Agriculture, Environment & Energy Committee

State-Federal Relations

Agriculture, Environment & Energy Federal Update: 2008 Farm Bill Report

Background

Question: What cost almost $290 billion dollars, took 18 months to complete, and had to be passed not once but twice over the President’s veto? The correct answer is H.R. 2419/H.R. 6124, the Farm Bill. Traditionally a distinct partnership between members of Congress representing farming and rural constituencies and members representing urban areas with high levels of recipients of federal food assistance, the Farm Bill increasingly has conservation, energy, specialty crop producers and other new interests competing for its resources. This year, mainly because of high farm commodity prices, the bill started with a lower baseline than in 2002. Finding offsets for new spending, required under Congress’s new “pay go” rule, was a major obstacle.

On July 27, 2007, the House of Representatives passed its version of Farm Bill reauthorization legislation (H.R. 2419). The Senate moved at a slower pace, but finally passed its bill on December 14, 2007. The conference process was long and contentious, but finally, after many extensions of current law, the House passed the conference agreement on May 14, 2008, by a vote of 318-106. The Senate followed on May 15, passing it 81-15. Throughout the Congressional process, the Administration had expressed its strong displeasure with the both the House and Senate bills, and both received veto threats, citing the additional spending in the measure and what the Administration saw as insufficient reform measures. It was not a surprise that President Bush vetoed H.R. 2419 on May 21. The House and Senate proceeded to override the President’s veto handily, and H.R. 2419 became law as P.L. 110-234. However, a clerical error added a new complication. An incomplete version of the Farm Bill missing the trade title was sent to, and vetoed by, President Bush. This meant that only 14 of the bill’s 15 titles became law. So Congress passed the conference report again as H.R. 6124. The President vetoed H.R. 6124 on June 18, and the House and Senate voted to override the second veto by that evening. H.R. 6124 became law as P.L. 110-246. If you are a legislative process junkie, you may be asking yourself what happened when H.R. 6124 became law, since it contained (in the case of 14 of the 15 titles) the same legislative provisions that had become public law as P.L. 110-234. H.R. 6124 contained a repeal of duplicative enactment provision that fixed the problem.

A note about funding for the additional spending in this years Farm Bill:
Because of high commodity prices, the commodity title was $60 billion below the 2002 baseline. House and Senate committees had to write a Farm Bill with significantly less funding for new initiatives and program improvements than they had to work with in 2002. Under new “pay go” rules, any new spending above the CBO established baseline had to be paid for with new revenues or with spending cuts elsewhere. One of the dynamics that made this reauthorization difficult is that House Ways and Means Chairman Rangel (New York) and Senate Finance Committee Chairman Baucus had to be brought into the process to find the necessary offsets, and naturally, those Committees had their own thoughts about how to spend the money they were providing. Not only were the House and Senate financing packages different in dollar amounts, but two different sets of fees were use to pay for spending. The House wanted to use a credit care reporting fee in its proposal, but the Senate countered with customs users fees and a requirement for brokers to report the values of customers’ stocks sales. Customs users fees were the main offset. The Senate was very insistent on funding a permanent disaster relief program and a package of tax incentives. Both priorities were funded, albeit at levels below what the Senate originally wanted.

Nutrition Programs
Significant improvements to nutrition programs represented a major NCSL victory in Farm Bill lobbying. NCSL has long standing policy supporting an improved nutrition title. The inclusion of $10.4 billion in new dollars for food assistance is a tremendous benefit for states, especially since Food Stamp benefits are 100% federally funded. Except where noted below, provisions take effect October 1, 2008.

Food Stamp Program Changes
The Food Stamp program will now be referred to as “the Supplemental Nutrition Assistance Program (SNAP),” and Food Stamp offices will now be referred to as “supplemental nutrition assistance program offices.”

