State-Federal Relations

Agriculture, Environment & Energy Committee

HOUSE AND SENATE VERSIONS OF FARM BILL REAUTHORIZATION
HEAD TO CONFERENCE:

A Guide to Major Issues and Unresolved Differences

Background

Every five years, Congress enacts a Farm Bill to reauthorize most federal farm programs. It includes provisions related to crop payments, rural development, nutrition assistance, conservation, and energy. The scope of the Farm Bill means its passage involves complex interactions among many players with very different interests. And it means it’s a lengthy bill--- the Senate bill is more than 1800 pages and contains $286 billion in funding. (The House bill, similar in terms of overall spending, is brief in comparison at 860 pages.) On July 27, the House of Representatives passed its version of Farm Bill reauthorization legislation, H.R. 2419, “The Food, Nutrition, and Bioenergy Act of 2007,” by a vote of 231-191. The Senate Agriculture, Forestry and Nutrition Committee passed a bill out of committee on October 25, but the bill stalled on the Senate floor because Democrats and Republicans could not agree on what amendments would be in order. The Senate finally passed its bill, the “Food and Energy Security Act of 2007” on December 14 by a vote of 79-14.

What is next? Leaders of the House and Senate Agriculture Committees reportedly met in late December to establish a framework and timetable for ironing out differences between the House and Senate bills. House Agriculture Committee Chairman Colin Peterson (Minnesota) wants to wrap up conference by February 1. Once this report is finalized, it must be approved by the House and Senate and sent to President Bush for his signature or veto. Both versions of the bill face veto threats from the White House because of differences regarding specific provisions (especially payment limits); overall spending increases; and spending offsets found to accomplish this new spending. Although the large Senate vote for its bill was initially seen as perhaps softening the Administration’s opposition to Congressional proposals, recent statements by Acting Secretary of Agriculture Chuck Conner have reiterated the Administration’s objections to both the House and Senate bills. One analysis of the outcome is that House and Senate Conferees will complete their work quickly, will send the President a bill he will veto, and will be able to uphold that veto, giving Congressional Democrats an election issue. A lengthy negotiation to produce a bill the President will sign would follow.

Farm Bill Funding

Because of high commodity prices, 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 paid for with new revenues or with spending cuts elsewhere. The House and Senate ultimately took different approaches to this problem. To find new funding above the baseline, House Democrats found an offset in the tax code, but that action cost the bill Republican support—177 Republican House members voted against the bill. The measure would tax royalties, interest and other payments U.S. subsidiaries of foreign-owned companies make to foreign affiliates, taxing such payments as if they were made to the foreign parent corporation, even when the payments are made to an affiliate in a third tax jurisdiction, where taxes may be lower. Democrats said the provision merely closes a loophole that allows a limited number of U.S. subsidiaries of foreign companies to avoid taxes. Republicans countered that they had been assured that new spending in the bill would not be paid for by any kind of a tax increase, and that the offset had been revealed by the majority at the last minute.

The Senate bill included a controversial $10 billion provision to define “economic substance” for courts trying to determine whether certain tax-avoidance efforts may be abusive. The White House has said that defining the economic substance doctrine is unnecessary and that the courts should continue to have flexibility to determine the issue. There were several other attempts to find offsets for new spending in the bill. For example, the bill capped the total value of guaranteed loans in relation to export credits. The Senate Farm Bill also contains $3.2 billion in revenue raisers from a retroactive provision to further lighten rules for sale-in, lease out (SILO) arrangements with foreign entities.

In a separate action, the Senate Finance Committee passed a tax package, the “Heartland, Habitat, Harvest and Horticulture Act of 2007,” to help fund new spending in the Senate’s bill. It funded a $6.1 billion dollar permanent disaster relief program.  The bill's $2 billion in energy tax credits were partially offset by decreasing the existing ethanol tax credit from 51 cents a gallon to 46 cents a gallon to take effect when annual ethanol production tops 7.5 billion gallons. It also funds $2.4 billion in benefits for various renewable energy sources, including tax credits that were part of the energy bill tax package defeated in the Senate this summer.  The bill included an increase in the tax credit for cellulosic ethanol production (modified on the Senate floor) and extended the current 10-cents-per-gallon credit for smaller ethanol producers. “Cellulosic alcohol” was changed to “cellulosic biofuel” on the Senate floor, extending the scope of the credit. Additionally, the Finance Committee bill contained nearly $6 billion in tax benefits for farmers who enroll their land in existing conservation programs, mostly directed toward the Conservation Reserve Program, allowing producers to choose between tax benefits or cash payments if they enroll in Farm Bill conservation programs.

