenth of 1%) of the total grant appropriation. There is no hold harmless provision in the formula allocation for this grant program.

Title V: Community Service Employment for Older Americans

Title V authorizes the Community Service Employment for Older Americans Program (CSEOA). Administered by the Department of Labor (DOL), Title V is OAA's second-largest program and is the only federally subsidized employment program for low-income older persons (defined in the law as those aged 55 and older with incomes up to 125% of the federal poverty guidelines). Its FY2019 funding of $400 million represents 20% of the act's total discretionary funding. There is a 10% nonfederal match requirement for Title V grant activities.

DOL allocates Title V funds for grants to state agencies in all 50 states, the District of Columbia, Puerto Rico, and the U.S. territories, and to national grantees who are typically nonprofit organizations that operate in more than one state. The total Title V state allotment is the sum of its respective state agency grantee allotment and national grantee allotment for activities in that state. To determine grant allotments for each state, a separate allocation is calculated for each grant type.

The 2016 OAA reauthorization did not revise the Title V funding formula, but the formula had been an issue for Congress in the past. During the 2006 OAA reauthorization, the original House bill ( H.R. 5293 ) included a provision to update the "hold harmless" year in the Title V formula from FY2000 to FY2006; however, the Senate bill ( S. 3570 ) did not include this provision. The compromise bill ( H.R. 6197 ) enacted into law made no changes to the Title V formula. The following describes the Title V formula allocation.

Before allocation of funds to states, DOL is required to reserve funds as follows:

up to 1.5% of the total appropriation for Section 502(e) demonstration projects, pilot projects, and evaluation projects; 0.75% of the total appropriation for Guam, the U.S. Virgin Islands, American Samoa, and the Commonwealth of the Northern Mariana Islands; and "such amount as may be necessary" for national grants to public or private organizations serving eligible Indians and Pacific Island and Asian Americans.

After these reservations, the remaining funds are divided into two amounts, one for all state agency grantees and the other for all national grantees. The allocation for these amounts is dependent on program funding. If funds for a given year are equal to their FY2000 level of $440.2 million, then amounts set aside for all state agencies and all national grantees are in proportion to their respective FY2000 levels. If funds for a given year are less than their FY2000 levels, then total amounts for the state and national grantees are reduced proportionately. If funds for a given year exceed the FY2000 level, up to $35 million of the excess is to be distributed as follows: 75% of the excess is to be provided for all state agency grantees and 25% of the excess is to be provided to all national grantees. Any funding amount over $35 million that remains is to be distributed 50/50 to all state agency and national grantees, respectively.

Once the total funding levels for grants for state agency and national grantees have been determined, the same formula is used to determine the state agency allotment and the national grantee allotment for each state. Each allotment is distributed to states based on a formula that takes into account (1) a state's share of the total U.S. population aged 55 years and older (includes the District of Columbia and Puerto Rico), and (2) the state per capita income relative to other states. The formula favors states with a lower per capita income and a higher proportion of the population aged 55 and older relative to other states. Population data are from the annual population estimates published by the U.S. Census; the reference date for estimates is July 1. Per capita income data are from the Bureau of Economic Analysis (BEA) within the U.S. Department of Commerce (DOC). There is a two-year time lag between the data (reference year of the population estimates and per capita income) and the respective appropriation year.

For the purpose of determining state allotments to state agency and national grantees, the law requires that allotments meet two criteria. The first criterion is that states (including the District of Columbia and Puerto Rico) are to receive at least a minimum grant allotment, which is defined as 0.5% (one-half of 1%) of the respective grant amount for the given fiscal year. The second criterion is the "hold harmless" provision. If grant amounts for a given year are equal to, or less than, their FY2000 level, states are to receive an allotment in proportion to their respective FY2000 levels. If grant amounts exceed their FY2000 levels, states are to receive no less than their FY2000 level plus a "guaranteed growth" of at least 30% of the percentage increase above the FY2000 level.