The bill raises the standard deduction to amounts not less than $144 (from $134), $246 (from $229), $203 (from $189), and $127 (from $118) for FY 2009 and adjusted for inflation beginning FY 2010. The bill also removes the limit on deductions from income determination of dependent care expenses that allow a household member to accept or continue employment or training for employment. Payments received by or from a U.S. Armed Forces member deployed to a combat zone are excluded from consideration when determining household income for eligibility if the additional payment is the result of deployment or service in a combat zone and was not received immediately prior to serving in a combat zone. Retirement accounts and funds in qualified tuition programs (sec. 529 of Internal Revenue Code) or Coverdell education savings accounts (sec. 530 of IRC) are also no longer counted as financial resources. The bill also increases minimum SNAP benefits to households of one or two people from $10/month to 8% of the cost of a thrifty food plan for a household containing one member.

Effective on the date one year after enactment of the 2008 Farm Bill, states will only issue Electronic Benefit Transfer (EBT) cards—rather than coupons, stamps, certificates, or other authorizations—to a household that receives supplemental nutrition assistance, and any coupons not redeemed prior to this date will not be redeemable or reimbursable. If a household has not accessed its electronic benefits account for six months, the state agency may recover and store those benefits offline and will expunge the benefits when they have not been accessed for twelve months. The state agency must notify the household of storing its benefits offline and must restore those benefits within 48 hours of a request by the household.

There are a number of provisions regarding state accountability for the SNAP program. If a state agency issues excess benefits to a substantial number of households, and the Secretary of Agriculture determines it is a result of a major systemic error, the state is prohibited from recovering the overissued benefits from any of the households and is to be held responsible for the amount of the overissuance. If a state agency implements a major change in its SNAP operation, it must notify the Secretary of Agriculture and provide any information the Secretary might use to identify and correct potentially adverse effects of the design change on the program. In addition, the Secretary will monitor the performance of state agencies in administering SNAP to identify major operational changes that affect the programs’ integrity and access. This section is the result of an extensive debate over privatization and administrative changes to SNAP, and the final bill uses less sweeping language than the House bill, which prohibited privatization by specifying that only state merit system employees could represent the state to SNAP participants, applicants, or potential applicants.

Other Nutrition Program Changes
The bill increases the amount of money used to purchase commodities for the Emergency Food Assistance Program (TEFAP) from $140 million per year for FYs 2002-2007 to $190 million for 2008, $250 million for 2009, and adjusted by the percentage the thrifty food plan is adjusted for 2010-2012. The bill also grants funding to improve the infrastructure of food banks and collaboratives, including programs to expand capacity, improve tracking and security, and improve identification of donors, non-profit food providers, and persons in need of emergency food assistance. The bill also authorizes $5 million for purchasing traditional and locally grown foods (50% of which are grown by Native American producers) for participants in the food distribution program on Indian reservations. The Commodity Supplemental Food Program (CSP) is reauthorized through FY 2012 for funding at the current level (a total of $140 million for FY 2008), adjusted each year by the percentage change between the value of the state and local government price indices for the previous two fiscal years. Funding for the Senior Farmers’ Market Nutrition Program is increased to $20.6 million for each of FYs 2008-2012 from $15 million for each of FYs 2003-2007. When determining eligibility for other programs, the value of any benefit received under the senior farmers’ market nutrition program is excluded from being considered income or resources. Each state must also ensure that no state or local tax is collected on food purchased with benefits received under the senior farmers’ market nutrition program.

Child Nutrition and Related Programs
The bill provides for the creation of pilot programs in high-poverty schools to build community gardens to teach students about agricultural production practices and healthy diets, either incorporated into school curriculum or into summer programs. Grants to develop and manage the community gardens will be provided to nonprofit organizations or public entities in not more than five states. Produce from the gardens may be used to supplement food provided at the school, distributed to student to take home to their families, or donated to a local food bank or senior center nutrition program. The bill makes permanent the Fresh Fruit and Vegetable Program, which will provide grants to states for a program to make free fresh fruits and vegetables available to students at eligible schools. The program is authorized at $40 million for FY 2008-09 and $316 million over the following three years, and state grants will equal one percent of the funds made available to the program each year plus additional funds based on the proportion of state population to national population. The program was authorized as a pilot program at $9 million for eight states and three Indian Tribal Organizations for FYs 2006 and 2007. For FY 2006, an additional $6 million of funding was appropriated for six more states. The bill also allocates an additional $1 billion over the next five years to purchase fruits, vegetables, and nuts for use in domestic nutrition assistance programs, in addition to the purchases required by section 10603 of the Farm Security and Rural Investment Act of 2002. This program was previously administered through the Department of Defense but will now be run through the Department of Agriculture. The bill provides for the addition of whole grain products to school lunch and school breakfast programs.

