minnesota and north dakota. as you know, we discussed at that forum -- you did a great job by the way, for the potential for the u.s. to export products to a country that's just 90 miles off our shores, 11 million people. when i went there a few months ago with senator warner and mccaskill i was able to see the new port that's being built which is a very big port. and it's going to replace the port of havana which will be used for tourism. when i saw that port, i thought if they're going to bring in goods and sell things here in cuba, we want them to be american goods. as you know, i'm carrying the bill to lift the embargo and i appreciate the support of senator enzi and flake and stabenow, durbin, leahy and paul. there are other senators. we're adding to our numbers. we know it is going to take a while to get done but that is truly the way, we think you would agree, to have some trade with cuba and actually sell our goods not only being done on a

humanitarian basis, but could you talk about the effect it could have if we were to actually lift the embargo? >> it will have i believe a tremendous impact on our ability to sell products and greatly increase the amount of products that we're currently selling to cuba. again right now you are looking at about $300 million worth. again, the study by texas a&m and american farm bureau believe that formalized relations and lifting of the trade restrictions, that number could be in excess of $1 million.illion.billion. what this would also mean to the cuban people with the ability to purchase agricultural inputs, fertilizer seed, chemicals, and equipment, i think it would give them also the ability to have agricultural businesses produce

more of what their actual demands are in the country. and create revenue throughout to the countryside and help the cuban people especially that live in the rural areas. i think it is a win for both of us, in my opinion. >> mr. under secretary, some have argued while cuba is a small market and certainly has a lot of poverty, so why would this still be such a benefit? are there other reasons outside of just selling to cuba that this could be a benefit to american agriculture? >> i think again it is not just selling commodities but it is selling agricultural commitment. i think it's not just about the sales, it is about the jobs that will also be created here in the united states. when you look at our exports currently at $152.5 billion supporting almost 1 million american jobs, any increase that we're going to be having in sales, that's an increase in american jobs. but again i think it is also a win for the cuban people. supplying them with the very best products to be found anywhere that can be purchased,

and then opportunity to also create jobs there as well. >> another argument which you don't need to get into but that i've heard raised is that it is often thrown in our country's latin america, our situation with cuba, and there is some belief it could help open up some markets with our agriculture and other products as well. i want to ask about foreign competition. when i was there we met with a number of ambassadors from places like brazil and spain and other places. as you know, the investment, they don't have embargoes but their investment's been slow. however, i detected that they might start picking up as they see the potential for the u.s. coming in. do you think other countries are going to continue to expand their market share? i'll never forget being at the port and saying, well, they said they got their computers from china because they weren't able to use u.s. computer companies like most ports do across the world. but you want to discuss that briefly? >> well, again, there's opportunities there.

but, yes, we are going to face competition from those countries that are currently doing business there. if you go back and again look at the business -- the trade that we had in 2008, $658 million down to $300 million last year, look at the reason why. other countries were able to extend credit and we were not. so main result of that was a substantial loss in the cuban market for u.s. products. so i think we're going to face continued competition from countries like brazil, argentina, canada and the eu. >> just one last question. mr. borman or mr. smith, what do you see as the biggest obstacles

on the cuban side to increasing american agriculture exports. we clearly have issues there are human rights. it is our hope as negotiations go forward this will clearly be part of the negotiations. but when i was there i saw the double currency issue and some of the other things. what do you see as some of the obstacles to the trade? >> i think in addition to the al import issue, the cuban bureaucracy historically has not freely let goods come into the country. there that's putting it mildly. >> and also the development of private business. that's something that we're trying to encourage here to encourage that there is more money for individuals and more money for private businesses to be able to import. >> exactly. as you know, i think there's something like 600,000 entrepreneurs now this has loosened up recently. they have their own currency but they are still a long way to go. i will say ending that i just saw a spirit of entrepreneurship there with the people and that the people are a bit ahead of the government. again putting it mildly. so i want to thank the chairman for holding this hearing and really being willing to hold

such a hearing. as we know this can be a controversial issue on both sides of the aisle. i really appreciate you doing it. thank you. >> thank you, senator. senator brown. >> mr. chairman, i echo -- >> senator brown, you might want to put your sign up. everybody knows you. >> i have a leahy. >> what on earth happened to mr. brown. >> senator brown's sign is missing. >> that's okay. >> senator brown. >> i lost my train of thought. but thank you for holding this hearing. two questions, mr. secretary. one question, mr. secretary. talk to me about what this means, what trade restrictions mean to a state like ohio in terms of agriculture exports. >> for a state like ohio, what current restrictions mean, it means that it's difficult to get agriculture products into -- from a state into cuba.

we're at a tremendous disadvantage. the playing field's not level. because we're not allowed to do marketing programs like other countries do. we're not allowed to extend credit like other countries do. so the playing field is not level and it creates a great deal of difficulty for us to compete against those countries. >> tell me what it will mean as we ease them. >> well again, i think that as we ease the restrictions, it is going to be easier for us to get products in there. again, i went through the list. right now the corn's coming from brazil and argentina. i think that we should be the number one supplier for corn. if you look at wheat, wheat's coming from the european union and canada. again there is no reason why that shouldn't come from the united states. 50% of the rice is coming from vietnam. we should be the ones supplying the rice to cuba. again, i think there's opportunities for us to ship dairy and dairy products to

cuba. so when these current restrictions are going, i think there's a lot of opportunities for those products, as well as a lot of others. our fruits. apples would be a very -- another good example of a product that there's a demand for that we could ship down there. i think there's a lot of opportunity but we need to get the current restrictions lifted. we need to be able to use our marketing programs and we need to be able to extend credit. >> thank you. mr. smith, in light of the treasury's policy changes, has there been much interest shown by u.s. banks willing to do this type of trade, and have there been issues, problems with establishing correspondent accounts with cuban banks, if you could kind of give me your assessment about what's happening and what you think will happen. >> sure. there's been tremendous interest from u.s. financial institutions in terms of the engagement that may be allowed in cuba.

as far as i am aware, no u.s. financial institutions have yet opened correspondent accounts there. a number of u.s. financial institutions have decided to begin engagement on the credit card and debit card front that we have allowed. many of the financial institutions have talked about concerns over the state sponsor of terrorism designation that still exists with respect to cuba that may be changed. >> would that be sort of the "on" switch for correspondent accounts once that's lifted or once that's changed? >> it could be. we've authorized it but it is up to an individual financial institution's risk appetite and whether they're concerned, whether their concerns will be ameal i can't remember ated by the state sponsor of terrorism. it remains to be seen. >> is treasury -- one of the things that's changed in today's banking system from particularly ten years ago but that began to

change five years ago with the financial crisis as banks increasingly, even smaller banks instead of it $20 billion, $30 billion, $40 billion, some even smaller than that, have elevated their risk officer to make sure that they sit at the table to be part of decision making on is this too risky for our bank to engage in. in the past that question wasn't asked often enough and look what happened. is treasury talking to risk officers about this issue of risk sort of injecting that in the conversation and board rooms at least in the largest banks in the country to help them think through the issues of risk? >> yes. almost on a virtually daily basis we're talking about the financial institutions and particularly the risk officers, compliance officers, to make sure that they understand the changes that we are making, that what our policies are and what our requirements are, so that they have a chance to dialogue with us. we've had a number of open outreach events where we've had financial institutions present

but we've also had one-on-one conversations with many financial institutions. >> cool. thank you. thanks, mr. chairman. >> i'm going to ask one quick question before we ask the second panel to come up. with all due respect to my colleagues. director smith, in view of the questions asked by senator brown, and -- i like that term "risk appetite." where did you come up with that? that's probably the first question. but to date, have any u.s. financial institutions set up correspondence accounts with the financial institutions in cuba. how many businesses do you expect utilize this type of account through their bank? so i'm not sure where i came up with risk appetite. i'm sure i heard it somewhere. >> well, chew on that a little bit while. >> i will indeed. as far as i am aware, no u.s. financial institutions yet have opened correspondent accounts. i think what we do is we

authorize certain activities but we don't require financial institutions to engage in any certain activities. >> obviously. well, if that were the case, how many u.s. businesses would you expect to utilize this type of account through their bank? do they have the risk appetite to do that? >> i think the more u.s. industry wants to trade with cuba, the higher of trade goes with cuba, the more demand there will be on the banks from their clients to say we need you to be in there servicing us. so i think the trade increases, the more we would expect pressure on the banks to go in. >> i appreciate your answer. this will conclude the first portion of our hearing this morning. thanks to each of our witnesses, especially for taking time out of your very busy schedule to share your perspectives and insights about the opportunities and challenges we face in expanding agriculture trade with cuba. to my fellow members, i would ask that any additional questions you may have for the record be submitted to the

committee clerk five busy days from today or by 5:00 p.m. april 28. we now invite the second panel of witnesses to come to the table. thank you very much, gentlemen. >> thank you very much, mr. chairman.

