Bogus Promise on Deficit Undercuts Lincoln
Policy + Politics

Bogus Promise on Deficit Undercuts Lincoln

Blanche for Senate

When politically embattled Democratic Sen. Blanche Lincoln of Arkansas announced in September that the Obama administration had delivered on its promise to provide hundreds of millions of dollars worth of aid to farmers hit by wet weather in 2009, a key selling point was that it would not increase the federal deficit. 

A Sept. 15 press release from her office stated that the $630 million in assistance — targeted heavily toward farmers in Arkansas and other southern states — was “paid for” and was “deficit neutral.”

But an examination of the program’s funding mechanism by The Fiscal Times found that it will result in an increase in the budget deficit and require additional borrowing by the government. USDA and federal budget officials contacted for this article did not take issue with that conclusion.

Final details of the program were announced by the Department of Agriculture earlier this month, enabling farmers to start applying for aid before next Tuesday’s midterm elections. In addition to concerns about the impact on the deficit, critics have raised questions about its fiscal soundness in a period of tight budgets. 

Although cotton yields were down across the South in 2009 due to flooding and wet weather, soybean and rice crops that are also eligible for aid achieved yields close to or above those of the previous decade, according to data compiled by the National Agricultural Statistics Service. Crops in many southern states have experienced excellent harvests and high prices this year.

Nonetheless, farmers will be able to qualify for a check merely by certifying they had a 2009 loss of 5 percent on their rice, cotton, soybean or sweet potato crops last year. Those applying won’t need to supply new documentation to USDA, although their records could be subject to a spot check. Losses of 5 percent on a crop are within the range of normal year-to-year harvest variations, which is why previous disaster programs have generally required proof of losses of at least 20 percent.

Lincoln, a former House member elected to the Senate in 1998, moved up to become chair of the Agriculture Committee late last year, and then used her enhanced position to pressure Democratic leaders and the White House to support additional aid for farmers in her region. But that has done little to help her retain her seat, and she is running far behind her Republican  challenger in the polls. Her office did not respond to a request for comment. 

The new farm aid has been sharply criticized by Lincoln’s opponent, Rep. John Boozman, R-Ark., who opposed it on the grounds that “the president does not have the authority to bail her [Lincoln] out this way.” The spending has not been authorized by Congress. Rep. Frank Lucas, R-Okla., ranking member of the House Agriculture Committee and usually a strong supporter of federal support for farmers, said the program “makes a complete mockery of  [Agriculture Secretary Tom Vilsack’s] declaration to control  spending.”

Minnesota Democratic Rep. Collin Peterson, who chairs the House Agriculture Committee, has suggested that the eligibility standards for the aid are too lax and the administration was “asking for trouble.”

Under the administration’s plan, $550 million of the $630 million will be used in fiscal year 2011, which began Oct. 1. The administration plans to draw the money from  a special fund, set up 75 years ago in the height of the Great Depression. The secretary of agriculture can use it to increase the purchasing power of farmers — a definition broad enough to allow a wide range of activities. Because the money comes from a share of annual customs duties, the spending does not require new borrowing, and government budget officials do not consider that it adds to the deficit.

For decades, USDA has used the little-known special fund to purchase agricultural commodities such as meats, poultry, fruits, vegetables and fish. These “bonus buys” have become a mainstay of the farm economy because they shore up prices.

But in the 2008 farm bill, Congress capped the amount for the 2011 fiscal year at $1.215 billion, and greatly reduced the discretionary power of the USDA. Congress wanted to add money for child nutrition programs and more fruits and vegetables in school lunches, but didn’t want to increase the deficit. So it directed that the increases come from the special fund.

Since then, Congress has imposed even tighter limits. The pending fiscal 2011 Senate agricultural appropriations bill allocates $50 million for deficit reduction, and mandates that $585 million go to the school lunch program. Another $316 million is earmarked for buying fruits, nuts and vegetables for new school programs, leaving an unobligated balance of only $113 million after anticipated bonus buys.

Squeezed by the spending restrictions and an unanticipated $550 million expenditure for Lincoln’s program, the USDA confirmed in a statement last week that bonus buys will be financed through the department’s borrowing arm, the Commodity Credit Corporation (CCC). In effect, department officials are shifting the necessary borrowing for Lincoln’s farm aid initiative to the CCC.

The Commodity Credit Corporation, another Depression-era entity with broad authority, can borrow up to $30 billion a year to do such things as supporting commodity prices and meeting domestic food requirements. 

“If we need to make a bonus buy in fiscal year 2011 we will go to the CCC,” said Jonathan Coppess, administrator of  the USDA’s Farm Service Agency which will manage the new disaster program. But such borrowing adds to the deficit, according to federal budget officials who asked not to be identified because the matter is deemed controversial.

Aside from the issue of the program’s cost to taxpayers, there are also questions about the need for the special relief from Washington in a year in which millions of Americans suffered economic hardship without receiving help from the government.

USDA officials say there is no question that flooding and unusual rainfall caused serious problems for farmers across the South during the 2009 fall harvest. In Arkansas, every county but two were designated “disaster” areas by USDA. 

Cotton suffered the most, with yields in Arkansas down from 1,012 pounds per acre in 2008 to 818 pounds in 2009.  However, average soybean yields dropped only half a bushel an acre, to 37.5 bushels, and rice yields in the state rose from 6,660 pounds to 6,800 pounds per acre. Rice and soybeans are far larger crops in Arkansas than cotton.

USDA officials in Arkansas who were interviewed for this article said the quality of soybeans was hurt by the late harvest conditions, resulting in prices of some beans being discounted at local grain elevators. 

“The yields were there but the quality wasn’t,” said Benny Gilliam, manager of  the Alice-Sidney Dryer and Seed Co., in Dermott, Ark. He said 100,000 out of the 1.2 million bushels of soybeans the warehouse took in were seriously damaged.  However, with soybean futures running a strong $9 to $10 a bushel, he was still able to pay around $6 for those beans, still a reasonably good return. “I try to take care of my farmers,” he said. “We helped them out.”

Many of the farmers also will be helped by private crop insurance policies covering nearly $1 billion in liability on 4.5 million acres in the state in 2009, according to USDA’s Risk Management Agency. Farmers will be eligible for the new aid program whether or not they took out the private insurance.

In November 2009, Gus Wilson, Chicot County extension staff chairman, told Farm Press Daily it appeared 60 to 80 percent of the soybean crop was lost. In the end, according to USDA data, county farmers harvested more acres than the previous year and, despite poor quality, yields were up slightly from 34 to 35.5 bushels an acre.

“That kind of surprised me, too,” said Wilson. “We were hit extremely hard.” He said one reason was that with larger equipment, farmers can take advantage of even brief breaks in bad weather to bring in large volumes of cotton and soybeans in a short time.

In Mississippi County,  the state’s top soybean producing county, all but 8,000 acres out of 281,000 planted were harvested, and yields were also up slightly from the previous year despite the wet weather.

“It was decent for soybeans,” said Rick Stewart,  executive director of the Farm Service Agency in the county.  Stewart said some of the top producing farms may have gotten 60 bushels to an acre, when they were hoping for 70 bushels. But that could still qualify them for a government check under the 5 percent loss requirement. 

“Not every farmer suffered,” he said. “Some of them had not much of a loss but I didn’t come up with that [program], the secretary of agriculture did.”