Geographic Preferences in Purchasing
The Farm Bill contains language that encourages schools participating in the school nutrition programs to purchase unprocessed agricultural products that are locally grown or raised to the maximum extent possible. It specifically allows for geographic preferences for purchasing for these programs. Many states have pressed USDA on this issue.

Rural Development
NCSL lobbied hard on rural development as part of the Campaign for a Renewed Rural Development. The issue for many rural development programs is securing mandatory funding that is not at the mercy of the appropriations process each year. Major rural development programs were extended, including the Rural Business Opportunity Training grants, the Rural Cooperative Development Grants, the Agriculture Innovation Center Demonstration program, the Water and Waste Disposal Grants and Rural Water and Wastewater Circuit Rider programs. The following mandatory funding was included in the Farm Bill:

· Rural Water and Wastewater: $120 million mandatory funds for pending rural development loan and grant applications for rural water and wastewater assistance. These funds reportedly will be awarded by August 15, and each state may get around $300,000 in budget authority, with actual amounts based on the percentage of completed applications as of Farm Bill passage. State offices are still determining the loan to grant ratio.

· Value-Added Grant Program: $15 million to encourage independent producers of agricultural commodities to process their raw commodities into marketable goods.

· Rural Micro Enterprise Assistance Program: $15 million in mandatory funds for the program, which provides technical assistance and small loans to beginning entrepreneurs to help start businesses in rural areas.

The Campaign will continue its work to make sure that the vital programs receive the necessary funding. NCSL will participate in a meeting with USDA Rural Development staff on implementation of the rural development title and will closely monitor the budget process.

Conservation Provisions
Overall, spending on the conservation title is increased by $7.9 billion over the current level. Negotiators characterized the new conservation title as a shift in the direction of working land conservation. For example, the Environmental Quality Incentives Program (EQUIP) and the Conservation Stewardship Program (CSP’s new name) were big winners. The CSP will enroll just under 13 million acres each year through 2017 for a total of nearly 115 million acres. An additional $1.1 billion was provided for CSP for a total of nearly $12 billion over 10 years. EQUIP has a funding increase of $3.4 billion. The Conservation Reserve Program (CRP) is also extended, with an authorization to enroll 32 million acres from 2010 to 2012. The program also has a new provision that allows retired landowners in CRP to modify their contracts if the land is being transferred to a beginning, limited resource, or socially disadvantaged farmer or rancher, allowing some CRP land to be returned to grazing or crop production. The Chesapeake Bay Region will receive $438 million in new funding to help restore and protect the Bay watershed.

Self-Employment Contributions Act (SECA): Application for Conservation Lands
The IRS issued notice 2002-108 to resolve the question of whether the income farmers receive from the USDA under the Conservation Reserve Program (CRP) is subject to SECA tax. Previously, the IRS had held that USDA subsidies for retired farmers or non-farmers who do not personally perform the activities such as weed control and grass-planting required under a CRP contract do not fall under the SECA tax. However a 2003 court decision led the IRS to apply the tax to CRP payments through a proposed revenue ruling. While the IRS code does exempt real estate “rent” from the SECA tax, IRS guidance does not classify these payments as rent because the USDA makes them in exchange for conducting certain activities, thus classifying CRP as a trade or business activity, which makes it subject to SECA tax. The IRS guidance seemed to apply the tax even if the CRP participant’s only farming activity was to being a CRP participant and even if the CRP participant hired a third person to perform all required activities. This matter was dealt with by a provision in the Farm Bill that provides two alternatives. The first offers an optional tax credit in lieu of CRP payments. The second explicitly exempts CRP payments from SECA for certain taxpayers (Social Security and SSDI recipients).