i'd like to welcome our second panel of witnesses before the committee. first mr. michael beale, president and ceo of national cooperative business association. mr. beale joins us today on behalf of the national cooperative business association where he serves as the president. and ceo. before joining ncba, he serves as president and ceo of the missouri credit union association and president and ceo of the maryland district of columbia credit union association. he initially held positions at the world council of credit unions and the north carolina credit union league. anybody need any credit in the audience, you ought to see mr. beale. welcome, mr. beale. i look forward to hearing from you. we'll wait to introduce the second panelist after you conclude, sir. please feel free to summarize your comments. >> good morning, chairman roberts. you've introduced me ncba works to provide educational,

technical, expertise and advocacy that helps cooperatives thrive and survive in today's economy. my remarks today will focus on the new day in u.s.-cuba relations and some ways forward to foster better, more productive and positive relationships between the two countries, notably through agricultural trade. as a preface, i want to convey two thoughts regarding u.s.-cuban cooperative development. first, the u.s. should view cuban cooperatives as a fundamental to building market-based economy in cuba. one that incorporates a proven business model, and economic empowerment for member owners, for consumers. cooperatives are functioning, successful businesses that provide tangible economic ownership an benefit consumers wherever they are found. ncba is optimistic that cuban cooperatives will be no exception to this rule. second, u.s. cooperatives here are ready to assist right now. we've already begun to build ties with cuban cooperatives and we can hit the ground running whenever the law is discussed in

the first panel permit. the message here is simple -- put u.s. cooperatives to work with cuban cooperatives. by way of background, there are 29,000 member-owned cooperatives in the us employing 2 million folks. 1 in 3 american consumers does business with a cooperative. consumers and producers benefit greatly from cooperatives in areas like agriculture in particular but also in housing, rural electric and telecommunication and credit union. co-ops work for consumers. cooperative form of business where the members own the enterprise is particularly well suited for the cuban people and especially in this period of transition. cooperative ownership combined with cooperative business practices that use the profits for the benefit of the members and the form of governance where each member gets one vote are all features that are going to have special appeal as they grow in cuba. our understanding is that cuba has begin to change its cooperative laws starting in

2011 making lots of businesses become cooperatives and changing the ownership structure. this is a welcome departure from the other types of government or state-owned enterprises. ncba and our work we've been told by cuban cooperative officials, there are 5,200 agriculture cooperatives currently operating in cuba that contribute 80% of all fruits and vegetables consumed by consumers. by all appearances, this cuban ag sector is the foundation for their economic stability and growth. ncba has taken preliminary steps to initiate strong e ties with cuban co-ops. last year we established the u.s.-cuba cooperative working group to explore opportunities, to engage with cuba on cooperative development. we sponsored a trip last year of co-op leaders establishing connections and actually we're hosting a group of co-op ag

leaders the first week of may. in terms of some of what i've seen in travel to co-ops, there are challenges. there's lots of focus on the 1950s era cars. but in a co-op farms we visited, the ag equipment is from that era as well. and it would be considered vintage. one of the other main concerns that i would say that i saw is that none of the cooperatives for us produced financial statements. so we're not able to verify how profitable are these cooperatives, what are the expenses that they're taking on. perhaps most importantly, what is the treatment of the state-owned equipment that's being delivered over to co-ops. what's the treatment on the balance sheet of the land that cooperatives are operating on. so as ncba, as cooperatives build relationship with cuban cooperatives, this is really where we want to see progress, this is where we want to see proof, if you will, that the cooperatives are independent and able to manage these assets and

not with interference from the cuban government. i did return optimistic about the future of u.s.-cuban and cooperative endeavors. furthermore, the challenges facing cooperatives there are technical, they're accounting. educational obstacles are the exact kinds of issues that can be addressed and addressed well by americans and american co-ops. we stand with u.s. co-ops ready to provide this as soon as the league on governmental issues between of two countries are resolved. u.s. co-ops are a compatible development tool that can make a difference in developing healthy and vibrant cooperatives in cuba and cooperatives that can, over time, become valuable to both the american and the cuban consumer. the legal and governmental issues we talked about this morning are real and are something for us to look to policymakers like you to resolve. ncba is a business group focused on consumer empowerment and economic results, we're leaving diplomacy to the diplomats. as the new u.s.-cuban

relationship takes shape, ncba wants to respectfully but forcefully remind congress we're here. cooperatives are an ideal democratic structure and form of operation that can produce results on the ground. cooperatives are going to help the cuban people develop financially viable member-owned businesses that assist in the economic empowerment of cuban entrepreneurs and doing so we provide cuban consumers with marketplace choices and perhaps, most importantly, further u.s. interest by demonstrating the benefit of democracy and financial independence that ownership confers. >> thank you, mr. beale. senator bows man. >> thank you, chairman roberts. ranking member stabenow. i'm very pleased to welcome jerry harris to testify before our committee. thank you for extending an invitation to this distinguished witness. mr. harris has worked for ricen foods since 1975.

currently he is senior vice president for marketing and risk management. mr. harris has traveled to cuba more than 20 times and he has a wealth of knowledge on the practical challenges that america's farmers and ranchers face in trading with cuba. mr. harris lives and works in stuttgart, arkansas, which is the rice and duck capital of the world. i look forward to hearing mr. harris' testimony. thank you for being here. >> thank you, senator bozeman. mr. chairman, thank you for the opportunity to appear before this committee today. ricin is a family farm-owned cooperative formed in 1941 to market rice. today we service approximately 6,000 farmer members in arkansas, missouri, rice, so i beans and wheat. the cooperative market is one-third of the rice grown in the southern united states and 25% of the national production.

rice comes primarily as a direct exporter selling directly to buyers and importing countries. as a result of this direct approach our staff is well schooled in the details of every day management, logistics and finance related to the export business. rise -- riceland industries is proud to be a mem of the rice federation. rice is grown in seven states including arkansas, california, louisiana, texas, mississippi, missouri and florida. nearly half of the u.s. crop is grown in eastern arkansas. the industry markets rice in all 50 states and to 125 countries worldwide. usa rice is a founding member of the u.s. agriculture coalition for cuba, a broad-based u.s. food and ag organizations. seeking to reestablish cuba as a market for exports. my objective today is support past and potential trade relationships between the u.s. and cuba. a future i believe holds great promise for u.s. farmers and agriculture. united states exports about half of the rice produced annually so maintaining existing markets as well as developing new markets

are key components to the industry's success. therefore the u.s. rice industry wholeheartedly supports the opportunity to move to normal commercial relations with cuba. prior to the u.s. embargo in cuba more than 50 years ago, the island was the number one export destination for u.s. rice. annual rice shipments reached a quarter million metric tons in the 1950s. accounted for more than half of cuba's imports. prospects brighten with passage of the trade sanctions reform act of 2000 when food exports to cuba were granted or what many of us believed at the time to be a broad exemption from the embargo. in november 2001 i had the opportunity to make the first sale of u.s. rice to cuba since the embargo was imposed. it was incredibly intense and interesting negotiation as we developed contract terms and quality specifications for a country which at that time had not purchased goods from the u.s. in more than 40 years. i found the leadership of the

cuban buying organization informed, shrewd and very professional. i was also in cuba to witness the first shipment of u.s. rice when it arrived in the port of havana. it was an unforgettable experience for me to see how excited they were with the quality of rice that they had been able to purchase for the people of cuba. i saw what can happen when barriers are removed and people are allowed to meet and find common ground for cooperation and trade. the success of rice and other u.s. agriculture products in cuba was seriously curtailed in large part following a change by the office of foreign assets control and the definition of cash in advance in 2005. u.s. rice exports to cuba dropped to zero following this regulatory change. currently most of cuba's rice imports come from vietnam with a port in new orleans located less than 700 miles from havana, the u.s. is in a better position to serve the rice needs of cuban people in terms of transit time and cost of freight.

by lifting the embargo and restoring trade and travel, we estimate the u.s. can gain 20% to 30% of the cuban rice business within two years or an estimated 90,000 to 135,000 metric tons of rice based on usda's estimate of cuba's annual import needs. we expect the cuban share of this market will exceed 50% within five years and 75% or more in ten years. on january 15, 2015, ofac made changes to the regulations on trade with cuba that allowed for the definition of cash in advance to revert to the pre-2005 wording. we applaud this measure as well as other actions by the obama administration to facilitate trade. however, there is still obstacles could conducting normal trade with cuba. i stated earlier we're seeking normal commercial relations with cuba. this means allowing u.s. citizens to travel and spend money in cuba without restrictions as well as allowing cuba to export their goods to the u.s. as they do in most countries around the world so

they can gain resources and increase demand to import u.s. food and ag products. it also means per fitting the full range of commercial banking and financial relationships to facilitate trade based on individual exporter assessments of the risk of doing business. the u.s. rice industry is committed to building the cuba market for our product. our company has made numerous trips ton cuba. u.s. rice has spent just over $900,000 in rice industry promotion funds since 2003 to promote the high quality and efficiency of u.s. rice in the cuban market. we intend to continue those activities. to give u.s. rice a chance to be in cuba, the u.s. seeks the ultimate lifting of the embargo and lifting of all restrictions on tourism and trade on cuba. >> thank you, mr. chairman. i'm very pleased today to introduce mr. rolf kaehler. he has a unique perspective of

someone who both understands how modernizing our country's relationship with cuba impacts farmers here at home and also understands how it could impact cuba's culture and people. in february, he was one of the panelists on the -- at the cuba forum i referred to that undersecretary came out for and it is good to see him here today. i look forward to hearing his testimony. we're really excited to have a minnesotan on the panel. thank you. >> thank you. chairman roberts, ranking member stabenow, senator klobuchar and all the members of the committee, thank you for holding this panel on ag trade with cuba. >> mr. kaehler, i understand you have two boys, chase and colby, two girls, opal and chelsea.

