Transcript #7. The House Farm Bill provides a balanced safety net for

Agricultural Programs In A Time
of Budget Concerns
A Presentation by
Craig Jagger
Chief Economist
House Committee on Agriculture
For the Session:
Assessing the Equitability of Farm Program Benefits
at the
2004 National Public Policy Education Conference
St. Louis, MO
September 20, 2004
Members of the House Agriculture Committee in the
108th Congress Represent Many Agricultural Regions
Total Federal Deficit or Surplus, 1981-2014F
Federal On & Off-Budget Deficit(-) or Surplus
Actuals: 81-03; CBO Sept '04 Baseline: 2004+
$300
$200
Surplus
$100
$ Billion
$0
-$100
-$200
Deficit
-$300
-$400
-$500
81
83
85
87
89
91
93
95
97
99
Fiscal Year
01
03
05
07
09
11
13
On- & Off-Budget Federal Deficit or
Surplus, 1981-2014F
Federal On & Off-Budget Deficit(-) or Surplus
$ Billion
Actuals: 81-03; CBO Sept '04 Baseline: 2004+
$400
$300
$200
$100
$0
-$100
-$200
-$300
-$400
-$500
-$600
-$700
Surplus
Deficit
81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13
Fiscal Year
On-Budget
Off-Budget
Total
Federal Deficit or Surplus as % GDP, 1981-2014F
Deficit(-) or Surplus as % GDP
Actuals: 81-03; CBO Sept '04 Baseline: 04+
3%
2%
Surplus
1%
0%
-1%
-2%
-3%
Deficit
-4%
-5%
-6%
-7%
81
83 85 87
89
91
93 95 97 99
01
03 05
07 09
11
13
Fiscal Year
Total as % GDP
On-Budget as % GDP
Federal Debt (and GDP), 1981-2014F
GDP, Total Federal Debt Held by the Public, & Debt Held in
Gov't.Accts. Actuals: 81-03; CBO Sept '04 Baseline: 04+
$20,000
$17,500
$ Billion
$15,000
$12,500
$10,000
$7,500
$5,000
$2,500
$0
81
83 85 87 89
91
93 95 97 99 01
03 05 07 09
11
13
Fiscal Year
Fed Debt Held by the Public
Fed Debt in Gov't. Accts.
U.S. GDP
Federal Debt as % GDP, 1981-2014F
Total Federal Debt, Debt Held by the Public,
& Debt Held in Gov't Accts. as % GDP.
Actuals: 81-03; CBO Sept '04 Baseline: 04+
80%
70%
$ Billion
60%
50%
40%
30%
20%
10%
0%
81
83
85
Total Debt
87
89
91
93
95
97 99
Fiscal Year
Debt Held by Public
01
03
05
07
09
11
13
Held in Gov't Accts.
When Extra Funding Was Provided for the
2002 Farm Bill, the Federal Budget was
Projected to be in Surplus
Total Federal Surplus (+) or Deficit (-)
by Time of Projection
1,000.0
800.0
$ Billion
600.0
Surplus
400.0
200.0
0.0
-200.0
Deficit
-400.0
-600.0
81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13
Fiscal Year
Actuals as of Sept 2004
Jan 2001 CBO Proj.
Sept 2004 Baseline
The Estimated Costs of Commodity Group Proposals
Substantially Exceeded Extra Funds Made Available for
the 2002 Farm Bill
Extra Funding for FY 2001 - 2011
350
Farm Group
Requests:
300
$261 Billion
$ Billion
250
200
150
100
50
0
Extra Funds:
$79 Billion
Budget Reconciliation
Sharing the Pain of Cutting Federal Spending on
Mandatory Programs to Reduce the Deficit.
•
Budget Reconciliation: Instructions in the Congressional Budget
Resolution to authorizing committees to draft changes to existing
laws to achieve specified reductions in “mandatory spending.”
•
Mandatory Programs for Agriculture
• Under the jurisdiction of the House Ag Committee
• Typically multi-year programs such as under the farm bill
• Food stamps, commodity program, and conservation program
funding are major mandatory spending categories.
• All multi-year mandatory funding is provided up front when
the farm bill or other House Ag Committee bill is passed.
Budget Reconciliation
& Discretionary Spending (Appropriations)
•
Discretionary Spending (Appropriations) for Agriculture
• Under the jurisdiction of the House Appropriations Committee
and the Agricultural Appropriations Subcommittee
• Programs and funding are reviewed every year.
• Agency salaries and expenses and research funding are major
discretionary spending categories.
• Funding typically is provided one year at a time in an annual
appropriations bill.
•
The Budget Resolution specifies a maximum level for appropriations
