Transcript Observations on Budget Outlook, Appropriations

Legislative Outlook—Budget,
WTO, & U.S. Farm Policy
Presented by Chip Conley
Democratic Economist
House Agriculture Committee
Budget Outlook
Budget situation and outlook has
determined outlook for farm policy.
Federal deficits from 1981 to 1995 have
led to cuts in agriculture spending in deficit
reduction legislation.
Budget Outlook
Federal surpluses in 1998 through 2001
have provided funding for emergency
market loss and crop loss assistance and
the Agricultural Risk Protection Act.
2001 projected 10-year federal surplus of
$5.6 trillion provided $79 billion additional
funding to write 2002 Farm Bill, along with
$1.3 trillion tax cut.
Congressional Budget Process
Annual multi-year budget plan:
Current year’s revenue and outlays under
current law.
Projections of current law revenue and outlays
over 5-10 years—the CBO Baseline.
Changes to revenue and spending requiring
changes in law.
Together become The Budget Resolution.
Developed by Budget Committees, passed by
both Houses.
Congressional Budget Process
Projected revenues, outlays and changes
are allocated to committees.
Discretionary to Appropriations
Committees.
Mandatory to Authorizing Committees.
Changes can increase Committee
spending (2002 Farm Bill),
Or enforce reduced spending—
Reconciliation Process.
Budget Reconciliation
Sharing the Pain of Cutting Federal Spending on
Mandatory Programs to Reduce the Deficit.
• Mandatory Programs for Agriculture: Cut $173M
in 2006, $3B over 2006-10.
• 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.
Budget Reconciliation in Practice:
What Changes Count as Savings?
n
•
For commodity programs, underlying parameters need to be changed to
achieve savings (e.g. target prices, loan rates.) Remember offsetting
interactions between variables.
•
For some conservations programs, savings are achieved by cutting
funding levels.
•
Only legislated changes count. No credit is given for lower-thanexpected costs from changes in market conditions or USDA
implementation decisions different than expected.
•
Cuts must be prospective—e.g., fewer future contracts. Current signed
long-term contracts cannot be cancelled to get savings.
•
CBO generally does not score savings for enforcement activities.
CBO’s March, 2005 Baseline Shows $300 Billion in the
5-Year Costs of House Ag Committee Mandatory
Spending Programs ($60 Billion Annual Average).
Food Stamps Are 53% of the Total.
House Agriculture Committee Jurisdiction
5-Year Projections: FY 06-10 Budget Authority = $302.8 Billion
CBO Mar 05 Baseline
Food Stamps
$168.4
CCC Commodity Prog
$75.5
Farmer Conservation
$24.1
Crop Insurance
$19.5
Other Nutrition
$4.2
Rsch & Inspect.
$3.1
CCC Export Prog & Guar
$3.0
Other House Juris
$2.1
CCC Other
$1.4
Forest Serv
$0.7
Comm & Rural Dev
$0.5
Transportation
$0.3
0
25
50
75
$ Billion
100
125
150
175
200
Costs of Programs for Different Commodities Vary
Depending on a Variety of Factors.
(CBO March 2005 Baseline)
CCC (+NRCS Conservation) Outlays, CBO 5-Year Projections
FY 06-10 = $104.0 Billion
CBO March 05 Baseline
Corn
CCC+NRCS Conserv
Soybeans
Upland Cotton
Wheat
Tobacco (Costs, No Receipts)
Rice
Minor Feed Grains
Other CCC
Peanuts
Export Prog & Guar
Dairy
Net Interest
Other Commodities
Sugar
$29.5
$24.2
$10.2
$10.1
$9.9
$4.8
$4.4
$2.9
$2.0
$1.6
$1.3
$1.1
$1.0
$0.5
$0.5
0
5
10
15
20
$ Billion
25
30
35
Projected Surplus/Deficit(-)
CBO March 2005 Baseline
200
100
$ billions
0
-100
-200
-300
-400
-500
2004
2006
2008
2010
2012
2014
2006 Congressional Budget
Resolution, $ Billion
Fiscal Year
2006
2006-15
-18
-106
1
30
Iraq Supp 2005 & 2006
-62
-99
Net Discretionary Change
-2
44
Additional Debt Service
-3
-36
Total
-84
-167
Tax Cuts
Entitlement Cuts
Projected Surplus/Deficit(-)
Resulting Deficit w/CBR
200
100
$ bil
0
-100
-200
-300
-400
-500
2004
2006
2008
2010
2012
2014
Budget Outlook, $ Billion
Fiscal Year
2006
2006-15
CBO 2005
March Baseline
-298
-980
Cong. Budget
Resolution 2006-10
-84
-167