>> i got two boys and one daughter-in-law to be. so we started out right. >> i have two daughters and one. >> these are the trick questions we were telling you about, mr. kaehler! we prepared for. you did well. you did well. you didn't agree. >> i think the whole world knows i have grandchildren and i want >> please proceed, sir. >> feel free to summarize your comments after my intemperate remarks. >> no problem. i guess we're on. so, yeah, well, my two sons are the fifth generation to be operating our family farm in st. charles which sits in the southeastern part of the state. our farm produces traditional crops, canning crops and livestock. we're a nationally recognized beef breeding livestock producer whose claim to fame include

exporting the first livestock to cuba in 2002 since the enactment of the trade embargo. our youngest son, seth, is going to be married in november. he's actively involved in the cattle operation and will be taking over the export activities. my oldest son, cliff, recently returned home from wall street to start a solar energy company and we're pretty excited to bring a kid back from wall street into rural minnesota. our initial exposure to cuba was as an exhibiter in the first u.s.-cuba food and agriculture exposition in 2002 through an invitation of governor ventura. of over 180 exhibiters from over 30 states, the kaehler farm family display was the only one with live animals affectionately known as the cubanard. consisted of two beef, two dairy, two pigs, and two bison calves we took on behalf of the

north dakota farmers union. the display was intended to exhibit the diversity of u.s. livestock producers and introduce cuba to what we considered was a typical farm family. returned home from that exposition motivated to do more. since then, we've led over 10 trade delegations to cuba. these missions have included producers from over seven states and a bipartisan mix of state lawmakers and officials. to date, some of the most successful exports to cuba that we initiated include the shipments of the first livestock, the first dry distiller's grains, the first letter of intent for powdered milk, the first animal milk replacer, and the first texturized calf feed which was made by a local farmer-owned co-op. given the opportunity, u.s. farmers do well in cuba. we have a significant advantage of shorter shipping over europe, south america, asia and other major exporters.

in addition, cuba can take advantage of our u.s. rail container service and sizing options which give benefits to small family-owned businesses like ours. or the edible bean producers in the midwest. on top of this, u.s. producers offer a wide variety of affordable and safe food products for cubans. unfortunately, some of the policies currently in place diminish the natural advantages american agriculture enjoys over its competitors. for instance, requirements using third country banks for financing. that's a lot of paperwork, time and personalities to every transaction. coupled with restrictive cash in advance policy which i know the president helped improve in recent months, there's a very small margin of error before a shipper faces demurrage fees. as a family operation trying to build our business through exports, this self-inflicted inefficiency can be really difficult to manage.

what i do hope to see for farmers in the national cuba debate, first i hope farmers can work with congress to improve the trade financing rules for cuba. the inefficiencies gained by doing this would be immediately beneficial. it would make shipping cheaper for producers and food less expensive for cubans, both of which can only be a good thing for our trade relationship. second, i have to mention the importance of usda to ag exporters. large companies have plenty of resources without this promotion and technical assistance, but small firms like ours do not have the luxury of extra available cash or shareholder off sets. we need marketing support and assistance to support our companies and figure out what's going on in markets abroad. i hope to see the resources available for small and medium

sized sized producers. finally, i hope congress will expand people involved in trade by allowing more goods and services to be traded. i don't know much about politics but i spent a lot of time in cuba and built strong relationships with the farmers and their families. our farm has weathered ups and down doing business with cuba, including recession high commodity prices and difficult financing rules but we made progress over time and have never been shortchanged by our customers. i can only imagine having more interaction like these farmer to farmer will help build a better understanding between our two countries and build a better quality of life on both sides. i look forward to answering any questions. thank you for this opportunity. >> thank you, i apologize for the congressional oversite in regards to you adopting

mr. keating's family. >> my folks can't get our name right half the time either. >> doug keys ling traveled to join us. he is representing the kansas wheat commission where he serves since 2005. doug and his wife tj grow wheat, corn, soy beans, alfalfa. on their fifth generation farm. chase and cj have two boys, chase and colby, two girls. the whole point is i would like to take a moment to wish he will see a happy one week birthday. you better get back home as soon as you can. mr. keysling. >> good morning. ranking members of the committee. thanks for the opportunity to testify today about opportunities for agricultural trade with cuba. in particular, i would like to thank chairman roberts for dedication to kansas and her

farmers. i am a fifth generation farmer from chase, kansas. on the wheat commission for ten years, able to travel several places because of that. recently returned from cuba where i was part of a delegation organized by the u.s. coalition for cuba, purpose is to reestablish cuba as a market for u.s. food and agriculture exports and the wheat industry fully endorses that goal. there were nearly 100 participants representing a wide range of agriculture organizations and companies. from what i could see, there was a lot of potential in cuba, potential in its own ag sector and as market for exports. as a kansas wheat farmer, that potential was obvious every time a meal included bread. cubans eat a lot of it, are the largest wheat importer. 10% of the wheat growing in kansas going to one island a couple day sail from u.s. ports.

cuba is the largest country in the caribbean and largest wheat importer. cubans are not only buying -- sorry. today, wheat imports from the united states have upward potential of a whole 30 million bushels because they aren't buying from the united states they buy it from canada and europe. even though they're closer to u.s. ports. that's a $200 million opportunity that passes by every year. when congress lifted restrictions on ag ex-ports in the last decade we were excited for opportunity to reestablish cuba as consistent wheat market for american farmers. for awhile, looked like it might happen as wheat export grew until they peaked at 18 million bushels in 2008. but then exports tanked. has nothing to do with economics. it is difficult for cubans to import wheat grown in kansas and much easier for it to get it

from canada or france. i can put the wheat in an elevator in kansas send by rail to the gulf, put it on a ship a couple days away from the havana harbor, and it still loses out to wheat that's on a boat a week from canada or two weeks from france. the rules make it difficult to compete in that market. the law requires they receive cavern before unloading. they want to take a risk, they're out of luck. selling on credit isn't an option. there are shipping restrictions that prohibit docking in the united states if a ship is in cuban port in the last six months. as farmer i have to evaluate the costs into planting seed fertilizer, maintenance, compliance, financing. if it is too expensive, i have to give up on wheat and plant a competing crop. that's what cubans face trying to buy my wheat. it is too expensive. they're not going hungry

they're buying it from other countries. may be more expensive than mine in a free market but is a better value because there aren't massive compliance costs for every purchase. doesn't make sense if someone wants to buy the wheat they have to jump through the regulatory hoops they do. if cuba is become a successful export market for u.s. farmers regulatory obstacles need to be repealed. more than that, we need to see trade sanctions in their entirety lifted. cuba has enormous economic potential. while it remains a communist country, it hardly justifies the scale of sanctions, especially when trade relations with other communist countries are growing deeper all of the time. u.s. agriculture will never realize the full potential in cuba as long as trade sanctions are in place. if they can't sell their own tourism services cigars, rum, fruit and other products where they have an advantage we will face an uphill battle selling the products of american soil.

it is time to eliminate the barriers and see how far the free trade relationship can go. i would suggest that congress carefully consider where there's compelling reason to restrict freedom of americans to engage in commerce, especially for those just trying to sell wholesome american grown food. i sure don't see one. in conclusion i would like to reiterate support of the kansas wheat and broader kansas ag community for normalizing trade relations with cuba. agriculture and subsidiary industries that support it will stand to benefit if we can open unfettered trade with cuba. thank you for the invitation to testify and for your attention. >> thank you, doug. say hello to elsie for me. >> thank you. >> we have now a welcome to dr. rosen? joining us today from texas a&m

university. dr. rossen is professor department head of agriculture economics department where his extension and research interests focus on international trade and international marketing. he however, is not responsible for texas a&m leaving the big 12 and going to that other football conference. dr. rossen received his ph.d. master's bachelor's from texas a & m. was an officer in the united states army, was a captain in the u.s. army reserve. thank you for your service. you're joined by your wife helen, is that correct? >> she is not here. >> we obviously will not have her stand. let me get right to some questions real quick. my gracious. oh, yes, you have your testimony. pardon me. >> thank you. good afternoon mr. chairman, ranking member stabenow, esteem

esteemed members of the committee. my pleasure to be here. thank you for inviting me to testify on the challenges and opportunities associated of trade with cuba. i have been studying the cuban market for about 15 years been there a number of times. we continue to monitor what happens in cuba and how that i am pacts u.s. agricultural exporters. our work at texas a&m indicates that one u.s. job is created for every $76,000 in u.s. we think that makes it worthwhile for us to continue to stay engaged on this important issue. just a little bit about background. our exports has averaged about $300 million annually since 2002, but, they have fluctuated widely from $142 million in 2002 up to $709 million in 2008. and that uncertainty has been a problem for our businesses. the product mix has also