Issues NCSL Weighed in On

NCSL weighed in a number of issues Farm Bill. These are discussed below. NCSL also supported the significant improvements to federal nutrition programs that were included in the House and Senate bills and are explained in the following section of this document.

Eminent Domain

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 Larry Craig (Idaho) during the Senate floor debate on the Farm Bill 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." The letter noted that the 5th 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.   The letter continues, "The state power to use eminent domain for public purposes is fundamental to a state’s and locality’s ability to provide for the community needs of its citizens, to protect unique and scenic areas of a state by creating parks, and to preserve wildlife and topography of a significant nature." During debate on the amendment, Senator Tom Harkin (Iowa) read the letter on the floor. The amendment failed with 37 votes for and 58 against. According to the agreement under which the amendment required 60 votes for passage, it was withdrawn.

School Nutrition Standards

NCSL tracked a school nutrition amendment, filed by Senator Harkin, 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 put additional school nutrition standards in place. Currently six states already have provisions for at least some of the covered foods that are more strict than those the amendment would have put in place—Alabama, California, Connecticut, Florida, Oregon, and Rhode Island. A Senate provision championed by Senator Mitch McConnell (Kentucky), added as part of the Manager’s Amendment to the Senate bill, reflects NCSL’s preferred approach to improving food choices available to school children. It would direct $18 million to states to educate school children on the importance of consuming a nutritious diet as well as increasing their level of physical activity. This money will be given to the Child Nutrition Network, which is administered by the USDA, and then distributed to the states in the form of a grant. It also calls on the USDA to conduct periodic surveys of foods purchased by school food authorities participating in the National School Lunch program.

Interstate Sales of State Inspected Meat

Both the House and Senate versions of the Farm Bill include provisions allowing the interstate sale of state inspected meat. (There are 27 states with state meat inspection programs.)  NCSL has policy supporting interstate sales of state inspected meat and was active in urging the House and Senate to change existing rules. The House has a straight removal of the prohibition on interstate sales. In the Senate, a compromise was reached that creates a new, optional program within federal law that provides federal oversight of state-inspected facilities that want to ship products across state lines. Under the compromise, state inspection programs will continue to maintain their current cooperative agreements with the federal government which require state programs to be at least “equal to” federal requirements. Processing establishments with up to 25 employees will be eligible to participate in the program. Companies will be required to use a federal mark, stamp, tag or label of inspection.

Other Concerns

NCSL voiced concerns about a House subcommittee provision that would preempt state authority to regulate food safety, protect public health, ensure humane treatment of animals, and establish agricultural policies beneficial to the environment. This language was not included in the full Committee bill, or in the bill as it passed the House. NCSL also weighed in to see that amendments to reverse the restoration of Food Stamp benefits to legal immigrants made in the 2002 Farm Bill were not successful. Additionally, 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. None of these provisions were part of either version of the Farm Bill.

The Farm Bill Nutrition Title

Federal nutrition assistance programs are a big part of a Farm Bill. In fact, spending on nutrition programs represents about 60% of USDA funding. NCSL has long had policy expressing support for an improved nutrition title, and the House and Senate Farm Bills have at least $4 billion in new funding in them. Food Stamp benefits are 100% federally funded, so improvements to that programs are extremely beneficial to states. Improvements to nutrition programs include:

Food Stamp Benefit Improvements

Senate: The bill increases the standard deduction to $140 and indexes it for inflation. The minimum benefit would rise from $10 a month to $12 a month, and would thereafter be indexed for inflation.
House: Raises standard deduction to $145 and indexes it for inflation. Minimum benefit rises to 10% of the maximum food stamp benefit for 1 person household.

