Ag Policy

Does this Weeks' Budget Deal Affect Farmers?

We depend on our friends at the National Sustainable Ag Coalition (NSAC) to analyze everything coming out of Washington DC - here is their take on the recent budget extension:

Debt Limit and Spending Caps

The agreement suspends the U.S. borrowing cap (also known as the debt limit) until March 15, 2017. The borrowing cap would kick in early next month, if Congress were to fail to pass the agreed upon budget deal, putting the nation in default on paying its debt for past spending decisions.

In addition to suspending the debt limit, the budget agreement raises overall spending caps for both domestic discretionary spending and defense discretionary spending. For domestic (non-defense) discretionary spending, caps would increase by $25 billion in FY 2016 and $15 billion in FY 2017. By comparison, the deal increases defense spending by $41 billion in FY 2016 and $31 billion in FY 2017, including funding for what is known as the Overseas Contingency Operation (OCO) account.

Offsets

The budget deal pays for the spending increases by, among other cuts and reforms:

  • Extending automatic sequestration cuts to mandatory spending by one year, to 2025;
  • Reducing the target rate of return for crop insurance companies from 14 percent to 8.9 percent, and allows Congress to generate taxpayer savings through negotiated agreements with the crop insurance industry;
  • Selling crude oil from the Strategic Petroleum Reserve;
  • Auctioning internet and mobile phone spectrum frequencies;
  • Modifying some tax compliance provisions;
  • Repealing a provision from the Affordable Care Act that requires large employers to automatically enroll employees in a health care plan, if a qualified plan is offered by the employer;
  • Reforming Social Security Disability Insurance; and
  • Cutting and reforming certain Medicare payments and requiring Medicaid rebate payments from makers of generic drugs.

Impact on Agriculture and Conservation

Crop Insurance

As noted above, the budget deal uses two changes to the crop insurance program as offsets for increased discretionary security and non-security spending. The first change removes a provision of the 2014 Farm Bill inserted in the dark of night that prevents USDA from obtaining any savings from a renegotiation of the Standard Reinsurance Agreement (SRA). The SRA governs all aspects of the relationship between the federal government and the crop insurance companies that administer the policies. That 2014 Farm Bill provision locked in the status quo rate of return for crop insurance companies and allowed them to pocket any savings obtained through increased efficiencies in the crop insurance delivery system.

The other provision lowers the target rate of return for crop insurance companies under the SRA from 14 percent to 8.9 percent. President Obama proposed a smaller cut from 14 percent to 12 percent as part of several past budgets. Rumor has it, though, that the White House offered other crop insurance reform provisions that would have changed premium subsidies to certain farmers, but Hill negotiators suggested the SRA change instead.

These changes together have been estimated by CBO to save $3.038 billion over the coming decade.

Neither of these provisions impact farmers, as insurance and subsidy rates are set by the federal government and federal law, not by the insurance companies. NSAC’s press release on the budget deal can be found here.