Sequestration: What Does It Mean For Agriculture?

By Marshall Matz

© Copyright Agri-Pulse Communications, Inc.



By Marshall Matz, with Roger Szemraj

Despite strong differences in potential remedies, most Democrats and Republicans agree that our nation's $16 trillion in federal debt and huge budget deficit are serious problems that must be addressed.  That was the premise behind last summer's budget agreement - the Budget Control Act of 2011.  In his August 6, 2011 radio address to the nation, President Obama said: “And through this compromise, both parties are going to have to work together on a larger plan to get our nation's finances in order.”  

Unfortunately, that has not happened yet, so “sequestration” - automatic across-the-board spending cuts - is due to occur on January 3, 2013. 

You may remember that the Joint Select Committee on Deficit Reduction - the so-called Supercommittee - was established as part of this budget agreement to come up with spending reductions totaling at least $1.2 Trillion over ten years.  The Supercommittee was made up of six members from the House of Representatives and six from the Senate, with each delegation evenly divided between Democrats and Republicans. The Speaker and Minority Leader of the House and the Majority and Minority Leaders of Senate each appointed three members.  In describing the task assigned to the Supercommittee, House Speaker John Boehner said total reductions were to be equally split between defense and non-defense programs.  But the Supercommittee did not come to an agreement regarding spending reductions, so the alternative enforcement mechanism of sequestration will, in fact, occur by law unless Congress acts before the end of this year.

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If Congress does not act, the Congressional Research Service (CRS) reports that on January 3, 2013 the automatic reduction in spending for non-exempt accounts will be 10% for defense, 2% for Medicare, and 7.8% for other mandatory and non-defense discretionary programs.  Spending authority for defense and non-defense programs will face reductions of $54.7 billion each, with this reduction applied each year for ten years.

There are programs that have been exempted from these automatic cuts for many years.  Exempt programs include, most notably, payments to military personnel, veterans programs, Social Security and other retirement programs, the Conservation Reserve Program (CRP), the Supplemental Nutrition Assistance Program (SNAP, better known as Food Stamps), and child nutrition programs (excluding special milk).  The Special Supplemental Nutrition Program for Women, Infants and Children (WIC) is not exempt from these automatic cuts.

So, what does this all mean for agriculture?  Every USDA research and extension program, market development program, most conservation and rural development programs, the WIC program and the Special Milk Program will be cut 7.8% as noted above.   The CRS also reports that Section 256(j) of the Balanced Budget and Emergency Deficit Control Act (BBEDCA), as amended, provides that sequestration should not restrict the CCC's authority to discharge its primary duties. Specifically, it states that commodity loan contracts entered into before the sequestration order shall not be reduced. This section also provides that loan contracts after the sequestration order shall be reduced. It is unclear, though, whether the Section 256 special rule applies to any of the more recent farm commodity, conservation, and other programs that are funded by the CCC.

 

The House and Senate Agriculture Committees have made spending reduction recommendations that would replace sequestration.  Last October 23, 2011, the leadership of the House and Senate Agriculture Committees sent a letter to the Supercommittee, saying: “We are currently finalizing the policies that would achieve $23 billion in deficit reduction and will provide a complete legislative package by November 1, 2011.  Deficit savings at this level is more than any sequestration process would achieve and should absolve the programs in our jurisdiction from any further reductions.” (Underlining added).  Those recommendations have been carried forward into the Senate-passed and House-reported Farm Bills.  If the Farm Bill is enacted before the end of this year, sequestration may be avoided by USDA.

On August 7, 2012, President Obama signed into law the Sequestration Transparency Act of 2012.  As a result of this new law, the President, within 30 days after enactment, must submit to Congress a detailed report on how sequestration will be implemented.  Each Department and Agency of the Federal Government will have to provide its own assessment to the Office of Management and Budget (OMB).  So when Congress returns to session in September, they should have details to help inform further action.

Some lawmakers are talking about delaying sequestration OR, as the House and Senate Agriculture Committees argue they have done, replacing it with savings they find more palatable. Many Republicans are especially averse to the roughly $55 billion that will be stripped out of the defense budget for each of the next nine years if Congress doesn't act to modify or repeal the sequester.  Republicans in the House have passed a budget that repeals a portion of the automatic cuts for fiscal 2013, but Senate Democrats have no interest in considering the House bill, which also makes deep cuts to mandatory programs such as food stamps, Medicaid and social services grants. 

Regardless of the outcome of the election on November 6th, Barack Obama will be the President to sign, veto, or negotiate any deal to replace sequestration.  The debt clock is ticking.  Stay tuned.

 

About the Author: Marshall Matz serves on the Board of the World Food Program-US; the Congressional Hunger Center and the Global Child Nutrition Foundation. He is a partner at OFW Law in Washington, D.C.mmatz@ofwlaw.com

 

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