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  • Judgement call. House increases conservation spending by about 74%. Senate increases conservation spending by about 100%
  • House philosophy: Consistent commodity program provisions so farmers and bankers know what to expect. Or ramp up programs that are new or with significant increases in funding to allow time for better and more efficient implementation. Let programs develop to see what works.
  • Don’t do cost comparison because offset in deficiency payment calculation. FAPRI: House 88% of program crop benefits converted into farm income. Senate: 77%.
  • Budget Reconciliation is looming
  • Budget Reconciliation is looming
  • Senate-passed farm bill included shifts between fixed payments and counter-cyclical payments simply because the CBO baseline had farm prices rising over time which made counter-cyclical payments cheaper in the out-years.
  • -- Pleased to be here -- Lot of respect for the work done here at Texas A&M and at the Agricultural and Food Policy Center -- Since 1989 when I started working as the wheat policy analyst for ASCS, a significant part of my work responsibilities has been to estimate the budgetary impacts of policy options. -- This became a full time focus of my work when I moved to CBO in 1995. -- Remains my main responsibility of my work for the House Committee on Agriculture. -- Came to House Ag from CBO; Had to adjust perspective on budget aspects of farm programs—At CBO were costs; at HAC are benefits—Same number
  • FY 2002 Outlays: Beyond farm programs: $37 billion for food and nutrition programs $7 billion forest service $2 billion on research, education & economics
  • We spend a lot of money and USDA spending is not a huge part of that. De La Garza Chart
  • Surpluses have been fairly rare and temporary Kind of like the old economic saw that the cure for low prices is low prices.
  • Not just new spending. “ Routinize” farm income support by substituting automatic counter-cyclical payments for ad-hoc market loss assistance.
  • Finding new money for agriculture is unlikely—especially in a deficit and post 9-11 world--
  • Many surprised that Administration maintained offset position throughout 2002—especially in face of South Dakota Senate race.
  • 1. All policy areas have constituents Estimated savings of $1.4 billion plus from payment limits may increase support at the margin that the policy otherwise would not. 3. Senate-passed farm bill included shifts between fixed payments and counter-cyclical payments simply because the CBO baseline had farm prices rising over time which made counter-cyclical payments cheaper in the out-years. Note: Let’s look at the CSP offset to see importance of CBO baselines
  • Why CBO Baselines change: Market conditions change USDA may implement programs differently than previously assumed New analytical techniques—Market-based program costs in CBO’s January, 2003 CCC baseline based on price distributions and probability distributions—not just comparison of program triggers and one market price.
  • Transcript

    1. <ul><li>  </li></ul><ul><li>Craig Jagger </li></ul><ul><li>Chief Economist </li></ul><ul><li>House Committee on Agriculture </li></ul><ul><li>2004 SAAS Meetings </li></ul><ul><li>Tulsa, Oklahoma </li></ul><ul><li>February 17, 2004 </li></ul><ul><li>craig.jagger@mail.house.gov </li></ul><ul><li>202 225-1130 </li></ul>Commodity Models and Their Contribution to Congressional Policy-Making: Reflections from the 2002 Farm Bill and Beyond
    2. Funding Balance The 10-Year CBO Score shows the House puts more money in commodity programs (for all crops & dairy) than does the Senate (CBO score: FY 02 – 11)
    3. The Senate 5-Year (4 to 6-year) bill Front-Loads total spending relative to the 10-year farm program budget (CBO Score: FY 02-11)
    4. Loan Rates : Why Encourage Any More Production When We Already Have Surpluses? The Senate’s higher loan rates cause larger increases in production and lower prices for most major field crops than do the House’s decoupled payments and loan rate adjustments.
    5. Primary Sources of Analyses of 2002 Farm Bill Proposals for the House Ag Committee (p. 1) <ul><li>Commodity Program Proposals: </li></ul><ul><ul><li>Change in Government costs (Congressional Budget Office) </li></ul></ul><ul><ul><li>Impacts on farm income (FAPRI) </li></ul></ul><ul><ul><li>Effects on supply, demand, and prices for selected commodities (FAPRI) </li></ul></ul><ul><ul><li>Little interest in full-blown welfare analyses or direct economic efficiency arguments </li></ul></ul><ul><li>Relative impact on farmers in my district. </li></ul><ul><ul><li>(FAPRI—state level estimates) </li></ul></ul><ul><ul><li>(AFPC—representative farm analyses) </li></ul></ul><ul><ul><li>(State Land-Grant economists) </li></ul></ul><ul><li>Note: CBO and FAPRI and affiliates have institutional roles in the legislative process. Because each uses a consistent baseline and has consistent models, results can be compared across numerous options. </li></ul>
    6. Primary Sources of Analyses of 2002 Farm Bill Proposals for the House Ag Committee (p. 2) <ul><li>Impacts on Selected Major Topics </li></ul><ul><ul><li>Payment Limits: Special Studies from University of Arkansas, Kansas State University, University of Illinois, Georgia Extension </li></ul></ul><ul><ul><li>Peanuts: University of Georgia </li></ul></ul><ul><li>Consultation on Other Issues </li></ul><ul><ul><li>USDA/USTR: Farm Service Agency, Economic Research Service, Foreign Agriculture Service, Office of the Chief Economist, Other USDA agencies </li></ul></ul><ul><ul><li>Office of the U.S. Trade Representative </li></ul></ul><ul><ul><li>Numerous Land-Grant University Economists </li></ul></ul><ul><ul><li>Other Congressional support agencies: Congressional Research Service & the General Accounting Office </li></ul></ul><ul><ul><li>Others </li></ul></ul>
