Budget Issues Shaping a 2012 Farm Bill

Jim Monke Specialist in Agricultural Policy June 1, 2012 CRS Report for Congress Prepared for Members and Committees of Congress Congressional Research Service 7-5700 www.crs.gov R42484

Summary Budget issues are one of the primary factors affecting the development of a new farm bill, particularly in a Congress that is focused on deficit reduction. The Congressional Budget Office (CBO) cost estimate of S. 3240 the Senate Agriculture Committee s proposal for a 2012 farm bill, introduced on May 24, 2012 shows projected budgetary reductions of $23.6 billion over the 10-year period FY2013-FY2022. This would be a 2.4% reduction from the $993 billion of baseline outlays over the same period for farm bill programs. Funding to write the next farm bill is based on CBO baseline projection of the cost of farm bill programs, and on varying budgetary assumptions about whether programs will continue. The CBO baseline is an estimation (projection) at a particular point in time of what federal spending on mandatory programs likely would be under current law. When new bills are proposed that affect mandatory spending, their impact (or score ) is measured as a difference from the baseline. This process sets the mandatory budget for considering a new farm bill. The March 2012 CBO baseline for mandatory farm bill programs is $995 billion of budget authority ($993 billion of outlays) for the 10-year period FY2013-FY2022. Most of this budget authority ($772 billion) is for domestic nutrition assistance programs, primarily the Supplemental Nutrition Assistance Program (SNAP). The rest, about $223 billion, is divided among various agriculture-related programs, primarily crop insurance ($90 billion), farm commodity price and income supports ($63 billion), and conservation ($65 billion). These amounts can be used to reauthorize the same programs, be reallocated among these and other programs, or used as offsets for deficit reduction or other programs. The budget situation is more difficult and uncertain this year than for recent farm bills because of the attention on the federal debt. How much of the above baseline can be used to write a farm bill and how much will remain for 2013 and beyond is unknown. Uncertainty about government-wide deficit reduction plans is beyond the control of the agriculture committees and may not be resolved for months. Several high-profile congressional and Administration proposals for deficit reduction are specifically targeting agricultural programs with mandatory funding. Across-theboard reductions to most farm bill programs also could occur in 2013 unless Congress avoids an automatic budget sequestration process. Moreover, some 2008 farm bill programs do not have a baseline to continue, and some budgeting rules have changed since the last farm bill. The desire by many to redesign farm policy and reallocate the remaining farm bill baseline in a sequestration and deficit reduction environment is driving much of the farm bill debate this year. Political dynamics concerning sequestration and broader deficit reduction goals leave open difficult questions about how much and when the farm bill baseline may be reduced. In this context, Congress faces difficult choices about how much total support to provide for agriculture, and how to allocate that support among competing constituencies. Congressional Research Service

Contents Budget Background... 1 What Is the CBO Baseline?...1 CBO Baseline for Farm Bill Programs... 3 Farm Bill Baseline Issues... 8 Nutrition Title Share of Farm Bill Baseline... 8 Budget Reconciliation in the House Budget Resolution... 8 Government-Wide Deficit Reduction Proposals... 9 Budget Sequestration... 11 Other Budget Issues... 12 Score of the Senate Farm Bill... 13 Figures Figure 1. Ten-Year Mandatory Baseline for Farm Bill Titles... 3 Figure 2. Mandatory Baseline for Farm Bill Titles, FY2013-FY2022... 6 Figure 3. Ten-Year Mandatory Baseline for Non-Nutrition Agricultural Programs... 7 Figure 4. Ten-Year Score of Senate Farm Bill S. 3240... 14 Figure 5. Annual Score of Senate Farm Bill S. 3240... 14 Figure 6. Ten-Year Baseline and Outlays under Senate Farm Bill S. 3240... 18 Tables Table 1. Baseline for Mandatory Farm Bill Programs, FY2013-FY2022... 4 Table 2. Broad Deficit Reduction Proposals That Affect Farm Bill Programs... 10 Table 3. Score of Mandatory Programs in S. 3240 (Senate 2012 Farm Bill)... 15 Contacts Author Contact Information... 19 Congressional Research Service

C ongress periodically establishes agricultural and food policy in an omnibus farm bill. The most recent one the 2008 farm bill (Food, Conservation, and Energy Act of 2008, P.L. 110-246) generally expires in 2012. Therefore, the House and Senate Agriculture Committees are developing a new farm bill. Budget issues are one of the primary factors affecting the development of a new farm bill, particularly in a Congress that is focused on deficit reduction. How much funding is available to write a farm bill? How much of that baseline may be taken for deficit reduction? And what are the budget mechanisms and uncertainties? 1 Budget Background Farm bills include a wide range of authorities. In addition to determining the policy direction for farm bill programs, the farm bill also pays for mandatory spending by creating the necessary budget authority. This is done under the jurisdiction of authorizing committees, using resources available under budget rules. On the other hand, discretionary programs that are authorized in the farm bill are paid for separately in annual appropriations bills under the jurisdiction of the appropriations committees. 2 This report focuses on mandatory spending. Mandatory spending in the farm bill is used primarily for the farm commodity programs, crop insurance, 3 most nutrition assistance programs, and some conservation, trade, and horticulture programs. Some smaller research, bioenergy, and rural development programs sometimes receive mandatory funding, but their combined share is less than 1% of the total. 4 What Is the CBO Baseline? Funding to write the next farm bill will be based on the Congressional Budget Office (CBO) baseline projection of the cost of these farm bill programs, and on varying budgetary assumptions about whether programs will continue. These amounts are shown in the CBO baseline projections for mandatory spending (direct spending) and in budget scores of proposed bills. CBO develops the baseline under the supervision of the House and Senate Budget Committees. 5 This process sets the mandatory budget for the farm bill. 1 For more on expiration dates of the 2008 farm bill and consequences of legislative delays, see CRS Report R42442, Possible Extension or Expiration of the 2008 Farm Bill. For more on the scope of a farm bill and policy issues, see CRS Report RS22131, What Is the Farm Bill?, and CRS Report R42357, Previewing the Next Farm Bill. 2 See CRS Report R41964, Agriculture and Related Agencies: FY2012 Appropriations, for more on discretionary funds. 3 Crop insurance is permanently authorized. Prior to 2008, crop insurance was not considered part of the farm bill. 4 Mandatory spending in agriculture historically was reserved for programs such as the farm commodity programs and crop insurance that had uncertain outlays because of weather and market conditions. Mandatory spending creates funding stability and consistency compared to the appropriations process. Given the availability of mandatory funding in their jurisdiction, the authorizing committees sometimes have provided mandatory funding for programs that usually have been funded with discretionary appropriations. However, appropriators have argued that this use of mandatory spending has moved beyond the intended purpose and has reduced appropriators oversight and control. Appropriators have enacted changes in mandatory program spending (CHIMPS) to reduce or block mandatory outlays for some of these newer mandatory programs. For more on this practice, see CRS Report R41245, Reductions in Mandatory Agriculture Program Spending, and CRS Report R41964, Agriculture and Related Agencies: FY2012 Appropriations. 5 For more information, see CRS Report 98-560, Baselines and Scorekeeping in the Federal Budget Process. Congressional Research Service 1