changed. over the last or during the first decade of our export experiences with cuba, we exported a wide variety of products, such as corn coy beans, rice wheat, animal feeds, cotton along with processed foods such as frozen, pork, beef dairy products dry beans, snack foods canned fruit, vegetables, bottle water and also grapes, pears and treated telephone poles. up through 2012 when things began to deterrierate. the more recent export categories oever the last couple years have been concentrated in three areas and that is frozen lake waters, the soy complex and corn. in fact, last year those three accounted for 96% of our exports. in my mind, that's precariously risky. we just don't have the diversity of our marketing base to withstand the kind of declines

we've seen over the last few years. there is a number of things that have happened that have attributed to these declines that i'd like to briefly go over those. one is cuba's moved away from u.s. exporters. of products such as rice, wheat and higher value foods. to more price competitive competition. we've talked about brazil, argene tina, spain and brazil. rice for example, 25% broken and before it can be served in hotels and restaurants. by the time they get through the quality deterrierates further and a much less quality product when it's cooked and served. no doubt the strong dollar over the last several years has put some downward pressure on our exports. it's made our products more price, higher price products. the cubans also have diversified

away from us to lower price competition. during the global recession, cuba's earnings from tourism declined, along with declines in the value and the volume of their all-important nickel and cobalt exports. remittances from cuban americans also declined during that time and put a lot of pressure on the government of cuba and limited their ability to purchase products from the u.s. and, of course, the key thing to note about the cuban market is that the term market today is a misnomer. as we've talked controls all aspects of importing food products from the united states. and i'm also of the opinion that from time to time the cuban government itself gets directly involved in some of these decisions. to influence what is purchased how much and from whom. despite these constraints, cuba has some potential. we've been looking at this for a long time. and become a much larger market

for you as exports. we estimate about $1 billion market over the next five years. what's important is cuba's demographics are favorable for growth, with a population of 11 million people and 99.8% of which are literate. cuba has a highly trainable workforce of more than 5 million people. in addition those aged 25 to 54 represent 47% of the population and are untheir peak consumption years. these characteristics are very similar to the dominican republic. to which we exported $1.4 billion in food products last year. for this potential to be realized, we must see gains in consumer incomes in cuba. we need to see improvements in infrastructure and logistics some of which have been discuss discussed today and also see more stable policy regimes and policy environment that would

stimulate interest on the part of u.s. businesses. concluding the cuban market for u.s. food and agriculture related products has the potential to exceed $1 billion annually and this would create 6,000 new jobs in this country. to be realized however we need to see positive changes in income infrastructure and regulation. thank you very much. >> thank you very much for that most informative testimony. doug, you mentioned the rest of the caribbean region, the market share for the united states is over 80%. if cuba resums the purchases of u.s. wheat what is your estimation of the u.s. wheat in cuba? do you see it staying stable given the economic volativity in cuba? >> well, first of all i see no reason for it not to go up from zero. second of all, i see no reason that it shouldn't be somewhere in that range of 80% to 90%

likewise in the rest of the caribbean. >> dr. rosen, you worked on projects in mexico canada cuba, guatemala, argentina brazil ecuador, australia, japan, iraq, philippines, malaysia and thailand. did you sing that country western song "i've been everywhere." and you taught at clemson university, you're a tiger as well as an aggie. thank you for your testimony. you certainly are an impressive background. we have an opportunity to expand our competitive position, if u.s. agriculture in the cuban market, the distinguished chairwoman agrees with me and i know that senator from arkansas does as well.

but when farmers and ranchers explore an expansion and business opportunities they not only explore the ben fits but the potential cause. what are some causes that could weaken our competitive of agricultural products in the cuban market? >> well from our standpoint in texas, one of the things right now is limiting factor in a movement of a container cargo which would apply to a lot of the higher value food products. we don't really have servants right notout of our local ports to move and we have to transload and then move into cuban market usually by barge. and it takes an extra several days to move that cargo. it raises the cost. and it endangers those products in terms of the quality, the reliability when they get there and the condition in which they arrive. so, i think improving our own logistical system is one thing that needs to happen. the second thing is within the

cuban market itself the times i've been there and been with companies that have exported products particularly perishable products to be used in food shows for example, we had trouble with reliable electrical power both at customs as well as hotels and restaurants where we might go periods of several hours. if you have a frozen dessert that goes that long without power when you get done it's not exactly what you'd come in with. so, those kind of logistical requirements are an issue. the other thing is simply the capacity of refrigerated warehouse space i think needs to be enhanced, which would allow us to move more products into the market on a more reliable basis and more steadily over time. >> i appreciate that very much. all of you have traveled to cuba over the years. what are some of the supply chain challenges. i think you already tested on some of that and any of you like to pitch in? mr. beil, any commentary?

>> well, i think that, you know, in terms of some of the issues, i think you are going to see that cooperatives are going to have to figure out ways to create some of the relationships that we're talking about. those relationships we think are the piece that's going to bridge some of these problems and gaps. and, frankly, i think we need the government to be able to get out of that so that these sorts of solutions that cooperative cooperative create can step in and fill those gaps. >> mr. harris? >> again we made the first sale of rice to cuba in 2001. and it was pretty seamless, quite frankly. we shipped bulk rice there and taking advantage of their lower cost labor. we had the rice bagged within docks from cuba for distribution from there. one of the benefits that we see mr. chairman, is that when cuba buys rice from vietnam, they have to buy in extremely large

vessels. 25,000 30,000 ton vessels. we can actually load small vessels, go not only etoto the port of havana but to other ports within cuba that really helps them on their storage, their warehousing and distribution within country. >> mr. cantor. >> we had a lot of interaction with the cuban people. one thing they need is their technology. they have fallen behind us. they need access to more of our products such as farm equipment. we have some limit apgzations to what we can ship to cuba. one thing we found we took gifts of fencing tools and a set of wrenches down to them. now, if some of the professionals on our trade delegation weren't sure if that was a good gift to take. when we took it to the farmers they had tears in their eyes that they went and the subsequent trade mission. they showed us all the fences that were built with the tools that we took down because we understood what their needs are.

so as we get some efficiencies in our shipping and bring our farmer-to-farmer interaction, we will improve their productivity which will increase the demand for our u.s. goods. >> do you have anything to add? >> i'll echo on to that. the biggest restriction may be us, not them. of course, you guys have the power to work on that and that's very good. i think, as far as what i saw in cuba, their entrepreneurialship was outstanding. as a business owner myself you know, that was something that really stood out to me and i think they'll try to make anything we can do work. >> senator? >> thank you very much, mr. chairman. i think this has been a really important discussion and first i just want to underscore when you're talking about cooperatives in the conversations that i had with

cuban officials. first, they're very proud that they have created cooperatives. and the ability for more decisions to get made by farmers. although there is more to do as you say to get the government out of that position so that the farmers are the ones really driving the train here. it was interesting to me as we are talking, you're talking about what they are interested in in terms of equipment and tools and so on. we talked a lot about farm equipment and tractors and the fact that the new decision that the president made was to allow farm equipment and the fact that they had cooperatives, most of them didn't have one tractor. and they were making decisions as to who got a tractor. and how many tractors. so, there's a lot of opportunities for us to be able to expand. but i think cooperatives are very much a part of the structure going forward. so i'm glad to hear your testimony. i'm wondering, because you've

been to cuba so many times and have had the opportunity to really navigate both from agriculture but looking also, at cuba's economy from a broader trading relationship beyond exports, in terms of commodities. when you thing about how to more fully develop the farm economy in cuba and what we can do what would you suggest? and i'm wondering what products or services or assistance that we're leaving out of the conversation so far. what should we be focused on that we haven't been talking about? >> well, when we went down for example, the first trip when we were there in 2002 the nutrient compendium that the gentleman had was from 1989. so working with some of the magazines and the universities taking outdated technical information to help with the

live stock we exported in feeding them was our first step. things have changed from their time of closeness with the soviet union. their professionals are all willing to get u.s. technology and get access through the internet. we took in when we took the stiller's grains down and showing them how to feed if they're a grass-based economy. when they went through the drought, we got reports from a cuban paper. one farmer had a report that he lost two-thirds of his livestock. the quote in the paper was he went to the bag and reached in and got a scoop of what we trademark norgold in disstiller's grain. he said without this product from the u.s., i would have lost all my cattle. we were providing technology that way. getting farm equipment, as you mentioned. the access to modern mixing equipment. modern milking equipment. there's only going to help our u.s. products as we improve production and improve efficiency for their farmers and it will feed their people.

there's a lot of poverty in cuba. we didn't see a lot of hunger. but they're all looking to increase their supply of food for their families. >> absolutely. i'm wondering, mr. rosen, we, again, talked about the fact that a small group of products that we're exporting now. we want to do more we want to do more rice and more of everything. and that we need more diversity in terms of our goods that we're exporting to cuba. how do you see the president's new rules governing trade financing between the u.s. and cuba as creating more opportunities for the underrepresented cuban market and what more could we be doing? i know ultimately it's lifting the embargo and we hope they're going to be able to get that done. but, what more can we be doing right now? >> well, i think the encouraging

thing in the new regulations is the allowance for remittances to quadruple. if they could go further that would be even better. remittances end up 80% of in the hands of consumers or small businesses. and those remittances represent about, they go into about 60% of the households in cuba. so, they could be quite important in terms of stimulating consumption. and part of that consumption, of course, would be food products. we hope from this country. and they can also be used for business development. for example, in cooperatives or private business ventures. and the cuban people are very entrepreneur entrepreneurial. you see the capacity that exists but it's been harnessed. i think remittances play a critically important role and if those could be expanded, i think it would be a very positive impact on the people there. >> thank you. thank you, mr. chairman. i appreciate you holding the hearing. >> thank you.