Interstate Sales of State Inspected Meat
There are two U.S. meat and poultry inspection systems, one operated by the USDA’s Food Safety and Inspection Service (FSIS), and one made up of 27 state-administered programs. The state programs have to meet federal standards, but only products inspected by the FSIS can enter interstate commerce. The Farm Bill authorizes a new opt-in program for state-inspected plants, intended to supplement rather than replace the existing federal-state cooperative inspection program. In states that choose to participate, a federally employed coordinator would supervise state employees in plants that want to ship across state lines. Plants with between 25 and 35 employees could apply for coverage within the first three years of enactment; after that, the program is limited to plants with 25 or fewer employees. Federal reimbursement for state costs under this new program is set at 60%, higher than the current federal-state cooperative rate of 50%. Products inspected under the new program would carry the federal mark of inspection. NCSL has policy supporting interstate sales of state inspected meat and was active in urging the House and Senate to change existing rules.

Meat Recall Notification
Recalls of meat and poultry have led to consumer concerns about the safety of their food, and the USDA recall process. P.L. 110-246 amends the Federal Meat Inspection Act and the Poultry Products Inspection Act to require any establishment subject to inspection to “promptly notify” USDA if it believes, or has any reason to believe, that an adulterated or misbranded meat or poultry product has entered commerce. This notification requirement is in lieu of a somewhat more prescriptive provision in the Senate-passed version which would have created “reportable” meat and poultry registers similar to the register for FDA-regulated foods with safety problems. The Farm Bill also requires meat and poultry establishments to prepare and maintain recall plans and any reassessments of their process control plans and have them available for USDA inspectors to review and copy.

Country of Origin Labeling
The 2002 Farm Bill (P.L. 107-171) required food stores (but not restaurants) to provide country-of-origin labeling (COOL) for fresh produce, red meats, peanuts and seafood in their unprocessed forms beginning September 30, 2004. However, Congress twice postponed implementation for all COOL requirements except for seafood. The new Farm Bill continues to require COOL implementation on September 30, 2008, and adds several new commodities: goat meat, chicken, macadamia nuts, pecans and ginseng. There are some modifications to COOL provisions in the legislation as well. The labeling requirements for fresh meats are changed. Four categories are established: U.S. country of origin, multiple countries of origin, imported for immediate slaughter, and exclusively of foreign origin. Labels for ground meat must list all or “all reasonably possible” countries of origin. For fresh produce, nuts covered by COOL requirements, and ginseng, a U.S. state, region, or locality designation meets the requirement for designating U.S. country of origin. Wild and farm-raised fish continue to have their own, separate definitions in the amended COOL. There are changes to enforcement provisions as well. USDA is permitted to audit any person who prepares, stores, handles, or distributes a covered commodity to verify compliance—not just retailers. However, these people are not required to maintain records for COOL other than ones that would be maintained in the course of normal conduct of their business. Finally, noncompliance penalties are lowered from the previously set sum of $10,000 to $1,000 for each violation.

Energy Provisions
The Farm Bill’s energy title has overall funding of $1 billion. A new program in the title is the Rural Energy for America (REAP), a program to provide $250 million in grants and loan guarantees for agricultural producers and rural small businesses to purchase renewable energy systems and make energy improvements. Other new programs include a $35 million program to help existing ethanol facilities reduce their fossil fuel use and a sugar to ethanol program. The title also includes:

$320 million for loan guarantees for biorefineries producing advanced biofuels;
$35 million for a new program to help existing ethanol facilities reduce their fossil fuel use;
$300 million for the Biogenergy Program; and
$120 million for the Biomass Research and Development Program

Provisions to Assist Minority, Socially Disadvantaged and Beginning Farmers

Pigford Claims
The Farm Bill provides that Pigford claimants who have not had their cases determined on the merits may, in a civil actions obtain such a decision. Payments or debt relief are to be made exclusively from mandatory funds of $100 million included in the bill. The bill states Congressional intent that this section “be liberally construed so as to effectuate its remedial purpose of giving a full determination on the merits for each Pigford claim previously denied that determination.

