On Sunday, July 31, congressional leaders and the President announced that they had reached a deal to raise the debt ceiling and cut the federal deficit.  The agreement comes amidst a week of tense negotiations and competing bills.  Just last week, the House passed its own package, 218-210, before the Senate voted that bill down 59-41.  See our previous entry on the competing debt ceiling bills for a detailed description of recent proposals.

The House approved the measure Monday evening, and the Senate may take it up Monday night or on Tuesday.

General Contours

Phase One — As with previous iterations of the plan, the bill would cut the deficit and raise the debt ceiling in two phases.  In the first phase, the Congress would raise the debt ceiling by $900 billion in return for a ten-year, $917 billion ten-year cut to discretionary (appropriated) spending.  For FY 2012 and 2013 there would be a firewall between defense and homeland “security” spending and all other “non-security” appropriations such that domestic programs could not be raided to fund defense increases.

For FY 2012, the bill would cap discretionary spending at $1.043 trillion, $6 billion less than FY 2011 but $24 billion more than the cap in the House-passed budget earlier this year that formed the basis for House earlier action on agricultural and other appropriations bills.  The $1.043 trillion is divided into a $684 billion cap on security spending and a $359 billion cap on non-security spending.

If for some reason the discretionary spending caps in the bill were not adhered to by Congress in any given year, the deal would require automatic across the board reductions, with limited exceptions.

Phase Two — In the second phase, a special congressional committee made up of six Democrats (three House, three Senate) and six Republicans (three House, three Senate) would come up with an additional up to $1.5 trillion spending cut before Thanksgiving of this year, with an up or down (no amendments) vote by the full House and Senate by December 23.

The special commission could make further cuts to discretionary spending but would likely concentrate its attention on mandatory spending and perhaps revenue increases.  It would be allowed to cut Medicare spending but by no more than 3 percent, and Social Security would remain ‘off the table.’

The President can increase the debt ceiling by $1.2 trillion when needed, but if the the special committee comes up with more than $1.2 trillion in cuts and their proposal passes and becomes law, the debt ceiling could increase by up to the total amount that is cut.

A failure by the committee or Congress to reach an agreement on at least $1.2 trillion in cuts would trigger automatic cuts, equally divided between security and non-security spending and including both discretionary and mandatory spending.  Low-income programs such as food stamps and Medicaid would be exempt from such automatic reductions, and Medicare cuts would be limited to two percent of program outlays.

As an alternative, the bill allows the President to raise the second debt ceiling increase from $1.2 trillion to $1.5 trillion if  Congress were to pass and the President to sign a balanced budget constitutional amendment setting spending caps at extremely low levels.  That provision is largely window dressing, however, as it is very unlikely that the Senate would pass or the President sign such a measure.

Agriculture Appropriations and Farm Bill Implications

Appropriations — Assuming passage of the new deal, the Senate Appropriations Committee will now use the numbers contained in the bill to set its fiscal year 2012 appropriations allocations for each Senate Appropriations Subcommittee, including the Agriculture Appropriations Subcommittee.  As noted above, there is a $24 billion difference in the new negotiated agreement and the figure used by the House in writing its appropriations bills earlier this year.  The difference is greater still given the impact of the firewall between defense and domestic spending, such that the Senate will have considerably more at its disposal for domestic spending than did the House, though it will still be a reduction from current levels.

It is not yet known how much the Agriculture Appropriations Subcommittee will be allocated.  Those allocations are expected to be announced by the end of this week.  Each subcommittee then will be asked to meet a specific overall spending level, and will decide how to meet that top-level number through a process called “mark up,” though it is likely given the press of time in September that the Senate bills will be marked up straightaway in full committee rather than going through the usual subcommittee process first.

The House marked up and passed its agriculture appropriations bill in June.  In order to make up for its very low total spending total, the House bill proposes to cut over $1 billion from mandatory farm bill programs, primarily from the conservation title.  The higher Senate allocation based on the new budget deal should reduce or eliminate the need to rob the farm bill to pay for appropriations.

Farm Bill — Unlike earlier proposals, the new agreement does not include any immediate cuts to farm bill spending.  A plan proposed by Senate Majority Leader Harry Reid (D-NV) last week included an immediate cut of $11 billion to  commodity program “direct” payments.  Instead, the 12-member special committee will decide whether farm bill programs are cut and if so by how much and how.  They could decide to go with the $11 billion cut in the earlier Reid package, or the $48 billion cut proposed in the House-passed budget resolution from earlier this year, or any number in between, or perhaps even zero, though the latter seems unlikely.

Under the terms of the deal, the House and Senate Agriculture Committees would have the option of recommending cuts to programs under their jurisdiction to the special committee by October 14.  While many behind-the-scenes discussions will no doubt occur between Agriculture Committee leaders and members of the special committee, it is unlikely that the Agriculture Committees, or any other Committee for that matter, will simply volunteer deep, long-term cuts to their programs.  If that assumption is correct, the October 14 option seems largely meaningless.

The Agriculture Committees will also have a chance after the special committee issues its proposed bill and before floor votes in the House and Senate to recommend whether or not to pass the bill.  Given the up-or-down, no amendments nature of the final vote, that gesture also seems like a somewhat meaningless nod to regular order under which the committees of jurisdiction would be deciding how to make cuts in programs under their control.

Given that most cuts to mandatory spending programs will be decided by a special committee later this year, the House and Senate Agriculture Committees will very likely delay any mark ups on  the next farm bill until 2012 at the earliest so as to have a clear picture of what will be available for farm bill programs moving forward.