FarmPolicy

August 1, 2014

“Analysis from Washington”- By Dan Morgan- Secretary Schafer

Secretary Schafer

By Dan Morgan- Dan is a special correspondent of The Washington Post and a Transatlantic Fellow at the German Marshall Fund of the United States. “Analysis from Washington” is posted exclusively at FarmPolicy.com.

Democratic Sen. Kent Conrad (D-N.D.) was in a hurry to get millionaire businessman and former North Dakota Gov. Ed Schafer sworn into office Monday in time to bask in the pomp of sitting with the Cabinet at the State of the Union address.

It wasn’t just the close family ties. (Schafer is Conrad’s former brother-in-law and Schafer’s dad once offered to help Conrad with his college costs.) Conrad’s helping hand—resulting in Schafer’s hurry-up Senate confirmation by “unanimous consent” rather than by roll-call vote following debate—was political and strategic.

Farm bloc lawmakers urgently need more “flexibility” from the Bush administration in ending the impasse over a new farm bill and they hope Schafer will provide it.

More than a few of them welcomed President Bush’s decision to shove aside Acting Secretary Chuck Conner, deemed “very, very inflexible” by Conrad, and select an old political pal.

Supporters of the straight-talking Conner hoped Bush would name him secretary as a reward for the major role he has played in the drafting of the farm bill. Conner himself was bitterly disappointed.

As a former congressional staffer with long experience in Washington, Conner has been respectful of Congress—but also unawed. As the administration’s point man on farm policy, he has repeatedly warned that the White House will veto the new farm bill unless Congress toughens payment limits and removes new taxes on business now in the House and Senate-passed versions.

Schafer told senators at his Agriculture Committee hearing last week that he would champion national needs rather than state needs in his new role. But he promised to try to “narrow the gap between the legislative and executive branch.” Conrad suggested that his long-time friend could act as a kind of intermediary.

Schafer has already demonstrated some give. On his second full day in office, he called in a small group of reporters and hinted the administration might be willing to soften its position on payment limits.

The secretary said he was “not sure the administration’s positions on farm subsidy dollar limits and a ban on subsidies to farmers who make more than $200,000 in adjusted gross income should be final,” according to DTN.

Schafer is a Republican with ties to real estate, wireless communications, and consulting businesses in his home state.

Conrad is a Democrat. But in North Dakota’s tribal politics, members of both parties unite to protect the interests of the state’s Air Force bases, ranchers and farmers, and party labels don’t mean that much. As governor, Schafer fought as hard as any Democrat to get federal drought and “disaster” relief for North Dakota farmers.

In theory, the Bush administration has unprecedented leverage this year to influence the final shape of the farm bill. Typically, a White House threat to veto a farm bill is an idle one because so many Republicans stand ready to override the veto of such a popular measure.

That isn’t the case, though, with a farm bill vetoed because it contains “new taxes,” anathema to Republicans in an election year. Most House Republicans voted against the farm bill in July because it included revenue provisions. Democrats said they were merely closing loopholes, but GOP lawmakers protested they were new taxes.

Yet if Congress bows to the administration and strips out tax provisions and a host of budget gimmicks, there won’t be sufficient money to fund initiatives in nutrition, bioenergy, soil and water conservation, or new indirect aid for fruit and vegetable growers.

Without those add-ons, enthusiasm for a bill that continues or increases traditional farm programs in times of high commodity prices could wane fast in both bodies.

Right now, the House, Senate and administration are far apart. None of the plans they have put forward come close to meeting the budget limits without a resort to gimmickry or “new revenues.”

The administration’s farm bill, proposed a year ago, itself runs $8.5 billion above the amount allowed under budget rules, according to the Congressional Budget Office.

That is less than the respective $12.9 billion and $11.6 billion overruns for the House and Senate bills, according to CBO.

But the administration plan contains only a miniscule amount of new money for food stamps and child nutrition. To get the bill through the House, Democrats added $11.4 billion in extra spending for those priorities over the next decade. The new money—a signature accomplishment of the Democratic leadership—pays for increasing the standard deduction and raising the minimum food stamp benefit.

The Senate bill mandates similar steps, but uses a budget trick—pretending Congress will allow the new benefits to lapse after five years—to make its legislation appear less costly.

Even so, Senate Agriculture Committee Chairman Tom Harkin (D-Iowa) criticized the administration yesterday for refusing to offer compromises that could make everyone happy.

“I don’t know what the president’s game is,” he told reporters, noting that Bush “ratcheted up” the veto threat in his State of the Union message Monday night when he threatened to veto any legislation that raised taxes.

“The ‘my way or the highway’ stance of the White House is not helpful,” he said.

Meanwhile, time is becoming a factor.

Congress last year extended the old farm bill until March 15 to allow time to negotiate a compromise. That date could be extended again if an agreement seems near, but at that point negotiators might have to work with a new set of budget numbers.

CBO’s just-updated 10-year projections for commodity programs show their cost declining from the $75.6 billion seen as likely a year ago, to only $66.6 billion. That is mainly because CBO is predicting commodity prices will be higher than was thought a year ago, resulting in a further decline in government price guarantees and supports.

Once Congress votes to accept these projections—possibly in late March—farm bill negotiators will have even less ability to shift subsidy money to other priorities because they will have less money to play with in the commodity baseline.

One irony of the congressional budget system is that the current record high commodity prices serve to protect the existing web of price supports and price guarantees. Even if Congress slashes those rainy day subsidies, CBO won’t credit savings, since CBO sees prices staying well above the existing subsidy floor most of the time. This leaves Congress with little budgetary incentive to make reforms.

(CBO projects that of the $66 billion in commodity costs between fiscal 2008 and 2017, only about $16 billion will go to traditional price supports and guarantees related to what farmers grow. The other $50 billion is accounted for by income support, known as direct payments, that goes to farmers automatically, regardless of prices.)

CBO’s new projections see federal crop insurance subsidies rising sharply, by as much as $14 billion over 10 years. (As farm prices rise, so do insurance premiums that are subsidized by USDA.) Congress could cut the subsidies and capture funds with which to pay for other priorities. But crop insurance subsidies have already been cut in the House and Senate-passed farm bills, and it isn’t clear how much more pain Congress is willing to inflict on the industry.

If the current farm bill expires without an extension, farm programs would automatically revert to those mandated in the 1949 law, a distant era when there were millions of working farms and horses still pulled some plows. Milk prices would immediately double and farmers might be required to idle cropland despite the present booming demand for commodities to supply people, livestock, export markets, and biodiesel plants.

All that in an election year when the government is fighting to stimulate economic growth and provide more help for the poor.

The Democratic chairmen of the House and Senate agricultural committees both insisted this week that there was a serious possibility of defaulting to the 1949 law unless the administration compromises.

Most think such a turn of events is highly implausible.

“It’s a game of chicken,” said a congressional staffer.

By Dan Morgan

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