Farm bill conference battleground: it's all about the money

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Although there are numerous subtle differences between the House and Senate farm bills, the most contentious ones have to deal with money---or lack thereof. In light of a declining budget baseline and pay-as-you-go guidelines established by the Democrats, lawmakers struggled with numerous ways to fund new farm bill programs like those that would provide $5 billion for permanent disaster assistance and increase investments in specialty crops.

Each committee relied on a variety of "pay fors," a reference to the funding mechanisms used to create and expand several farm bill provisions. But several GOP members say the discussion is really about "taxes, taxes, taxes," which is how they view the "pay fors." In the House, revenue would be generated by restricting the use of tax-treaty benefits by foreign firms and changing the tax treatment on offshore oil royalties. The Senate version raises revenue by codifying the "economic substance" doctrine and potentially shutting down many tax shelters and write-offs.

To no one's surprise, there was little political support for trimming existing spending as each respective farm bill was developed. But that may be about to change, given the President's looming veto threat. "If you just want to get the bill vetoed to make a political statement, you keep the taxes in. But once you take those taxes out, there are a number of different ways the final bill will probably change," says a House Agriculture Committee source. All sorts of possibilities may be back on the table, including direct payment cuts, eliminating the increases in loan rates and target prices, and reductions in crop insurance reimbursements.

Speaking to the South Dakota Corn Growers last weekend, Acting Secretary Chuck Conner renewed his criticism of the current funding. The administration's major problems with both the House and Senate bills is that they are paid for with $15 billion in new taxes and $22 billion in unfunded commitments and budget trickery, Conner pointed out. Although he's criticized both the House and Senate versions, it's unclear whether or not the administration might be willing to live with new revenues created by the Senate's work on economic substance. Sources say the Bush Administration is not philosophically opposed to the concept, but won't support using those revenues for the farm bill.

Conner also said the next farm bill should function largely as a safety net and that farm program payments should be capped for those with over $200,000 of net farm income, affecting 38,000 people who now receive payments.

In addition to the funding challenges, key staff members say the biggest debates in conference will likely focus on the following areas:

• Adjusted Gross Income (AGI) and payment limits: While both bills contain reductions in the AGI and make changes in how farm program payments are calculated, the Bush Administration obviously wants them to go much lower. The House version reduces the AGI limit from $2.5 million to $1 million with no exceptions and to $500,000, except if 67% of AGI is from farming. The Senate version retains the current AGI limit for 2008 crop year. In 2009, it would reduce the AGI to $1 million unless more than 67% of AGI is from farming. From 2010 to 2012, AGI limit drops to $750,000.

• Loan rate and target price increases. A hot topic for the Administration, especially in light of global talks aimed at reducing trade distorting subsidies. Given the budget constraints, some sources predict these may get whacked in order to find new funding. Others say they'll stay, as part of a trade-off in other areas.

• Conservation: The overall funding dedicated to conservation differs drastically under the House and Senate bills. In particular, the Senate puts $1.3 billion in new money into one of Chairman Harkin's favorite programs, the Conservation Stewardship Program, while the House forbids new contracts until 2012.

• Alternative counter-cyclical programs - The House and Senate bills contain varying optional counter-cyclical programs. The Senate contains a version of the state-based alternative counter-cyclical revenue (ACR) program and the House contains a national- based alternative counter-cyclical program. Committee sources say this may get booted because Chairman Peterson doesn't seem to be very supportive. USDA seems to be critical because the savings associated with these changes rely on timing shifts. Depending on what happens when the Congressional Budget Office rescores the Senate and House bills, ACR could become a net cost instead of a savings. The recently passed Energy bill will likely result in higher corn prices, decreasing outlays from the CCC in years 6-10, compared to a budget baseline that had corn and soybean prices returning to historical levels.

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