>> senator. >> thank you, mr. chairman. mr. harris there's been some concern expressed by you know some members of congress in the sense as to what would happen, who would be obligated if the cuban buying organization failed to pay or whatever. some have concerns that perhaps the united states government would be on the hook. i guess the question is for you and the others to chime in also. if the cuban buying organization fails to pay for shipment of rice or whatever, would you expect the u.s. government to compensate in your case, for the shipment? >> senator, in my opinion, no. i mean certainly, we would welcome gsm financing that would be a wonderful opportunity for the egg industry. but we that is my job with the

company is risk management. and we assess that every day. and so we assume as we take that risk that that risk is for rise on foods. >> anybody else? >> i would expect if the rules change it would be the same requirement as it is for any other country or any business transaction. as a business owner, it's a transaction between buyer and seller. you know, as we mentioned, that's risk we take. and we have to analyze our business as we do it and as producers, we're asking for less government interaction, not more. >> no, no. and i agree totally. again, i think there's been a misconception and really wanted to clarify that. you know we've talked a lot about today your testimony was excellent and very helpful, as was the other panel. i guess the bottom line is, has the recent administrative

changes regarding trade, are they going to help your business with what's going on right now? mr. harris? >> i can respond on behalf of riceland foods, no. it's a very small step. i can tell you the day after the president's announcement, i contacted alan port and told him, certainly, we had an interest in doing business there and they thanked me very much for the call but had no interest in purchasing u.s. rice. so, senator, i really think that they are looking for an elimination of the embargoes so that they could have the ability to create foreign exchange by selling their rum and their cigars and their sitcitrus to the u.s. and tourism they need so badly. i really think that the small incremental moves that we're making are not swaying them to try to work closer with us. >> would you all agree that

those are the, that is the major barrier? what is the major barrier? >> i agree ethatthat i think the answer is the repeal of the embargo. as a wheat farmer from kansas, i'm looking at june it be harvesting my wheat crop. i would be looking it would be at the port in july. so, if the embargo was lifted, we could be selling wheat to cuba in july or sooner. and this is what's holding it up. >> dr. rosen. >> my perception is and i've visited with the people here at the cuban intersection both this group, as well as the previous group. and there was a lot of optimism early on that we were going to change the rules possibly lift the embargo and, of course, that hasn't happened. and i think in about 2011/2012 they came to the realization that the carrots they had been

offering in terms of purchasing products from u.s. states hadn't worked. that's when they diversified from the united states to other countries. i think they're waiting, well, in our perception, this is a very strong signal. in their minds it may not be estrong enough and i believe they're still waiting to see what we're going to do. >> very good. very good. well, thank you, all, again, for being here. i do appreciate your testimony and it is really really very helpful. you all are on the ground floor of this and nobody understands it better than you all. thank you very much. >> thank you. >> share the comments by the distinguished senator from arkansas arkansas. in my view, it's access to credit. and my view it is whether or not probably the banks in question

and, obviously, the customer of those banks have an appetite for risk if we can use that, again. and that's to be seen. and i just want to assure you all that this committee stands firmly behind our efforts to see if we can't clear up some of those obstacles that you talked about. thank you so much for coming. this will conclude the second panel of our hearing. thanks to each of our witnesses for being part of government in action. that's two words. the testimonies provided today is valuable for lawmakers to hear first hand. to my members not present, we will answer any additional questions. five business days from today april 28th. thank you so much. the committee is adjourned.

on the next "washington journal" we'll talk to tom cole about his call for the military mission against isis in iraq and syria. and congress xavier bacerra. "washington journal" is live each morning at 7:00 p.m. eastern on c-span. the export/import bank charter expires on june 30th and mcconnell opposes reauthorizing

the bank. the president and chairman fred hochberg delivers opening remarks in washington, d.c. live coverage starts at 8:40 a.m. eastern here on c-span3. here are some of our featured programs. saturday evening on c-span the white house correspondents annual dinner. live coverage begins at 6:00 p.m. eastern with red carpet arrives, remarks by president obama and entertainment by "saturday night live" sesally strong. and sunday night at 8:00 p.m. on c-span's q and a. judith miller on her time in prison for not revealing the source of her reports before and during the iraqi invasion. saturday morning at 10:00 a.m. eastern on c-span2. "book tv" is live in maryland state capital. authors include former attorney general alberto gonzalez on

immigration. wagoner on climate change and sarah wildman on world war ii and the holocaust. and sunday night at 10:30 coinciding with the release of c-span's new book "first ladies" presidential historians on the lives of carl anthony edna medford along with carl canon explore the lives of our first ladies. on american history tv on c-span3 saturday night at 8:00 eastern on lectures in history. stanford university professor on some of the issues debated during the constitutional convention and sunday afternoon at 4:30 40 years after the fall of saigon south veaetna meez veteran veterans, get our complete schedule at c-span.org. fema administrator craig fugate testified before the subcommittee wednesday on the agency's 2016 budget request. that request totals $7.4 billion

for disaster preparedness and resiliency. this is an hour and 30 minutes. call this hearing to order for the dhs appropriation subcommittee. today will be -- i'd like to welcome administrateiveeor fugate. administrator of fema. we're here to discuss the fiscal 2016 budget for your agency. before we get into the budget i'd like to take a moment and

thank you for sending roy wright to fargo several weeks ago. it was very helpful. and actually will pertain. his visit pertains to one of the subjects i'll bring up later today which is talking about how we coordinate flood mapping and flood insurance with communities' efforts to build permanent flood protection. did a very fine job and very helpful and something that can be helpful around the country. the focus for today's hearing is on, well at least my focus on three areas. effective stewardship of the disaster relief fund. fema's efforts to buy down risk before a disaster occurs. and measuring preparedness levels of the nation after years of investment. disaster relief fund or drf is fema's biggest tool in aiding disaster victims rebuilding our

communities and ensuring resiliencies. congress took major step to establish a formula for its funding. as a result, fema must now focus on insuring the funds are managed and distributed in an effective and efficient manner. respond to recover from and mitigate against disasters. congress took steps in 2013 to help reduce the overall cost of disasters in the sandy recovery improvement act. section 428 of that act provided for alternative procedures in certain projects to grant to allow grantees to receive full project funding up front on agreed to estimates. that option should reduce administrative costs start recovery projects faster and likely reduce some of the challenges currently being experienced with diab ligations of funds after projects are closed.

unfortunately, seems to be some reluctance on the part of grantees to embrace that program. i want to better understand what that reluctance is because i think this is an innovative idea to help projects move forward more expeditiously. i mentioned diab ligations. because i know that this is a real concern to the states. where projects expenditures are questioned in an audit fema appropriately has the ability and the authority to de-obligate funds. however, that authority has been exercised in some cases years after project approvals and often well after project completion in response to audits by the inspector general. and so we need to find a balance between any waste fraud or abuse findings and decisions made under the pressure of responding to a disaster. so, again i applaud you for fema's efforts to work with

grantees through the new procurement, disaster assistance teams. both these teams will help grantees avoid some of the common mistakes while managing the response to the disaster. but, clearly, there is a real concern on the part of states about the possibility of de-obligating funds. i understand that having served as a governor ten years. i know the senator understands it very well, too, based on her tenure as a governor. we do have to find ways to mitigate that concern and better address the challenge that it poses between states being able to go ahead and undertake these projects in a timely way with confidence that they're following the rules, but at the same time, making sure that we don't have waste fraud and abuse. we have to do both. there is a challenge. also, you and i have discussed and agreed administrator in the

past that fema's hazard and premitigation disaster programs, as well as risk map are critical to buying down damage that would otherwise be seen in future disasters, especially flooding. the key is that disaster mitigation focuses on the actual hazard and that the funding is eeffective in preventing or mitigating that type of disaster, whether it be flood fire or other natural disaster. the example that i've used in our discussions and that i've worked on with, i think probably you and certainly members of your agency is where we have flooding and roads gets washed out. fema provides funding to help replace those roads. you can replace the road exactly like it was, in a sense. but if that is at a level where it continues to wash out and be flooded, that doesn't make much sense because we just repeat the problem. we keep stepping in the same

hole. so, the ability to make sure that you replace the road in a way where you mitigate, again, some of those problems is cost effective for everybody concerned. you pay it for it once instead of three four five times and the locality better served because they have a usable road. so, i think this is an important area that we'll explore in addition in this hearing. and i know you have some thoughts on that. with respect to preparedness effort, the administration has, again, submitted its proposal into the national preparedness or mpgp. well, the authorizing committees should consider this proposal i believe that fema could be doing more to assess the return on the investment. that the government has made in our nation's preparedness. what is the level of prepared

preparedness across the nation. how are training and exercise efforts with these grants. how could we better measure the effectiveness in raising the preparedness level. we want to talk about where we are in terms of preparedness as a nation. what we're doing to continue to improve it. fiscal year the fiscal year 2016 request also includes funds to start i.t. modernization for your grant systems. so the question here is, will that modernization effort improve the ability of stage to report preparedness levels. i think we talk about cost savings. always a good thing. but also we want to talk about the effectiveness of the program. so, i look forward to hearing from you on these and other priorities that you have for this year. and with that, i will turn to ranking member senator shaheen for any opening comments she may have. >> thank you mr. chairman.

