Washington Insider -- Thursday

Another Budget War

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

Buffett and Railroads vs Icahn in Fight over RFS, RINs

U.S. railroads, including Warren Buffett’s BNSF, are joining a dispute over ethanol mandates with some independent oil refiners like billionaire Carl Icahn.

The American Association of Railroads (AAR), which represents the interests of BNSF, Union Pacific Corp., CSX Corp., Norfolk Southern Corp. and others, is pushing back against calls by Icahn’s CVR Energy Inc. and Valero Energy Corp. for changes to the Renewable Fuel Standard (RFS).

At issue is who is responsible for showing compliance with the program. Adherence is tracked by paper credits that have become more expensive in recent years. Petroleum refiners are required to blend renewable fuels like ethanol into US gasoline. Each gallon is tracked by a unique, 38-digit Renewable Identification Number (RIN).

Refiners argue that the costs are exorbitant and that the Environmental Protection Agency should move the onus from them to lower down the supply chain, closer to consumers.

That would put companies such as BNSF, the carrier owned by Buffett’s Berkshire Hathaway Inc., and Union Pacific, the largest publicly traded U.S. railroad, responsible for showing compliance with the credits, AAR said in statement Monday. It would also increase fuel prices, the lobbying group said. “American consumers will ultimately absorb the impact,” said Kristin Clarkson, an AAR spokeswoman. The lobby “is speaking on behalf of BNSF and the other railroads who are members,” Michael Trevino, a BNSF spokesman said.

Susan Terpay, a spokeswoman for Norfolk Southern, also said AAR’s efforts are in support of the railroad industry.

“Moving the point of obligation helps small retailers,” Valero said in a statement Tuesday. The impact on fuel retailers would be “positive,” by creating a “level playing field” between smaller and larger companies, Valero said.

If, like Icahn’s CVR Energy, a refiner does not have facilities to add the biofuels, it has the option to purchase RINs on the open market, often from gasoline distributors that are not covered by the mandate, or they can buy excess RINs from refiners that have the infrastructure to blend. CVR Refining, a subsidiary of CVR Energy, estimates it may have spent $250 million on credits last year.

In November, the EPA rejected Valero’s petition to have the obligation moved, saying that while the program has its challenges, making that change would create fresh obstacles. The agency left open the possibility for change, though, by opening up a comment period that ends February 22.

Martin Parrish, Valero’s vice president of alternative fuels, said last week at the Iowa Renewable Fuels Summit in Altoona that he thinks the revision will be granted. The renewable fuels industry “opposes the change” and will fight any potential challenges, according to Monte Shaw, the executive director of the Iowa Renewable Fuels Association.

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AMS Delays Final Rule On Organic Livestock And Poultry Practices

The effective date of the Organic Livestock and Poultry Practices final rule published by USDA's Agricultural Marketing Service (AMS) has been extended 60 days to May 19, 2017.

These actions are being taken in accordance with guidance issued Jan. 20, 2017, AMS noted, to ensure the new policy team has an opportunity to review the rules.

"This is similar to procedures issued by previous administrations," the agency noted.

The official notice of the action will be published in the February 9 Federal Register.

This notice is the latest of several regulations that were either published or in the review process at the end of the Obama administration that were not yet effective and were put on hold by the new administration. It's not yet clear how many could be altered with the extra time now being given for comments on the plans.


Washington Insider: Another Budget War

Well, there are plenty of fights to go around in Washington these days, starting with the Democrats’ struggle to push back on nominations they consider unqualified. However, the outlook that is causing Republicans the most angst, Politico says, is the choice between embracing the President’s “pricey” agenda, or pushing back and risking his wrath.

The administration continues to say it is serious about a $1 trillion infrastructure plan and it also wants Congress to approve extra spending to build a border wall and beef up the military with a possible combined price tag of perhaps $50 billion, Politico noted. And that does not include tax cuts, which the president’s team has suggested need not necessarily be paid for.

Overall, the numbers involved are huge. The nonpartisan Congressional Budget Office estimates the $19.9 trillion debt will grow by as much as $9.4 trillion over the next decade if nothing changes.

This means tough choices, some say. “I don’t think you can do infrastructure, raise defense spending, do a tax cut, keep Medicare, Medicaid and Social Security just as they are, and balance the budget. It’s just not possible,” said Rep. Tom Cole, R., Okla., a senior member of the House Budget Committee. “Sooner or later, they’re going to come to grips with it because the numbers force you to.”

The “new clash” likely will involve adherents to Trump’s big-spending populism and small-government conservatives, Politico says. And, it could make the fiscal 2018 budget easily one of the toughest votes Congress takes this year, especially in the House, where budgets that balance in 10 years are favored.

So, budget watchers are examining many options, including shifting the “metric of success” from debt levels to debt as a share of GDP, which some see as a better fiscal measure anyway. And, the time for any possible new approaches is short—over the next two months, the White House will send Congress two major requests for money: a military spending bill that would take effect immediately upon passage, and a budget for the next fiscal year.

The latter will be a particularly tough lift, Politico says, because it traditionally includes a projection of government spending and debt over the next few decades.

In the meantime, Republicans are crossing their fingers that any requests for new spending will be offset with cuts. If they don’t, the House Budget Committee will have to craft legislation to raise spending caps that have been in place for years and face stiff opposition from conservatives who worry that it could lead to losses in the Republican base, Freedom Caucus Member Raúl Labrador, R., Idaho, told Politico. Tim Phillips, who leads the Koch brothers-backed Americans for Prosperity, also told Politico that “…if Republicans are going to be true to their rhetoric, they will agree to a hard cap on spending.”

However, the President also wants to slash taxes. Republicans say they have few specifics on what kind of tax plan the administration wants – and some officials have floated the idea of not paying for tax reductions. House Speaker Paul Ryan, R-Wis., claims his tax plan would be “revenue-neutral,” but it is running into growing opposition from corporations, especially over one of the biggest “pay-fors,” a new tax on imports, which the speaker estimates would generate $1 trillion.”

Republicans expect their leaders to argue that any spending, whether through appropriations or tax cuts, would ultimately pay for itself by growing the economy by record amounts. Still, they’re not sure if that will get them to a balanced budget, Politico says.

Rep. Charlie Dent, R-Pa., a house appropriations member, also “hopes that we don’t try to reconcile new spending on the backs of the discretionary programs,” but Politico notes that it is possible that they may. For example, it thinks programs “like the National Endowment for the Arts or agriculture programs” may be on the block.

Appropriators are telling Politico that they “generally believe there is not enough fat to cut from discretionary programs to finance the level of new spending Trump is talking about. Most Republicans would rather turn to entitlement programs to find savings, but Trump has made clear “he has no interest in going there.” However, Republicans are banking on former Rep. Mick Mulvaney, R-S.C., a fiscal hard-liner tapped to lead the Office of Management and Budget, to sell the president on the merits of entitlement reform.

Cole summed up his view of the coming fight. “I do know Mick Mulvaney knows the reality behind the numbers,” he said. “But Mick doesn’t get to make the final call, that’s the president. ...It’s going to be fascinating.”

It also is likely to be extremely contentious and long-lasting, and could severely affect the debate over a replacement for the current farm bill that is now in discussion stages, and which likely will include expensive nutrition programs, as well as those for agriculture. So, agriculture seems likely to find itself involved once again in a national debate with far-reaching implications that should be watched closely as it emerges, Washington Insider believes.


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