that may be lower than in prior years but cutting discretionary
spending is done outside of reconciliation in regular appropriations
bills.
Budget Reconciliation (Continued)
•
Instructions include how much each committee must cut and over what
overall time period. (e.g., 5, 7, or 10 years)
•
May also specify a required cut in the first year and/or the first several
years (e.g., years one through five of a ten year bill).
•
Programs that are cut will need to be re-authorized for the time period
covered by the cuts.
•
Prior Budget Recon. Bills: 1997, 1996, 1995, 1993, 1990, 1989, 1987,
1985, 1983, 1981
Budget Reconciliation (Continued)
•
Cuts are made from baseline spending—CBO’s projections (with any
Budget Committee Adjustments) of mandatory spending over the next 10
years under the assumption that current laws continue.
•
Only reduced spending caused by legislated changes are credited—No
credit is given for lower than expected costs from changes in market
conditions or USDA implementation decisions different than expected.
•
Cuts can come from any program under the jurisdiction of the Ag
Committees: commodity, conservation, crop insurance, trade, rural
development, research, foods stamps, or forestry.
•
The 10-year mandatory baseline for programs under the jurisdiction of
the House Ag Committee is about $540 billion.
•
If reconciliation occurs, guessing that Ag Cuts will not be less than The FY
04 House Proposed Level of $18.6 billion.
Budget Reconciliation (Continued)
•
Levels of Cuts are determined by the Budget Committees (but must be at
absolute and relative levels that can pass the House and Senate).
•
Budget Committee decisions can be based on various factors but it is likely
that the higher the spending in the baseline, the higher the required cuts.
•
Cuts must be prospective—i.e. cuts in future contracts, not current
contracts. Signed long-term contracts cannot be cancelled to get savings.
•
So be careful when people say that “We’ve got to push implementation
and get contracts signed to get a higher baseline for reconciliation”—
especially if long-term contracts are involved.
•
•
A higher baseline may cause higher reconciliation cuts.
The more long-term contracts that are signed, the larger the cuts must be
from other programs.
Are We Having Fun Yet?
•
Proposed cuts may lead to interest group wars. Every program has a
constituency.
•
Policy changes that save money may be viewed as more attractive than they
otherwise would be.
•
Can lead to “bad” policy if policies are designed to capture quirks in CBO
baselines or estimating assumptions.
•
Programs with perceived problems could be viewed as likely candidates for
cutting.
•
Cost trade-offs and savings opportunities can be heavily dependent on CBO
Baselines and Scoring.
CBO’s Baseline Projections of Future Program Costs
Change Over Time—Increasing for Some Programs and
Decreasing for Others (Total CCC Costs)
CBO's Total CCC Costs (& NRCS Conservation), FY 2002 - 2011:
Cumulative by FY. Latest CBO Estimate vs. Most Likely Estimate at Farm
Bill Passage (Against the March 2002 CBO Baseline)
$200
179
$180
$160
$ Billion
153
149
133
$140
118
$120
100
81
61
40
$40
113
77
$80
$60
133
94
$100
$20
173
164
61
47
34
18 16
$0
2002
2003
2004
2005
At Farm Bill Passage: Mar '02 Base
2006
2007
Fiscal Year
2008
2009
2010
2011
Latest CBO Est: Sep '04 Base
Recent CBO Baselines for the CCC Have Shown
Higher Out-Year Costs than Baselines at the
Time the Farm Bill Was Passed
CBO's Total CCC Costs, FY 2002-2011: Level by FY.
Latest CBO Estimate Vs. Estimate at Farm Bill Passage Against the
Updated March 2002 Baseline
$25
21.9
21.2
20.4
19.9
$20
18.4
18.8
18.2
16.0
$ Billion
$15
20.0
18.5
17.717.7
15.9
20.3
15.6
15.6
15.3
15.0
13.8
12.7
$10
$5
$0
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Fiscal Year
At Farm bill Passage: Apr '01 Base
Latest CBO Est: Sep '04 Base
One Reason for Higher Out-Year Cost Projections is