    7. Farm Bill Principles: The House Perspective <ul><li>Retain and Enhance Market-Oriented Provisions of the 1996 Farm Bill </li></ul><ul><li>Increase Automatic Counter-Cyclical Income Support </li></ul><ul><li>Appropriately Balance Funding for Commodity Programs, Conservation Programs, and other Programs. </li></ul><ul><li>Comply with Budget Limits </li></ul><ul><li>Provide Consistent Programs For All Years </li></ul><ul><li>Comply with WTO Obligations </li></ul>
    8. Other Considerations <ul><li>Is it acceptable to organized interest groups and others who are affected? </li></ul><ul><li>How does it impact Members’ districts and constituents? </li></ul><ul><li>Can acceptable compromises be found with the Senate: For the 2002 farm bill: 63 days of conference with 9 days of formal member meetings </li></ul><ul><li>Will the Administration support it? </li></ul>
    9. Selected Analytical Issues <ul><li>Program costs are critical to the policy process. How best to capture that one point-estimate that the Congress needs? </li></ul><ul><li>How are markets changing—what will the future bring both with or without a new policy: The Baseline issue. </li></ul><ul><li>How will USDA implement programs? What will really happen? </li></ul><ul><li>How will the administration treat programs relative to the WTO? </li></ul><ul><li>Consistency across numerous variations on a proposal is crucial. </li></ul>
    10. Why Estimated Program Costs Matter <ul><li>If a bill is estimated (by CBO) to increase spending above baseline levels, then a Member may raise a budget point of order. </li></ul><ul><li>If the point of order is upheld by the parliamentarian, then: </li></ul><ul><ul><li>Senate: Passing the bill requires 60 votes rather than a simple majority. </li></ul></ul><ul><ul><li>House: The bill cannot be considered (although the rules of debate can waive budget points of order by a majority vote) </li></ul></ul>
    11. Baselines Matter: Change in Commodity Program Costs as Estimated by CBO
    12. Baselines Matter: Corn Counter-Cyclical Payments
    13. Why Do Stochastic Analysis? <ul><li>The baseline is always wrong </li></ul><ul><ul><li>Rather than measuring impacts of a policy against one set of baseline assumptions, stochastic analysis measures the impacts of a policy against many sets of baseline assumptions and reports an expected value. </li></ul></ul><ul><li>CBO’s introduction for the 1996 farm bill of “probability scoring”: </li></ul><ul><ul><li>Has led to better cost estimates for price-dependent programs </li></ul></ul><ul><ul><li>Has reduced the number of policy proposals (and enacted policy) that rely on budget gimmicks. </li></ul></ul><ul><li>Stochastic Analysis has become the analytical standard on the Hill </li></ul><ul><ul><li>The Congressional Budget Office with the 1996 farm bill </li></ul></ul><ul><ul><li>All of FAPRI’s analyses prepared for the 2001/2002 farm bill debate have been stochastic analyses. </li></ul></ul>
    14. Deterministic vs. Stochastic Considerations
    15. WTO Considerations <ul><li>U.S. Limit on Trade-Distorting Amber Box Domestic Support = $19.1 billion </li></ul><ul><li>Lots of discretion: </li></ul><ul><ul><li>How will countries implement programs? </li></ul></ul><ul><ul><li>How will countries notify program costs? </li></ul></ul><ul><li>Brazil’s WTO cotton case could have a major impact. </li></ul><ul><li>Westhoff and others: It is safe to assume that countries will use whatever discretion they have to minimize harm to influential groups (?) </li></ul>
    16. A Few Comments on Other Papers
    17. The Next Farm Bill: 2006, 2005, 2004? Budget Reconciliation and the Farm Bill <ul><li>Budget Reconciliation instructions are instructions in the Congress’s Budget Resolution to authorizing committees (e.g. the Ag Committees) to draft changes to existing laws to achieve specified budgetary results. </li></ul><ul><li>Usually, they have been used to mandate government-wide reductions in mandatory spending programs to reduce the federal budget deficit. </li></ul><ul><li>Prior Budget Recon. Bills: 1997, 1996, 1995, 1993, 1990, 1989, 1987, 1985, 1983, 1981 </li></ul>
    18. The FY 04 Budget Resolution (Spring, 2003) and Budget Reconciliation: <ul><li>House Bill: Reconciliation instructions with cuts for most committees </li></ul><ul><ul><li>Agriculture Cut: $18.6 Billion for FY 04 -13 (about 4%). </li></ul></ul><ul><ul><li>Cuts could come from any Ag Committee program: Commodities, Conservation, Crop Insurance, Food Stamps, Research, Rural Development, Forestry, Trade. </li></ul></ul><ul><li>Senate Bill: No reconciliation instructions </li></ul><ul><li>Final Bill: No reconciliation instructions </li></ul><ul><li>BUT reconciliation is coming. It’s just a matter of when. </li></ul>
    19. Contact Information <ul><li>Craig Jagger </li></ul><ul><li>Chief Economist </li></ul><ul><li>House Committee on Agriculture </li></ul><ul><li>1301 Longworth HOB </li></ul><ul><li>Washington, DC 20515 </li></ul><ul><li>202 225-1130 (o) </li></ul><ul><li>202 225-4464 (f) </li></ul><ul><li>[email_address] </li></ul>
    20.  