Title VI: Grants for Older Native Americans

Title VI authorizes funds for supportive and nutrition services to older Native Americans to promote the delivery of home and community-based supportive services, nutrition services, and family caregiver support. Funds are awarded directly to Indian tribal organizations, Alaskan Native organizations, and nonprofit groups representing Native Hawaiians. To be eligible for funding, a tribal organization must represent at least 50 Native American elders aged 60 or older. In FY2017, grants were awarded to 270 tribal organizations representing 400 Indian tribes, including one organization serving Native Hawaiian elders. FY2019 funding for supportive and nutrition services grants is $34.2 million, while FY2019 funding for the Native American caregiver program is $10.1 million. There is no requirement for tribal organizations to match these grant funds.

Separate formula grant awards are made for (1) nutrition and supportive services and (2) family caregiver support services. Formula grants for services to older Native Americans are allocated to tribal and other representing organizations based on their share of the American Indian, Alaskan Native, and Native Hawaiian population aged 60 and over in their services area. Tribal organization allotments must meet a FY1991 "hold harmless" provision. If funds for a given year exceed the FY1991 amount, then the grant amount is either (1) increased to equal or approximate the amount the organization received in 1980 or (2) determined based on what the Assistant Secretary considers sufficient if the tribal organization did not receive a grant for either FY1980 or FY1991. For Native Hawaiian programs, formula allotments for services to representing organizations are only required to meet a FY1991 "hold harmless" provision.

Title VII: Vulnerable Elder Rights Protection Activities

Title VII authorizes the Long-Term Care (LTC) Ombudsman Program and elder abuse, neglect, and exploitation prevention programs. Most Title VII funding is directed at the LTC Ombudsman Program, the purpose of which is to investigate and resolve complaints of residents of nursing facilities and other long-term care facilities. For FY2019, funding for the LTC Ombudsman and Elder Abuse, Neglect, and Exploitation Prevention Programs totals $21.7 million. There is no requirement for states to match these grant funds.

Funds for LTC ombudsman and elder abuse prevention activities are allotted to states based on each state's relative share of the population aged 60 years and older. For the purpose of determining state allotments, the law requires that states (including the District of Columbia and Puerto Rico) receive a minimum amount of funds, which is defined as 0.5% (one-half of 1%) of the total grant appropriation for the respective fiscal year. Guam and the U.S. Virgin Islands are allotted no less than 0.25% (one-quarter of 1%) of the total grant appropriation, and American Samoa and the Commonwealth of the Northern Mariana Islands are allotted no less than 0.0625% (one-sixteenth of 1%) of the total grant appropriation.

State allotments must also meet a FY2000 "hold harmless" provision. SUAs may award funds for these activities to a variety of organizations for administration, including other state agencies, AAAs, county governments, nonprofit service providers, and volunteer organizations.

Appendix A. Legislative History of OAA Title III Funding Formula

When the OAA was enacted in 1965, Title III funds were allocated to states based on their relative share of the population aged 65 and over. The law also set certain minimum grant amounts for states and territories. For states, the minimum allotment was 1% of total funds appropriated, and for the U.S. Virgin Islands, Guam, and American Samoa, the minimum allotment was 0.5% (one-half of 1%) of funds appropriated. These provisions remained in effect until 1973.

The first significant change to the OAA Title III funding formula occurred under the 1973 amendments to the act, which based the formula on the states' relative share of the population aged 60 and over, rather than, as under prior law, aged 65 and over. The 1973 amendments also changed the minimum allotments states and territories were to receive, as follows: states were to receive no less than 0.5% of the total appropriation; and Guam, American Samoa, the U.S. Virgin Islands, and the Trust Territories of the Pacific Islands were to receive no less than 0.25% (one-fourth of 1%) of total funds. In addition, the 1973 amendments specified that states were to receive no less than they received in FY1973 (the hold harmless amount).

These provisions remained in effect until the 1978 amendments, which changed the minimum amounts for American Samoa to one-sixteenth of 1% of the appropriation, and added a minimum funding amount for the Northern Marianas (also one-sixteenth of 1%). The 1978 amendments also changed the year for the hold harmless amount. The law stipulated that for fiscal years after 1978, states were to receive no less than they received in FY1978, rather than, as in prior law, FY1973. Successive amendments subsequently changed the hold harmless year. Amendments in 1984 required that for fiscal years after FY1984, states be allotted no less than they received for services in FY1984. There were no changes to the formula provisions under the 1987 amendments. The 1992 amendments moved the hold harmless reference year to FY1987. No further changes were made to these funding formulas until the 2000 amendments.