There is also an expedited resolution: liquidated damages of $50,000, discharge of the debt that was incurred under, or affected by, the one or more programs that were the subject of the one or more discrimination claims that are the subject of the person’s complaint, and a tax payment in the amount equal to 25 percent of the liquidated damages and loan.

Other Provisions
The bill also increases mandatory funding for the Section 2501 Socially Disadvantaged Farmers and Ranchers Outreach and Technical Assistance Program ($75 million for FYs 2009-2012). It directs the Secretary of USDA to permanently establish the USDA Office of Advocacy and Outreach, which will take over the duties of the Office of Outreach and Diversity currently located in the Office of Civil Rights. It also establishes a Minority Farmer and Rancher Advisory Committee at USDA that, among other duties, will review the operation of the Section 2501 Outreach program and review civil rights activities. The Farm Bill’s credit title increases the amount of direct farm ownership loans, guaranteed farm ownership loans reserved for downpayment, and direct operating loans for beginning farmers and ranchers, and it makes socially disadvantaged farmers and ranchers eligible for the programs.

Commodities Programs
Basically, the Commodity title maintains existing programs authorized under the 2002 Farm Bill. This includes extension of the sugar and dairy programs. However, there are several important changes to highlight.

Changes to Farm Payments
The bill imposes a cap on average adjusted gross income (AGI) for eligibility to receive farm program payments. It puts a hard cap on non-farm income at $500,000 and applies a cap on farm income at $750,000, after which a producer will no longer be eligible for direct payments. It sets the total payment cap for direct and counter-cyclical payments to a single farmer at $40,000 and $65,000, respectively. ACRE participants—see below—have a total payment cap of $32,000 for direct payments and $73,000 for counter-cyclical payments. H.R. 110-246 also requires direct attribution for farm payments and ends the three entity rule.

Average Crop Revenue Election (ACRE) Program
The ACRE program, modeled after legislation introduced by Senators Brown (Kansas) and Durbin (Illinois) is intended to allow farmers to better manage both yield and price declines on their farms. ACRE is a state-based revenue guarantee for participants based on the five year state average yield and the two year national average price. Producers would get a payment for a commodity when the actual state revenue for the commodity is less than the revenue guarantee.

Disaster Assistance
The bill contains $3.8 billion for a permanent disaster assistance program designed to supplement not supplant crop insurance. Farmers wishing to enter the program would first have to purchase crop insurance.

Foot and Mouth Disease Research
The Farm Bill contains a provisions that requires the Secretary of USDA to issue a permit to the Secretary of Homeland Security that would allow work on the live virus of Foot and Mouth disease at the facility that is the successor to the Plum Island Animal Disease Center (the new National Bio-and Agro-Defense Facility). The permit would be valid unless the Secretary determines that the study of the live virus is not being carried out in accordance with regulations under the Agricultural Bioterrorism Protection Act of 2002. In that case, the permit can be suspended or revoked.

Commodities Futures Trading Commission (CFTC)
The Commodities Futures Trading Commission (CFTC)was reauthorized through 2013. The bill contains provisions designed to strengthen the CFTC’s authority over retail foreign exchange transactions. Retail foreign exchange dealers must register with the CFTC and are subject to CFTC rules and anti-fraud authority along with Futures Commission Merchants that engage in forex transactions. Qualifications and minimum capital requirements for Futures Commission Merchants and retail foreign exchange dealers are toughened. The bill extends the CFTC’s oversight to exempt commercial markets (ECM) that trade significant price contracts. This oversight includes setting forth criteria to determine whether a contract traded on an ECM qualifies as a significant price discovery contract; requires CFTC to monitor ECM trading of oil, natural gas and other commodities for contracts that perform a significant price discovery function; requires position and accountability limits for significant price discovery; and requires large traders to report their positions in significant price discovery contracts. Other requirements deal basically with transparency in trading activity. This is the Feinstein/Levin/Snowe measure that closes what is known as the “Enron Loophole” and increases federal oversight and authority to detect and prevent manipulation and limit speculation in U.S. electronic energy markets.