Food Stamp Asset Limit Improvements

Senate: The asset limit in the Food Stamp program (the amount of resources such as savings accounts recipients can have and still receive Food Stamps) has been essentially frozen at $2,000 since 1977. The bill raises the asset limits (from $2,000 to $3,500 and from $3,000 to $4,500) and indexes them to keep pace with inflation, and exempts all education and retirement accounts from counting against the asset limit.

House: Indexes asset limit for inflation.

Child Care Expenses for Food Stamp Families

Senate and House: The bill eliminates the cap on the deductibility of child care expenses from gross income determination (used for purposes of determining eligibility and the benefit level). This is an improvement on current program rules that only allow families to deduct $175 or $200 a month, depending on the age of the child.

Simplified Food Stamp Reporting for Seniors and People with Disabilities

Senate: The bill extends simplified reporting provisions of the 2002 Farm Bill, which allowed most Food Stamp households to participate in the program for up to six months without reporting most changes in household income, to these households as well.

House: No provision

The Emergency Food Assistance Program (TEFAP)

Senate: This program will receive an additional $92 million annually in mandatory commodity purchases for distribution through food banks.

House: Funding increased year by year to be $110 million higher than current level in 2012.

Both bills also disregard military combat pay from determining eligibility for Food Stamps and exclude all retirement and education savings accounts from the asset limit.

There are some differences between the House and Senate versions of the nutrition title that are worth pointing out. The House bill makes the Food Stamp and TEFAP improvements permanent, while technically they would expire in five years under the Senate bill unless renewed in a new Farm Bill. The minimum benefit increase starts earlier in the House version (FY 2008) than in the Senate (FY 2009); the standard deduction increase is more significant in the House bill ($145 rather than $140); and the TEFAP commodity purchases increase is indexed for inflation in the House. The improvements to the food stamp asset rules are more significant in the Senate bill than the House bill. The Senate bill raises the $2,000 limit to $3,500 and the $3,000 limit to $4,500 before indexing. The House bill contains language specifying that only state merit system employees could represent a state in any communications with prospective food stamp applicants, food stamp applicants, or recipient households, or participate in making determinations regarding a household’s compliance with the Food Stamp Act. The House and Senate also differ on the renaming of the Food Stamp Program itself. Since benefits are now in the form of EBT cards, not paper stamps, the USDA had expressed its interest in renaming the program. The House weighed in with its choice, the “Secure Supplemental Nutrition Assistance Program,” and the Senate bill renames the program the “Food and Nutrition Program.”

Country of Origin Labeling (COOL)

The House and Senate bill implements mandatory country-of-origin labeling (the COOL program) for red meat sold in grocery stores, setting the program back on track to take effect September 30, 2008. The implementation date for the program, part of the 2002 Farm Bill, has been pushed back several times. The provision includes three categories of labeling, one that indicates “product of the U.S.” and means the animal was born, raised, and slaughtered in the United States; one that indicates a “mixed product” that was not exclusively born, raised, and slaughtered in the United States; and one that includes products entirely from other countries. Ground meat products would be labeled with a narrative list of countries from which the products could be derived, but the label would not be required to specify the percentage of product from the respective countries. The Senate bill also adds chicken to the meat products covered.

Animal ID

Advocates of open government objected to a provision in the Senate Agriculture Committee bill that would have barred disclosure of animal identification information submitted to the Department of Agriculture. It would have prevented the release of information submitted by producers under the Agriculture Department’s voluntary national animal identification system. The version of the bill that passed the Senate stripped out this language, replacing it with an instruction to the Secretary of Agriculture to “promulgate regulations consistent with the Freedom of Information Act… regarding the disclosure of information submitted by farmers and ranchers who participate in the National Animal Identification System.” The language would also remove the criminal penalties for unauthorized disclosure.

Payment Limits

The issue of payment limits probably represents the most difficult issue for conference. Note: The current income cap is $2.5 million annually, but the cap does not apply if more than 75 percent of an applicant's income is derived from farm income. The Administration wants to limit farm payments to producers with an adjusted gross income level of $200,000 a year or less.