The Title III funding formula for supportive services and senior centers, the congregate and home-delivered nutrition programs, and disease prevention and health promotion services has been a point of controversy in recent congressional attempts to reauthorize the Older Americans Act. Initially, Congress was concerned that the method AOA used to distribute Title III funds was inconsistent with statutory requirements, thereby negatively affecting states experiencing faster growth in their older population. However, more recently, congressional debate has focused on whether or not the statutory formula itself accurately reflects trends in the aging of the U.S. population. The following provides a brief overview of the debate and legislative changes to the Title III funding formula in the OAA reauthorizations of 2000 and 2006.

After unsuccessful attempts in the 104 th and 105 th Congresses to reauthorize the OAA, the 106 th Congress approved the Older Americans Act Amendments of 2000 ( P.L. 106-501 ). The Title III funding formula was a controversial issue during the six years of congressional debate on the 2000 OAA reauthorization. Prior to the reauthorization, a 1994 U.S. General Accounting Office (now the Government Accountability Office, or GAO) report found that the method AOA used did not distribute funds among states proportionately to their older population to the maximum extent possible. Instead, AOA allotted funds to states, first according to an amount equal to their FY1987 "hold harmless" allocation, with the remainder of the appropriations allotted to states based on their relative share of the population aged 60 and over. This methodology negatively affected states with faster-growing older populations, since the majority of funds were being distributed according to population estimates that did not reflect the most recent trends. The GAO report recommended that AOA revise its methodology for distributing funds to states.

In response to these concerns, the 2000 OAA reauthorization resulted in the following changes to the law: (1) Congress clarified the law to ensure that, first, funds were allotted to states based on the most recent population data; (2) Congress created an FY2000 "hold harmless" requirement, thereby ensuring that no state would receive less than it received in FY2000; and (3) Congress created the "guaranteed growth" provision, ensuring that all states would receive a share of any appropriations increase over the FY2000 level.

The Title III funding formula also became a major point of contention during the 2006 OAA reauthorization debate. Congress revisited the FY2000 "hold harmless" requirement and "guaranteed growth" provision. At the time, the "hold harmless" requirement ensured that, provided sufficient funds, every state and U.S. territory received at least its FY2000 amount. The "guaranteed growth" provision guaranteed that all states received a certain share of any increase above the FY2000 appropriation. These issues divided Members from states with relatively faster-growing older populations from lawmakers representing states with relatively slower growth in their older populations. High-growth states argued that the "hold harmless" provisions in current law provided protections to states whose populations were not increasing as quickly as others', resulting in an inequitable distribution of funds that disadvantaged high-growth states.

The OAA 2006 Amendments ultimately resulted in changes to the law as follows: (1) Congress changed the formula to ensure that, provided sufficient funds, every state receives at least its FY2006 amount (creating a new fiscal year "hold harmless" amount); and (2) Congress phased out the "guaranteed growth" provision, reducing the share of any increase in appropriations from 20% to 0 by 5 percentage points annually beginning in FY2008. For FY2007 through FY2010, the guaranteed growth provisions were as follows:

20% of the percentage increase in appropriations from FY2006 to FY2007; 15% of the percentage increase in appropriations from FY2006 to FY2008; 10% of the percentage increase in appropriations from FY2006 to FY2009; and 5% of the percentage increase in appropriations from FY2006 to FY2010.

Under current law, for FY2011 and any succeeding fiscal years, the formula does not include the guaranteed growth provision.

The Title III funding formula for supportive services and senior centers, the congregate and home-delivered nutrition programs, and disease prevention and health promotion services continued to be a major point of contention during the 2016 OAA reauthorization debate, which spanned multiple Congresses. Congress again revisited the issue of how much state population growth should influence state funding allocations versus retaining continuity in funding allocations for slower-growth states. In the 113 th Congress, comprehensive OAA reauthorization legislation was introduced in the Senate ( S. 1028 and S. 1562 ) which would have extended the authorizations of appropriations through FY2018 for most OAA programs and would have made various amendments to existing OAA authorities. The Senate HELP Committee ordered S. 1562 reported favorably with an amendment in the nature of a substitute. In the House of Representatives, two OAA reauthorization bills were introduced ( H.R. 3850 and H.R. 4122 ). These bills were referred to the Committee on Education and the Workforce, but saw no further legislative action.