Lower Projected Prices for Some Crops
Table 5. Corn Prices vs. Effective Target Price & Loan Rate
Table 7. Wheat Prices vs. Effective Target Price & Loan Rate
CBO Baselines: 2002 Farm Bill vs. Recent
CBO Baselines: 2002 Farm Bill Forward
$3.80
$3.70
$2.80
$2.70
$3.60
$3.50
$2.60
$ / Bushel
$ / Bushel
$2.50
$2.40
$2.30
$2.20
$3.40
$3.30
$3.20
$3.10
$3.00
$2.90
$2.80
$2.10
$2.00
$2.70
$2.60
$1.90
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Market-Year Price
Apr '01 Baseline
Market-Year Price
March '02 baseline
Effective Target Price
Loan Rate
March '04 Baseline
Apr '01 Baseline
Mar '02 Baseline
Effective Target Price
Loan Rate
Mar '04 Baseline
Some Reasons Why Actual Program Costs Differ From
Projected Costs and Why Baselines Change
•
Actual market conditions differ from “average” conditions used to estimate
costs and make projections.
•
USDA implements programs differently than assumed.
•
USDA uses discretionary authority that allows it to operate outside normal
programs.
•
Farmers respond differently than assumed.
•
Structural change occurs.
•
Consensus perspectives on future market conditions and structure change.
•
Developing the analytical framework for a new program with no good
historical analogue can be difficult.
•
Mistakes are made.
Under CBO’s Current Sept., 2004 Baseline, Food Stamps
Are Over Half of the Costs of Programs Under the
Jurisdiction of the House Agriculture Committee
House Agriculture Committee Jurisdiction
CBO 10-Year Projections: FY 05-14 Budget Authority
CBO Sep 04 Baseline
Food Stamps
$294.2
CCC Commodity Prog
$128.9
Farmer Conservation
$48.5
Crop Insurance
$37.1
Other Nutrition
$8.0
Rsch & Inspect.
$7.5
CCC Other (Exc Conserv.)
$7.2
CCC Export Prog & Guar
$5.8
Forest Serv
$2.3
Transportation
$0.6
Comm & Rural Dev $0.5
0
50
100
150
$ Billion
200
250
300
350
Differences in Total Program Costs of Different Crops
Does Not Mean That Equity Problems Exist
(CBO Sept. 2004 Baseline)
CCC Commodity Programs, CBO 10-Year Projections:
FY 05-14 Budget Authority
CBO Sep 04 Baseline
$50.8
Feed Grains
Wheat
$21.9
$20.0
Soybeans
$15.7
Upl Cotton
$11.0
Rice
Peanuts
$2.9
Dairy
$2.6
Sugar
$2.1
Other
$2.0
Tobacco
0
5
10
15
20
25
30
$ Billion
35
40
45
50
55
CHIMPS
Mandatory Program Cuts Taken
by the Appropriators
•
Appropriations cuts in mandatory programs are called CHIMPS:
Changes In Mandatory Programs.
•
It is against the House Rules to “legislate on appropriations bills.”
But appropriators indirectly do so by, for example, limiting salaries
and expenses to carry out a conservation program of greater than
$xxx million.
•
CHIMPS represent a one-way street—Appropriators can cut our
mandatory farm bill programs but we can’t cut their discretionary
programs.
•
For FY 04 Ag CHIMPS were 31% of total CHIMPS. Ag
Appropriations are 2% of total appropriations.
•
Since FY 2002, $3.1 billion has been taken from House Ag
Committee programs.
The $1.2 Billion in Farm Bill Program Cuts in the FY 05
House Passed Bill are from Conservation, Rural
Development, Research, Energy, & Food Stamps
100.0%
100.0%
100.0%
100%
$ Billion
$1,500
75%
$1,624
$1,000
50%
42.2%
$500
25%
17.8%
$100
$351
$351
$150
$0
Farmer
Conservation
Appropriation Cut
Watershed
Rehab
Rural
Development
$260
Research
Remaining Farm Bill Funding
$73
$18
Energy
Food Stamps
Cut as % Farm Bill Funding
0%
Cut as % of Farm Bill Fundiing
$2,000
Consequences of CHIMPS
•
Producers don’t get full benefits we intended when the farm bill was
passed and that the Ag Committees paid for.
•
Upsets the delicate balances and compromises that were struck
during negotiations on the 2002 farm bill.
•
May set up a potential fight between Ag Committees seeking
reconciliation cuts and Appropriators who have come to depend on
limiting our programs to make their ever tightening budget targets.
Another Funding Problem:
Conservation Technical Assistance for CRP & WRP