The House bill includes a $1 million absolute cap. Discussion of farm subsidies was a prominent feature of the House floor debate. A critical juncture in the debate was the defeat of the amendment introduced by Representative Ron Kind (Wisconsin), which would have virtually ended farm subsidies and reallocated that funding to nutrition and conservation programs. That amendment was defeated 301 to 117.

There were several attempts during Senate floor consideration of the Farm Bill to change the provision in the Senate Agriculture, Nutrition and Forestry’s bill, which lowers the farm income percentage to 67 percent (the amount of income for a producer that comes from farming) and keeps the $2.5 million cap for FY 2008, then sets the cap at $1 million for FY 2009 and $750,000 for FY 2010. Amendments offered included:

An amendment by Senators Richard Lugar (Indiana) and Frank Lautenberg (New Jersey) to phase out direct payments by lowering payments to 25 percent of past payments in FY 2008-2011, 20 percent of past payments in FY 2012 and 2013, and finally eliminate payments altogether in FY 2014. The amendment was rejected 37-58.
An amendment offered by Senator Byron Dorgan (North Dakota) and Charles Grassley (Iowa) to establish an annual income limit of $250,000 for receiving direct payments. The amendment established a payment limit of $250,000 per farm, mandated that those receiving farm payments be actively engaged in farming, and would require that payments be attributable to person. That amendment did not achieve the necessary 60 vote threshold that had been agreed to.
An amendment offered by Senator Amy Klobuchar (Minnesota) setting the income limit cap at $750,000 for full time and $250,000 for part time farmers.  This amendment was also unsuccessful.

Other Farm Program Issues

The Senate bill includes a new option, beginning with the 2010 crop year, to choose to participate in a state-level revenue protection system, the Average Crop Revenue (ACR) program, instead of getting traditional counter-cyclical payments, direct payments, and marketing loans. Farmers in the program would get $15 per acre each year instead direct payments (which are generally much more than $15 per acre), along with an additional payment if crop revenues in their area drop below the average. An amendment in full Committee consideration stripped linkage of this program to crop insurance, because senators were unsure of the effects of ACR on crop insurance rates.   The House bill includes a new revenue based counter-cyclical program option based on national revenues, and gives producers a one time option to choose either revenue or price based programs.

Both bills have provisions related to the Pigford decision in a case regarding racial discrimination claims against USDA. They provide a right of action for African American farmers who filed too late in case to be heard in civil court. They make $100,000,000 for such claims available in FY 08 to remain available until expended.

The House bill commodity title makes socially disadvantaged farmers and ranchers eligible for the Beginning Farmer and Rancher Down Payment loan program. It also extends the 2002 Land Contract pilot program to socially disadvantaged farmers. The Senate bill creates a new storage facility loan program to help farmers of certain commodities upgrade and construct storage facilities. It also establishes a new pilot program to help beginning farmers establish matched savings accounts for farm-related capital ventures.

Rural Development

Because rural economies have changed, there may not be a direct linkage between rural communities and agricultural production and related businesses, which are bolstered by programs supporting crops. Today, 90% of the farm household income comes from off-farm sources. Despite the increasing importance of rural development programs, little mandatory money has been provided by Congress in previous Farm Bills to carry them out, leaving them subject to the vagaries of the annual appropriations process. In all there are 88 programs that deal with rural development located in 16 different federal agencies, but USDA is the lead agency in this area, with three agencies within USDA housing rural programs: Rural Housing Service, Rural Business Cooperative Service, and the Rural Utility Service. An Office of Community Development oversees these programs.

Several programs authorized with mandatory spending in the 2002 Farm Bill are reauthorized with discretionary funding in the House bill’s Rural Development Title—Rural Firefighters and Emergency Personnel, Rural Strategic Investment Program, and Access to Broadband Services in Rural Areas—although the Value-Added Grants Program is reauthorized with $150 million in mandatory funding over five years. The Senate bill provides $400 million in mandatory spending for five programs: rural hospitals, the microenterprise assistance program, the rural collaborative investment program, child day care facilities and pending water infrastructure applications.