Prior to legislative consideration, the topic of OAA statutory funding formulas was again examined by GAO in an analysis of the OAA Title III and VII statutory funding formulas that focused on formula modifications that would capture state differences with respect to need by including factors that measure the needs of the elderly population, costs of services in addressing those needs, and the capacity of states to finance needed services. GAO found that the current formulas could better meet generally accepted equity standards in targeting OAA services to those with "greatest economic need" and "greatest social need." For example, GAO found that the need for OAA services can be estimated using data on older individuals' functional limitations. GAO also noted that while revisions to the OAA statutory formula may pose challenges, options to ease the transition such as phasing in implementation over several years and/or instituting funding floors or ceilings may be further provisions for policymakers to consider in any statutory revisions.

In the 113 th Congress, S. 1562 did not contain provisions that would amend OAA statutory funding formulas. However, during the Senate HELP Committee consideration of the OAA reauthorization bill, Senator Richard Burr introduced an amendment that would have removed the Title III Part B (supportive services and senior centers), Part C (nutrition services), and Part D (disease prevention and health promotion services) FY2006 hold harmless provision, which was rejected. Senator Tom Harkin, then chairman, stated there would be additional examination of the OAA funding formula by a Senate bipartisan workgroup with a possible solution prior to Senate floor consideration. The bill was subsequently reported out of committee and placed on the Senate Legislative Calendar, but did not receive consideration by the Senate. The bill saw no further action in the Senate.

In the 114th Congress, the Older Americans Act Reauthorization Act of 2015 ( S. 192 ) was introduced on January 20, 2015. The bill authorized appropriations for most OAA programs for a three-year period from FY2016 to FY2018. It also made various amendments to existing OAA authorities, including changes to the statutory funding formula for the supportive services and senior centers, congregate nutrition, home-delivered nutrition, and disease prevention and health promotion services under Title III of the act, which lessens the effect of the hold harmless provision over time. The Senate HELP Committee ordered S. 192 reported favorably, and it subsequently passed the Senate on July 16, 2015. The House took up S. 192 on March 21, 2016, and passed the bill with an amendment authorizing appropriations for the three-year period from FY2017 to FY2019. S. 192 , as amended by the House, did not substantively change the hold harmless provision under S. 192 , as passed by the Senate. Rather, it amended the effective dates for the hold harmless reduction, from FY2016 through FY2018 to FY2017 through FY2019. It froze this reduction in place for FY2020 and future fiscal years, unless or until such language is amended. The Senate passed S. 192 as amended by the House on April 7, 2016. President Barack Obama signed P.L. 114-144 , the Older Americans Act Reauthorization Act of 2016, on April 19, 2016.

Specifically, P.L. 114-144 changed the statutory funding allocations for OAA Title III, Parts B, C, and D. This provision retained the same state and U.S. territory minimum amounts allotted under current law and the same population-based formula factor (aged 60 and over), but reduced state and U.S. territory hold harmless amounts (currently referenced to FY2006 funding levels) by 1% from the previous fiscal year. The law lessens the effect of the FY2006 hold harmless provision by reducing state and U.S. territory hold harmless amounts by 1% for each of three years, and then freezes this reduction in place for FY2020 and future fiscal years, unless or until such language is amended. Effectively, for those states that receive an annual program allotment based on their FY2006 hold harmless amount, the policy change minimizes any reduction in funding to no more than 1% from the previous fiscal year, assuming a program's total funding level in fiscal years 2017 to 2019 is at or above the previous fiscal year's level.

Table B-1 shows the population aged 60 and older by state or U.S. territory and the proportion of the entity's population aged 60 and older relative to the total U.S. population aged 60 and over for selected years. U.S. Census data shown are for the 2000 and 2010 Decennial Censuses, as well as the 2017 Intercensal state population estimates, which is the most recent year for which data are available. There is a two-year time lag between the reference year of the population estimates and the respective appropriation year. For example, FY2019 state allotments are calculated using 2017 estimates of the population aged 60 and older. The column labeled "% Age 60+" is the entities' relative share of the 60+ population, which functions as its population-based formula factor used to determine state allotments under OAA Title III, Parts B, C, and D and Title VII.

