Monday, April 16, 2007

The 2007 federal budget

Each year the Congressional Budget Office provides an estimate of the spending which the Federal Government should reasonably expect in the next budget cycle given current law. This year, Democrats in Congress have elected to institute Pay-As-You-Go (or PAYGO) rules which place significant bureaucratic hurdles in front of any spending beyond that baseline. In theory, Congress can increase funding for individual programs as long as it finds equivalent budget cuts or tax increases. In practice, those offsets rarely materialize.

PAYGO rules will shape the 2007 Farm Bill because the March 2007 CBO baseline estimate of farm bill expenditures is unusually low. As Federal farm payments are generally triggered by low commodity prices, the price spike in certain commodities during the latter half of 2007, particularly corn and soy, have resulted in a depressed CBO baseline. Under PAYGO rules, commodity growers and all other stakeholders in the Farm Bill must compete for this limited pool of funds. If, for example, the House and Senate Agriculture Committees wish to find more money to conservation or research programs they must to agree to cut money from commodity payments or food stamps. This is unlikely to happen.

Before leaving for spring break, the House of Representatives passed a $2.9 trillion budget blueprint. This will have to be reconciled with a similar bill passed in the Senate the previous week. House Democrats allowed up to $20 billion in additional funding for the upcoming Farm Bill, assuming that the Agriculture committees can find offsets in other farm programs. The Senate’s proposal included a $15 billion set aside for the farm bill also contingent on matched savings.

The House and Senate have set today (April 15) as their deadline for reconciling the two spending plans.

Secretary of Agriculture Mike Johanns was skeptical about budget increases for agricultural programs when he spoke last Tuesday at the Informa Economics Food & Agriculture Policy Conference in Arlington, Virginia. Johanns reminded the audience that there are some 50 “reserve” fund spending measures contained in the House and Senate Budget measures and that some will be removed as part of today’s compromise.

According to a Tuesday report by Congressional Quarterly, “The Senate’s budget has more than triple the number of reserve funds than the House budget — some 38 in the Senate’s compared to 12 in the House. Reserve funds are essentially ‘placeholders’ inserted into the budget that allow a final budget’s spending and revenue levels to be adjusted at a later date to accommodate the budgetary impact of legislation Congress may consider.”

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