Definition of Rural

The House bill directs the Secretary of USDA to assess the varying definitions of rural used by USDA and review the income, population density, and seasonal population of eligible areas for purposes of targeting and prioritizing loans and grants. The Senate bill defines rural by excluding urbanized land in or around cities of 50,000 or more, including land with 200 or more housing units per square mile.

Broadband

Broadband access for rural Americans was a focus of both of the House and Senate when writing this title. Both included a National Center for Rural Telecommunications Assessment. The Senate created the “Connect the Nation” program to promote the deployment and adoption of telecommunications services, and authorized $40 million per year for matching grants and the creation of GIS maps. Regional development was also a focus.

Rural Hospitals

The House bill includes a new grant program to improve the technical infrastructure of rural health care facilities, authorizing $30 million a year for this program. The Senate bill also creates a new loan program to improve existing rural hospital infrastructure and introduce new medical health information technology. $50 million in new loans is authorized for this purpose.

Rural Entrepreneurs

The House and Senate bills both create new Rural Entrepreneur and Microenterprise Assistance programs to provide technical and financial assistance to small business. Both bills authorize a technology transfer program to provide technical information and resources for farmers practicing or transitioning to sustainable and organic farming practices.

Key Energy Programs

Energy programs that would be renewed and/or expanded in both the House and Senate bill are:

Biodiesel Fuel Education Program
Renewable Energy and Energy Efficiency Improvements Program (Renamed the Rural Energy for American Program, both House and Senate increase funding)
Bioenergy Program (both House and Senate add mandatory funding)
Biomass Research and Development Act of 2000 (House--$420 million available in addition to the $200 million annual authorization; Senate moves program into statute and provides $75 million in mandatory dollars with a smaller authorization)
Feedstock Flexibility for Bioenergy Producers—both bills have a sugar for ethanol program to use sugar deemed by USDA to be surplus

Conservation Programs

House Bill

The House bill establishes a National Agriculture Research Program Office to coordinate the programs and activities of Department of Agriculture research agencies in an effort to minimize duplication and maximize coordination, and sets up a competitive grant program.  The Wetlands Reserve Program (WRP) would increase by 1 million acres. The bill delays further sign ups for the Conservation Security Program (CSP) until 2012, and replaces its three-tiered structure with annual stewardship enhancement payments. Environmental Quality Incentives Program (EQIP) funding would increase, reaching $2 billion in 2012. Conservation Innovation Grants are extended and funding is expanded to $20 million annually.  It includes a Bush Administration proposal to establish an environmental services standards board charged with developing uniform standards to quantify environmental services, such as wetlands banking, water quality trading, and carbon trading, among others.

Senate Bill

The Senate conservation title allows the CSP, renamed the Comprehensive Stewardship Program, to grow significantly, by about $13 million acres a year, increasing by $80 billion over the life of the Farm Bill, and increases funding by $1.28 over the existing baseline over 10 years. The Comprehensive Security Incentives Program will coordinate the main working lands programs, CSP and the EQIP as an “umbrella” program. WRP enrollment would be 250,000 acres per year through 2012.

Some conservation programs would be targeted to assist beginning and/or socially disadvantaged farmers. The Senate bill, for example, sets aside 10% of conservation funds for beginning and socially disadvantaged farmers, with funds returning to the programs if unused after a certain date and also allows such farmers and ranchers to receive 30% of their EQIP payments in advance to purchase materials and labor. The House bill includes a new CRP provision that allows retired landowners participating in the program to modify their contracts if the land is being transferred to a beginning or socially disadvantaged farmer or rancher, allowing the farmer or rancher to return some of the land to grazing or production.

For additional information on the Farm Bill, please contact Lee Posey (lee.posey@ncsl.org) or call NCSL’s Washington, D.C. office at (202) 624-5400.

State-Federal Relations Agriculture, Environment & Energy Committee

State-Federal Relations

Agriculture, Environment & Energy Committee