and welcome fugate. as chairman hovan says as a former governor, i also recognize how important fema's activityies are when states have emergencies and, even more personally, i having been in a tornado unone point in my past. i very personally benefitted from the efforts that fema has made to help people who are victims of disaster. so i appreciate that your work is critical and understand that currently all 50 states, including new hampshire and some tribal areas have an active disaster with fema and understand that the cost to rebuild are growing. in the 1990s fema was appropriated an average of $3 billion a year for disaster costs and yet one decade later, average costs have tripled to over $9.5 billion a year.

disaster types are also more varied and complex and the last five years, along with the anticipated floods tornadoes wildfires, hurricanes the nation has had an earthquake on the east coast, a super storm, sandy in the northeast. landslides in the west. a bombing at the boston marathon, active shooters in public places and unprecedented snow in the northeast. and further impacts from a cyberattack are constantly materializing. so, it has been a very busy time at fema. now, because these events have become more common and more intense, this makes our mitigation efforts increasingly critical. we can't continue just to make investments and rebuilding after an event occurs. we must pay equal attention to preventing damage from occurring in the first place. and these efforts are not only critically important to

vulnerable communities, but also to the federal budget. i was pleased to see the administration's request for a significant increase in mitigation efforts to better prepare for and reduce the impacts of flooding and other types of natural disasters. for every dollar we invest in these activities, we save up to $4 in rebuilding costs. and that is, in fact, a smart investment. each state, territory, major urban area and several tribes have ongoing preparedness projects with the agency, as well. these activities have an immediate and real impact on citizens, on businesses and on our first responders. administrator fugate i look forward to working with you to ensure that fema's support role delivered in a user friendly way from your headquarters and regional offices. again, thank you for being here today and i look forward to your testimony. thank you, mr. chairman. >> thank you.

i'd also offer an opportunity for senator baldwin any opening statement you might have. >> thank you mr. chairman and ranking member. i don't want to give an extensive opening statement, but i will, like you, mr. chairman preview the focus of my questions following your testimony will be the issue of rail safety and the prospect for derailment or explosion as we see a lot of train traffic through our state and, particularly from the chairman's region of the world. so, thank you for being here and i look forward to asking you questions following your testimony. >> with that we turn to you for your opening statement. >> senators, mr. chairman, thank you. first thing i wanted to talk about is i want to thank you you

and your staffs for something that isn't always seen as something that is dmramerous but a key part of the constitutional separation of powers. and that is the budgeting process. the fact that the administration comes forward recommendations, but ultimately congress must determine where we apply our taxpayers' dollars is a process that we participate in. it's not easy, our staff spend a lot of time on it and we won't agree on everything but the difference between having continuing resolutions and uncertainty and knowing what the intent of congress was with a budget. it isn't always going to be the highest priority that some people think we should be working on, but i understand the hard work you put in and the staff put in to get to those numbers to get to the budgets to ensure that we have the resources to do our jobs. if you have determined against all the priorities of government. first of all i understand our role here is to present our budget, but i also understand the role of you to make those decisions to figure out how we're going to fund all of

government. and we're part of that discussion. so, we just appreciate that. the second thing i want to talk about is and i want to save more time for your questions because i think there's a lot of things we want to talk about. when i got to fema it was a real challenge for me to be able to talk to you and tell you about what we were doing. i could more easily tell you how much money we had spent, but i couldn't tell you what that had actually accomplished. and even within the programs, i found that we were oftentimes doing things because we had been doing them without really understanding, well, is there another way to look at this? and i told the staff when i got here and i come from the state of florida. you enjoy your budget, this is the last one that will go up. we knew what was happening across the country and we knew the economy was in trouble and the years of budgets just incrementally stopped going up each year and you were basically able to achieve your mission because you knew you'd get more the but you did have to look at

your budget differently because if you were going to find or free up money for the things you thought you needed to do, they were going to come from the things that you had been doing. that you were going to be doing differently or find different ways to accomplish that. to a certain degree we were doing that well before sequestation came in. even with that, we had focused on the mission and not used that as an excuse, but rather look at how do ewe get more efficiency in savings. we also need to colace around a lot of different moving pieces of fema and something that we could articulate and tell people this is what we have to be focused on. first thing, you have to build for the catastrophic disaster. if you don't, your risk is we'll have the next katrina because systems do not scale up. if you're not building for the big eevent and you don't understand that's why you're putting your teams together, building your programs, if you only build to what you're capable of doing, that larger disaster will be a failure. that doesn't mean you have to ask for more money, but you have to look at your systems designed

around catastrophic disaster response. secondly, you have to build your programs around the people you serve. as the senator points out, when that's not the case, we see the mismatch of trying to serve our communities and how they need the programs to work for them versus what may be easy for us to administer. so, oftentimes we found we had defaulted to those that are easy to administer and not really focused as much on the people that we are serving and that mismatch is oftentimes played out in survivors' communities, not getting the full support they should have gotten in a disaster. you have to go to where the disasters are. i tell people just because it works at 500 c street doesn't mean it will work on a train derailment in the middle of no where with poor communications. you have to build the systems to go to where the survivors and disasters are and not what works in washington, d.c. you have to buy down your future risk. we have to do a better job of understanding that we can no

longer subsidize risk and come back to the first dollar every time there is a disaster. if local governments and states are not doing their part to reduce future risk. we just can't keep dealing with every disaster and building it back as senator hoven says. we have to look at risk reduction. and then the last thing, we oftentimes at fema and as your committee staff will tell you, have not been good steward of the basic functions of our programs, whether it's i.t., personnel. a lot of things that may not be things people want to talk about in disaster. but if you don't have the foundational systems of your management working right you will not build that response team. goes to how you hire people and how you set up your architecture for i.t. we look at these five areas and draw all the programs through that lens are we as a nation building to respond to catastrophic disasters. not just what fema does but all

those grant dollars that have funded local and state capabilities. respond as a nation to catastrophic disasters. that, mr. chairman, available to respond to your questions. >> thank you, administrator for being here today. we'll begin the questions. we'll start with rounds of five minutes. and i want to go right to the concern that is come up in regard to hurricane sandy and claims for homeowners who have not received the proper resolution on their claims. that they've had issues with the insurance company and it appears particularly with engineering companies that have worked on adjusting their claims. and as it turns out these claims were not adjusted properly and it appears that homeowners were short changed on recovery that they're entitled to. my understanding is that there

is out of 144 claims, 144,000 claims that were made, that there's on the order of 2,200 cases where the engineering report may have been fraudulent, improper. where the insurance company didn't provide the proper reimbursement to the homeowner. this is, obviously, a very serious concern. and that we need to make sure we understand exactly what happened. and hold those responsible accountable and correct it. i also am aware that mr. roth, the dhs inspector general is conducting a full investigation and we look forward to his report. but i'd like you to respond as to exactly what are the actions that you're taking and what is the current status of this matter? >> well, the actual cases you

mentioned, i believe, those are the cases that are actually being litigated. we're concerned that there may be people who did not choose to litigate that may also have had questionable engineer report. so, very simply, we're approaching this from if they are owed more money, we pay. if it's fraud, we refer to that as the ig injustice. if we're finding litigation costs are going to exceed what the claims were, we're willing to settle. those are the cases that are in litigation and we're working towards settlement. there are additional hearings taking place as we move towards that. but we're prepared to reopen the other cases where there may have been engineering firms or concerns of allegation that involved these firms as to how accurate the findings were and determining what the damages were. so, we're in the process to begin in this next month opening up claims' process to the people that had policy served. if they got the full amount of the $250,000 they've gotten

what their insurance will pay. but those that did not receive that still had concerns. we're going to open up a process to begin looking at those with the same scrutiny we've been looking at those that were litigation. this goes back to being survivor centric. i think we found that through our rights, your wrongs and through our own program that we put more emphasis on the funds without making sure that we were putting as much emphasis on serving those claims. there should have been no reason why if it was eligible damage under the policy wasn't paid. no incentive for anybody not to. so, we're still looking at what was the systemic root cause. we think it comes back to there was more emphasis on not making overpayments because the insurance companies would have to get that money back and reimburse fema. and that seemed to drive more of this than making sure there was equal weight given to paying fully what the policy should have paid. so, as we get through that,

we'll provide more updates. we're currently focused right now on resolving the current litigation. going back to the people that filed claims and then going back to the systemic issues as both the ig is looking at it, as well as attorney generals in both the states of new jersey and in new york to look at fundamental issues, as well as any impropriety taking place. wale address the impropriety on the front end and looking that structural issues that got us there. there is equal weight to ensuring full payment on claims without the overbearing penalty of having to pay money back, driving decisionmaking. >> so, my understanding is that there are 144,000 cases or claims that included engineering services. so, you're saying that for those 144,000 cases you've set up a process whereby they can, in