Extend CBR 2011-15
0
-1,519
-383
-2,666
Resulting Deficit
Projected Surplus/Deficit(-)
Resulting Deficit w/ CBR Extended
200
100
$ bil
0
-100
-200
-300
-400
-500
2004
2006
2008
2010
2012
2014
Expected Additions to Deficit
Omitted Items, $ Billion
Fiscal Year
2006
2006-15
-18
-334
AMT Repair
0
-612
Additional Debt Service
-0
-224
-401
-3,827
Further Cost of Iraq War
Resulting Deficit
Magnitude of Future Deficit
Reduction, $ Billion
Fiscal Year
2004
2005
2004-13
Resulting Deficit
-412
-398
-3,776
House-passed
Budget 2003
-324
-230
-1,021
Reconciliation
-88
-168
-2,775
Comparison to 2004 House Budget
$ Billion
Fiscal Year
2004
2004-13
Reconciliation
-88
-2,775
House-passed
Reconciliation ‘03
-7
-259
Multiple of
House-passed
13
11
Comparison to 2004 Budget
Reduction for Ag, $ Billion
Fiscal Year
2004
2004-13
House-passed Ag
Reconciliation ‘03
-0.6
-18.6
Agriculture’s share
of Reconciliation
9%
7%
Future Agriculture
Reconciliation
-8
-193
Projected Surplus/Deficit(-)
Resulting Deficit w/Omitted Items
200
100
$ bil
0
-100
-200
-300
-400
-500
2004
2006
2008
2010
2012
2014
Policy Implications
How to reduce farm program
spending.
WTO compliance by category
(Amber, Blue, Green boxes).
Fruit and vegetables, specialty
crops, planting prohibition.
Policy Implications:
How to Reduce Ag Spending
Farm Commodity Programs are now direct
payment programs.
Few efficiencies to be gained as in 1990
Flex Acres 15% reduction in deficiency
payments.
Reductions likely to be in commodity
(A/B/G), conservation direct payments
(Green), crop insurance premium
subsidies (de minimis).
CCC Outlays by Payment Type
16,000
14,000
$ millions
12,000
Total
Payments
Net Lending
Price support
Export
GSM
10,000
8,000
6,000
4,000
2,000
0
2005
2007
2009
2011
2013
Policy Implications:
WTO Dimension
Policymakers must consider trade negotiation
proposals in deficit reduction.
Previous US proposal to reduce AMS to 5% of
value of Ag production implied Amber Box limit
of $9.5B, 50% less than $19.1B.
Current “Substantial Reduction” is suggested to
mean 40-50% reduction. Amount TBN.
Dairy and sugar pose major challenge: small
budget impact, significant AMS impact.
Commodity Program Costs
1999-01 Avg
$million
15,000
10,000
All other
Dairy
Sugar
5,000
0
Budget
Costs
AMS
Meeting WTO Agreement
Dairy and Sugar must be considered in
AMS reduction, if not budget reduction.
These are not just Market Access issues.
Cutting AMS will have disproportionate
impact on farm income vs. budget cuts.
How reductions are made has broad policy
implications.
Specialty Crop Issues
WTO panel ruled Direct Payments may
not be Green Box because of fruit and
vegetable planting prohibition.
Specialty crop interests seek CCC funds in
Ose-Dooley bill, mostly Green box. Likely
accommodation in next farm bill.
Shifting funds from program crops to
specialty crops while reducing overall
spending.
Budget Reconciliation Instructions
Have Been Frequent
• In 17 of the 25 years since 1980, budget resolutions
have included reconciliation instructions to reduce
spending, increase taxes, increase spending or reduce
taxes.
1995: most recent year that agriculture was instructed to
cut spending (reconciliation bill was vetoed). Other
years with reconciliation instructions for agriculture:
1993, 1990, 1989, 1987, 1985, 1983, 1981.
• 2003 and 2004 House versions of the Budget
Resolution included reconciliation cuts for agriculture
but cuts were dropped in conference.
Summing Up
Deficit reduction pressure will likely
continue for several years, continued cuts
in agriculture programs, similar to 1981 to
1995.
Policymakers must be mindful of how cuts
are effected to reflect current WTO
commitments and how a new agreement
may reduce domestic supports, perhaps
40-50%.
Summing Up
Price support levels (Amber) likely to be cut
the most, CCP’s (Blue) some, Direct
payments (Green) less.
Dairy and sugar programs will need to be
addressed carefully.
Specialty crops and planting prohibitions
will likely need to be addressed.