Agriculture and FY2006 Budget Reconciliation

CRS Report for Congress
Agriculture and
FY2006 Budget Reconciliation
Ralph M. Chite
Specialist in Agricultural Policy
Resources, Science, and Industry Division
Summary
The Deficit Reduction Act of 2005 (P.L. 109-171, S. 1932), which was signed into
law on February 8, 2006, contains net spending reductions of $2.7 billion over five years
for USDA mandatory programs. Included in the total is a $1.7 billion reduction in farm
commodity support program spending, a $934 million reduction in conservation
spending, a $620 million reduction in a mandatory research program, and a $419 million
cut in rural development programs, as scored by CBO over a five-year period (FY2006-
FY2010). The measure also includes a two-year extension of a dairy income support
program, at an estimated cost of $998 million. Proposed House reductions to food
stamp spending were not included in the final measure.
What Is Budget Reconciliation?
The annual congressional budget resolution provides a blueprint for all federal
revenues and spending over a multi-year period. Although it does not require the
President’s approval, the budget resolution does establish limits for all discretionary and
mandatory spending for the coming fiscal year. Once approved, the discretionary
spending total is allocated to the appropriations committees, where it is subdivided among
their various subcommittees. The resolution also might require reductions in mandatory
spending, particularly in years when the federal deficit is expected to be large. When this
occurs, the resolution issues reconciliation instructions to various authorizing committees
requiring them to report changes to legislation to reduce spending on mandatory programs
under the committees’ jurisdiction. The reported language from each committee is then
sent to its respective budget committee by a date specified in the resolution, where it is
packaged with language from other committees into an omnibus reconciliation bill, which
is taken to each chamber’s floor for consideration. Each chamber’s approved
reconciliation bill is then sent to a conference committee, and a final conference measure
must be approved by both chambers and signed by the President before it becomes law.
(For more on budget reconciliation procedure, see CRS Report 98-814, Budget
Reconciliation Legislation: Development and Consideration, by Bill Heniff Jr., and CRS

Congressional Research Service ˜ The Library of Congress

Report RL30458, The Budget Reconciliation Process: Timing of Legislative Action, by
Robert Keith.)
USDA Mandatory Spending Defined
Approximately three-fourths of total spending within USDA is classified as
mandatory, which by definition occurs outside the control of the annual appropriations
process. Currently accounting for the vast majority of USDA mandatory spending are the
farm commodity price and income support programs, the food stamp program and most
child nutrition programs, the federal crop insurance program, and various agricultural
conservation and trade programs. Legislative authority for these programs is under the
jurisdiction of the House and Senate Agriculture Committees.¹ Hence, any reconciliation
instructions that are delivered to the agriculture committees could potentially impact
spending for any or all of these programs.
All of the farm commodity support programs and mandatory conservation and trade
programs are funded through the borrowing authority of USDA’s Commodity Credit
Corporation (CCC), not by an appropriation to the programs.² The CCC has a $30 billion
line of credit with the U.S. Treasury that it taps to provide the annual required funding of
these programs, as well as for other purposes. Because the CCC typically spends more
than it takes in, its losses must be replenished annually through a congressional
appropriation so that its $30 billion borrowing authority is not depleted. Administration
and congressional budget forecasters estimate each year the projected cost of the
commodity support programs. However, because farm crop prices are highly variable and
difficult to estimate, these programs ultimately receive “such sums as necessary” under
their farm bill authorization, regardless of budget estimates.
The mandatory conservation programs for the most part have a fixed authorization
level each year (stated either in dollars or enrolled acreage) as mandated by the 2002 farm
bill, with funding from the CCC, not from an appropriation. Like the commodity support
programs, crop insurance also receives such sums as necessary regardless of budget
estimates. Its funding comes through an indefinite appropriation to the Federal Crop
Insurance Fund, a fund separate from the CCC. The mandatory USDA food and nutrition
programs (food stamps and child nutrition programs) receive an annual appropriation, but
funding levels ultimately are determined by the eligibility rules established in current food
and nutrition laws.

¹ The one exception is the child nutrition programs, which are under the jurisdiction of the
Committee on Education and the Workforce in the House, and the Agriculture Committee in the
Senate.
² The major mandatory farm commodity price and income support programs include those for
wheat, feed grains, oilseeds, cotton, rice, peanuts, sugar, and dairy. The largest mandatory
conservation programs include the Conservation Reserve Program, the Environmental Quality
Incentives Program, the Conservation Security Program, and the Wetlands Reserve Program. For
more background, see CRS Report RS20848, Farm Commodity Programs: A Short Primer; and
CRS Report RL32940, Agriculture Conservation Programs: A Scorecard.