    21. In FY 04, the Total Deficit and On-Budget Deficits at $477 and $631 Billion are Projected Record Large in Nominal Dollars BUT the Deficits Are Projected to Decline AND as a % of GDP Are NOT Record Large Deficit Surplus
    22. A Counter-Cyclical Payment Example of Probability Scoring <ul><li>Deterministic Analysis: </li></ul><ul><ul><li>Compare the one baseline forecast market price to a target price. As long as that one price is above the target price, no cost is scored. </li></ul></ul><ul><ul><li>Policy Proposal: Raise the target price to just below the baseline forecast market price. No cost is scored because the market price is still below the target price. </li></ul></ul><ul><ul><li>This is a one-sided bet because if the actual price is above the forecast price, there is no cost but if the actual price is below the forecast price, there is a cost. </li></ul></ul><ul><li>Stochastic Analysis: </li></ul><ul><ul><li>Recognize that the baseline forecast market price is actually one price (e.g. the mean) from a price probability distribution of plausible prices. </li></ul></ul><ul><ul><li>Compare each forecast price from the probability distribution to a target price, calculate the cost for each price, multiply the cost for each price times the probability of each price occurring, then sum the results to calculate an expected program cost. </li></ul></ul><ul><ul><li>Even when the mean baseline forecast market price is above the target price, there is a cost--as long as part of the price distribution is below the target price . </li></ul></ul>
    23. Stochastic Analysis May Influence The Types of Benefits to Producers: The Senate Farm Bill Example <ul><li>House farm bill: Constant fixed payment rates for all years </li></ul><ul><li>Senate farm bill: Last-year fixed rates that were 25% of the first-year rates. This took advantage of CBO baseline prices that rose over time and stochastic analysis that gives a lower cost for each cent of potential counter-cyclical payment than for each cent of fixed payment. </li></ul><ul><li>$0.01 of fixed payment = $0.01 of stochastic cost </li></ul><ul><li>$0.01 of counter-cyclical payment = Less than $0.01 of stochastic cost. Stochastic cost depends on the relationship between the mean price of the price distribution and the target price: </li></ul><ul><ul><li>The lower the mean price relative to the target price, the higher the stochastic cost as more of the price distribution is “in the money.” </li></ul></ul><ul><ul><li>The higher the mean price relative to the target price, the lower the stochastic cost as less of the price distribution is “in the money. </li></ul></ul><ul><li>By making the counter-cyclical payment a larger share of combined fixed and counter-cyclical payments in the last year when the baseline price is higher, combined payments are smaller and a given amount of money goes further. This allows the nominal target price of the Senate Bill to be higher than that of the House bill even when the expected value of the benefits is the same. </li></ul>
    24. What Does the Farm Security and Rural Investment Act of 2002 (The 2002 Farm Bill) Do? <ul><li>The 2002 farm bill is a six-year bill that : </li></ul><ul><li>Reauthorizes farm (and other) USDA programs through 2007 and covers the 2002 through 2007 crops. </li></ul><ul><li>Enhances Commodity, Conservation, Trade, Nutrition, Rural Development, Research, Forestry, Energy, and Miscellaneous programs. </li></ul><ul><li>Provides additional funding (above the baseline) for these programs over the next 10 years by $73.5 billion (?), $82.8 billion (?), Maybe More (?), Maybe Less (?). BUT We Really Don’t Know . </li></ul>
    25. <ul><li>A Presentation by </li></ul><ul><li>  </li></ul><ul><li>Craig Jagger </li></ul><ul><li>Chief Economist </li></ul><ul><li>House Committee on Agriculture </li></ul><ul><li>A Department of Agricultural Economics Seminar </li></ul><ul><li>Texas A & M University </li></ul><ul><li>College Station, TX </li></ul><ul><li>January 13, 2004 </li></ul>Show Me the Money: How the Budget Helps Shape U.S. Farm Policy
    26. The Budget is Important to Farm Policy: Government Payments Continue to Be a Major Contributor to U.S. Net Farm Income Government payments averaged 29% of net farm income over the last 10 years, 39% over the last 4 years, and 35% (forecast) for 2003
    27. Commodity Credit Corporation and Crop Insurance Outlays Averaged $21 Billion Per Year During the 5 Fiscal Years 1998-2002
    28. Over the last 10 years CCC + FCIC spending has averaged 25% of Total USDA Spending Non-Farm Program Spending is Much Less Variable than Farm Program Spending
    29. Total Federal Outlays (Nominal $) Keep Increasing; They Exceeded $2 Trillion for the First Time in FY 2002 Total USDA Outlays (Including Non-Farm Outlays) Typically Are 3% to 5% of Total Federal Outlays
    30. Federal Budget Surpluses Are Infrequent The Last On-Budget Federal Surplus Before FY 1999 was in FY 1960; The Last Total Federal Surplus Before FY 1998 was in FY 1969. Surplus Surplus Deficit
    31. The Budget (and Budget Analysis) is Important to Farm Policy (and the Legislative Process): Non-Traditional Indicators <ul><ul><li>75: Percent of the 4 House and Senate Ag Committee economists </li></ul></ul><ul><ul><li> who are former Congressional Budget Office (CBO) analysts. </li></ul></ul><ul><ul><li>1: Farm program outlays as a percent of total federal budget </li></ul></ul><ul><ul><li>outlays. </li></ul></ul><ul><ul><li>6: The 3 CBO ag budget analysts as a percent of the 47 CBO </li></ul></ul><ul><ul><li>budget analysts who cover the entire federal budget. </li></ul></ul>
