February 6, 2013
The Congressional Budget Office (CBO) released its first snapshot of the budget projections for 2014 and beyond on Tuesday. The snapshot includes projections for federal farm bill spending. The final version of the projections, which will be published in late March, will be the version that is used for determining the costs and savings of competing budget resolutions and farm bill proposals to be debated later this year. As a general rule, though, there are only rarely big differences between the early snapshot and the final projections.
The early snapshot is more significant this year than most due to the tax deal reached by Congress and the White House at the New Year. It is the first assessment for Congress of the fiscal outlook since that deal became law, and as expected it shows deficits falling though still historically high.
Changes Since Last Year
The 2012 debate on a new farm bill used the March 2012 CBO baseline as its measuring rod. Compared to that March 2012 baseline, several items stand out in the new version.
First, the Supplemental Nutrition Assistance Program (SNAP), better known as the food stamp program, is projected to decline in cost by almost $8 billion in the next five years and by nearly $12 billion over the coming decade, relative to last year’s projection. Those are decreases of 1.9 and 1.5 percent, respectively. These additional savings are primarily due to an improving economy. Assuming the economic projections are correct, these savings, which take no further action from Congress to achieve, are three times greater than what the Senate-passed farm bill from last year proposed cutting from the program and three-fourths the size of the House Agriculture Committee-passed SNAP cut. The projected decline in the food stamp budget is the primary reason why the CBO projection for farm bill spending as a whole goes down, relative to last year’s projection, by 1.4 percent.
Second, CBO projects a decline in the cost of the crop insurance program, by close to $3 billion over the next decade relative to last year’s projection. The insurance subsidies would still cost close to $9 billion a year, according to CBO. This projection rests in large measure on predictions of high and fairly stable commodity prices and no return to extreme drought conditions. Should major price declines from bumper crops or major yield declines due to broad-based disaster conditions occur, as historically they have, then the projection could be off by a considerable amount. For example, CBO’s March 2012 cost estimate for crop insurance in FY 2013 was under $8.5 billion; however, the January snapshot shows that the actual pay out will be over $13 billion. CBO’s analysis assumes a loss ratio of 1.00 for each of the next ten years, whereas the loss ratio for 2012 drought year is expected to be 1.45.
Third, the current suite of commodity programs are projected to increase in cost by $1.6 billion over the next 10 years relative to last year’s projection. The increase is largely due to projected increases in Average Crop Revenue Election (ACRE) payments for corn, soybeans, and wheat and projected increases in counter cyclical payments for cotton. Dairy program costs drop dramatically after the current one-year extension of the Milk Income Loss Contract (MILC) program — included as part of the short-term farm bill extension enacted at the beginning of January — expires at the end of this year.
Fourth, the Conservation Reserve Program — which removes cropland from production and has been steadily declining in size for several years now during the commodity price boom — is projected to decline in size and cost relative to last year’s projection, but not by as much as might have been expected given market trends. CBO projects an $854 million decrease in cost, relative to last year’s projection, over the next five years, but then smaller reductions thereafter such that the full 10-year budget score is just a bit over $1 billion lower than last year’s projection.
Fifth, overall conservation program spending is projected to decline by a very small amount relative to last year’s projections, but the small overall difference masks three major changes, including the CRP change noted above.
The Wetlands Reserve and Grassland Reserve Programs, absent a new farm bill, are in their final year of having any funds left to obligate. Without action by Congress, they will disappear. The farm bills that were acted on in 2012 but did not become law would have melded several conservation easements programs together into a consolidated program, continuing the functions of these programs with renewed and more permanent funding.
The Conservation Stewardship Program, on the other hand, is projected to increase, relative to last year’s projections, by over $1 billion. The program, based on five-year contracts for advanced conservation performance, naturally grows over time as new cohorts of farmers enter the program.
Measuring New Proposals
All of these figures of course assume no changes in current law. Hence, as farm bill proposals are introduced, their costs are measured against the CBO baseline to determine whether they increase or decrease spending relative to current law.
So for instance, measures to reconstruct the farm bill’s commodity title and replace direct, ACRE, and counter-cyclical payment programs will have a bit more funding to play with relative to last year’s farm bill proposals. On the other hand, proposals to create a new dairy program will have considerably less money to play with. Proposals to add new subsidies to the crop insurance programs will fair about the same, or slightly better, than they did last year. Re-arranging funding within the conservation title will be a bit more difficult due to the decline in CRP funding and the disappearance of any remaining WRP and GRP funding.
Sequestration Not Included
CBO farm bill projections did not include the impact of automatic budget cuts (sequestration) scheduled to take effect on March 1 this year. Unless Congress decides at the last minute to modify or postpone these cuts, they will have a very significant impact on farm bill spending, primarily for commodity subsidies and conservation programs. Food stamp costs are exempt from sequestration by statute, and the Obama Administration has decided to exempt crop insurance subsidies as well.
Cuts to mandatory programs that are not exempt from sequestration are expected to be 5.3 percent for 2013, according to CBO. For mandatory programs, these automatic cuts are taken each and every year for nine years, though the percentage taken each year will change a bit. Sequestration, if it is not vitiated in some manner, is expected to reduce farm bill spending by at least $7 billion over the nine year period.
Concluding Note about Appropriations
This post is focused on mandatory funding under the farm bill. But please remember that sequestration, if allowed to trigger at the end of this month, will force 5 percent cuts across the board on all USDA and FDA discretionary programs, cuts that will be magnified by the fact they would be forced to happen in just half a fiscal year. While every single discretionary program would be hit by the same percentage cut, the biggest cut in dollar terms will be the Women, Infants, and Children feeding program. Funding for implementation of the new Food Safety Modernization Act and for federal meat inspection would also be hit hard.
While sanity would suggest a more measured, targeted, and balanced approach to deficit reduction, the insanely partisan situation in Washington at the moment seems to be leading inexorably toward the completely unbalanced and meat ax approach, one that could threaten the economic recovery and will for sure reduce the effective and efficient delivery of government services.