CBO’s Baseline Budget for USDA
Each year, the Congressional Budget Office issues a baseline budget for all federal
spending under current law over a 10-year period. Projected spending in the baseline
budget represents CBO’s estimate at a particular point in time of what federal spending
and revenues will likely be under current law if no policy changes were made over the
projected period. The CBO baseline serves as a benchmark or starting point for future
budget analyses. For example, whenever any new legislation is introduced that affects
federal mandatory spending, its impact is measured by CBO as a difference from the
baseline.
Table 1 below represents CBO’s most recent official baseline (March 2005) estimate
for the major mandatory USDA programs. It represents CBO’s estimates under current
law (e.g., the 2002 farm bill for the commodity support and conservation programs) given
current CBO projections for economic and market conditions for the next five years.
Budget reconciliation instructions that are given to the agriculture committees are
measured against the CBO baseline. This means that any legislation that the committees
are required to report will be scored by CBO against the baseline to determine whether
the committee is in compliance with the reconciliation instructions.
Table 1. CBO’s March 2005 Baseline Budget Estimates
for Selected Mandatory USDA Programs
($ million)
5-Year
total
FY2006-
F Y 2006 F Y 2007 F Y 2008 F Y 2009 F Y 2010 F Y 2010
Farm Commodity18,09915,76513,82614,05913,73375,482
Support
Export Programs2302642663003251,385
Conserva tion 4,343 4,620 4,591 5,344 5,167 24,065
Crop Insurance3,7023,8393,9183,9864,06619,511
Food Stamps33,44533,03533,28733,91134,673168,351
Child Nutrition12,57713,14013,73414,33615,03668,823
^Source:^C^oⁿ^g^r^es^sⁱ^on^{al B}^u^dg^{et Of}^fⁱ^ce.
FY2006 Budget Resolution Reconciliation Instructions
The House and the Senate approved the conference report (H.Rept. 109-62) on the
FY2006 budget resolution (H.Con.Res. 95) on April 28 and April 29, 2005, respectively.
The approved resolution contained reconciliation instructions that require the House and
Senate Agriculture Committees to report legislation reducing spending on mandatory
USDA programs by $173 million over a one-year period (FY2006) and by $3.0 billion
over a five-year period (FY2006-FY2010). The resolution did not mandate how the

agriculture committees were to achieve the required spending reductions; instead, those
decisions were left to the committees.
Agricultural Cuts in the FY2006 Reconciliation Act (P.L. 109-171)
The Deficit Reduction Act of 2005 (P.L. 109-171, S. 1932) includes net reductions
of $2.7 billion over five years for USDA mandatory programs. The final law actually
contains $3.7 billion in gross reductions to USDA programs. However, conferees also
adopted a two-year extension of a dairy income support program (at a two-year cost of
nearly $1 billion), which brought the net USDA reductions to $2.7 billion. Included in
P.L. 109-171 is a $1.7 billion reduction in farm commodity support programs (achieved
primarily through a change in the timing of payments), a $934 million reduction in
conservation spending, a $620 million reduction in a mandatory research program, and
a $419 million cut in rural development programs, as scored by CBO over a five-year
period (FY2006-FY2010). House-proposed reductions to food stamp spending were not
included in the conference measure.
The process of determining the specifics of the USDA spending reductions began
earlier in 2005 when the House and Senate Agriculture Committees submitted to their
respective Budget Committees their recommendations for cuts, as required by the FY2006
budget resolution. The net USDA cut of $2.7 billion in the final law is below both the
House-passed ($3.5 billion) and Senate-passed ($3.0 billion) levels. The following text
and Table 2 provide a comparison of the USDA provisions in the final law to what was
recommended in the House- and Senate-passed bills.
Farm Commodity Programs. P.L. 109-171 achieves most of its reductions to
farm commodity spending by changing the timing of farm commodity direct payments
without reducing the overall level of payments to farmers. Current program law allows
recipients of direct payments to receive up to 50% of their payments in advance of the end
of the crop year. P.L. 109-171 reduces the advance payment rate to 40% in the 2006 crop
year and 22% in 2007.³ The agreement also includes the elimination of the upland cotton
step-2 program effective August 1, 2006, in response to Brazil’s successful challenge of
the program in the World Trade Organization (WTO).
Offsetting just over one-half of the $1.7 billion in farm commodity program savings
is a provision in P.L. 109-171 that reauthorizes the expired Milk Income Loss Contract
(MILC) for two years (until September 30, 2007). Extension was supported by small to
moderate-sized dairy farms, which are the primary beneficiaries of this program that
makes payments to dairy farmers when market prices fall below a target price. Some farm
commodity groups were opposed to MILC program extension, as long as its estimated
$998 million cost had to be offset with comparable reductions in other USDA programs.
(For more information on MILC, see CRS Issue Brief IB97011, Dairy Policy Issues.)