essence, apply for any to address any shortfall that they may have suffered and get the reimbursement that they're entitled to? >> we brought people across fema to set this up. we'll be announcing it coming live this next month. we're going to triage and start with those that were involved in certain firms that we saw concerns with. and then as we get those, we'll open it up to anybody else. and, again, if there was any concerns or questions about their claims process, we're not going to predetermine that until they call us and we start working that and find what we find. >> you'll start that process when? >> our goal is to start it next month. >> and you've already taken steps to address the administrator who was overseeing the program i understand? and that's correct? and are there going to be further changes in personnel or are you awaiting the inspector general's report at this poun? >> well right now we've had

some staff changes. i brought in an experienced senior executive service to take over and lead the program. we had detailed people into the program to provide the initial search help and we'll be evaluating that with the assistance of what additional steps may be needed if we find things that suggest there was any impropriety among our staff. >> okay. thank you. >> administrator fugate, senator hoven has asked a number of my questions around this issue. one of the things that i found as troubling, almost as troubling as the allegations of fraud by a number of the insurance companies were conversations that i had with my colleagues about raising concerns that they had heard from their constituents in new york and new jersey about what was happening to them. they had raised it with the

program and that they had not gotten any attention to that until after the segment on "60 minutes" really highlighted what had happened there. so, i wonder if you could speak to that and the effort to make sure that when complaints are brought before the agency that they're taken seriously. that there is some peckinism whereby those are examined and responded to in a substantive way. >> yeah, senator. and the personnel moves were being made prior to the "60 minutes." i had to free up certain staff to make them available to be transferred in. and that took more time. but we originally this came tao my attention as something that was out there but it was like we saw one or two cases. and i refer to the staff and i said, look guys, what is going on? we need to address this and focus on, again if we owe more money, why aren't we paying

them? we found ourselves in a situation because we use your policies. we were working through a right you're wrong. we weren't able to directly engage and as the process kept continuing. i became more and more as frustrated as anybody on why we cannot get to eresolving these cases. if we owe money, we pay. if there is allegations of fraud, then there's a mechanism to handle that. if we're having a dispute but litigation costs are grateater than what the settlement would be, why aren't we moving to settle? i wasn't getting the response i wanted. prior to "60 minutes" we were making changes. we had to free people up to make the moves. reassign people and start the process of changing out the leadership. that was probably, you know it started that really right after the thanksgiving holiday. we had made the decision we were going to make the changes but we had to move the personnel and start that process of getting them slotted, getting them in place and getting them up to speed so we can start dealing

with this. >> well i appreciate that. i'm glad to hear that you were already taking action. one of the things that was pointed out in the "60 minutes" segment a class action attorney that actually brought a number of these cases to the agency and that it took at least it was presented as taking that level of attention before it rose to the point of somebody taking action on that. so i'm glad to hear that you were addressing it and it seems to me that this is the kind of thing that we all ought to be on the look out for every day as we're trying to make government work as effectively and efficiently as possible. so, i look forward to hearing more about the reforms that you've put in place so that this kind of abuse doesn't happen,

again, in the future. i want to go back now to one of the challenges that you pointed at in your statement opening statement about putting together a budget for fema that works given all the unknowns that you're dealing with. and as you point out, you have disasters that you can't anticipate in advance that the number of the severity, the type and so you have to plan for that. so, i wonder if you could spend a few minutes just talking a little bit about how you do that planning process. what's involved. and how you allocate resources and thinking about what might be coming up. >> well, there's two parts to this. the first part is we do deliberate planning with communities based upon various scenarios. quite honestly you're not going to have catastrophic disasters unless you have large, vulnerable populations and a large risk. it tends geographically to find

where that is. it does tell us where we have to do that. we do that and it identifies what the capabilities are. this helps go back and drive some of the initiatives and our threat hazard reduction of areas we need to focus on to build capability. but another piece of budget, within the disaster relief fund one of the things that happened when you fully funded the drf is we've been able to maintain a healthy balance there. when we had the colorado flood several years ago, we weren't in the situation we were in 2011 with irene where we were out of money and congress was having to very quickly do a supplemental. by maintaining a balance of a billion dollars in the fund at the end of the year we are prepared for events that are large scale that gives us the funding to do the initial response and ensures that congress has the time to do a deliberative process versus we're running out of money. you're having to make quick decisions without all the information. maintaining that balance gives us that initial push for a response to a catastrophic

disaster. we did this in sandy, as well. if you remember, although there was a lot of work getting to supplemental, it was not about fema having to shut down or not do our jobs because we didn't have immediate funding. by maintaining that balance in the drf and allowing for that balance to stay there, it protects the ability of congress to do deliberative findings when supplementals are requested. >> i certainly agree with that. i think that makes much more sense and support that effort and having had communities in new hampshire who are affected by hurricane irene and still some of them are still affected by that. appreciate it's much more important to have the funding there so you can continue relief efforts throughout that process. the one thing i would say and i understand the point that you're making about planning for major disasters for areas where they're going to hit significant

populations. the one thing that i hear from people in new hampshire is that even though it may be a small community or maybe even, you know, one farm one neighborhood people there are affected just as dramatically by disasters as large communities like new york or some of the communities in new jersey. and, so, that's why the efforts at fema make such a difference and are eso important. >> i agree e, 100%, senator. where the worst disasters could be to make sure we have enough capacity as a nation. that ensures when you have that disaster in your home state and we may have tornadoes in the south and an earthquake on the west coast we're not pulling resources out of your state when you still need them. this goes into our planning and actually drives some of our assumptions that we don't have one disaster at a time. >> right thank you. thank you, mr. chairman. >> thank you, mr. chairman.

as i mentioned, i plan to focus my questions on oil train safety and disaster preparedness in that regard. it's an issue i've been heavily involved in as my state has become one of the most heavily traveled routes to bring oil from the balken to refineries on the east coast, as well as the gulf. also as the ranking member of the authorizing subcommittee with jurisdiction over fema, i've become very involved and very enthusiastic supporter of the response act. which would establish a subcommittee at fema to bring together experts and establish best practices for responding to oil train derailments. and i look forward to working with the chairman and ranking member of this subcommittee to ensure that fema grant programs are adequately funded to provide training and equipment for first responders to respond to oil train accidents. mr. fugate, in your testimony

you identified building capacity or capability for catastrophic disasters as a strategic priority. in wisconsin certainly my constituents who live on these rail corridors or along these rail corridors and state emergency management personnel have identified the increasing frequency of oil trains passing through their communities as a catastrophic disaster waiting to happen. the growing number of oil train explosions in north america suggests that it is not a matter of if, but when. additional train accidents will occur and certainly you know, we worry a lot about one in wisconsin. and i want to ensure that fema is doing all that's within its power to build its capacity to respond to such an incident were it to happen. so i'd like to hear from you

first off, sort of where and how the growing threat of oil trains oil train accidents fits into your strategic priorities and what fema plans to do in response to this significantly increasing volume of oil train traffic. >> well, senator, we're not the regulatory agency over the event prevention. i want to focus on consequences. that's what we really find when we talk about specific hazards. are we building capacity and capabilities respond to the likely impacts. from the most immediate firefighting operation which we have been working through our national fire academy to update training, but also what happens if that occurs in a populated area. you have search and rescue operations. you have warning systems integrated public warning system, what most people think the emergency broadcast alert

system and wireless alerts and working with states to make sure they have those systems ready to go so that they can warn and evacuate victims. additional personnel to do search and rescue, communication equipments that can be the support of the governor to support those responses. looking at our grant programs because that is really where most of the resources are going to be utilized in this. and although the intent of the homeland security grants to build capability for terrorism it is also understood that the same type of capabilities that you have to build bomb explosion are similar to the type of capabilities you to respond to a train derailment. again, we don't preclude it. we make sure that as we identify threats, we look at language to see if there's things in there that are unintentionally, not clear for that, you don't detract from the attention we have to prepare for those types of events such as terrorism, but other hazards with capabilities

that we're building we want to address that from the point of life safety immediate response communications evacuation and sheltering. well, that's pretty much something you have to do in a lot of different events. it's the idea that our grant dollars that built a lot of capability are looking at where do we need to put more emphasis? right now, our first work with d.o.t. is looking at training capabilities, new issues coming up, make sure senior executives in the fire service have the latest, but also looking in the grant programs and, again, as we see threats emerging going because this is dual use, we do have capability, but we go through the consequences and what we need to do if that happens, and again from the emergency management preparedness grants, and, again, i support this recommendation, the committee's done a lot of work here. the emergency preparedness grants going to the state and local levels for emergency management, those can be used to develop community plans. there's other programs not part

of fema that performed this before ministers local emergency planning committees so there's a lot of pieces out there that we can apply to this but from our stand point, it's the consequences, our training, been looking at the grant programs, and looking at gaps that this is exposing across the nation. >> if i could just follow-up briefly on the training aspect of that, you talked about training and reaching out to senior executives but i'm certainly hearing from ranken file emergency management personnel who feel they are underprepared should an event like this happen they lack resources to send first responders to required training or provide them the specialized phone needed for example, to put out burning crude oil fires, and they do not feel they are

getting adequate information themselves to respond quickly to an incident should one occur while a train passes through their jurisdiction. i'm curious to know how much fema has engaged with the railroads themselves. do you believe that more action would be necessary from the railroads and oil producers protected who work on the raillines. >> we work with the oversight, which is u.s. department of transportation, but, again, we cannot to work in the inner agency on this. that's why the training is designed to be trained the trainer, and independent study as we sit downgoing what are the training needs what can we utilize, and what can we adapt? we're still in the process of developing and further examining what additional training needs are out there.