The final column of Table B-1 calculates the percentage point change in the population formula factor for each state and U.S. territory from 2000 to 2017. Among all 56 states and U.S. territories (which includes the District of Columbia and Puerto Rico), 29 entities saw a proportionate increase in the population formula factor from 2000 to 2017, while 27 saw a decrease over this time period. The top five states that experienced the greatest proportionate increase were Texas (+0.93%), California (+0.56%), Georgia (+0.47%), North Carolina (+0.37%), and Arizona (+0.37%). The bottom five states that experienced the greatest decline were Pennsylvania (-0.85%), New York (-0.79%), Ohio (-0.44%), Illinois (-0.42%), and New Jersey (-0.35%).

Appendix C. The Older Americans Act Reauthorization Act of 2016 ( P.L. 114-144 ): Analysis of Formula Change

The following analysis compares FY2016 allotment amounts for states and other entities with actual allotment amounts under the statutory funding formula change in P.L. 114-144 for FY2017 to FY2019. The following tables provide results by program:

Table C-1 : Title III, Part B, supportive services and senior centers; Table C-2 : Title III, Part C, subpart 1, congregate nutrition services; Table C-3 : Title III, Part C, subpart 2, home-delivered nutrition services; and Table C-4 : Title III, Part D, disease prevention and health promotion services programs.

Each table compares FY2016 state and U.S. territory allotments prior to the statutory funding formula change under P.L. 114-144 to allotments with the change, for FY2017 through FY2019. The columns in each table provide two types of analyses for each year. The first is the percentage change between the entities' FY2016 allotment and the entities' annual allotment for each year, respectively. The second is the entities' allotment type for each year of the change, where "M" refers to an entity that receives a minimum allotment amount; "HH" refers to an entity that receives an allotment amount based on 99% of the previous fiscal year's hold harmless funding amount; and "P" refers to an entity that receives an allotment amount based on the entities' population formula factor.

For programs where the current law hold harmless is in effect (i.e., some states and territories receive an allotment based on their hold harmless), the change to the statutory funding formula, often also combined with increases in appropriated funding amounts, reduces the effect of the hold harmless over time. For example, 16 states and territories received an allotment based on their FY2006 hold harmless level for the congregate nutrition services program. Under the statutory funding formula change, the number of states and territories that received an allotment based on the hold harmless (99% of the previous fiscal year) remained at 16 in FY2017 with a 0.2% increase in the total allotment amount from the prior year. That number fell to 4 in FY2018 when combined with a 10% increase in the total allotment amount compared to the prior year and remained at 4 in FY2018.

As a state or territory's hold harmless amount is reduced gradually by 1% from the previous year's hold harmless over three fiscal years, additional states and territories received funding based on their hold harmless amount. Effectively, the change to the statutory funding formula, especially when combined with increases in appropriated funding amounts, allows funding freed up from the hold harmless reductions to be redistributed to states and territories based on the population formula factor. Thus, more states and territories received funding based on their population aged 60 and over.

Under the supportive services and senior centers and disease prevention and health promotion services programs all states and territories received funding in FY2016 based on a proportionate reduction to their FY2006 hold harmless amount. Total FY2016 funding for these programs was below FY2006 funding levels. The statutory funding formula change combined with program funding increases reduced the number of entities receiving an allotment based on their hold harmless from FY2017 to FY2018 (for supportive services, 29 states in FY2017, to 10 in FY2018; and for disease prevention, 28 states in FY2017, to 0 in FY2018). From FY2018 to FY2019, appropriated amounts for these programs did not change and the number of entities receiving an allotment based on their hold harmless increased slightly—to 12 entities for the supportive services program and 9 entities for disease prevention.

For programs where the previous FY2006 hold harmless was not in effect, such as home-delivered nutrition services, the funding formula change had a smaller effect compared to prior law. Two states and territories receive funding for FY2017 based on their hold harmless amount. For FY2018 and FY2019 all states receiving funding based on either their population age 60 and older or the minimum grant amount. In general, the statutory funding formula change did not affect entities receiving an allotment based on the minimum grant amount as P.L. 114-144 made no change to this provision.