³ Advance deficiency payments for the 2006 crop year were already disbursed by USDA by the
time P.L. 109-171 was enacted in February 2006. Hence, the required reduction in the advance
payment rate s from 50% in 2005 to 40% in 2006 could not be achieved. This means all of the
estimated savings of $1.452 billion is recognized in 2007 when the advance payment rate falls
to 22% as required by P.L. 109-171.

Not included in the final law is an across-the board cut in farm commodity payments,
which was recommended at different levels in the House- and Senate-passed bills (see
Table 2). A Senate provision to extend the authority for the farm commodity programs
for four years (crop year 2011), as a means of preserving baseline spending beyond 2010
at the higher pre-reconciliation level of spending, was also deleted by conferees. Some
policymakers were concerned that extension of the commodity programs now could signal
that the U.S. is not committed to reducing domestic farm subsidies in the Doha round of
WTO negotiations. Also deleted in conference was an assessment on sugar loans.
Conservation Programs. Among the programs affected by an estimated $934
million reduction to mandatory USDA conservation spending in P.L. 109-171 are: the
Conservation Security Program (CSP), the Watershed Rehabilitation Program, and the
Environmental Quality Incentives Program (EQIP). Spending for the CSP is limited to
$1.954 billion over five years (2006-2010) and $5.65 billion over 10 years, for savings of
$649 million over the five-year horizon of the reconciliation bill. P.L. 109-171 also
prohibits the carryover of any unused mandatory funding for the Watershed Rehabilitation
Program that was available as of October 1, 2006, but does not include a House provision
to reduce FY2007 or future year funding. EQIP funding is reduced from $1.3 billion per
year to $1.27 billion in each of FY2007-FY2009. Conferees also extended authority for
the CSP through FY2011 and EQIP through 2010. A Senate provision to reduce the
Conservation Reserve Program and a House provision to eliminate FY2007-FY2010
funding for the Agricultural Management Assistance Program were both deleted by
conferees. (For background on these programs, see CRS Report RL32940, Agriculture
Conservation Programs: A Scorecard.)
Energy and Rural Development Programs. P.L. 109-171 recognizes savings
of $469 million by either reducing or eliminating funding for five mandatory rural
development programs and an energy program. All six of these programs were authorized
by the 2002 farm bill (P.L. 107-171), and have had some or all of their annual mandatory
funding prohibited by annual agriculture appropriations acts over the last several years.
(See Table 2 below, and CRS Report RL31837, An Overview of USDA Rural
Development Program, for background.)
Research Program. Funding for the Initiative for Future Food and Agriculture
Systems, a mandatory competitive grant research program, is cancelled for FY2007
through FY2009 in P.L. 109-171, as proposed by the House. Any unused FY2006
programs may not be carried over into FY2007 as well. The current authorized level of
$200 million would resume beginning in FY2010.