we're working back through the department of transportation with the industry itself over types of training venues that they have that we can also tie into all the other training to make it available to visibility, and what industry has out there for training, and in addition to a lot of state fire academies our national fire academy, domestic preparedness, and making sure we have consistent training looking at field delivery training, trainer to trainer, and part is dealing with the most immediate -- what's the best information, how do you deal with this, and are we getting that ready to go and then looking at what are all the delivery systems that may be needed to get that out to the local level? >> what i mentioned in my opening statement is working with flood mapping and remapping and flood insurance that you plan with local communities to build permanent flood protection. can you tell me what you are

doing so you're making sure those two things work together in tandem? it's vitally important in terms of the cost of flood insurance for people who live in those communities. >> yes, senator. again, all the way back to when you were governor, we had the challenge that our regulations would not recognize future projects in calculating risk as we were updating maps. what we told a community well that's fine when it's built come back, we'll change the maps. then we'd have the issue of having to change rates several times, it's funding authorizing coming on, and i think you saw from roy wright that we're taking a more pragmatic approach, that if we know the commitments there, projects coming on in a timely manner does it make sense in the interim to change rates several times and not recognize that? as we're going through this, what we do want to make sure is that the community has the commitment, they have the funding, they have the weatheral, and moving forward

with with that. that's much more pragmatic to work with the community, not issue a map until we know that's online online, but we make sure communities are moving toward. we don't want to delay that if there's risk that the maps show. if we know there's work, yektive actions, things taking place that fall outside the updated map cycle and delay that for a year, we'd have best data and recognize that. i think roy's working to be more pragmatic about that, so that we're not unfairly penalizing communities, but at the same time, we're note waiting to identify risk in the determined periods of time. >> ability to do that in fees is important. in other words, if that's coordinated, your process coordinated with building that permanent protection which is very often done in phases i think it makes a big difference for people. second i have for you

administration costs, you talk about the costs over 650 major dallass tweer 2004 and 2013 and their ratio was 13% in terms of administration costs relative to the disaster recovery fund and they compared that to the states that had about a 3% ratio i think it was. can you tell me you know, why your administration cost is 13%, the state's at 3% and you know, first why and then, you know, what are you doing to make sure it's cost effective as possible? >> well those costs include a lot of the capabilities to respond to disasters that are rolled into that and it also means that the state is usually benefitting from the jfo we're leasing, and a lot of the overhead cost built in the budgets did not have the state deal with that, but you point out something that i've oftentimes challenged the staff

is how much does it cost to add administer one grant dollar in a disaster? it's a range. you have how many people, the complexity, and that's not a good answer. i try to look at this how you are, why do i have to establish all these different tools if i don't want to have them in every disaster? one of the things we've done is why are we establishing a physical presence if it's just going to be public assistance, and i can send staff in work out of hotel rooms, write the projects. i don't need security, for a minute, or the i.t. hookup. they appreciate it. they stay in the workplace and get work done without relocating to another location. we are looking at what does it cost us? are there different ways of doing it? we're more inclined now to do virtual field offices rather than a physical presence. we are looking to drive down the cost, but we do things that are reporting requirements, the states do not have the oversight that we have.

look at the post katrina reform we have a lot of oversight to ensure we deliver programs and eliminating fraud and waste and as we go through that, how do we do a better job of accomplishing the oversight without what the systems we built that sometimes are very dumb ber smcumbersome, but looking at maintaining fiscal accountability delivering programs, and looking at the mechanisms. there's not gob a less expensive way, and as a state person i was floored by the number of people that fema brought in for external affairs. they have 100, i have 200. we had support for hurricanes with over 500 people in it and half of that was not the state of florida. i'm also sensitive to how much of a work force do we need to bring in to support a state, how much is -- they've always done it that way, and that's why we really pushed back on the number

of people deploying setting up physical locations, and focusing on the outcome of executing the disaster, not just going in and throwing in systems that had always been in place in a level that was not staepble or necessarily required in all disasters. >> do you have any type of statistics that show, you know, what you've been able to save, or do you have any benchmarks with what you feel you should achieve? >> the challenge i run into with disasters is there's such a range, and i can't show you and staff what it costs us to run a virtual joint field office versus what it would have been to set up a facility because we have to go in and lease a facility, everything associated with that, and we may only need it for a month to do what we need to do and i can give you -- better to show you those disasters, what it would have cost if we didn't do this, versus what we traditionally spent, and as we build better

analytics, trying to get to the number of how much is it part of the disaster response versus overhead to maintain the capability response and looking at that on a case by case basis. are we showing savings? some disasters like sandy have a higher admin costs, higher facilities, expensive area to put people up in hotel rooms. other disasters would be less expensive and others we're looking at, are we driving trends down? are we seeing overall we contain overtime costs are we not, you know, doing things just because people always did it that way to really drive down the costs of every dollar we administer. i can give you things we work towards, case studies of disasters where we have done reductions versus what we would have spent before and show you trend. >> you'll show us metrics on outcomes? >> yes, sir. >> okay. >> thank you, i look forward to hearing those.

back to the conversation with senator baldwin. you talked about grant programs, preparedness, and local first responders and local agencies, and i certainly agree with that as governor after september 11th i can tell you directly what a difference the department of homeland security grants have made to our preparedness, and that's why i was concerned when i saw in the budget that you were proposing an 18% cut to preparedness grants, cut to training, and 1 preponderate 5% cut to firefighter grants and the recent fema preparedness report found eight areas where communities are still in need of improvement, and i know that one of the proposals is to consolidate many of these grant programs, and while i appreciate that there are places where there can be efficiencies, i can tell you that those grants as i

said made a huge difference in new hampshire, and we leverage a little bit money to make it go a long way, and the firefighter grants, the other preparedness grants have really been critical so can you explain why the proposed reductions and i know my understanding is that the authorizing committee is not going to take up the consolidation issue, and so that's probably not going to be an option in this budget, and as i said i probably wouldn't support it if it were, and so i wonder if you could talk a little bit about that. >> well, two pieces is very straightforward. obviously, i would like to provide the maximum amount of funding that we could provide in the grants programs, but as the administration, you make hard choices, we fit within our budgets, submit based on priorities to the administration, and this is a continuation of the presidential

request, so although congress has been able to find more money and funded grants at higher levels we have been pretty consistent in what we asked for. as far as consolidation of the grants, this actually went back to -- and governor my experience in florida was since the ability to leverage dollars across the state some states do a better job than others, but it came back to governor, you have the emergency powers, institutions establish the authorities, the grant is upon the governor, the state in a position to help direct where resources were across the state. you know your states better. more accountability to make the decisions. we understand stake holders do not have the same trust there. that there's concerns about not all states may be as equal in

delivering funds. we have the power, the creating of the subdivisions that are unique to each state, and by consolidating level at the governor governors have the flexibility to determine priorities. i will faithfully execute the budget congress provides us with the direction you give us and that will be not up for debate. >> thank you. i appreciate that. you know one of the draft national preparedness goal out for review says fire management and repression was added as a core capability. >> yes ma'am. >> which makes total sense to me. yet, again the request for grants for fire departments was a reduction. can you talk about what a reduction in those grants, the

fire departments would have in distribution of funds to rural communities and volunteer departments, and how we can, on the one hand, talk about the goal of fire management, and on the other hand, talk about reducing the grants to those fire departments and folks who are going to need to make sure that we are prepared for those fires. >> well, the structural fire fighter goes back to the original emergency support functions of the frame work based upon while in fire fighting, and because on a national level, fires were the ones who required federal response the most often, but i came out of the fire service; and i'm bias as a structural firefighter. we do a lot of fire fighting, but in disasters, we do the bulk of the search and rescue and emergency capabilities at the local level. we felt it important that the fire service be recognize the in the frame works as part of an

emergency support function that almost exclusionvely was for wildfires. that was that. as far as the grants again the reduction means fewer smoke detectors, fewer pieces of equipment bought fewer breathing apparatus bought. it's a reality when we are forced into the budget everything and all priorities these were the numbers we were able to get to make and represent to you what we think is the administration we can fund. it does not mean that there's not more demand out there, not more need out there, but this is based on all the priorities the administration has and all budgets to look at funding everything from health and human services to ebola response to unaccompanied children and other things i find myself dealing with. this is where we came out. we're able to make the representation. we understand this is where we start the discussion. >> well and i'm glad to hear you acknowledge that it will have an impact if we don't have that additional funding.

going back to the discussion about the -- how you put together your budget and one of the things that or several things you include as new and -- i shouldn't say they are new initiatives, but efforts to upgrade your management structure focus on i.t. on business management, on grant management, and i wonder -- cybersecurity, can you talk about why it's important to do those now and how those initiatives rose to the top of what you were looking at in order to be more efficient? >> we found ourselves with grant modernization rolled up into department wide initiative when i got here that later did not occur. we have systems that are ancient. we pay so much into