The CBO baseline is an estimation (projection) at a particular point in time of what federal spending on mandatory programs likely would be under current law. 6 CBO periodically reestimates the baseline to incorporate changes in economic conditions. When CBO makes periodic updates to the baseline, the changes do not trigger budget enforcement mechanisms but instead show how changing economic conditions affect outlays under current law. That is, increases in projected costs from last year s baseline to this year s re-estimate (e.g., because more people qualify for entitlements) do not require offsets to pay for higher costs. Likewise, reductions in projected costs from last year s baseline to this year s re-estimate (e.g., because less government intervention is needed) do not create savings that can be used to pay for other programs. However, when developing legislation like a farm bill, the baseline serves as a benchmark or starting point for changes that a bill would make. When new bills affect mandatory spending, their impact (or score ) is measured as a difference from the baseline. Projected increases in budgetary cost above the baseline (that is, a positive score, a score greater than zero) may be subject to budget constraints such as PAYGO. 7 Projected reductions in cost below the baseline (that is, a negative score, a score less than zero) provide savings for deficit reduction or offsets that can be used to help pay for other provisions that have positive scores. From a budget perspective, programs with a continuing baseline are assumed to go on under current law, and have their own funding for reauthorization if policymakers want them to continue. 8 Normally, a program that receives mandatory funding in the last year of its authorization will be assumed to continue at that level of funding into the future as if there were no change in policy. This allows major farm bill provisions such as the farm commodity programs or nutrition assistance to be reauthorized periodically without assuming that funding will cease or following zero-based budgeting. However, some programs may not be assumed to continue in the budget baseline beyond the end of a farm bill because the program did not receive new mandatory budget authority during the last year of a farm bill, or the baseline during the last year of a farm bill is below a minimum $50 million scoring threshold that is needed to continue a baseline, or the budget and agriculture committees did not give the program a baseline in the years beyond the farm bill in order to reduce the farm bill s 10-year cost. 9 6 For example, the March 2012 CBO baseline projection for the farm commodity programs, conservation programs, crop insurance, and trade programs is available at http://cbo.gov/publication/43053. This is the scoring baseline against which a 2012 farm bill would be measured for the remainder of the second session of the 112 th Congress. 7 PAYGO generally requires that direct spending and revenue legislation enacted into law not increase the deficit. It does not address deficit increases that are projected to occur under existing law, nor does it apply to discretionary spending. See CRS Report R41157, The Statutory Pay-As-You-Go Act of 2010: Summary and Legislative History. 8 This report does not explain the issue of certain mandatory programs not having future baseline. For that discussion, see CRS Report R41433, Expiring Farm Bill Programs Without a Budget Baseline. 9 Section 257 of the Balanced Budget and Emergency Deficit Control Act of 1985 (P.L. 99-177, 2 U.S.C. 907), as amended, specifies that expiring mandatory spending programs are assumed to continue in the budget baseline if they have outlays of more than $50 million in the current year and were established before the Balanced Budget Act of 1997. Programs established later are not automatically assumed to continue, and are assessed program by program in consultation with the House and Senate Budget Committees. (CBO, The Budget and Economic Outlook: Fiscal Years 2012 to 2022, pp. 11 and 64, at http://www.cbo.gov/sites/default/files/cbofiles/attachments/01-31-2012_outlook.pdf). Congressional Research Service 2

CBO Baseline for Farm Bill Programs The March 2012 CBO baseline for mandatory farm bill programs is $995 billion for the 10-year period FY2013-FY2022. 10 Most of this baseline ($772 billion, or 78%) is for domestic nutrition assistance programs, primarily the Supplemental Nutrition Assistance Program (SNAP). 11 The rest, about $223 billion, is divided among various agriculture-related programs, primarily crop insurance ($90 billion, or 9%), farm commodity price and income supports ($63 billion, or 6%), and conservation ($65 billion, or 7%). Less than 1% of the baseline is for international trade ($3 billion) and horticulture programs ($1 billion). See Figure 1. Figure 1. Ten-Year Mandatory Baseline for Farm Bill Titles (10-year budget authority FY2013-2022 in billions of dollars by farm bill title) Nutrition, 772 Crop Insurance, 90 10-yr baseline FY2013-2022 $995 billion Commodities, 63 Conservation, 65 Trade, 3.4 Horticulture & Organic, 1.1 Energy, 0.3 Source: CRS, using the March 2012 CBO baseline. Notes: Includes $0.9 billion of baseline in FY2013-FY2014 for expiring programs that do not have baseline to continue (primarily the Wetlands Reserve Program, Grasslands Reserve Program, and Biomass Crop Assistance Program, but also including other bioenergy programs, the Rural Microenterprise Assistance Program, and local food aid purchases in developing countries). 10 CBO, March 2012 Baseline for the 2008 Farm Bill Programs and Provisions, by Title, unpublished, March 2012. 11 The farm bill baseline includes SNAP but not the child nutrition (e.g., school lunch) programs due to jurisdictional differences. While the Senate Agriculture Committee has jurisdiction over child nutrition, the House Agriculture Committee does not. The child nutrition programs would add $238 billion of baseline over 10 years. The Supplemental Nutrition Program for Women, Infants, and Children (WIC) is discretionary and is funded in Agriculture appropriations. Congressional Research Service 3