Table 2. Comparison of the Agricultural Provisions in the Deficit Reduction
Act of 2005 (P.L. 109-171) with the House- and Senate-Passed Versions
Congressional Budget Office (CBO) Estimate of five-year Savings (-) or Costs (+), million $
^Hou^s^e^S^en^ate^P.L^.^109-¹⁷¹
^F^a^rm^Co^m^m^o^dit^y^Suppo^rt^P^r^o^g^r^a^m^s
^R^e^du^{ce f}^a^rm^com^m^odity^prog^ram^pay^m^en^ts^(Sen^{ate: cu}^{t all pay}^m^en^ts^by
^2.5%^{, 2006-}^{2010 crops}^;^H^o^u^s^e:^cu^t^di^rect^pay^m^en^t^s^by^1%^f^o^{r 2006-}²⁰⁰⁹^-^$212^-^$1,296ⁿ^o^provⁱ^sⁱ^oⁿ
^crops^{). Deleted by}^con^f^erees^.
^P^eⁿ^a^lty^o^f¹^.²^%^o^f^lo^an^r^a^{te f}^o^r^su^g^a^r^lo^an^f^o^r^f^eitu^r^e^{s (}^S^en^{ate o}ⁿ^ly⁾^.ⁿ^o^provⁱ^sⁱ^oⁿ^-^$65ⁿ^o^provⁱ^sⁱ^oⁿ
^{Deleted by}^con^f^erees
^Elⁱ^mⁱⁿ^at^{e t}^h^{e u}^p^l^aⁿ^d^cot^t^oⁿ^S^t^ep-²^prog^ram^on^A^u^g^.^{1, 2006 (H}^ou^s^e^,^-^$282^-^$282^-^$282
^{Senate &}^{Final L}^a^w⁾
^R^e^du^{ce adv}^aⁿ^{ced di}^rect^pay^m^en^t^s^(H^ou^s^e^:^f^r^om^50%^t^o^40%ⁱⁿ^{crop y}^ears
^{2006 an}^{d 2007;}^S^eⁿ^a^t^e^:^50%^t^o^40%ⁱⁿ^{2006, 29%}ⁱⁿ^2007-^2011,^-^$513^-^$1,088^-^$1,452
^P.L^,^109-^171:^40%ⁱⁿ^{2006, 22%}ⁱⁿ²⁰⁰⁷⁾
^G^r^os^s^F^a^r^m^C^o^m^m^odi^t^y^Pr^ogr^am^R^e^du^ctⁱ^oⁿ^s^-$1,007^-$2,731^-$1,734
^T^w^o-^y^{ear ex}^t^eⁿ^sⁱ^oⁿ^of^t^h^{e MIL}^C^Prog^ram^t^o^S^e^pt^{. 30, 2007 (S}^en^at^{e an}^d⁺^$998⁺^$998
^P.L^.^109-¹⁷¹⁾
^N^e^t^F^a^r^m^C^o^m^m^odi^t^y^Pr^ogr^am^R^e^du^ctⁱ^oⁿ^s^-$1,007^-$1,733^-$736
^C^oⁿ^s^ervati^oⁿ^Program^s
^R^e^du^{ce au}^th^{orized en}^{rolled acreag}^{e in}^C^oⁿ^s^erv^a^tion^R^e^s^e^rv^{e P}^r^og^ramⁿ^o^provⁱ^sⁱ^oⁿ^-^$129ⁿ^o^provⁱ^sⁱ^oⁿ
^(Sen^{ate on}^ly⁾
^Lⁱ^m^{it sp}^en^dⁱⁿ^g^f^o^r^En^vⁱ^r^oⁿ^m^en^{tal Qu}^{alities I}ⁿ^cen^tiv^{e P}^r^o^g^r^a^m⁽^S^en^ateⁿ^o^provⁱ^sⁱ^oⁿ^-^$104^-^$75
^an^{d P.L}^.^109-¹⁷¹⁾
^Lⁱ^m^{it au}^th^{orized s}^p^en^din^g^f^o^{r C}^oⁿ^s^erv^a^tion^Secu^rity^P^r^og^ram^(Hou^s^e^,^-^$504^-^$821^-^$649
^S^eⁿ^a^t^e^&^P.L^.^109-¹⁷¹⁾
^Elⁱ^mⁱⁿ^at^{e A}^g^ri^cu^l^t^u^ral^Man^a^g^e^m^eⁿ^t^A^s^sⁱ^s^t^an^{ce f}^uⁿ^dⁱⁿ^g^f^o^{r F}^Y^2007-^-^$31ⁿ^o^provⁱ^sⁱ^oⁿⁿ^{o prov}ⁱ^sⁱ^oⁿ
^F^Y^{2010 (H}^ou^s^e^on^l^y⁾
^R^e^du^{ce W}^a^ters^h^e^{d R}^e^h^a^bilitation^P^r^og^ram^(H^ou^s^e^an^{d P}^.^L^.^109-¹⁷¹⁾^-^$225ⁿ^o^prov^is^ion^-^$210
