A Presentation by
Craig Jagger
Chief Economist
House Committee on Agriculture
For the Session:
Assessing the Equitability of Farm Program Benefits at the
2004 National Public Policy Education Conference
St. Louis, MO
September 20, 2004

Members of the House Agriculture Committee in the
108 th Congress Represent Many Agricultural Regions

Total Federal Deficit or Surplus, 1981-2014F
Federal On & Off-Budget Deficit(-) or Surplus
Actuals: 81-03; CBO Sept '04 Baseline: 2004+
$300
$200
$100
$0
-$100
-$200
-$300
-$400
-$500
81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13
Fiscal Year
Surplus
Deficit

On- & Off-Budget Federal Deficit or
Surplus, 1981-2014F
Federal On & Off-Budget Deficit(-) or Surplus
Actuals: 81-03; CBO Sept '04 Baseline: 2004+
$400
$300
$200
$100
$0
-$100
-$200
-$300
-$400
-$500
-$600
-$700
81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13
Fiscal Year
On-Budget Off-Budget
Surplus
Deficit
Total

Federal Deficit or Surplus as % GDP, 1981-2014F
Deficit(-) or Surplus as % GDP
Actuals: 81-03; CBO Sept '04 Baseline: 04+
3%
2%
1%
0%
-1%
-2%
-3%
-4%
-5%
-6%
-7%
81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13
Fiscal Year
Total as % GDP On-Budget as % GDP
Surplus
Deficit

1981-2014F
$20,000
GDP, Total Federal Debt Held by the Public, & Debt Held in
Gov't.Accts. Actuals: 81-03; CBO Sept '04 Baseline: 04+
$17,500
$15,000
$12,500
$10,000
$7,500
$5,000
$2,500
$0
81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13
Fed Debt Held by the Public
Fiscal Year
Fed Debt in Gov't. Accts.
U.S. GDP

Federal Debt as % GDP, 1981-2014F
Total Federal Debt, Debt Held by the Public,
& Debt Held in Gov't Accts. as % GDP.
Actuals: 81-03; CBO Sept '04 Baseline: 04+
40%
30%
20%
10%
0%
80%
70%
60%
50%
81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13
Fiscal Year
Total Debt Debt Held by Public Held in Gov't Accts.

When Extra Funding Was Provided for the
2002 Farm Bill, the Federal Budget was
Projected to be in Surplus
Total Federal Surplus (+) or Deficit (-) by Time of Projection
1,000.0
800.0
600.0
400.0
200.0
0.0
-200.0
-400.0
-600.0
Surplus
Deficit
81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13
Fiscal Year
Actuals as of Sept 2004 Jan 2001 CBO Proj.
Sept 2004 Baseline

The Estimated Costs of Commodity Group Proposals
Substantially Exceeded Extra Funds Made Available for the 2002 Farm Bill
350
300
250
200
150
100
50
0
Extra Funding for FY 2001 - 2011
Farm Group
Requests:
$261 Billion
Extra Funds:
$79 Billion

Budget Reconciliation
Sharing the Pain of Cutting Federal Spending on
Mandatory Programs to Reduce the Deficit.
•
Budget Reconciliation: Instructions in the Congressional Budget
Resolution to authorizing committees to draft changes to existing laws to achieve specified reductions in “mandatory spending.”
• Mandatory Programs for Agriculture
•
Under the jurisdiction of the House Ag Committee
•
•
•
Typically multi-year programs such as under the farm bill
Food stamps, commodity program, and conservation program funding are major mandatory spending categories.
All multi-year mandatory funding is provided up front when the farm bill or other House Ag Committee bill is passed.

Budget Reconciliation
& Discretionary Spending (Appropriations)
• Discretionary Spending (Appropriations) for Agriculture
•
Under the jurisdiction of the House Appropriations Committee and the Agricultural Appropriations Subcommittee
•
•
•
Programs and funding are reviewed every year.
Agency salaries and expenses and research funding are major discretionary spending categories.
Funding typically is provided one year at a time in an annual appropriations bill.
• The Budget Resolution specifies a maximum level for appropriations that may be lower than in prior years but cutting discretionary spending is done outside of reconciliation in regular appropriations bills.

Budget Reconciliation (Continued)
• Instructions include how much each committee must cut and over what overall time period. (e.g., 5, 7, or 10 years)
• May also specify a required cut in the first year and/or the first several years (e.g., years one through five of a ten year bill).
• Programs that are cut will need to be re-authorized for the time period covered by the cuts.
• Prior Budget Recon. Bills: 1997, 1996, 1995, 1993, 1990, 1989, 1987,
1985, 1983, 1981

Budget Reconciliation (Continued)
• Cuts are made from baseline spending—CBO’s projections (with any
Budget Committee Adjustments) of mandatory spending over the next 10 years under the assumption that current laws continue.
• Only reduced spending caused by legislated changes are credited—No credit is given for lower than expected costs from changes in market conditions or USDA implementation decisions different than expected.
•
Cuts can come from any program under the jurisdiction of the Ag
Committees: commodity, conservation, crop insurance, trade, rural development, research, foods stamps, or forestry.
• The 10-year mandatory baseline for programs under the jurisdiction of the House Ag Committee is about $540 billion.
• If reconciliation occurs, guessing that Ag Cuts will not be less than The FY
04 House Proposed Level of $18.6 billion.

