Washington Insider-- Monday

By DTN's Washington Insider

Here's a quick monitor of Washington farm and trade policy issues from DTN's well-placed observer.

CBO Score of Obama Budget Sees Larger Long-Term Budget Deficit

The latest Congressional Budget Office analysis of President Obama's fiscal 2016 budget plan finds that it would cut about $75 billion from the deficit in 2016 but result in a 10-year deficit about $300 billion more than the president claimed when he submitted it in February.

The news came as congressional Republicans in both houses are developing budget resolutions that will provide non-binding blueprints for spending, revenues and deficits targets over the next several years. The House and Senate Budget committees are set to begin marking up their budget resolutions this week in hopes of floor votes by the end of the month. Republican House and Senate budget leaders have said they want their plans to result in a balanced budget by the end of the 10-year budget window. That would be in contrast to Obama's plan, which does not reach balance in any of its 10 years.

Remember that 15 years ago, the economic powers that be were projecting federal budget surpluses far into the future. It took only a few short years before tax cuts and wars turned that rosy scenario on its head. The point is that projecting the budget of the United States 10 years down the road, given the number of variables and unanticipated events, is a largely academic exercise that has only a slim chance of providing an accurate picture of the future.

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Prospect of Rising Interest Rates Not Seen as a Problem by Many U.S. Companies

The possibility that the Federal Reserve will increase interest rates this year has added a fair degree of volatility to the stock market as investors worry that higher rates might affect companies' profitability. However, a recent survey by of chief financial officers by Duke University and CFO Magazine found that the prospect of higher interest rates is not even among most companies' top 10 concerns for 2015. Issues that do make the top ten include the cost of employee benefits, government regulations, currency risk and data security.

Among CFOs who expect long-term interest rates to rise at least a percentage point this year, almost 83% said they anticipate no change in capital spending and about 8% said their companies will actually boost outlays for equipment. As for hiring plans, 88% see no effect and another 6.3% expect to accelerate those plans.

It's difficult to tell whether investors will be comforted by the analyses of the CFOs who were contacted for the survey. But if these officials are correct, it appears that the interest rate increase that the Fed is expected to announce later this year will prove to more of a bump in the road than a catastrophic fiscal cliff.

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Washington Insider: Agriculture and Congressional Budgeting

For some time, there has been a growing buzz about how the coming budget wars would affect the implementation of the 2014 farm bill. Senate Budget Committee Chair Mike Enzi, R-Wyo., recently drew press attention with the comment that his committee’s upcoming budget resolution likely will include instructions for reconciliation — along with follow-on legislation for spending cuts designed to be immune from a Democratic filibuster.

The reconciliation process lets Congress set an overall goal for cuts, and then require the authorizing committees to do the work — that is, choose where actual cuts are to be made through legislation. The process identifies the committee tasked with reporting legislation, the spending, revenue or deficit targets and the deadline for reporting a bill. Such resolutions do not require the president’s signature.

A key focus of the rumors is the effect the expected proposals are likely to have on social programs, especially Medicaid and food stamps. But, there also is talk about the need for attention to commodity programs, coming from both bureaucrats and budget hawks. For example, the Government Accountability Office recently released a report that noted some “crop insurance savings” that GAO thought “could be timely.”

What GAO is talking about is the fact that USDA’s Risk Management Agency faces substantially higher insurance costs in areas with higher crop production risks than in other areas and may not be doing enough to even out the differences. It said that government costs per dollar of crop value for 2005 through 2013 in “high risk areas” were over two and a half times the costs in other areas, and GAO thinks RMA could reduce those differences.

The issue is complicated. For example, GAO's analysis of RMA data shows that, for some crops, RMA's higher risk premium rates in some areas don’t cover expected losses and that RMA did not raise those rates as high as the law allows to make them more actuarially sound. GAO recommends that RMA boost premium rates where appropriate by as much as the full 20% annually allowed by law — a recommendation that likely will be highly controversial and possibly will be ignored.

In the meantime, the Environmental Working Group is emphasizing a report by the University of Missouri that questions the degree to which the 2014 farm bill actually reformed support spending for agriculture. Rather, the university report says the new programs will be the most expensive farm programs ever, primarily the result of “new subsidies added on top of the already costly crop insurance program.” The finding came in the U.S. Baseline Briefing Book issued annually by the university’s Food and Agriculture Policy Research Institute.

Two new crop subsidy programs –– Agriculture Risk Coverage and Price Loss Coverage –– are at the heart of the dramatic increase in payouts, the Briefing Book says. The Institute concludes that the new types of coverage will generate more than $24 billion in payments over the 2014-2018 life of the farm bill, $2.4 billion more than the “direct payment” subsidies the new plans replaced, which cost taxpayers $21.6 billion from 2009 through 2013.

The Institute also predicts that crop insurance payouts will total almost $85 billion for fiscal years 2015 through 2024, a 27% increase over the $67 billion paid out for crop insurance over the previous decade. Even under the previous farm bill, per-acre premium subsidies were larger than direct payments for most crops and the new projections show that these subsidies will remain high in the coming years.

While it seems likely that the current majority in Congress will dig deeply into the management and effectiveness of the food stamp program, it is not clear whether the budget hawks will be able to impose budget trims on the commodity programs, as well. However, the cost comparison between the new insurance programs and the unpopular direct payments could gain traction in the coming debate.

The fights over social programs are well known by now and those in the offing likely won’t be much different. Any significant cuts proposed by the majority will be bitterly opposed by Democrats. And, if discord erupts over panel recommendations, most expect a contentious floor fight with dueling amendments when the FY 2016 Ag appropriations bill that includes food stamps reaches the floor in both chambers.

Whether the budget hawks will choose to focus on the new farm programs’ substantial costs remains to be seen. However, the fact that they could be even more expensive than the direct payments that were too unpopular to even consider reauthorizing could attract attention as the budget fight intensifies over the coming months, Washington Insider believes.

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(GH/CZ)

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