^Tot^a^l^:^C^oⁿ^s^er^vatⁱ^oⁿ^Pr^ogr^am^R^e^du^ctⁱ^oⁿ^s^-$760^-$1,054^-$934
^Eⁿ^{ergy an}^d^R^u^ral^D^e^vel^o^p^m^en^{t (R}^D⁾^Program^s
^Elⁱ^mⁱⁿ^at^{e (H}^ou^s^e^{) or R}^e^du^{ce (P.L}^{. 109-}^{171) f}^uⁿ^d^s^f^o^{r R}^eⁿ^e^w^a^bl^{e En}^erg^y^-^$23ⁿ^o^provⁱ^sⁱ^oⁿ^-^$20
^&^En^erg^y^Ef^fⁱ^cien^cy^P^r^og^.
^Elⁱ^mⁱⁿ^at^{e (H}^ou^s^e^{), R}^e^du^{ce (P.L}^{. 109-}^{171) V}^a^l^u^e-^A^{dded A}^g^ri^{c. Produ}^ct^-^$160ⁿ^o^provⁱ^sⁱ^oⁿ^-^$120
^Mark^{et Dev}^e^lopm^en^{t Gran}^ts
^Elimⁱⁿ^{ate Ru}^r^a^{l B}^u^sin^e^{ss Str}^a^tegⁱ^{c I}ⁿ^v^e^stm^eⁿ^t^Gr^an^{ts (}^H^o^u^{se an}^d^P^.^L^.^-^$100ⁿ^o^provⁱ^sⁱ^oⁿ^-^$100
^109-¹⁷¹⁾
^Elⁱ^mⁱⁿ^at^{e R}^u^ral^Bu^sⁱⁿ^e^s^s^In^v^e^s^t^m^eⁿ^t^Prog^ram^(H^ou^s^e^an^{d P.L}^.^109-¹⁷¹⁾^-^$89ⁿ^o^provⁱ^sⁱ^oⁿ^-^$89
^Elimⁱⁿ^{ate R}^u^{ral Firef}ⁱ^g^h^t^ers^an^{d Em}^erg^eⁿ^c^y^P^e^rs^onⁿ^e^{l Gran}^ts^(Hou^s^e^an^d^-^$50ⁿ^o^provⁱ^sⁱ^oⁿ^-^$50
^P.L^.^109-¹⁷¹⁾
^Elimⁱⁿ^{ate (Hou}^s^e^{), R}^e^du^{ce (P}^.L^{. 109-}^{171) En}^h^aⁿ^{ced A}^cces^s^{to Broadban}^d^-^$47ⁿ^o^provⁱ^sⁱ^oⁿ^-^$40
^T^e^lecom^mⁱⁿ^R^u^{ral A}^r^eas
^{Total: E}ⁿ^er^{gy an}^{d R}^u^r^a^{l Developm}^en^{t Pr}^ogr^am^R^e^du^ction^s^-$469^$0^-$419
^Res^e^arch:^R^e^du^{ce f}^uⁿ^dⁱⁿ^g^f^o^{r In}^itiativ^{e f}^o^{r Fu}^tu^{re A}^g^&^{Food Sy}^s^t^em^s^-$620^{- $227}^-$620
^(H^ou^s^e^{, S}^eⁿ^a^t^e^an^{d P.L}^.^109-¹⁷¹⁾
^Food^S^t^am^p^s
^Lⁱ^m^{it categ}^o^r^{ical elig}^ib^ility^to^r^ecipⁱ^en^{ts o}^f^T^A^{NF cash}^assistan^{ce, w}^ith^-^$442ⁿ^o^provⁱ^sⁱ^oⁿⁿ^{o prov}ⁱ^sⁱ^oⁿ
^ex^ception^s^(Hou^s^e^on^ly^{). Deleted by}^con^f^erees^.
^In^creas^{e w}^a^itin^g^{period f}^o^{r im}^mⁱ^g^r^an^ts^f^r^om^fⁱ^v^e^y^ears^{to s}^e^v^eⁿ^y^ears^,^w^ith^-^$255ⁿ^o^provⁱ^sⁱ^oⁿⁿ^{o prov}ⁱ^sⁱ^oⁿ
^ex^ception^s^(Hou^s^e^on^ly^{). Deleted by}^con^f^erees
^Tot^a^l^:^F^{ood S}^t^am^{p Pr}^ogr^am^R^e^du^ctⁱ^oⁿ^s^-$697^$0^$0
^G^r^os^s^R^e^d^u^c^ti^on^s^{(-) i}ⁿ^M^aⁿ^d^a^{tory Ou}^tl^ays^-$3,553^-$4,012^-$3,707
^{(+) Increa}^{ses in bills:}
^{-Food Stam}^{p hurricane relief (Hou}^s^e^{only). Deleted by conferees}^.⁺^$50^$0
^-M^I^L^C^Program^reau^t^h^o^ri^zati^on^(S^en^{ate an}^d^P.L^.^109-171)⁺^$998⁺^$998
⁼^N^e^{t R}^e^d^u^c^ti^onⁱⁿ^M^aⁿ^d^a^{tory S}^p^eⁿ^dⁱⁿ^g^Ou^tl^ays^-$3,503^{- $3,014}^-$2,709