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What the Budget Deal Means for American Agriculture

February 9, 2018


US Capitol. Credit: USDA

After months of negotiations, the House and Senate have finally reached a two-year budget deal to keep the government running, increase annual discretionary spending caps for defense and non-defense programs ($300 billion), and provide disaster relief ($89 billion). The Senate passed the bill 71-28 around 2am this morning, and the House followed shortly thereafter with a vote of 240-186. The agreement paves the way for the next critical step in the government funding process, appropriations.

The budget deal sets the parameters within which Congress can fund particular programs, but it does not dictate how much money each discretionary program will receive – the allocation of funds is left to the congressional appropriators. In a normal budgetary cycle, new appropriations bills would be passed annually before September 30, which is the end of the federal fiscal year. However, when appropriations are delayed, Congress typically passes a “Continuing Resolution” (CR), which keeps federal programs running at the previous fiscal year’s funding levels. Because there has been no overall budget deal until this week, the government has been operating under a series of CRs for the past four months, since the beginning of FY 2018. By raising the discretionary funding caps for two years, Congress has dramatically improved the odds that congressional appropriators will be able to finalize appropriations legislation for FY 2018, as well as for FY 2019 later this year.

In addition to raising spending limits, the deal includes yet another CR, the fifth since last October, extending FY 2017 funding levels through March 23. This timeline should give the Appropriations Committees time to hammer out the details of an omnibus appropriations bill that adjusts spending upward to the new budget caps.

In the sections below, we lay out some of the main takeaways from the nearly 700-page budget bill, including potential implications for the next farm bill.

Overview

In 2011, Congress passed a law that set overall discretionary spending caps for ten years. The annual spending caps are highly restrictive, making it extremely difficult for congressional appropriators to finalize and pass appropriations legislation. In an effort to smooth the path for appropriations legislation, Congress has raised the caps a number of times, including as part of this week’s budget deal.

The deal reached this week increases the non-defense discretionary spending cap by $63 billion in FY 2018 and $68 billion in FY 2019. It also increases the defense discretionary spending cap by $80 billion in FY 2018 and $85 billion in FY 2019.

In addition to raising spending caps, the two-year deal addresses a number of other hot-button budgetary issues, including but not limited to:

  • Extending the suspension of the U.S. debt limit until spring 2019
  • Providing more than $89 billion in disaster aid for areas hit by recent hurricanes and other natural disasters
  • Extending the Children’s Health Insurance Program through 2028 and extending various tax breaks
  • Adding billions of dollars to fight the opioid epidemic
  • Increasing farm bill spending for dairy and cotton commodity programs

What the Deal Means for Agriculture Appropriations

Under the newly agreed-to budget caps, congressional appropriators will have tens of billions of additional dollars to allocate to appropriations bills in FY 2018 and 2019. As a reminder, both the House and Senate Appropriations Committees have already passed agriculture appropriations bills for FY 2018. For a refresher of what is in those bills, visit our earlier blog posts.

Once Congress passes this week’s budget deal, appropriators will begin the process of allocating those additional dollars to the 12 appropriations subcommittees, including the Agriculture Appropriations Subcommittee.

It is critically important to the health of our food and farm systems that the agriculture appropriations bill receives its fair share of funding. Historically, agriculture has received around 3.5 percent of the overall funding for appropriations. If we use this as a guide, then agriculture’s fair share would be at least $2 billion in additional funding.

Like all appropriations bills, the agriculture bill has been suffering under the weight of the unsustainable domestic discretionary budget caps. The new budget caps will allow Congress to re-invest in groundbreaking research, farm credit programs, rural development, and training and outreach for farmers and ranchers. Many critical food and agriculture programs are already vastly over-subscribed, and additional funding would help to fill long-standing gaps in capacity and service.

The National Sustainable Agriculture Coalition (NSAC) will be encouraging Congress to address high priority needs with the additional funding. Our priorities for increased investment in upcoming appropriations legislation include, but are not limited to: the Sustainable Agriculture Research and Education program, Outreach and Assistance for Socially Disadvantaged and Veteran Farmers and Ranchers, Farm Service Agency loan programs, and Food Safety Outreach Program. We will also urge appropriators from refrain from making any changes to mandatory conservation spending.

Setting the Stage for the Farm Bill

Typically, the annual budget process most directly affects agriculture because of its impact on appropriations bills. This year, however, there are a few unique issues that will have an outsized effect on the upcoming farm bill – chief among them is a deal on cotton and dairy/livestock programs, and the decision to offset budget costs through the use of sequester.