Conservation Technical Assistance is help provided to producers by NRCS and
3rd party providers in developing farm-level conservation plans.

Currently, the only way to pay for CRP and WRP Technical Assistance is to
take from Program Funding (i.e., producer benefits) for the EQIP, FPP, WHIP,
and GRP programs.

Over $1 billion is needed over the next 10 years to pay for CRP and WRP
Technical Assistance.
After Appropriations Cuts and Technical Assistance
Costs, Too Little Funding is Available to Help
Producers for FY 2005
Farm Bill, $ M il. :
100%
$1,200
$75
$24
90%
80%
70%
$125
$215
$4
$13
$190
$85
$7
$7
$25
60%
50%
40%
30%
$720
$85
$46
20%
10%
0%
EQIP
FRPP
WHIP
05 Remaining for Producers
05 House Approp Cut
04 Own Program TA
04 Other Program TA
The Backlog of Farmer Conservation Program Needs is
Significant. Appropriations Cuts and Funding Technical
Assistance from Program Funds Makes Addressing the Backlog
More Difficult
July, 2004 Backlog of Farmer Conservation Program Needs
$2,500
$ Million
$2,000
95%
77%
$1,500
80%
76%
58%
100%
60%
57%
$1,000
40%
$500
20%
$0
0%
EQIP
WHIP
FRPP
WRP **
Watershed
Rehab
Funding Shortfall
Avail Funding after Tech Assist & Approp. Cut
Funding Shortfall as % Backlog
** HAC Minority Staff conversion of acres to costs
Conservation Technical Assistance for CRP & WRP
Funding Options
 “Free” Money:
The Senate passes the FY 2005 Conference Budget
Resolution Agreement: An adjustment to the CBO baseline provides the
extra funding need to pay for CRP and WRP technical assistance without
cutting other programs—but only if the Senate passes the bill as the
House has done.

Use the appropriated Conservation Operations account for Technical
Assistance

CRP and WRP Internal options:
 CRP and WRP statutory acreage caps are reduced or
 funding (currently uncapped) is capped at baseline levels.
Other Issues for Which Some Members
Seek Additional Funding

Tobacco Quota Buyout




Current provisions added to the Corporate Tax Bill.
House bill is funded by taxpayers. Senate bill is funded by tobacco
product manufacturers and importers.
Not a House Ag Committee funding concern if tax bill passes.
Extension of Milk Income Loss Contract Payments.

Under Farm Bill authorization, scheduled to expire on Sept. 30,
2005.
2007 Farm Bill

House Ag Committee will likely start hearings on a new farm bill
in 2005

As with the 2002 farm bill, we anticipate a Long lead time with
a number of field and Washington hearings.
Contact Information
Craig Jagger
Chief Economist
House Committee on Agriculture
1301 Longworth HOB
Washington, DC 20515
202 225-1130 (o)
202 225-4464 (f)
[email protected]