    32. The Congressional Budget Office (CBO) Baselines and Cost Estimates <ul><li>The CBO Baseline: </li></ul><ul><ul><li>Expected federal budget costs for the current and next 10 fiscal years </li></ul></ul><ul><ul><li>Assumes current laws and policies continue: no new laws are passed and, with some exceptions, current laws do not expire. </li></ul></ul><ul><ul><li>Incorporates current and projected market conditions, economic trends, and USDA implementation decisions </li></ul></ul><ul><li>A CBO Cost Estimate (score) shows the difference over the next ten years between: </li></ul><ul><ul><li>Expected federal costs if a new proposal becomes law and </li></ul></ul><ul><ul><li>Expected federal costs if current laws are assumed to continue (the baseline) </li></ul></ul><ul><li>Remember : the score shows the change in spending--NOT total spending. </li></ul>
    33. Congressional Budget Rules for Farm Programs (and Other Mandatory Spending) <ul><li>Most farm programs are entitlement (mandatory) programs under the jurisdiction of the Agriculture Committees </li></ul><ul><li>Costs of entitlement programs are determined by the cost of providing benefits to participating eligible recipients </li></ul><ul><li>Multi-year funding for mandatory programs is provided in the budget at the time a law is passed. No annual appropriation (or any other new legislation) is needed to spend money. </li></ul><ul><li>The following budget rules are for mandatory programs. </li></ul><ul><li>Appropriated (discretionary) programs are under the jurisdiction of the Appropriations Committees, are funded annually, and have different budget rules) </li></ul>
    34. The Annual Congressional Budget Resolution <ul><li>Congress’s annual multi-year budget plan. </li></ul><ul><li>Specifies maximum authorized spending for each of the next 5 or 10 years </li></ul><ul><li>Budget Resolution Baseline: CBO’s baseline projection of spending if current programs continue unchanged PLUS any changes authorized by the Congress in the budget resolution. </li></ul><ul><li>“ Reconciliation” instructions, if any, specify each committee’s contribution to government spending cuts (see below). </li></ul>
    35. Strategies for Funding New Farm Programs or Increasing Spending on Current Ones <ul><li>1. Provide additional funding up-front in the Congress’s annual budget resolution. </li></ul><ul><li>2. Declare an emergency (if the rest of the Congress and the President agree). </li></ul><ul><li>3. Offset the increased cost by reducing costs of other farm programs (or non-farm programs). </li></ul><ul><li>4. Legislate on appropriations </li></ul><ul><li>5. Find the votes to increase spending without offsets (i.e. override any budget points of order). </li></ul>
    36. Strategy 1: Provide Extra Funding in the Congressional Budget Resolution A Favored Strategy for Major Farm Policy Reform Efforts <ul><ul><li>1994 Crop Insurance Reform: $1 billion per year. Law passed. </li></ul></ul><ul><ul><li>2000 Agricultural Risk Protection Act: </li></ul></ul><ul><ul><ul><li>1999: $6 billion over 4 years for new risk management. Not Completed. </li></ul></ul></ul><ul><ul><ul><li>2000: Increased 1999 funding to $8.2 billion over 5 years. Law passed. </li></ul></ul></ul><ul><ul><li>2002 Farm Security and Rural Investment Act: </li></ul></ul><ul><ul><ul><li>2001: $79 billion over 11 years for the ag safety net and other agriculture programs. </li></ul></ul></ul><ul><ul><ul><ul><li>$5.5 billion for 2001 Market-Loss Assistance passed. </li></ul></ul></ul></ul><ul><ul><ul><ul><li>$73.5 billion left for Farm Bill that was not completed. </li></ul></ul></ul></ul><ul><ul><ul><li>2002: Continued 2001 funding consistent with 2001 levels. Law passed. </li></ul></ul></ul>
    37. A Major Rationale for Extra Funding for the 2002 Farm Bill Was to Eliminate “Emergency” Ad Hoc Market-Loss Payments Enacted Due to Low Prices in Prior Years
    38. The Budget Reality: Projected surpluses that facilitated extra funding for the 2002 farm bill have disappeared
    39. Strategy 2: Designate Spending as an Emergency From FY 1989 to FY 2001, 21 Acts Added $43.8 Billion in Emergency Funding for USDA Programs. Source: Congressional Research Service
    40. Emergency Spending <ul><li>Must be designated as such by both the Congress and the President. </li></ul><ul><li>Does not count against the budget for legislative purposes. </li></ul><ul><li>Is real spending when the checks are issued. </li></ul><ul><li>Is not defined by statute or rules. Anything on which the President and Congress can agree is an emergency. </li></ul><ul><li>The FY 04 Budget Resolution requires an explanation of how spending designated as an emergency meets the criteria of: </li></ul><ul><ul><li>Necessary, essential, or vital (not merely useful or beneficial) </li></ul></ul><ul><ul><li>Sudden, quickly coming into being, and not building up over time. </li></ul></ul><ul><ul><li>An urgent, pressing, and compelling need requiring immediate action. </li></ul></ul><ul><ul><li>Unforeseen (i.e., Not part of a bundle of anticipated emergencies normally estimated in advance), unpredictable, and unanticipated </li></ul></ul><ul><ul><li>Not permanent, temporary in nature. </li></ul></ul>