Budget Reconciliation (Continued)
• Levels of Cuts are determined by the Budget Committees (but must be at absolute and relative levels that can pass the House and Senate).
•
Budget Committee decisions can be based on various factors but it is likely that the higher the spending in the baseline, the higher the required cuts.
• Cuts must be prospective—i.e. cuts in future contracts, not current contracts. Signed long-term contracts cannot be cancelled to get savings.
• So be careful when people say that “We’ve got to push implementation and get contracts signed to get a higher baseline for reconciliation”— especially if long-term contracts are involved.
•
•
A higher baseline may cause higher reconciliation cuts.
The more long-term contracts that are signed, the larger the cuts must be from other programs.

Are We Having Fun Yet?
• Proposed cuts may lead to interest group wars. Every program has a constituency.
• Policy changes that save money may be viewed as more attractive than they otherwise would be.
• Can lead to “bad” policy if policies are designed to capture quirks in CBO baselines or estimating assumptions.
• Programs with perceived problems could be viewed as likely candidates for cutting.
• Cost trade-offs and savings opportunities can be heavily dependent on CBO
Baselines and Scoring.

CBO’s Baseline Projections of Future Program Costs
Change Over Time—Increasing for Some Programs and
Decreasing for Others (Total CCC Costs)
CBO's Total CCC Costs (& NRCS Conservation), FY 2002 - 2011:
Cumulative by FY. Latest CBO Estimate vs. Most Likely Estimate at Farm
Bill Passage (Against the March 2002 CBO Baseline)
$200
$180
$160
$140
$120
$100
$80
$60
$40
$20
$0
18
16
2002
40
34
2003
61
47
2004
81
61
2005
100
77
118
94
2006 2007
Fiscal Year
133
113
2008
149
133
164
153
179
173
2009 2010 2011
At Farm Bill Passage: Mar '02 Base Latest CBO Est: Sep '04 Base

Recent CBO Baselines for the CCC Have Shown
Higher Out-Year Costs than Baselines at the
Time the Farm Bill Was Passed
CBO's Total CCC Costs, FY 2002-2011: Level by FY.
Latest CBO Estimate Vs. Estimate at Farm Bill Passage Against the
Updated March 2002 Baseline
$25
$20
18.4
15.9
$15
21.9
18.2
21.2
12.7
19.9
13.8
18.8
16.0
17.7
17.7
15.6
18.5
15.6
20.4
15.3
20.3
15.0
20.0
$10
$5
$0
2002 2003 2004 2005
At Farm bill Passage: Apr '01 Base
2006 2007
Fiscal Year
2008 2009 2010 2011
Latest CBO Est: Sep '04 Base

One Reason for Higher Out-Year Cost Projections is
Lower Projected Prices for Some Crops
Table 5. Corn Prices vs. Effective Target Price & Loan Rate
CBO Baselines: 2002 Farm Bill vs. Recent
$2.80
$2.70
$2.60
$2.50
$2.40
$2.30
$2.20
$2.10
$2.00
$1.90
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Apr '01 Baseline
Effective Target Price
Market-Year Price
March '02 baseline
Loan Rate
March '04 Baseline
Table 7. Wheat Prices vs. Effective Target Price & Loan Rate
CBO Baselines: 2002 Farm Bill Forward
$3.80
$3.70
$3.60
$3.50
$3.40
$3.30
$3.20
$3.10
$3.00
$2.90
$2.80
$2.70
$2.60
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Apr '01 Baseline
Effective Target Price
Market-Year Price
Mar '02 Baseline
Loan Rate
Mar '04 Baseline

Some Reasons Why Actual Program Costs Differ From
Projected Costs and Why Baselines Change
•
•
•
•
•
•
•
•
Actual market conditions differ from “average” conditions used to estimate costs and make projections.
USDA implements programs differently than assumed.
USDA uses discretionary authority that allows it to operate outside normal programs.
Farmers respond differently than assumed.
Structural change occurs.
Consensus perspectives on future market conditions and structure change.
Developing the analytical framework for a new program with no good historical analogue can be difficult.
Mistakes are made.

