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 Agricultural Programs In A Time of Budget Concerns

Members of the House Agriculture Committee in the 108 th Congress Represent Many Agricultural Regions

Total Federal Deficit or Surplus, F

On- & Off-Budget Federal Deficit or Surplus, F On- & Off-Budget Federal Deficit or Surplus, F

Federal Deficit or Surplus as % GDP, F Federal Deficit or Surplus as % GDP, F

Federal Debt (and GDP), F Federal Debt (and GDP), F

Federal Debt as % GDP, F Federal Debt as % GDP, F

When Extra Funding Was Provided for the 2002 Farm Bill, the Federal Budget was Projected to be in Surplus When Extra Funding Was Provided for the 2002 Farm Bill, the Federal Budget was Projected to be in Surplus

The Estimated Costs of Commodity Group Proposals Substantially Exceeded Extra Funds Made Available for the 2002 Farm Bill

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.” 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 Mandatory Programs for Agriculture Under the jurisdiction of the House Ag Committee Under the jurisdiction of the House Ag Committee Typically multi-year programs such as under the farm bill Typically multi-year programs such as under the farm bill Food stamps, commodity program, and conservation program funding are major mandatory spending categories. 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. 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 Discretionary Spending (Appropriations) for Agriculture Under the jurisdiction of the House Appropriations Committee and the Agricultural Appropriations Subcommittee Under the jurisdiction of the House Appropriations Committee and the Agricultural Appropriations Subcommittee Programs and funding are reviewed every year. Programs and funding are reviewed every year. Agency salaries and expenses and research funding are major discretionary spending categories. 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. 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. 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) 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). 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. 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 Prior Budget Recon. Bills: 1997, 1996, 1995, 1993, 1990, 1989, 1987, 1985, 1983, 1981

Budget Reconciliation (Continued) 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. 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. 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. 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. 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. 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) 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). 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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)

Recent CBO Baselines for the CCC Have Shown Higher Out-Year Costs than Baselines at the Time the Farm Bill Was Passed

One Reason for Higher Out-Year Cost Projections is Lower Projected Prices for Some Crops

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. Actual market conditions differ from “average” conditions used to estimate costs and make projections. USDA implements programs differently than assumed. USDA implements programs differently than assumed. USDA uses discretionary authority that allows it to operate outside normal programs. USDA uses discretionary authority that allows it to operate outside normal programs. Farmers respond differently than assumed. Farmers respond differently than assumed. Structural change occurs. Structural change occurs. Consensus perspectives on future market conditions and structure change. 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. Developing the analytical framework for a new program with no good historical analogue can be difficult. Mistakes are made. 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

Differences in Total Program Costs of Different Crops Does Not Mean That Equity Problems Exist (CBO Sept Baseline)

CHIMPS Mandatory Program Cuts Taken by the Appropriators Appropriations cuts in mandatory programs are called CHIMPS: Changes In Mandatory Programs. 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. 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. 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. 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. 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

Consequences of CHIMPS Producers don’t get full benefits we intended when the farm bill was passed and that the Ag Committees paid for. 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. 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. 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 3 rd 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. 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

The Backlog of Farmer Conservation Program Needs is Significant. Appropriations Cuts and Funding Technical Assistance from Program Funds Makes Addressing the Backlog More Difficult

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 Tobacco Quota Buyout Current provisions added to the Corporate Tax Bill. Current provisions added to the Corporate Tax Bill. House bill is funded by taxpayers. Senate bill is funded by tobacco product manufacturers and importers. 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. Not a House Ag Committee funding concern if tax bill passes. Extension of Milk Income Loss Contract Payments. Extension of Milk Income Loss Contract Payments. Under Farm Bill authorization, scheduled to expire on Sept. 30, 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 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. 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 (o) (f)