Table 1 lists the CBO baseline amounts for the farm bill titles shown in Figure 1 and for the individual programs that have baseline within each title. The table provides data for each year FY2013-FY2017, the 5-year total (FY2013-FY2017), and the 10-year total (FY2013-FY2022). Table 1 also shows an alternative total. Some programs have baseline in FY2013-FY2014, but are not considered to continue beyond the end of the 2008 farm bill. These include the Wetlands Reserve Program, Grasslands Reserve Program, Biomass Crop Assistance Program and other bioenergy programs, Rural Microenterprise Assistance Program, and local food aid purchases in developing countries. Without these programs, the 10-year baseline for continuing farm bill programs is $994 billion, and $222 billion for the non-nutrition agricultural programs. Table 1. Baseline for Mandatory Farm Bill Programs, FY2013-FY2022 (budget authority in millions of dollars) 5- and 10-year totals 2008 Farm Bill Titles and Programs FY2013 FY2014 FY2015 FY2016 FY2017 FY2013- FY2017 FY2013- FY2022 I Commodity Programs 5,750 6,005 6,636 6,467 6,285 31,143 62,944 Direct payments 4,957 4,958 4,958 4,958 4,958 24,789 49,580 Counter-cyclical, ACRE, Marketing loans 140 426 1,038 840 669 3,113 6,881 Interest and operating expenses 26 61 96 131 138 452 1,139 Economic assistance to cotton mills 57 55 55 55 55 277 548 MILC and other dairy assistance 54 48 50 50 46 248 432 Other 515 456 439 433 419 2,262 4,365 II Conservation 6,093 5,992 6,113 6,320 6,438 30,956 65,275 Conservation Reserve Program 2,219 2,400 2,538 2,581 2,466 12,204 24,399 Conservation Security/Stewardship Program 1,100 1,294 1,415 1,579 1,812 7,200 18,544 Environmental Quality Incentives Program 1,750 1,750 1,750 1,750 1,750 8,750 17,500 Farmland Protection Program 200 200 200 200 200 1,000 2,000 Wildlife Habitat Incentives Program 85 85 85 85 85 425 850 Wetlands Reserve Program a 577 133 0 0 0 710 710 Agricultural Water Enhancement Program 60 60 60 60 60 300 600 Chesapeake Bay Watershed Program 50 50 50 50 50 250 500 Agricultural Management Assistance 15 15 10 10 10 60 110 Grassland Reserve Program a 32 0 0 0 0 32 32 Emergency Forestry Conservation Reserve 5 5 5 5 5 25 30 III Trade 346 344 344 344 344 1,722 3,442 Market Access Program 200 200 200 200 200 1,000 2,000 Export donations ocean transportation 100 100 100 100 100 500 1,000 Foreign market development cooperator 35 35 35 35 35 173 345 Specialty crop technical assistance 9 9 9 9 9 45 90 Local food aid purchases a 2 0 0 0 0 2 2 Congressional Research Service 4

2008 Farm Bill Titles and Programs FY2013 FY2014 FY2015 FY2016 FY2017 5- and 10-year totals FY2013- FY2017 FY2013- FY2022 IV Nutrition (SNAP) b 82,022 79,799 80,059 79,664 78,024 399,567 771,773 VI Rural Development 3 0 0 0 0 3 3 Rural Microenterprise Assistance Program a 3 0 0 0 0 3 3 IX Energy 131 0 0 19 23 173 324 Feedstock Flexibility Program 0 0 0 19 23 42 193 Other (expiring programs, incl. BCAP) a 131 0 0 0 0 131 131 X Horticulture and Organic Agriculture 105 105 105 105 105 525 1,050 Specialty Crop Block Grants 55 55 55 55 55 275 550 Plant Pest and Disease Management 50 50 50 50 50 250 500 XII Crop Insurance 8,412 8,528 8,702 8,788 8,903 43,333 89,817 Premium Subsidy 5,924 6,007 6,138 6,210 6,305 30,585 63,750 Delivery Expenses 1,352 1,368 1,385 1,386 1,387 6,878 13,831 Underwriting Gains 1,137 1,154 1,179 1,193 1,212 5,876 12,247 Total Farm Bill Baseline 102,862 100,773 101,959 101,707 100,122 507,422 994,628 Nutrition 82,022 79,799 80,059 79,664 78,024 399,567 771,773 Non-nutrition 20,840 20,974 21,900 22,043 22,098 107,855 222,855 Alternate total: Minus baseline of programs that do not continue a -745-133 0 0 0-878 -878 Remainder for continuing programs 102,117 100,640 101,959 101,707 100,122 506,544 993,750 Remainder for non-nutrition programs 20,095 20,841 21,900 22,043 22,098 106,977 221,977 Source: CRS, using the CBO Baseline (March 2012). Note: Several titles in the 2008 farm bill Titles V (Credit), VII (Research), VIII (Forestry), XI (Livestock), XIII (Commodity Futures Trading Commission), XIV (Miscellaneous), and XV (Trade and Taxes) have no programs with budget baseline for the next 10 years. Some 2008 farm bill programs in these titles, however, may have received mandatory funding in FY2008-FY2012; these programs are listed in CRS Report R41433, Expiring Farm Bill Programs Without a Budget Baseline. a. Some programs are listed as having baseline in FY2013-FY2014, but are not considered to have funding to continue beyond the end of the 2008 farm bill. These include the Wetlands Reserve Program in FY2013- FY2014 ($710 million total), and in FY2013 only the Grasslands Reserve Program ($32 million), the Biomass Crop Assistance Program and other bioenergy programs ($131 million), the Rural Microenterprise Assistance Program ($3 million), and local food aid purchases in developing countries ($2 million). See CRS Report R41433, Expiring Farm Bill Programs Without a Budget Baseline, for details. b. The nutrition title here includes only the Supplemental Nutrition Assistance Program (SNAP) and related programs because the House Agriculture Committee does not have jurisdiction over other nutrition programs such as child nutrition. These programs are not addressed or reauthorized in the context of the farm bill. Child nutrition programs, under the jurisdiction of the Senate Agriculture Committee, would add $238 billion over 10 years. Congressional Research Service 5