The budget agreement also includes a provision that ensures that any cuts that appropriators make to mandatory funding for the Environmental Quality Incentives Program (EQIP) in FY 2018 do not carry over into the next funding estimate of available farm bill funding (known as a baseline). This was done by extending the EQIP authorization through 2019, thereby negating a rule that states that any cut made to farm bill direct spending in the final year of a farm bill (in this case, FY 2018) will carry forward for 10 years.

The Unique Case of Dairy/Livestock and Cotton 

There have been calls to modify the cotton and dairy provisions of the 2014 Farm Bill since the last years of the Obama Administration. Producers have said that the 2014 Farm Bill provisions have not provided the support they expected, and that changes were needed to keep the industries healthy. How to pay for those changes has been a major stumbling block in the development of the next farm bill.

Including increased support for cotton and dairy in this deal means the $1.2 billion in net additional support is treated like emergency spending and does not require offsetting cuts in other programs. By contrast, were the changes made in the new farm bill, Congress would be required to cut another set of farm bill programs by the same $1.2 billion, putting more pressure on the bill as a whole. Getting it out of the way in advance could potentially speed up consideration of the new farm bill, as a major obstacle is out of the way, or alternatively it could take the steam out of doing a new farm bill this year since two of the biggest problem areas have already been addressed. Only time will tell which way it goes. 

The cotton provision will make “seed” cotton (i.e., un-ginned cotton containing both the cotton ball and cottonseed) eligible for Price Loss Coverage (PLC) beginning with the 2018 crop year, thus moving cotton back into the Title I subsidy programs immediately. It sets the reference price at $.367 per pound. While it has been reported that the cotton provisions amount to over $3 billion in new spending for the anticipated cotton payments, the cost has been mostly offset by by changing most so-called “generic base acres” into seed cotton base acres and making seed cotton PLC participants ineligible for the special cotton Stacked Income Protection (STAX) crop insurance policy beginning in 2019.

Generic acres were created in 2014 when cotton was removed from title one, and essentially allowed farmers with generic base acres to assign them to whichever commodity they wanted. Congress created the STAX crop insurance policy in the 2014 Farm Bill as new, highly subsidized (80%) crop insurance policy that covered losses below 90 percent. Despite its highly subsidized features, it has been undersubscribed from the start and never fully utilized by cotton producers.

It does appear that since farmers signing up for the new seed cotton PLC in the 2018 crop year will not be ineligible for STAX until 2019 that cotton farmers will be able to take advantage of both programs this year.

The dairy provision is actually several of changes that will inject just over $1 billion in a variety of ways to support dairy producers. Dairy producers have expressed concern about the how the Dairy Margin Protection Program, created in the 2014 Farm Bill, has provided little benefit to farmers for the premiums they have paid. They have also sought out other changes to programs such as the crop insurance program that will potentially allow new dairy focused insurance products. The new dairy provisions will:

  • Lower or eliminate premiums for the dairy margin protection program for small and medium sized farms.
  • Waive fees for beginning, veteran, young, and underserved farmers.
  • Modify the timing of the margin calculation from every two months to ever month.
  • Allow farmers to modify their level of participation immediately for 2018.
  • Remove the $20 million cap on livestock related crop insurance policy costs to allow for the creation of new dairy focused insurance products. Removal of the cap will also ultimately allow more livestock to be insured as part of the Whole Farm Revenue Protection program.
  • Remove the $125,000 payment limit on the Livestock Indemnity Program.

Sequestration

Not all the news from the budget deal is good news for the farm bill. As part of a small set of offsets for the entire budget deal package, the bill extends automatic budget cuts (aka, sequestration) for mandatory programs for an additional two years, through 2027. Sequestration affects farm bill commodity and conservation programs, as well as many other government programs outside of agriculture.

The sequestration provision added to the budget deal reduces potential farm bill spending by more than the cotton and dairy provisions add. It also further locks in place the lazy approach to congressional budgeting. Each time Congress makes a major government spending decision in recent years, it tacks on a few more years of mindless automatic sequestration to make a statement about fiscal responsibility.

Using the farm bill as an example, with the additional years tacked on by the new budget deal, over the course of the next nine years, farm bill commodity and conservation payments to farmers will be cut by over $6 billion not because of a farm bill decision or for any rational reason or in any rational way, but just to help save face. NSAC will continue to urge Congress to turn away from this mindless, meat ax approach and return to sound, fair, and thoughtful budget policy.


Categories: Budget and Appropriations, Carousel, Farm Bill


2 responses to “What the Budget Deal Means for American Agriculture”

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