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Budget Deal Negotiations Update and What it May Mean for Agriculture

July 7, 2011


High level talks (and lots of political noise) continue in order to reach an agreement on a macro budget deal.  The macro budget deal would include major actions for deficit reduction while also lifting the debt ceiling before the government would otherwise go into default in early August.

The latest reports indicate that President Obama and House Speaker Boehner are now exploring a bigger deal than previously indicated — in the neighborhood of $4 trillion in long-term reductions.  That bigger deal might include cuts to major entitlement programs like Medicare and Social Security as well as tax loophole closings that would raise revenue.  Congressional leaders met with the President today and they are now scheduled to meet again on Sunday.

The earlier bipartisan talks led by Vice President Biden reportedly came to tentative agreements more in the $1 to $2 trillion range, with a goal of reaching at least the $2.4 trillion level needed to match the debt ceiling increase dollar for dollar.

The new talk of a larger deal moves in the opposite direction of the suggestions earlier from Senate Minority Leader Mitch McConnell and others that instead of even a $2.4 trillion deal, they work toward a series of smaller deals to be matched by smaller, repeated increases in the debt ceiling.

At the same time as these White House talks are happening, the Senate Budget Committee Democrats have reached a deal on a Senate budget resolution that would save over $4 trillion dollars over ten years.  Roughly half of the savings would come from revenues and the other half from spending cuts and interest savings.  The details of that agreement have not yet been released.  Budget Chair Kent Conrad (D-ND) has indicated they are holding back on the details to see if the White House talks reach a resolution.

We receive quite a few questions from members and others about what this all means for the Farm Bill and for Agricultural Appropriations.  It is a complicated question and parts of the answer are unknown at this point in time.

Appropriations

The appropriations part of the question is the more straightforward of the two.  Each year, the congressional budget resolution sets the overall level for annual discretionary spending across the entire government.  That large pie is then broken into slices for each of the appropriations subcommittees.  Once the size of that slice is determined, the Agriculture Subcommittee and all the other Appropriations Subcommittees can develop and vote on their bills for the year.

This year, the House has been proceeding to vote on appropriations bills based on the House-passed budget resolution, without waiting on Senate action and a mutually-agreed upon final number.  The House-passed agricultural spending bill, when combined with the FY 2011 spending levels agreed to earlier this year, would cut USDA and FDA spending by 25 percent relative to FY 2010, a huge and unprecedented reduction.  The House is also beginning action this week on environmental and conservation appropriations bills for EPA and Interior that are if anything even more draconian than the agriculture bill.

If the White House and congressional leaders reach a budget-debt ceiling macro deal, expectations are that the discretionary funding level for FY 2012 would be higher than the numbers being used by the House to date for FY 2012, but would still represent significant cuts below FY 2011 levels.  When the Biden-led negotiations ended, they were reportedly close to agreeing on $1.1 trillion in savings over the next ten years from defense and domestic discretionary spending, compared to a $1.6 trillion cut from non-defense appropriations and a defense appropriations increase in the House-passed budget.

The Senate appropriations process will not begin until a budget deal has been put in place.  We do not currently expect action on Senate agriculture appropriations until September.

Farm Bill

The Farm Bill part of the question could be more complicated.  As has been widely reported, the Biden-led negotiations had tentatively agreed on at least $600 billion in cuts over the next ten years to mandatory benefits and subsidies, including about $34 billion in farm bill commodity subsidy cuts.  If taken entirely from the commodity title of the Farm Bill, that would approximately equal a 50 percent cut annually from projected baseline spending levels for the commodity title.

Current political and legislative processes are anything but normal, but, if they were more normal, one might expect the budget deal to function like the congressional budget reconciliation process.  In the congressional budget reconciliation process, total spending cuts are determined by budget function (e.g., defense, income security, natural resources, agriculture, etc.) and then assigned to the relevant authorizing committees of Congress to come up with the specific policy choices that yield the requisite amount of savings.

If that type of budget reconciliation process is used in any negotiated budget deal, there might be a vote on those general instructions as part of the bill to lift the debt ceiling.  Under that scenario, the Agriculture Committees would then be given a set amount of time to come up with a set of policy changes that would save the required amount, and they could draw upon any of the mandatory program accounts under their jurisdiction.  Once approved by the Committee, it would then be packaged with other cuts from other authorizing committees and voted on as a big package on the floor of the House and Senate.  The set amount of time could be within this fiscal year (i.e., by September 30), or within this calendar year, or by next spring, or by later in fiscal year 2012.

Under that type of scenario, if a longer time horizon is provided to the authorizing committees, the Agriculture Committees could decide to do a full farm bill plus budget reconciliation in a single bill or in two bills produced at the same time.  If one of the shorter time horizon options are prescribed, however, it would be more likely the Agriculture Committees would produce their budget reconciliation bill and leave the farm bill per se to 2012 or 2013.

Some commentators, though, believe the votes for a mega budget deal are going to be so close and debate so contentious that the cuts to mandatory benefit and subsidy programs will need to be included in their full legislative detail in the August budget vote.  Under that scenario, assuming there continues to be a major budget reduction to farm bill programs, the Agriculture Committees would lose the opportunity to shape the product through more normal legislative process.  The vote on the actual particulars would take place as part and parcel of the floor vote on the deficit reduction/debt ceiling vote.

These are undoubtedly not all of the possibilities and permutations, but are perhaps the most likely.  Time will tell if a deal is reached and if so, what it will mean for the farm bill.  We hesitate to provide too much in the way of speculative information, but given the volume of questions we have been receiving, we thought it might help to at least lay out the general situation as clearly as we are able to at this point in time.  We hope it helps a bit to clarify what is undoubtedly a complicated — and of course increasingly urgent — situation.


Categories: Budget and Appropriations, Farm Bill


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