Figure 2. Mandatory Baseline for Farm Bill Titles, FY2013-FY2022 (annual budget authority in billions of dollars by farm bill title) Billion dollars 100 90 80 70 60 50 40 30 20 10 0 Nutrition Conservation Commodities Crop Insurance 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Nutrition 82.02 79.80 80.06 79.66 78.02 76.58 75.34 74.23 73.47 72.59 Energy 0.13 0.00 0.00 0.02 0.02 0.03 0.03 0.03 0.03 0.04 Horticulture & Organic 0.11 0.11 0.11 0.11 0.11 0.11 0.11 0.11 0.11 0.11 Trade 0.35 0.34 0.34 0.34 0.34 0.34 0.34 0.34 0.34 0.34 Conservation 6.09 5.99 6.11 6.32 6.44 6.64 6.84 7.10 6.87 6.87 Commodities 5.75 6.01 6.64 6.47 6.29 6.29 6.28 6.38 6.48 6.38 Crop Insurance 8.41 8.53 8.70 8.79 8.90 9.08 9.20 9.30 9.41 9.49 Source: CRS, using the March 2012 CBO baseline. Notes: Includes $0.75 billion of baseline in FY2013 (mostly in Conservation and Energy) and $0.13 billion of baseline in FY2014 (in Conservation) for expiring programs that do not have baseline to continue. The 2008 farm bill s programs, if they were to continue under current law, are expected to spend just over $100 billion per year through FY2017, declining to under $100 billion during each of the second five years. The nutrition portion is expected to decline, while conservation and crop insurance outlays are expected to increase slightly (Figure 2). Figure 3 shows the baselines of the individual non-nutrition farm bill programs relative to the total $223 billion non-nutrition agriculture baseline over 10 years. The colors assigned to the programs are consistent with the colors of the titles in earlier figures, and show which programs in each title have the most baseline. In the farm commodity programs, direct payments are the primary program with a mandatory funding baseline. Direct payments have become vulnerable politically in this high farm-income environment because they are made regardless of market price and farm income conditions. 12 The other farm commodity programs that make counter-cyclical payments do not have much baseline presently because high market prices for farm commodities (which generally are expected to continue) have reduced the need for government support. 12 For more background and terminology, see CRS Report R41317, Farm Safety Net Programs: Issues for the Next Farm Bill. Congressional Research Service 6

Figure 3. Ten-Year Mandatory Baseline for Non-Nutrition Agricultural Programs (budget authority over FY2013-FY2022 in billions of dollars for programs in a subset of farm bill titles) Interest Cotton Mills MILC Other CRP CCP, ACRE, LDP Direct Payments CSP EQIP WHIP WRP* AWEP Other* Underwriting Gains 10-yr Baseline Non-nutrition $223 Billion Delivery Expenses Premium Subsidy FPP Trade: MAP Ocean Trans. Other* Horticulture: Specialty Crop Block Grants; Plant Pests Energy: Feedstock Flexibility, Other* Source: CRS, using the March 2012 CBO baseline. Notes: MILC = Milk Income Loss Contract Program; CCP = counter-cyclical payments; ACRE = Average Crop Revenue Election Program; LDP = loan deficiency payments; CRP = Conservation Reserve Program; CSP = Conservation Security/Stewardship Program; EQIP = Environmental Quality Incentives Program; FPP = Farmland Protection Program; WHIP = Wildlife Habitat Incentive Program; WRP = Wetlands Reserve Program; AWEP = Agricultural Water Enhancement Program; MAP = Market Access Program. Includes $0.9 billion of baseline in FY2013-FY2014 for expiring programs (*) that do not have baseline to continue, primarily the Wetlands Reserve Program, Grasslands Reserve Program, and Biomass Crop Assistance Program, but also including other bioenergy programs, the Rural Microenterprise Assistance Program (not shown), and local food aid purchases in developing countries. The crop insurance baseline is larger by comparison, but is considered by most farmers and policymakers to be the most important remaining component of the farm safety net. Premium subsidies to farmers are the largest component, but reimbursements to insurance companies for delivery expenses and underwriting gains are not insignificant. Total estimated costs of the conservation programs are now about as large as estimated farm commodity spending and only slightly less than crop insurance. The largest three conservation programs have over 93% of total conservation baseline (the Conservation Reserve Program, the Conservation Security Program, and the Environmental Quality Incentives Program). Two other farm bill titles have more than $1 billion of 10-year baseline. The Trade title has $3.4 billion, with most of it in the Market Access Program (MAP). The Horticulture and Organic Agriculture title has $1 billion of 10-year baseline, with half in specialty crop block grants, and half for pest and disease prevention. The Energy title has $0.3 billion of 10-year baseline for continuing programs, specifically the Feedstock Flexibility program to convert sugar to ethanol. Congressional Research Service 7