    41. The Budget Reality Emergency Spending: Is Off-Budget Now Off-Limits? <ul><li>2001/2002 Crop Disaster Assistance was not declared an “emergency” </li></ul><ul><li>The Administration insisted that disaster assistance be offset by cuts in spending for other agriculture programs : </li></ul><ul><li>Following a Senate proposal, the bill capped out-year costs of the yet-to-be-implemented Conservation Security Program </li></ul><ul><li>If this is a precedent, then ALL farm program beneficiaries whose programs could be cut have a stake in disaster assistance legislation--not just those suffering disasters. </li></ul>
    42. Strategy 3: Offset Increased Costs for New Programs by Cutting Costs of Current or Other Proposed Programs <ul><li>Key Question: What’s the least painful way to find savings in other programs? </li></ul><ul><li>Offsets can only be from legislated changes—not from lower than expected costs when actual market conditions are different than originally projected. </li></ul>
    43. Selected Savings Strategies <ul><li>Timing Shifts: </li></ul><ul><ul><li>It only costs if it’s in the scoring period. </li></ul></ul><ul><ul><li>Shifting the payment of an earned benefits outside the scoring period saves money. </li></ul></ul><ul><ul><li>Why the second direct payment occurs in the next fiscal year. </li></ul></ul><ul><li>Baseline Re-Estimates </li></ul><ul><ul><li>For each new baseline, CBO incorporates new information on market conditions, USDA implementation decisions, etc. </li></ul></ul><ul><ul><li>If a new program’s spending has no cap, the CBO score at passage may turn out to have been an underestimate </li></ul></ul><ul><ul><li>Saving can be had by capping spending at levels higher than originally scored. </li></ul></ul><ul><ul><li>Why advocates don’t want to cap mandatory spending programs. </li></ul></ul>
    44. <ul><ul><li>CBO May, 2002 Farm Bill Estimate--No funding cap </li></ul></ul><ul><ul><ul><li>FY 02 – FY 11: $2.000 Billion </li></ul></ul></ul><ul><ul><li>CBO January, 2003 Baseline--No funding cap </li></ul></ul><ul><ul><ul><li>FY 02 – FY 11: $4.897 Billion </li></ul></ul></ul><ul><ul><ul><li>FY 02 – FY 13: $7.684 Billion </li></ul></ul></ul><ul><ul><li>CBO March, 2003 Baseline—10-year funding cap to offset disaster assist. </li></ul></ul><ul><ul><ul><li>FY 02 – FY 11: $2.774 Billion </li></ul></ul></ul><ul><ul><ul><li>FY 02 – FY 13: $3.773 Billion </li></ul></ul></ul><ul><ul><li>CBO March, 2004 Baseline (?) </li></ul></ul><ul><ul><ul><li>Pending FY 2004 Omnibus Appropriation conference bill removes the 10-year cap but caps FY 2004 spending at $41 million to save $12 million </li></ul></ul></ul>Projected Spending for the Conservation Security Program (CSP) Is 40% higher than When the Farm Bill Was Passed Even AFTER Cutting $3.1 Billion to Offset 01/02 Disaster Assistance
    45. Strategy #4: Legislating on Appropriations <ul><li>Technically, the Appropriations Committees are not supposed to legislate—i.e., change mandatory programs—in appropriations bills </li></ul><ul><li>But the Appropriators do so by limiting salaries and expenses to implement a program. </li></ul><ul><li>Under different budget rules, when there are multi-year costs in an approps bill, only the first year cost is scored. Out-year costs are not. </li></ul><ul><li>This treatment allows the removal (without cost) of the cap on CSP funding that is pending in the FY 04 Omnibus Appropriation </li></ul><ul><li>Before their expiration last year, “discretionary caps” on out-year spending were adjusted downward to account for additional spending in later years. Although caps were often waived, this provided some additional budget discipline. </li></ul>
    46. Caveats on Offsetting Increased Costs for New Programs by Cutting Costs of Current Programs <ul><li>Proposed cuts may lead to interest group wars. Every program has a constituency. </li></ul><ul><li>May make policy proposals that save money more attractive than they otherwise would be. </li></ul><ul><li>Can lead to “bad” policy if policies are designed to capture quirks in CBO baselines or estimating assumptions. </li></ul><ul><li>Cost trade-offs and savings opportunities can be heavily dependent on CBO Baselines and Scoring. </li></ul>
    47. <ul><li>The Federal Budget, Congressional Budget Process, and CBO baselines and scoring conventions have a major role in shaping the types, timing, and benefit levels of farm policies. </li></ul><ul><li>With ongoing projected budget deficits, reconciliation instructions to all committees—including agriculture--to reduce spending look inevitable for FY 2005—the first budget after the 2004 elections. </li></ul><ul><li>Spending cuts can come from any programs under the Ag Committees’ jurisdictions but all program areas have powerful constituencies. </li></ul>Concluding Comments