Specialty Crops/Fruits and Vegetables
The bill increases the funding for the National Organic Certification Cost-Share Program from $5 million to $22 million. It also supports the Organic Data Collection Initiative. P.L. 110-246 also contains $20 million for the National Clean Plant Network. The Specialty Crop Block Grant is funded at $466 million over 10 years. Note: The Research title of the bill also provides $78 million in mandatory funds for the Organic Research and Extension Initiative and $230 million in mandatory funds for the Specialty Crop Research Initiative, a new grant program focusing on mechanization, plant breeding, genetics, genomics, pests and diseases, and food safety.

Tax Provisions
The Senate insisted that the Farm Bill include a package of tax incentives for agricultural, conservation and energy policy initiatives. The $1.7 billion final package was fully offset, in part by limiting the net operating loss carryback for Schedule F to $200,000 on businesses’ non-agriculture income if they received commodity payments. The tax title also cut tax subsidies for ethanol production to 45 cents per gallon and includes an optional self-employment tax provision that would make it easier for farmers to qualify for Social Security benefits. Other provisions:

· A new temporary tax credit of up to $1.01 per gallon through 2012 for the production of cellulosic biofuels;

· A permanent deduction for Endangered Species Act Expenditures;

· An extension of the conservation easement deduction;

· An extension of Forest Conservation bonds;

· A new minimum tax rate for qualified timber sales;

· A Modernized timber REIT (Real Estate Investment Trust); and

· Improvements to the Aggie Bond program.

Prepared by Lee Posey, Committee Director for NCSL’s Agriculture, Environment and Agriculture and Human Services and Welfare Committees

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NOTE: OTHER CONCERNS RAISED BY NCSL DURING THE FARM BILL PROCESS
Sometimes, NCSL efforts are focused on preventing language from being included in a federal bill. There were several occasions as the Farm Bill moved through Congress when NCSL weighed in successfully to do just that. As the bill progressed toward House passage, NCSL voiced concerns about a House subcommittee provision that would have preempted state authority to regulate food safety, protect public health, ensure humane treatment of animals, and establish agricultural policies beneficial to the environment. NCSL also opposed amendments to reverse the restoration of benefits to legal immigrants made in 2002 were not successful. NCSL weighed in against an amendment expected in the full House Agriculture Committee mark up that would have made only recipients of TANF cash assistance, as opposed to cash or services, automatically eligible for Food Stamps. NCSL tracked a school nutrition amendment, filed by Senator Harkin (Iowa), which did not get a vote but which would have preempted state school nutrition standards. The amendment would have set national nutrition standards for foods and beverages sold out of vending machines, school stores, and other venues outside of the school meal programs. States would be required to use the same standards as the national school nutrition standards; however, local schools and districts could place additional restrictions on school nutrition standards. Currently six states already have provisions for at least some of the covered foods that are more strict that those the amendment would have put in place—Alabama, California, Connecticut, Florida, Oregon, and Rhode Island. The final Farm Bill does include increased funding for nutrition education and a pilot program to encourage the purchase of more fresh fruits and vegetables in the Food Stamp households. NCSL, the Council of State Governments, the National League of Cities, and the National Conference of Mayors sent a joint letter in strong opposition to an amendment offered by Senator Craig (Idaho) during the Senate floor debate that would have preempted state and local land use laws by prohibiting any federal funding that goes to state and local governments from being used for acquiring "farmland or grazing land for the purpose of a park, recreation, open space conservation, preservation view, scenic vista or similar purpose." The letter called the amendment "not only ill-advised, but also unconstitutional," noting that the Fifth Amendment of the U.S. Constitution expressly permits the taking of private property for public use, provided just compensation is provided to the owner of the property.

Agriculture, Environment & Energy CommitteeState-Federal Relations

Agriculture, Environment & Energy Federal Update: 2008 Farm Bill Report

Agriculture, Environment & Energy Committee

State-Federal Relations