Farm Bill Baseline Issues The budget situation is more difficult and uncertain this year than for recent farm bills because of the attention to the federal debt. How much of the above baseline can be used to write a farm bill and how much will remain for 2013 and beyond is unknown, given the uncertainty about deficit reduction that is beyond the control of the agriculture committees and may not be resolved for months. Several high-profile congressional and Administration proposals for deficit reduction are specifically targeting agricultural programs with mandatory funding. Across-the-board reductions to most farm bill programs also could occur in 2013 unless Congress avoids an automatic budget sequestration process. Moreover, some 2008 farm bill programs do not have a baseline to continue, and some budgeting rules have changed since the last farm bill. Nutrition Title Share of Farm Bill Baseline The proportion and size of the farm bill budget in the nutrition title has increased over time. When the 2008 farm bill was enacted, the nutrition title was 67% of the 10-year total ($406 billion out of a $604 billion 10-year projected total). 13 Five years later, it is 78% of the total ($772 billion out of a $995 billion 10-year projected total). This trend does not mean, however, that the nutrition programs have grown at the expense of the agricultural programs. In the CBO baseline, each program is evaluated separately to determine its own expected costs using the formulas in law. Baseline projections rise and fall based on changes in economic conditions. In recent years, the nutrition program baseline has risen because current and expected food assistance needs increased as an automatic safety net during the recession. At the same time, crop insurance baseline increased as expected crop market prices rose, causing the insured value of crops and premium subsidies to grow. Conversely, farm commodity program baseline fell as those market prices rose and less counter-cyclical price support is expected. The CBO baseline thus reflects expectations under current law. The allocation of baseline among titles and the size of each amount is not a zero-sum game when CBO updates the baseline projection over time. Budget Reconciliation in the House Budget Resolution On March 29, 2012, the House of Representatives passed a budget resolution for FY2013 that required the House Agriculture Committee to report by April 27, 2012, recommendations to the House Budget Committee for a reconciliation bill (H.Con.Res. 112, Section 201). Under the resolution, the House Agriculture Committee identified $35.8 billion of reductions from nutrition programs in its jurisdiction over a 10-year period, more than the $33.2 billion requirement in H.Con.Res. 112. The Agriculture Committee s recommendation was incorporated into H.R. 5652, which was passed by the House on May 10, 2012. The House Agriculture Committee s reconciliation recommendation may reveal some elements of its approach to a farm bill with respect to nutrition programs. But the reconciliation package was focused on nutrition programs alone rather than a more comprehensive farm bill restructuring that is expected to include the farm commodity and conservation programs, among other titles. The House Budget Committee report that accompanied the budget resolution noted that reductions in 13 See CRS Report R41195, Actual Farm Bill Spending and Cost Estimates. Congressional Research Service 8

nutrition programs could be used to meet reconciliation goals, but left the decision to the authorizing committee. 14 A separate, more comprehensive House farm bill on its own legislative track is expected later. The Senate has not passed a budget resolution for FY2013 and is following the budget levels intended for FY2013 under the Budget Control Act of 2011 (P.L. 112-25). Without a Senate budget resolution, the budget reconciliation process started in the House most likely will not be considered in the Senate. 15 Separate from the budget reconciliation process, the House budget resolution (H.Con.Res. 112) recommends $179 billion of cuts over 10 years to programs in the House Agriculture Committee s jurisdiction. 16 These cuts, though not required to be enacted or recommended by the Agriculture Committee, are envisioned as part of the broader long-term House Budget Committee plan for deficit reduction. The non-binding resolution acknowledges that the Agriculture Committee would decide how to allocate the $179 billion reduction, but proposes $29 billion of cuts over 10 years to agriculture programs such as direct payments, crop insurance, and export assistance; 17 $134 billion of cuts to nutrition assistance programs; 18 and an unspecified reduction of $16 billion, likely from conservation programs. 19 This FY2013 budget resolution is very similar to the proposals for agriculture in the FY2012 House budget resolution (H.Con.Res. 34). Government-Wide Deficit Reduction Proposals In recent years, increasing attention has been given to reducing government spending and balancing the federal budget. In February 2010, President Obama created the National Commission on Fiscal Responsibility and Reform, with bipartisan leaders, to identify changes to balance the budget. Since then, several other government-wide proposals have been made for deficit reduction, and most have included agriculture to some extent. In these government-wide deficit reduction proposals, cuts from the agriculture committees baseline range from $10 billion in the President s Fiscal Commission, $11 billion in the Gang of Six proposal, $30 billion in the Bipartisan Policy Center plan, $32 billion in the President s FY2013 budget, and $33 billion in House budget reconciliation instructions, to as much as $179 billion in the House-passed FY2013 budget resolution (Table 2). These proposals often are compared to the $23 billion reduction offered by the leadership of the House and Senate Agriculture Committees in November 2011 to the Joint Select Committee of Deficit Reduction (a.k.a. the Super Committee). 14 H.Rept. 112-421, at p. 166. 15 Recurring GOP Targets on Panels Trim Lists, Congressional Quarterly, April 13, 2012, at http://www.cq.com/ doc/news-4061655; and Conrad Announces Budget Markup for Wednesday, The Hill, April 16, 2012, at http://thehill.com/blogs/on-the-money/budget/221755. 16 H.Rept. 112-421, at p. 159. 17 Ibid., at pp. 67-68. 18 Ibid., at p. 100. See also footnote 19. 19 House Committee on Agriculture (minority), FY2013 Budget Implications for Agriculture, March 28, 2012, at http://democrats.agriculture.house.gov/inside/pubs/ FY2013%20Republican%20Budget%20Implications%20for%20Agriculture.pdf. Congressional Research Service 9

Each of these proposals specifically recommend some reduction to the farm commodity programs often mentioning eliminating direct payments, but sometimes also with limits on farm payments or reductions to crop insurance. Export promotion programs and certain conservation programs also are commonly targeted. Only the House budget resolutions for FY2012 and FY2013, and to a much smaller extent the agriculture committees bicameral recommendation to the Joint Select Committee on Deficit Reduction recommend reductions to the nutrition program baseline. To date, none of these plans has been enacted. But together, they represent a range of common ideas and the visibility for deficit reduction of the agriculture and nutrition baselines. Table 2. Broad Deficit Reduction Proposals That Affect Farm Bill Programs Proposal Total Farm Bill Reduction Detailed Provisions Individual Savings (-) or Costs (+) 1. Bipartisan Policy Center (Domenici-Rivlin Task Force, Nov. 2010) 2. President s Fiscal Commission (Simpson-Bowles, Dec. 2010) 3. House Budget Resolution for FY2012 (H.Con.Res. 34, Apr. 2011) $30 billion [2012-2020] $10 billion [2012-2020] $178 billion [2012-2021] 4. Gang of Six (July 2011) $11 billion [10 years] 5. President s Deficit Reduction Plan (Sept. 2011; amounts updated in Feb. 2012 for FY2013 budget request) 6. House and Senate Agriculture Committees, for Joint Select Committee on Deficit Reduction (Oct. 2011) $32 billion [2013-2022] $23 billion [10 years] Reduce farm program spending by eliminating farm payments to producers with adjusted gross income greater than $250,000 and setting a lower maximum payment for direct payments. Reduce subsidies to private crop insurance companies. Reduce premium subsidy for farmers from 60% to 50%. Consolidate and cap certain agriculture conservation programs. Reduce mandatory agricultural programs, including reductions in direct payments, limits on conservation programs (CSP and EQIP), and reductions for the Market Access Program. Extend disaster assistance programs in the 2008 farm bill. Reduce direct payments, crop insurance subsidies, and export assistance programs. Convert SNAP into an allotment tailored for each state. Unspecified remainder, much of which is likely conservation. Require agriculture committees to reduce mandatory spending, and encourage them to protect SNAP (food stamps). Eliminate direct payments. (Ten-year baseline is $49 billion, but CBO assumes interaction effect from increased enrollment in ACRE. Net effect is shown.) Reduce crop insurance outlays by (1) reducing administrative and overhead reimbursements to crop insurance companies and (2) reducing premium subsidies to farmers. Extend disaster assistance programs in 2008 farm bill for five years, through 2017. Reduce conservation payments by better targeting cost-effective programs. Reduce CRP by $1 billion and EQIP by $1 billion. Specific proposal not released, but a draft indicates a plan could eliminate direct payments, develop a new farm safety net with crop insurance, and make changes to conservation, nutrition, and other farm bill programs. Reported savings included: Farm commodity programs (net) Conservation programs Nutrition programs -$15 billion -$9 billion -$6 billion -$15 billion +$5 billion -$30 billion -$127 billion -$21 billion -$11 billion -$30 billion -$7.7 billion +$8 billion -$2 billion -$13 billion -$6 billion -$4 billion Congressional Research Service 10