    48. Appendix: CBO and the 2002 farm bill <ul><li>CBO analysts were extremely dedicated in their service to the Congress during the course of the 2002 Farm Bill debate—working many late nights and long weekends. </li></ul><ul><ul><li>Over a roughly 16-month period, the CBO Ag Team (and other CBO analysts) provided Members and staff an almost continuous stream of well over 500 informal and formal costs estimates. </li></ul></ul><ul><ul><li>Many proposals were difficult to score—e.g. updating base acres and/or yields, rebalancing loan rates, the new Conservation Security Program. </li></ul></ul><ul><ul><li>CBO’s adoption of “stochastic scoring” for the 1996 farm provides better estimates but is more difficult and less transparent </li></ul></ul><ul><li>But none of us are perfect. </li></ul><ul><ul><li>After the Senate passed its Farm Bill, CBO discovered a simple error that caused the score to be underestimated by $6.1 billion. </li></ul></ul><ul><ul><li>They had used an 85% factor for commodity program payments (as in the House bill) rather than the 100% factor of the Senate bill. </li></ul></ul><ul><ul><li>The revised score was $79.6 billion—well above the available additional funding (and the original score) of $73.5 billion. </li></ul></ul>
    49. CBO and the 2002 farm bill (Continued) <ul><li>One take (of many) on the $6 billion glitch: The Farm Bill Conference: </li></ul><ul><ul><li>Rep. Chambliss: “But I would remind the Senator we had the option of telling the Senate you are $6 billion over budget. Go back and redo your bill and come back to us, but we did not do that. . . .” </li></ul></ul><ul><ul><li>Senator Conrad: “Can I just say to the gentleman that it is absolutely true, because of the CBO mistake—again, it was not anybody’s fault, but they made a mistake, and they misestimated our bill. But once we went back to an 85-percent payment base, that took care of the problem. . . . </li></ul></ul><ul><li>But it’s more difficult than presented: Without the extra $6 billion for commodity programs, it would have been even more difficult for the Senate to achieve a compromise on the funding allocation across commodity, conservation, and other programs </li></ul>
    50. CBO and the 2002 farm bill (Continued) <ul><li>CBO’s alternative estimate at the end of the debate </li></ul><ul><ul><li>In response to requests from several high-ranking Senate and House members, CBO provided an informal cost estimate of the farm bill based on March, 2002 market conditions--rather than the April, 2001 market conditions on which the official farm bill score was based. </li></ul></ul><ul><ul><li>The new estimate showed an estimated ten-year cost of $82.8 billion--up from $73.5 billion. </li></ul></ul><ul><ul><li>The release of this estimate after the House--but before the Senate– passed the final farm bill was controversial. </li></ul></ul><ul><li>Given changed market conditions after March, 2002 (e.g. 2002 drought), commodity program spending is lower than projected based on either baseline. </li></ul><ul><ul><li>Lower costs because of market conditions different than projected at the time a bill was passed cannot be spent elsewhere. </li></ul></ul><ul><ul><li>Increased costs for crop insurance and other programs such as the Conservation Security Program and Milk Income Loss Contracts provide at least partial offsets for lower commodity program costs. </li></ul></ul>
    51. Major Farm Bill Constraints <ul><li>Budget, Budget, Budget. </li></ul><ul><ul><li>The FY 2002 Congressional Budget Resolution provided an additional $73.5 billion in funding for FY 2002-2011. </li></ul></ul><ul><ul><li>The amount was in addition to projected spending on CCC programs of $97.6 billion in the April, 2001 CBO baseline. </li></ul></ul><ul><li>Proper Balance </li></ul><ul><ul><li>Commodity programs, conservation programs, and other program areas all have enthusiastic supporters and detractors. </li></ul></ul><ul><li>WTO Agreement </li></ul><ul><ul><li>For the U.S. to be in compliance with WTO agreements, its costs of “trade-distorting” domestic support programs can be no more than $19.1 billion in a given year. </li></ul></ul>
    52. The Congressional Budget Office (CBO): A Non-Partisan Congressional Support Agency <ul><li>A CBO cost estimate (“score”) shows the difference over the next ten years between: </li></ul><ul><ul><li>Expected federal costs if a new proposal becomes law and </li></ul></ul><ul><ul><li>Expected federal costs if current laws are assumed to continue (i.e., “the baseline).” </li></ul></ul><ul><ul><li>Remember: the score shows the change in spending--NOT total spending. </li></ul></ul><ul><li>CBO scores are important in the legislative process because of House and Senate rules regarding increased spending. </li></ul><ul><ul><li>If the score shows that spending would increase above the baseline and a Member raises a budget point of order that is confirmed, then legislative hurdles for passing the bill increase. </li></ul></ul><ul><ul><li>Ways to get around a budget point of order include: change the proposal to reduce spending (as needed), find enough votes to waive the point of order, designate the additional spending as “emergency spending,” provide additional funding in the Congress’s budget resolution baseline. </li></ul></ul><ul><li>Unless overruled by the Budget Committee, the CBO score is binding. </li></ul>
    53. What Economic Information Does the Congress Need in the Future? <ul><li>Don’t underestimate the importance of current, basic market information--help us understand how things work and relate </li></ul><ul><li>But help us understand how agriculture is changing--help us understand what the future may bring </li></ul><ul><li>“ Agricultural Outlook”-type articles communicate very well--especially for staff </li></ul><ul><li>Given demands on members’ time, one page works best </li></ul><ul><li>Websites and electronic access--have been a real boon to communication and getting timely information </li></ul><ul><li>Direct help to analysts at congressional support agencies (e.g., CBO, CRS) is a big indirect help to the Congress </li></ul><ul><li>Stochastic analysis has become the standard on the Hill. </li></ul>