Under CBO’s Current Sept., 2004 Baseline, Food Stamps
Are Over Half of the Costs of Programs Under the
Jurisdiction of the House Agriculture Committee
House Agriculture Committee Jurisdiction
CBO 10-Year Projections: FY 05-14 Budget Authority
CBO Sep 04 Baseline
Food Stamps
CCC Commodity Prog $128.9
$48.5
$37.1
Farmer Conservation
Crop Insurance
Other Nutrition
Rsch & Inspect.
CCC Other (Exc Conserv.)
CCC Export Prog & Guar
Forest Serv
Transportation
Comm & Rural Dev
$8.0
$7.5
$7.2
$5.8
$2.3
$0.6
$0.5
0 50 100 150
$ Billion
200 250
$294.2
300 350

Differences in Total Program Costs of Different Crops
Does Not Mean That Equity Problems Exist
(CBO Sept. 2004 Baseline)
Feed Grains
Wheat
Soybeans
Upl Cotton
Rice
Peanuts
Dairy
Sugar
Other
Tobacco
0
CCC Commodity Programs, CBO 10-Year Projections:
FY 05-14 Budget Authority
CBO Sep 04 Baseline
$2.9
$2.6
$2.1
$2.0
5 10
$11.0
$15.7
$21.9
$20.0
15 20 25
$ Billion
30 35 40 45 50
$50.8
55

Mandatory Program Cuts Taken by the Appropriators
• Appropriations cuts in mandatory programs are called CHIMPS:
Changes In Mandatory Programs.
• It is against the House Rules to “legislate on appropriations bills.”
But appropriators indirectly do so by, for example, limiting salaries and expenses to carry out a conservation program of greater than
$xxx million.
•
CHIMPS represent a one-way street—Appropriators can cut our mandatory farm bill programs but we can’t cut their discretionary programs.
• For FY 04 Ag CHIMPS were 31% of total CHIMPS. Ag
Appropriations are 2% of total appropriations.
• Since FY 2002, $3.1 billion has been taken from House Ag
Committee programs.

The $1.2 Billion in Farm Bill Program Cuts in the FY 05
House Passed Bill are from Conservation, Rural
Development, Research, Energy, & Food Stamps
$2,000 100.0% 100.0% 100.0% 100%
$1,500 75%
$1,624
$1,000 50%
42.2%
$500
$0
$351
17.8%
Farmer
Conservation
$150
Watershed
Rehab
Appropriation Cut
$351
Rural
Development
$260
Research
Remaining Farm Bill Funding
$100
$73
Energy
25%
$18
Food Stamps
0%
Cut as % Farm Bill Funding

Consequences of CHIMPS
• Producers don’t get full benefits we intended when the farm bill was passed and that the Ag Committees paid for.
• Upsets the delicate balances and compromises that were struck during negotiations on the 2002 farm bill.
• May set up a potential fight between Ag Committees seeking reconciliation cuts and Appropriators who have come to depend on limiting our programs to make their ever tightening budget targets.

Another Funding Problem:
Conservation Technical Assistance for CRP & WRP
 Conservation Technical Assistance is help provided to producers by NRCS and
3 rd party providers in developing farm-level conservation plans.
 Currently, the only way to pay for CRP and WRP Technical Assistance is to take from Program Funding (i.e., producer benefits) for the EQIP, FPP, WHIP, and GRP programs.

Over $1 billion is needed over the next 10 years to pay for CRP and WRP
Technical Assistance.

After Appropriations Cuts and Technical Assistance
Costs, Too Little Funding is Available to Help
Producers for FY 2005
Farm Bill, $ M il.
:
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
$1,200
$75
$215
$190
$720
$125
$24
$4
$13
$85
$85
$7
$7
$25
$46
EQIP FRPP WHIP
05 Remaining for Producers 05 House Approp Cut
04 Own Program TA 04 Other Program TA

The Backlog of Farmer Conservation Program Needs is
Significant. Appropriations Cuts and Funding Technical
Assistance from Program Funds Makes Addressing the Backlog
More Difficult
July, 2004 Backlog of Farmer Conservation Program Needs
$2,500
95%
$2,000
77% 76%
$1,500
58% 57%
$1,000
$500
$0
EQIP WHIP FRPP WRP ** Watershed
Rehab
Funding Shortfall
Avail Funding after Tech Assist & Approp. Cut
Funding Shortfall as % Backlog
** HAC Minority Staff conversion of acres to costs
0%
100%
80%
60%
40%
20%

Conservation Technical Assistance for CRP & WRP
Funding Options
 “ Free” Money: The Senate passes the FY 2005 Conference Budget
Resolution Agreement: An adjustment to the CBO baseline provides the extra funding need to pay for CRP and WRP technical assistance without cutting other programs—but only if the Senate passes the bill as the
House has done.
 Use the appropriated Conservation Operations account for Technical
Assistance
 CRP and WRP Internal options:
 CRP and WRP statutory acreage caps are reduced or
 funding (currently uncapped) is capped at baseline levels.


Tobacco Quota Buyout



Current provisions added to the Corporate Tax Bill.
House bill is funded by taxpayers. Senate bill is funded by tobacco product manufacturers and importers.
Not a House Ag Committee funding concern if tax bill passes.

Extension of Milk Income Loss Contract Payments.

Under Farm Bill authorization, scheduled to expire on Sept. 30,
2005.


House Ag Committee will likely start hearings on a new farm bill in 2005

As with the 2002 farm bill, we anticipate a Long lead time with a number of field and Washington hearings.

Craig Jagger
Chief Economist
House Committee on Agriculture
1301 Longworth HOB
Washington, DC 20515
202 225-1130 (o)
202 225-4464 (f) craig.jagger@mail.house.gov