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GAO Report Highlights Potential Ethanol, Commodity Program Budget Cuts

March 2, 2011

On Tuesday, March 1, the US Government Accountability Office (GAO) released its first annual report to Congress in response to a new statutory requirement to identify federal programs, agencies, offices, and initiatives, either within departments or government wide, which have duplicative goals or activities.

The objectives of the report are to:

(1) identify federal programs or functional areas where unnecessary duplication, overlap, or fragmentation exists, the actions needed to address such conditions, and the potential financial and other benefits of doing so; and

(2) highlight other opportunities for potential cost savings or enhanced revenues.

The report examines 81 areas and summarizes recommendations in two sections.  Section I presents 34 areas where agencies, offices, or initiatives have similar or overlapping objectives or provide similar services to the same populations; or where government missions are fragmented across multiple agencies or programs.

Section II presents 47 additional areas–beyond those directly related to duplication, overlap, or fragmentation–describing other opportunities for agencies or Congress to consider taking action that could either reduce the cost of government operations or enhance revenue collections for the Treasury.

Farm-related programs were highlighted in both sections.  GAO put the $5.4 billion a year ethanol tax credit in the duplicative category, noting the advent of the Renewable Fuels Standard mandating increased use of corn-based ethanol and other conventional biofuels — rising to 15 billion gallons a year by 2015 — makes the tax credit redundant.  GAO suggests three options for the future, each saving increasing amounts of federal revenue — capping the credit at current spending levels, making the credit counter-cyclical to oil prices, or eliminating the credit altogether.

In the “other opportunities” for savings section, GAO highlighted farm bill commodity program direct payments, another $5 billion a year item.  GAO noted that payments are made even in years with relatively high commodity prices and farm income, are concentrated among the largest recipients, and are made to families with higher incomes, on average, than taxpayers at large.  They also pointed out that payments compound land access challenges for beginning farmers by driving land and land rental prices higher.  GAO suggests three options for reducing the direct payment budget — payment limitation reform, reducing the percentage of base acres per farm eligible for payments, and terminating the program altogether.

Rural development shows up in the new report in the first section on duplication.  Repeating a theme of many such reports in the past, GAO notes that USDA’s Rural Development agencies and Commerce’s Economic Development Administration plus Housing and Urban Development (HUD) and the Small Business Administration (SBA) all have economic development functions and combined have 80 separate programs (including 31 at USDA) that provide approximately $3.2 billion in economic development grants, loans, and loan guarantees.

GAO gives the four agencies some credit for increased coordination of late, but faults all of them for not doing enough yet to track the real world outcomes of their respective investments.  The report stops short, however, of claiming that any particular programs should be eliminated or scaled back.

Categories: Conservation, Energy & Environment, Farm Bill, Rural Development

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