Proposal Total Farm Bill Reduction Detailed Provisions Individual Savings (-) or Costs (+) 7. House Budget Resolution for FY2013 (H.Con.Res. 112, Mar. 2012) $179 billion [2013-2022] Budget resolution (recommendations): Reduce direct payments, crop insurance subsidies, and export assistance programs. -$29 billion Convert SNAP into an allotment tailored for each state. -$134 billion Unspecified remainder, likely in conservation programs -$16 billion $33.2 billion [2013-2022] Reconciliation instructions, by April 27, 2012: By April 27, 2012, the Agriculture committee must recommend to the Budget committee specific cuts for a $33.2 billion reduction over FY2012-2022; $8.2 billion over FY2012-2013; and $19.7 billion over FY2012-2017. -$33.2 billion Source: CRS, compiled from the following documents: (1) Bipartisan Policy Center, Restoring America s Future, Nov. 2010, pp. 106-110, at http://www.bipartisan policy.org/sites/default/files/bpc%20final%20report%20for%20printer%2002%2028%2011.pdf; (2) National Commission on Fiscal Responsibility and Reform, The Moment of Truth, Dec. 2010, p. 45, at http://www.fiscalcommission.gov/sites/fiscalcommission.gov/files/documents/themomentoftruth12_1_2010.pdf; (3) H.Rept. 112-58 (for H.Con.Res. 34, the FY2012 Budget Resolution), Apr. 2011, pp. 76, 108, and 152; (4) Gang of Six, A Bipartisan Plan to Reduce Our Nation s Deficits, July 2011, p. 3, at http://warner.senate.gov/ public//index.cfm?p=gang-of-six http://assets.nationaljournal.com/pdf/071911conradbudgetexecutivesummary.pdf; (5) The White House, Living Within Our Means and Investing in the Future: The President s Plan for Economic Growth and Deficit Reduction, Sept. 2011, available at http://www.whitehouse.gov/sites/default/files/omb/ budget/fy2012/assets/jointcommitteereport.pdf; and USDA FY2013 Budget Summary, Feb. 2012, pp. 124-126, at http://www.obpa.usda.gov/budsum/fy13budsum.pdf; (6) House and Senate Agriculture Committees, letter to Joint Select Committee on Deficit Reduction, Oct. 2011, at http://agriculture.house.gov/pdf/letters/jointletter111017.pdf; and press coverage of draft at http://www. iatp.org/files/ag%20committees%20bicameral%20agreement%20draft%202011%20super%20committee.pdf; and Hagstrom Report, Conrad: Farm Bill Content Now Moving Target, Nov. 8, 2011, at http://www.hagstrom report.com/news_files/110811_farmbill.html; (7) H.Rept. 112-421(for H.Con.Res. 112, the FY2013 Budget Resolution), Mar. 2012, pp. 67-68, 100, 135, 159; and House Committee on Agriculture (minority), FY2013 Budget-Implications for Agriculture, March 28, 2012, at http://democrats.agriculture.house.gov/inside/pubs/ FY2013%20Republican%20Budget%20Implications%20for%20Agriculture.pdf. Budget Sequestration Sequestration is a process of automatic, largely across-the-board spending reductions under which budgetary resources are permanently canceled to enforce budget goals specified in statute. It was first authorized by the Balanced Budget and Emergency Deficit Control Act of 1985 (Title II of P.L. 99-177, commonly known as the Gramm-Rudman-Hollings Act). Sequestration is important currently because it was included as an enforcement mechanism in the Budget Control Act of 2011 (BCA; P.L. 112-25). 20 Given the failure of the Joint Select Committee on Deficit Reduction to enact budget reductions by January 2012, budget sequestration is due in 2013 under Section 302 of the BCA unless Congress changes the course of the law. 21 Moreover, in the absence of agriculture-specific 20 CRS Report R42050, Budget Sequestration and Selected Program Exemptions and Special Rules. 21 CRS Report R41965, The Budget Control Act of 2011. Congressional Research Service 11