    54. CBO and the 2002 farm bill <ul><li>CBO analysts were extremely dedicated in their service to the Congress during the course of the 2002 Farm Bill debate—working many late nights and long weekends. </li></ul><ul><ul><li>Over a roughly 16-month period, the CBO Ag Team (and other CBO analysts) provided Members and staff an almost continuous stream of well over 500 informal and formal costs estimates. </li></ul></ul><ul><ul><li>Many proposals were difficult to score—e.g. updating base acres and/or yields, rebalancing loan rates, the new Conservation Security Program. </li></ul></ul><ul><ul><li>CBO’s adoption of “stochastic scoring” for the 1996 farm provides better estimates but is more difficult and less transparent </li></ul></ul><ul><li>But none of us are perfect. </li></ul><ul><ul><li>After the Senate passed its Farm Bill, CBO discovered a simple error that caused the score to be underestimated by $6.1 billion. </li></ul></ul><ul><ul><li>They had used an 85% factor for commodity program payments (as in the House bill) rather than the 100% factor of the Senate bill. </li></ul></ul><ul><ul><li>The revised score was $79.6 billion—well above the available additional funding (and the original score) of $73.5 billion. </li></ul></ul>
    55. CBO and the 2002 farm bill (Continued) <ul><li>One take (of many) on the $6 billion glitch: The Farm Bill Conference: </li></ul><ul><ul><li>Rep. Chambliss: “But I would remind the Senator we had the option of telling the Senate you are $6 billion over budget. Go back and redo your bill and come back to us, but we did not do that. . . .” </li></ul></ul><ul><ul><li>Senator Conrad: “Can I just say to the gentleman that it is absolutely true, because of the CBO mistake—again, it was not anybody’s fault, but they made a mistake, and they misestimated our bill. But once we went back to an 85-percent payment base, that took care of the problem. . . . </li></ul></ul><ul><li>CBO’s alternative estimate at the end of the debate was controversial. </li></ul><ul><ul><li>In response to requests from several high-ranking Senate and House members, CBO provided an informal cost estimate of the farm bill based on March, 2002 market conditions--rather than the April, 2001 market conditions on which the official farm bill score was based. </li></ul></ul><ul><ul><li>The new estimate showed an estimated ten-year cost of $82.8 billion--up from $73.5 billion. </li></ul></ul><ul><ul><li>The release of this estimate after the House--but before the Senate– passed the final farm bill was controversial. </li></ul></ul>
    56. Developing the Farm Bill in the House: Background <ul><li>The 1996 farm bill authorized programs for 1996 through 2002 crops. Under a normal timeline, the farm bill process would not have started until early 2002. </li></ul><ul><li>The process for the 2002 farm bill started in the House in early 2000, as it was clear that the fixed payment programs of the 1996 farm bill were inadequate to address income problems caused by low prices. </li></ul><ul><li>At every step--through passage by the House of the House farm bill-- “knowledgeable” observers questioned the ability of House Ag Committee leaders to meet self-imposed deadlines. The observers were wrong. </li></ul>
    57. Phase 1: Committee Hearings and Research March 6, 2000 to July 19, 2001 <ul><li>Committee staff analyzed alternative policies and prepared option papers for Member discussions. </li></ul><ul><ul><li>Long repetitive internal staff debates on alternatives. </li></ul></ul><ul><ul><li>Revenue vs. price-based counter-cyclical payments, flexible fallow, rebalancing loan rates, etc. </li></ul></ul><ul><li>47 Committee Hearings and 1 Public Forum were held in Washington and around the country </li></ul><ul><ul><li>Testimony from 368 witnesses </li></ul></ul><ul><ul><li>Requirement (during the last round of hearings) that any farm, commodity, or other group wishing to testify provide a detailed policy proposal that included </li></ul></ul><ul><ul><ul><li>The estimated government cost </li></ul></ul></ul><ul><ul><ul><li>The impact on related industries </li></ul></ul></ul><ul><ul><ul><li>The implications for U.S. compliance with trade commitments </li></ul></ul></ul>
    58. What Did Producers Say They Wanted In a New Farm Bill? <ul><li>Most of the 368 witnesses: </li></ul><ul><ul><li>Liked many aspects of current farm programs--especially planting flexibility. </li></ul></ul><ul><ul><li>Wanted more automatic counter-cyclical payments (beyond those provided by commodity loan programs) </li></ul></ul><ul><li>Some witnesses: </li></ul><ul><ul><li>Wanted to update payment acres and yields </li></ul></ul><ul><ul><li>Requested higher loan rates </li></ul></ul><ul><ul><li>Wanted to continue fixed payments </li></ul></ul><ul><li>Lots of time (and money) was spend by groups searching for the WTO Holy Grail: an automatic counter-cyclical payment program that qualified as “green box” under WTO rules. </li></ul>
    59. The Estimated Costs of Commodity Group Proposals Substantially Exceeded Available Funds
