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CBO Budget Suggestions: Reduce Conservation Program, Crop Insurance Subsidies and Eliminate Direct Payments

 

Nov 14 - In its recently published report providing suggestions on how to get the United States' budget back on track, the Congressional Budget Office provided 103 options that would decrease federal spending or increase federal revenues over the next decade. As it pertains to spending on agriculture by the government, the CBO suggested Congress prohibit new enrollment in the Conservation Stewardship Program starting in 2015; reduce subsidies in the crop insurance program; and eliminate direct payments to agricultural producers.

Conservation

The first part of this option would prohibit new enrollment in the Conservation Stewardship Program beginning in 2015, according to the CBO. Land currently enrolled — and therefore hosting new or existing conservation activities — would be eligible to continue in the program until the contract for that land expired. By the Congressional Budget Office’s estimates, the prohibition on new enrollment would reduce federal spending by $8 billion from 2015 through 2023.

The second part of this option would prohibit new enrollment and re-enrollment in the general enrollment portion of the Conservation Reserve Program beginning in 2015; continuous enrollment would remain in effect under the option. That prohibition on general enrollment would reduce spending by $5 billion from 2015 through 2023, CBO estimates. It also estimates that the amount of land enrolled in the CRP would drop to about 10 million acres by 2023.

Crop Insurance

The Federal Crop Insurance Program protects farmers from losses caused by drought, floods, pest infestation, other natural disasters and low market prices. Farmers can choose various amounts and types of insurance protection — for example, they can insure against losses caused by poor crop yields, low crop prices or both. Premium rates for federal crop insurance are set by the Department of Agriculture so that the premiums equal the expected payments to farmers for crop losses. Of total premiums, the federal government pays about 60 percent, on average, and farmers pay about 40 percent, according to the CBO. Insurance policies purchased through the program are sold and serviced by private insurance companies, which are reimbursed by the federal government for their administrative costs. The federal government reinsures those private insurance companies by agreeing to cover some of the losses when total payouts exceed total premiums.

This option would reduce the federal government’s subsidy to 40 percent of the crop insurance premiums, on average. In addition, it would limit the federal reimbursement to crop insurance companies for administrative expenses to 9.25 percent of estimated premiums (or to an average of $915 million each year from 2015 through 2023) and limit the rate of return on investment for those
companies to 12 percent each year. Under current law, by the Congressional Budget Office’s estimates, federal spending for crop insurance will total $78 billion from 2015 through 2023. Reducing the crop insurance subsidies as specified by this option would save $27 billion over that period, CBO estimates.

Direct Payments

According to the Congressional Budget Office’s projections, the Department of Agriculture’s (USDA’s) direct payments to agricultural producers for certain commodities (cotton, feed grains, oilseeds, peanuts, wheat, and rice) will cost $41 billion between 2015 and 2023. Under current law, producers will receive payments each year regardless of market prices for those crops or which crops,
if any, the producers plant on eligible land.

This option would eliminate those direct payments beginning in 2015. However, if producers did not receive direct payments, they would probably increase their participation in other federal programs that provide payments to farmers, such as the Average Crop Revenue Election (ACRE) program (which makes payments when farms’ actual revenues are less than their expected revenues). CBO estimates that eliminating direct payments would result in an increase in ACRE payments of $13 billion between 2015 and 2023. In addition, because USDA takes direct payments into account when it calculates countercyclical payments (which are payments made when market prices are below legislated target levels), eliminating direct payments would probably boost countercyclical payments by $3 billion. With savings of $41 billion in direct payments and partly offsetting costs of $16 billion, this option would reduce overall spending on farm programs by $25 billion between 2015 and 2023, CBO estimates.

Other Options

Some options for changing federal spending and revenues that the Congressional Budget Office has analyzed in the past were not included in the current volume. CBO and the staff of the Joint Committee on Taxation did not prepare new estimates of their budgetary impact either because the potential savings were comparatively small or the option has appeared in a recently published CBO report. Nevertheless, they represent approaches that policymakers might take toward reducing deficits. In agriculture, the options briefly mentioned in the report include:

Click here for the full report.


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