changes to the contrary, sequestration possibly also could affect future farm bill baselines, even if a farm bill is enacted in 2012 with budget reductions. The budget sequestration process under the BCA would reduce the baseline for farm bill programs by an across-the-board cut. However, certain farm bill programs, such as the nutrition programs and the Conservation Reserve Program, are statutorily exempt from sequestration. 22 Other programs, including prior obligations in crop insurance and marketing loan contracts, 23 may be exempt; however, CBO does not determine the official sequestration amount nor the scope of programs included. Those decisions rest with the Office of Management and Budget s (OMB s) interpretation of the BCA and statutes, and are still forthcoming. No official program-level estimate of sequestration has been released, but many believe sequestration of mandatory farm bill programs may total about $16 billion over 10 years, 24 plus or minus, depending on various assumptions about baselines and the outcome of OMB decisions. This is consistent with CBO estimates of nearly 8% sequestration on nondefense mandatory programs 25 on roughly $200 billion of nonexempt agriculture baseline. If sequestration occurs, it also could affect discretionary appropriations. Discretionary agricultural spending has fallen in recent years, 26 and sequestration could further reduce funding opportunities for discretionary programs in the farm bill. Other Budget Issues The budget picture is further clouded by other factors. While some programs (like most farm commodity programs and nutrition assistance) have assumed future funding, other programs (mostly newer ones) do not. Thirty-seven programs that received mandatory funding throughout nearly all titles of the 2008 farm bill do not continue to have assured funding for the next farm bill. 27 Continuing these programs could require an estimated $9 billion to $14 billion of offsets from other programs. If Congress desires to continue some of these programs, finding the offsets needed could be doubly difficult during a simultaneous baseline contraction from sequestration or deficit reduction. Also, new pay-as-you-go budget rules enacted in 2010 (P.L. 111-139) restrict some of the budget-related maneuvers that were used in past farm bills to offset new spending. 28 Consequently, even a simple extension of the 2008 farm bill may be challenging given the current budgetary pressures. 29 The desire by many to redesign farm policy and reallocate the 22 2 U.S.C. 905 (g)(1)(a). 23 2 U.S.C. 906 (j). 24 Senator Stabenow Outlines Next Steps for Farm Bill, Agri-Pulse, November 30, 2011, at http://www.agripulse.com/stabenow_outlines_next_steps_farm_bill_11302011.asp. 25 CBO, Estimated Impact of Automatic Budget Enforcement Procedures Specified in the Budget Control Act, September 12, 2011, at http://www.cbo.gov/ftpdocs/124xx/doc12414/09-12-budgetcontrolact.pdf. 26 Discretionary agriculture appropriation decreased by 14% in FY2011 and another 2% in FY2012. See CRS Report R41964, Agriculture and Related Agencies: FY2012 Appropriations. 27 CRS Report R41433, Expiring Farm Bill Programs Without a Budget Baseline. 28 For example, timing shifts are no longer allowed to be counted as savings or revenue (that is, shifting the timing of existing program payments by delaying an outlay beyond the budget window or accelerating a receipt into the budget window). P.L. 111-139, Section 4 (b)(1)(a); 2 U.S.C. 639 (a)(3)(c). 29 CRS Report R42442, Possible Extension or Expiration of the 2008 Farm Bill. Congressional Research Service 12

remaining farm bill baseline in a sequestration and deficit reduction environment is driving much of the farm bill debate this year. Political dynamics regarding sequestration and broader deficit reduction goals leave open difficult questions about how much and when the farm bill baseline may be reduced. In an era of deficit reduction, Congress faces difficult choices about how much total support to provide for agriculture, and how to allocate that support among competing constituencies. Score of the Senate Farm Bill On April 26, 2012 the Senate Agriculture Committee approved its proposal for a 2012 farm bill by a vote of 16-5. 30 On May 24, 2012, the bill was reported and introduced as S. 3240, the Agriculture Reform, Food, and Jobs Act of 2012. The Congressional Budget Office simultaneously released its analysis of the bill, saying S. 3240 would reduce mandatory farm bill spending by $23.6 billion over the 10-year period FY2013-2022. 31 The Senate Agriculture Committee published a section-by-section summary of the bill, 32 and the Congressional Research Service released a detailed side-by-side comparison of the bill with current law. 33 Figure 4 illustrates the magnitude of the budgetary reductions and additions made by S. 3240 to each farm bill title. Five titles receive a combined $6.9 billion increase relative to their baselines, 34 and four titles offer a combined budgetary reduction of $30.5 billion. The net reduction is therefore $23.6 billion over the 10-year period FY2013-2022. Figure 5 illustrates the same budgetary changes by farm bill title, but for each year over the 10-year period. The reductions in the commodity tile, for example, do not begin until FY2014 because payments under the 2008 farm bill for the 2012 crop year will be made in FY2013. Other changes, such as to crop insurance and conservation, grow gradually through the budget window. Table 3 presents the detailed cost estimate by the Congressional Budget Office. The 2012 farm bill proposed in S. 3240 generally is expected to expire after five years. However, federal budget rules require bills to be evaluated for 10 years. Thus, the effects of S. 3240 are shown for a 10-year window, even though generally it is a 5-year bill. Table 3 reveals which programs receive baseline beyond the expected life of the 2012 farm bill and which receive baseline only for the 5-year window of the bill (see footnote 9). For example, in Title VII (research), the specialty crops research program would receive a 10-year baseline, but the other three research programs receive baseline only for the life of the farm bill. This is also an issue for programs in the energy, horticulture, and miscellaneous titles. 35 30 Senate Agriculture Committee press release, Agriculture Reform, Food and Jobs Act of 2012 Officially Introduced in U.S. Senate, at http://www.ag.senate.gov/newsroom/press/release/agriculture-reform-food-and-jobs-act-of- 2012_officially-introduced-in-us-senate. 31 Congressional Budget Office, Cost Estimate of S. 3240, Agriculture Reform, Food, and Jobs Act of 2012, May 24, 2012, at http://cbo.gov/publication/43273. 32 Senate Agriculture Committee, Agriculture Reform, Food and Jobs Act, Section-by-Section Summary, http:// www.ag.senate.gov/download/?id=64f836d7-fc92-4571-afc2-e6ca9a23ad91. 33 CRS Report R42552, The Senate Agriculture Committee s 2012 Farm Bill (S. 3240): A Comparison with Current Law. 34 The figures are not able to show the comparatively small $9 million increase in the forestry title. 35 Provisions in other titles are also affected, but are not apparent from the table because they are grouped with other programs. Examples include implementation expenses in Title I and Desert Terminal Lakes in Title II. Congressional Research Service 13