    60. Phase 2: The Ag Committee’s Farm Bill July 12 to July 27, 2001 <ul><li>Committee released draft concept paper outlining commodity program provisions on July 12, 2001: </li></ul><ul><ul><li>Retain planting flexibility provisions </li></ul></ul><ul><ul><li>Retain fixed payments and add price-based, counter-cyclical payments </li></ul></ul><ul><ul><li>Rebalance loan rates by reducing oilseed loan rates. Add Oilseed fixed and counter-cyclical payments </li></ul></ul><ul><ul><li>Update base acres but not yields </li></ul></ul><ul><ul><li>Buyout peanut quotas. Create new peanut program with marketing loans, fixed payments and counter-cyclical payments. </li></ul></ul><ul><li>Additional round of hearings with farm groups. </li></ul><ul><ul><li>USDA declines to testify. </li></ul></ul><ul><ul><li>Generally positive response but most want higher support for their crop. </li></ul></ul><ul><li>Committee mark-up on July 26 and July 27, 2001 </li></ul><ul><ul><li>Fastest mark-up ever </li></ul></ul><ul><ul><li>Considered over 70 amendments, motions, and report language </li></ul></ul><ul><ul><li>Passed out of committee by unanimous voice vote </li></ul></ul>
    61. Phase 3: Floor Debate and House Passage July 28 to October 5, 2001 <ul><li>Members and Staff prepared Chairman’s Mark to take to the house floor. </li></ul><ul><li>September 11 delayed the floor debate. </li></ul><ul><li>H.R. 2646 was on the House floor for three days: October 3 - 5, 2001: </li></ul><ul><ul><li>The full House considered over 40 amendments </li></ul></ul><ul><ul><li>Biggest controversy was the Kind Amendment that would have shifted a large amount of funding from Commodity programs to Conservation programs. It failed by vote of 200 for, 226 against. </li></ul></ul><ul><li>H.R. 2646 passed on October 5, 2002 </li></ul><ul><ul><li>Agreed to by vote of: 291 for, 120 against. </li></ul></ul>
    62. Phase 4: Wait on Senate October 5, 2001 - February 13, 2002
    63. Phase 5: Conference & Final Passage February 28, 2002 to May 1, 2002 <ul><li>Pages to reconcile: </li></ul><ul><ul><li>House: 379 </li></ul></ul><ul><ul><li>Senate: 1,335 </li></ul></ul><ul><ul><li>Final Bill: 406 </li></ul></ul><ul><li>Conferees: </li></ul><ul><ul><li>House: 14 </li></ul></ul><ul><ul><li>Senate: 7 </li></ul></ul><ul><ul><li>Other Committees Involved: 9 (for specific titles only) </li></ul></ul><ul><ul><li>Number of Non-Ag Conferees (House): 27 </li></ul></ul><ul><li>Calendar days from appointment of conferees to Conference Report filed: </li></ul><ul><ul><li>1985 farm bill: 12 days (8 days of formal member meetings) </li></ul></ul><ul><ul><li>1990 farm bill: 33 days (9 days of formal member meetings) </li></ul></ul><ul><ul><li>1996 farm bill: 11 days (2 days of formal member meetings) </li></ul></ul><ul><ul><li>2001 crop insurance bill: 55 days (1 day of formal member meetings) </li></ul></ul><ul><ul><li>2002 farm bill: 63 days (9 days of formal member meetings) </li></ul></ul>
    64. Conference Issues & Concerns <ul><li>Funding Allocation Across Program Areas. House, more to Commodities. </li></ul><ul><li>Funding Across Time. Senate, front-loaded. </li></ul><ul><li>Commodity Program Issues </li></ul><ul><ul><li>Loan Rate Levels. House Lower. </li></ul></ul><ul><ul><li>Target price levels. House Higher. </li></ul></ul><ul><ul><li>Levels and Pattern of Fixed payment rates. House fixed all years; Senate declining. e.g., Corn: 2002-03: $0.27; 2004-05: $0.135; 2006: $0.068 </li></ul></ul><ul><ul><li>Acre and Yield Updates & Adjustments. House, acres only. Senate both. </li></ul></ul><ul><ul><li>Payment limits. House higher </li></ul></ul><ul><ul><li>Land eligibility restrictions. House similar to current law. Senate tighter. </li></ul></ul><ul><ul><li>Dairy payments. Senate include. </li></ul></ul><ul><li>Conservation Security Act. Senate include. </li></ul><ul><li>Concerns: </li></ul><ul><ul><li>Getting bill done to guarantee that additional funding would not be lost. </li></ul></ul><ul><ul><li>Meeting WTO Obligations </li></ul></ul>
    65. Conference Results and Final Passage <ul><li>Conference report filed on May 1, 2002--63 days after conferees were appointed. </li></ul><ul><li>Neither side got everything they wanted. Compromises include: </li></ul><ul><ul><li>Funding allocation generally between two bills. </li></ul></ul><ul><ul><li>No funding front-load. </li></ul></ul><ul><ul><li>Commodity Program Issues </li></ul></ul><ul><ul><ul><li>Higher loan rates and lower target prices in first two years, then loan rates lowered and target prices raised. Constant fixed payments </li></ul></ul></ul><ul><ul><ul><li>Acre & Yield updates </li></ul></ul></ul><ul><ul><ul><li>Payment limits-Maintain much of current law structure. Defined payment limits somewhat lower. </li></ul></ul></ul><ul><ul><ul><li>Land eligibility restrictions--similar to current law. </li></ul></ul></ul><ul><ul><ul><li>Conservation Security Act. Included with reduced benefits. </li></ul></ul></ul><ul><ul><ul><li>Dairy Payments. National with limits. </li></ul></ul></ul><ul><ul><li>Expected to meet WTO obligations in almost all years without program adjustments. WTO “circuit breaker” if needed. </li></ul></ul><ul><li>House Final Passage: May 2,2002 </li></ul><ul><li>Senate Final Passage: May 8, 2002 </li></ul>
    66. The President signs P.L. 107-171, “The Farm Security and Rural Investment Act of 2002” on May 13, 2002 Happy Campers
    67. The Estimated Costs of Commodity Group Proposals Substantially Exceeded Additional Funds Made Available for the 2002 Farm Bill (and Other Assistance)

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