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Congress and White House Reach Budget Deal: What it Means for Agriculture

October 27, 2015


As the clock struck 11pm on Monday, October 26, Congress and the White House announced that they had reached an agreement on raising the United States debt limit as well as discretionary spending caps for fiscal years (FY) 2016 and 2017.

Debt Limit and Spending Caps

The agreement suspends the U.S. borrowing cap (also known as the debt limit) until March 15, 2017. The borrowing cap would kick in early next month, if Congress were to fail to pass the agreed upon budget deal, putting the nation in default on paying its debt for past spending decisions.

In addition to suspending the debt limit, the budget agreement raises overall spending caps for both domestic discretionary spending and defense discretionary spending. For domestic (non-defense) discretionary spending, caps would increase by $25 billion in FY 2016 and $15 billion in FY 2017. By comparison, the deal increases defense spending by $41 billion in FY 2016 and $31 billion in FY 2017, including funding for what is known as the Overseas Contingency Operation (OCO) account.

Offsets

The budget deal pays for the spending increases by, among other cuts and reforms:

  • Extending automatic sequestration cuts to mandatory spending by one year, to 2025;
  • Reducing the target rate of return for crop insurance companies from 14 percent to 8.9 percent, and allows Congress to generate taxpayer savings through negotiated agreements with the crop insurance industry;
  • Selling crude oil from the Strategic Petroleum Reserve;
  • Auctioning internet and mobile phone spectrum frequencies;
  • Modifying some tax compliance provisions;
  • Repealing a provision from the Affordable Care Act that requires large employers to automatically enroll employees in a health care plan, if a qualified plan is offered by the employer;
  • Reforming Social Security Disability Insurance; and
  • Cutting and reforming certain Medicare payments and requiring Medicaid rebate payments from makers of generic drugs.

Impact on Agriculture and Conservation

Crop Insurance

As noted above, the budget deal uses two changes to the crop insurance program as offsets for increased discretionary security and non-security spending. The first change waives a provision of the 2014 Farm Bill inserted in the dark of night that prevents USDA from obtaining any savings from a renegotiation of the Standard Reinsurance Agreement (SRA) and requires the renegotiation of the SRA by the end of 2016. The SRA governs all aspects of the relationship between the federal government and the crop insurance companies that administer the policies. That 2014 Farm Bill provision locked in the status quo rate of return for crop insurance companies and allowed them to pocket any savings obtained through increased efficiencies in the crop insurance delivery system.

The other provision lowers the target rate of return for crop insurance companies under the SRA from 14 percent to 8.9 percent. President Obama proposed a smaller cut from 14 percent to 12 percent as part of several past budgets. Rumor has it, though, that the White House offered other crop insurance reform provisions that would have changed premium subsidies to certain farmers, but Hill negotiators suggested the SRA change instead.

These changes together have been estimated by CBO to save $3.038 billion over the coming decade.

Neither of these provisions impact farmers, as insurance and subsidy rates are set by the federal government and federal law, not by the insurance companies.

Appropriations for FY 2016

As we detailed in previous posts, concurrent with the larger budget debate, Congress has been negotiating appropriations levels for the remainder of 2016 fiscal year, which began on October 1. On the final day of the 2015 fiscal year, Congress passed a 10-week extension of FY 2015 funding levels. FY 2016 funding levels must now be finalized by December 11 to avoid a government shutdown.

The budget deal announced last night gives appropriators the green light to move ahead with final negotiations on an appropriations package for FY 2016. By raising discretionary spending caps for FY 2016, it also gives appropriators more money to work with. We expect the House and Senate Appropriations Committees to soon issue revised spending allocations (known as 302b allocations) for each of their subcommittees, including the Agriculture Appropriations Subcommittee, to reflect the higher overall spending cap.

Both the House and Senate Appropriations Committees passed agriculture appropriations bills for FY 2016 earlier this spring and summer; and both bills contain deep cuts to mandatory farm bill spending for conservation programs. It is our hope that with the additional funding that the budget deal provides, appropriators will quickly move to eliminate the 23 percent cut to the Conservation Stewardship Program in the pending House bill and the over $300 million cut to the Environmental Quality Incentives Program in both the pending House and Senate bills. These shortsighted cuts severely limit the capacity of farmers and ranchers to improve soil and water quality, protect pollinators and habitat, conserve water, and prepare for extreme weather events.

If the additional funding from the this week’s budget deal were to be divided on a pro-rata basis across all of the appropriations subcommittees, the Agriculture Appropriations Subcommittees would have roughly $1 billion in extra spending to work with in FY 2016. This would be sufficient to cover increases in food safety spending, farm economics and statistics, agricultural research, and other priorities, in addition to eliminating the proposed cuts to farm bill conservation spending.

Moving Forward

The House is likely to vote first on the deal, perhaps as early as Wednesday, in an attempt to wrap up debate before electing a new Speaker of the House on Thursday. The Senate will then take up the bill before sending it to the President for his signature. We will alert readers to any major new developments as the occur.

NSAC’s press release on the budget deal can be found here.


Categories: Budget and Appropriations, Commodity, Crop Insurance & Credit Programs, Conservation, Energy & Environment, Farm Bill


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