Figure 4. Ten-Year Score of Senate Farm Bill S. 3240 (change in outlays over FY2013-2022 in billions of dollars by farm bill title) Billion dollars score 10 5 0-5 -10-15 -20-25 -30-35 Research, +0.65 Energy, +0.78 Horticulture, +0.36 Crop Insurance, +5.08 Nutrition, -3.87 Commodities, -19.78 Conservation, -6.37 Miscellaneous, -0.44 Senate committee bill Net total: -$23.59 billion Source: CRS, using CBO cost estimate of S. 3240, May 24, 2012. 1 Figure 5. Annual Score of Senate Farm Bill S. 3240 (change in outlays in billions of dollars by farm bill title) 0 Crop Insurance Billion dollars score -1-2 -3 Commodities Conservation Nutrition -4 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Miscellaneous 0.00-0.04-0.05-0.05-0.05-0.05-0.05-0.05-0.05-0.05 Nutrition 0.08-0.05-0.45-0.47-0.47-0.50-0.51-0.51-0.51-0.52 Conservation -0.04-0.20-0.44-0.42-0.65-0.82-0.91-0.91-0.98-0.99 Commodities 0.22-1.84-2.83-2.13-1.91-2.41-2.26-2.32-2.21-2.09 Research 0.04 0.07 0.08 0.10 0.09 0.06 0.05 0.05 0.05 0.05 Energy 0.02 0.08 0.14 0.16 0.15 0.11 0.07 0.03 0.01 0.00 Horticulture & Organic 0.03 0.04 0.05 0.05 0.05 0.03 0.03 0.03 0.03 0.03 Crop Insurance -0.01-0.15 0.41 0.53 0.52 0.70 0.76 0.78 0.77 0.77 Source: CRS, using CBO cost estimate of S. 3240, May 24, 2012. Congressional Research Service 14

Table 3. Score of Mandatory Programs in S. 3240 (Senate 2012 Farm Bill) (change in annual outlays in millions of dollars) Fiscal Year 5- and 10-year totals 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2013-2017 2013-2022 Title I Commodity Programs End Direct Payments 0-4,958-4,958-4,958-4,958-4,958-4,958-4,958-4,958-4,958-19,832-44,622 End Countercyclical Payments 0 0-101 -127-121 -123-130 -137-134 -135-349 -1,008 End ACRE Payments 0 0-863 -637-470 -479-452 -547-632 -533-1,970-4,613 Agriculture Risk Coverage 0 2,906 2,954 3,447 3,444 2,951 3,101 3,118 3,282 3,333 12,751 28,536 Dairy Program -31-45 -42-32 9 15-6 19 45 9-141 -59 Supp. Ag Disaster Assistance 184 220 179 176 181 180 180 182 186 190 940 1,858 Other Commodity Provisions 65 35 2 2 4 3 3 3 3 4 108 124 Subtotal, Title I 218-1,842-2,829-2,129-1,911-2,411-2,262-2,320-2,208-2,090-8,492-19,782 Title II Conservation Conservation Reserve Program 27 25-399 -438-531 -523-512 -478-497 -469-1,316-3,795 Conservation Stewardship -7-50 -93-129 -173-221 -264-307 -350-393 -452-1,987 Environmental Quality Incentives -59-90 -85-92 -101-111 -121-105 -100-100 -427-964 Agricultural Conservation Easement -146-60 173 283 210 111 73 61 51 53 460 809 Regional Conservation Partnership -3-7 -8-8 -10-10 -10-10 -10-10 -36-86 Other Conservation 168 18 18 18 18 10 10 10 10 10 240 290 Repeal Wildlife Habitat Incentives -18-37 -47-57 -66-76 -85-85 -85-85 -225-641 Subtotal, Title II -38-201 -441-423 -653-820 -909-914 -981-994 -1,756-6,374 Title IV Nutrition Utility Allowances 0-130 -530-540 -540-540 -550-550 -550-560 -1,740-4,490 Grant Programs 39 49 49 44 49 24 24 24 24 24 228 345 Commodity Purchasing 15 15 15 15 15 15 15 15 15 15 75 150 Retailer Equipment -7-8 -8-8 -8-8 -8-8 -8-8 -39-79 Expiring Provisions 33 29 25 23 15 15 15 15 15 15 125 200 CRS-15

Fiscal Year 5- and 10-year totals 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2013-2017 2013-2022 Subtotal, Title IV 80-46 -450-467 -470-495 -505-505 -505-515 -1,352-3,874 Title VII Research, Extension, and Related Matters Organic Ag Research and Extension 8 13 16 16 16 8 3 0 0 0 69 80 Specialty Crop Research 13 23 29 48 50 53 50 50 50 50 163 416 Beginning Farmers & Ranchers 13 13 15 10 0 0 0 0 0 0 51 51 Foundation for Food & Ag Research 10 20 20 30 20 0 0 0 0 0 100 100 Subtotal, Title VII 44 69 80 104 86 61 53 50 50 50 383 647 Title VIII Forestry 0 1 1 1 1 1 1 1 1 1 4 9 Title IX Energy Biorefinery Assistance 5 32 50 55 44 20 10 0 0 0 186 216 Rural Energy for America Program 10 30 42 48 48 38 20 4 0 0 178 240 Biomass R&D 1 5 16 25 26 25 21 10 1 0 73 130 Biomass Crop Assistance 4 12 20 27 31 29 23 16 8 4 94 174 Other Energy Programs -2-1 12 6 4 1 0 0 0 0 19 20 Subtotal, Title IX 18 78 140 161 153 113 74 30 9 4 550 780 Title X Horticulture Farmers Market & Local Promotion 20 20 20 20 20 0 0 0 0 0 100 100 National Clean Plant Network 3 6 8 9 11 13 14 15 15 15 37 109 Specialty Crop Block Grants 8 14 15 15 15 15 15 15 15 15 67 142 Other Horticulture 1 2 2 2 2 0 0 0 0 0 9 9 Subtotal, Title X 32 42 45 46 48 28 29 30 30 30 213 360 Title XI Crop Insurance Supplemental Coverage Option 0 32 306 354 345 385 382 395 404 398 1,037 3,001 CAT Premiums 0-5 -45-53 -54-54 -55-56 -57-58 -157-437 Enterprise Units 0 5 50 59 60 62 65 67 68 70 174 506 CRS-16