Order Code RS22086
Updated May 4, 2005
CRS Report for Congress
Received through the CRS Web
Agriculture and
FY2006 Budget Reconciliation
Ralph M. Chite
Specialist in Agricultural Policy
Resources, Science, and Industry Division
Summary
On April 29, 2005, Congress completed action on the FY2006 budget resolution
(H.Con.Res. 95, H.Rept. 109-62). This measure contains reconciliation instructions
that require authorizing committees to report legislation to reduce spending on
mandatory programs within each committee’s jurisdiction. To reduce spending in
mandatory U.S. Department of Agriculture (USDA) programs, conferees instructed the
House and Senate Agriculture Committees to reduce mandatory spending by $173
million in FY2006 and $3.0 billion over five years (FY2006-FY2010). The Bush
Administration earlier proposed changes to several mandatory USDA programs, which
it said would save $5.7 billion over five years (and which the Congressional Budget
Office (CBO) subsequently scored at $9.4 billion in reductions). The agriculture
committees must determine how to divide the cuts among the various programs under
their jurisdiction by September 16, 2005. This report will be updated.
What Is Budget Reconciliation?
The annual congressional budget resolution provides a blueprint for all federal
revenues and spending over a multi-year period. Although it does not require the
President’s approval, the budget resolution does establish limits for all discretionary and
mandatory spending for the coming fiscal year. Once approved, the discretionary
spending total is allocated to the appropriations committees, where it is subdivided among
their various subcommittees. The resolution also might require reductions in mandatory
spending, particularly in years when the federal deficit is expected to be large. When this
occurs, the resolution issues reconciliation instructions to various authorizing committees
requiring them to report changes to legislation to reduce spending on mandatory programs
under the committees’ jurisdiction. The reported language from each committee is then
sent to its respective budget committee by a date specified in the resolution, where it is
packaged with language from other committees into an omnibus reconciliation bill, which
is taken to each chamber’s floor for consideration. Each chamber’s approved
reconciliation bill is then sent to a conference committee, and a final conference measure
must be approved by both chambers and signed by the President before it becomes law.
Congressional Research Service { The Library of Congress

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(For more on budget reconciliation procedure, see CRS Report 98-814, Budget
Reconciliation Legislation: Development and Consideration, and CRS Report RL30458,
The Budget Reconciliation Process: Timing of Legislative Action.)
USDA Mandatory Spending Defined
Approximately three-fourths of total spending within USDA is classified as
mandatory, which by definition occurs outside the control of the annual appropriations
process. Currently accounting for the vast majority of USDA mandatory spending are the
farm commodity price and income support programs, the food stamp program and most
child nutrition programs, the federal crop insurance program, and various agricultural
conservation and trade programs. Legislative authority for these programs is under the
jurisdiction of the House and Senate Agriculture Committees.1 Hence, any reconciliation
instructions that are delivered to the agriculture committees could potentially impact
spending for any or all of these programs.
All of the farm commodity support programs and mandatory conservation and trade
programs are funded through the borrowing authority of USDA’s Commodity Credit
Corporation (CCC), not by an appropriation to the programs.2 The CCC has a $30 billion
line of credit with the U.S. Treasury that it taps to provide the annual required funding of
these programs, as well as for other purposes. Because the CCC typically spends more
than it takes in, its losses must be replenished annually through a congressional
appropriation so that its $30 billion borrowing authority is not depleted. Administration
and congressional budget forecasters estimate each year the projected cost of the
commodity support programs. However, because farm crop prices are highly variable and
difficult to estimate, these programs ultimately receive “such sums as necessary” under
their farm bill authorization, regardless of budget estimates.
The mandatory conservation programs for the most part have a fixed authorization
level each year (stated either in dollars or enrolled acreage) as mandated by the 2002 farm
bill, with funding from the CCC, not from an appropriation. Like the commodity support
programs, crop insurance also receives such sums as necessary regardless of budget
estimates. Its funding comes through an indefinite appropriation to the Federal Crop
Insurance Fund, a fund separate from the CCC. The mandatory USDA food and nutrition
programs (food stamps and child nutrition programs) receive an annual appropriation, but
funding levels ultimately are determined by the eligibility rules established in current food
and nutrition laws.
1 The one exception is the child nutrition programs, which are under the jurisdiction of the
Committee on Education and the Workforce in the House, and the Agriculture Committee in the
Senate.
2 The major mandatory farm commodity price and income support programs include those for
wheat, feed grains, oilseeds, cotton, rice, peanuts, sugar, and dairy. The largest mandatory
conservation programs include the Conservation Reserve Program, the Environmental Quality
Incentives Program, the Conservation Security Program, and the Wetlands Reserve Program.

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CBO’s Baseline Budget for USDA
Each year, the Congressional Budget Office issues a baseline budget for all federal
spending under current law over a 10-year period. Projected spending in the baseline
budget represents CBO’s estimate at a particular point in time of what federal spending
and revenues will likely be under current law if no policy changes were made over the
projected period. The CBO baseline serves as a benchmark or starting point for future
budget analyses. For example, whenever any new legislation is introduced that affects
federal mandatory spending, its impact is measured by CBO as a difference from the
baseline.
Table 1 below represents CBO’s most recent baseline (March 2005) estimate for the
major mandatory USDA programs. It represents CBO’s estimates under current law
(e.g., the 2002 farm bill for the commodity support and conservation programs) given
current CBO projections for economic and market conditions for the next five years.
Budget reconciliation instructions that are given to the agriculture committees are
measured against the CBO baseline. This means that any legislation that the committees
are required to report will be scored by CBO against the baseline to determine whether
the committee is in compliance with the reconciliation instructions.
Table 1. CBO’s March 2005 Baseline Budget Estimates
for Selected Mandatory USDA Programs
($ million)
5-Yr. Total
FY2006
FY2007
FY2008
FY2009
FY2010
FY2006-
FY2010
Farm Commodity
18,099
15,765
13,826
14,059
13,733
75,482
Support
Export Programs
230
264
266
300
325
1,385
Conservation
4,343
4,620
4,591
5,344
5,167
24,065
Crop Insurance
3,702
3,839
3,918
3,986
4,066
19,511
Food Stamps
33,445
33,035
33,287
33,911
34,673
168,351
Child Nutrition
12,577
13,140
13,734
14,336
15,036
68,823
Source: Congressional Budget Office.
FY2006 Congressional Reconciliation Action
The House and the Senate approved the conference report (H.Rept. 109-62) on the
FY2006 budget resolution (H.Con.Res. 95) on April 28 and April 29, 2005, respectively.
The approved resolution contains reconciliation instructions that now require the House
and Senate Agriculture Committees to report legislation reducing spending on mandatory
USDA programs by $173 million over a one-year period (FY2006) and by $3.0 billion
over a five-year period (FY2006-FY2010). The resolution does not mandate how the
agriculture committees are to achieve the required spending reductions; instead, those
decisions are left to the committees. It does require that each committee submit its

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recommendations to its respective budget committee no later than September 16, 2005,
to be included in the reconciliation measure that each chamber subsequently considers.
The spending reduction instructions to the agriculture committees found in the final
budget resolution are much closer to the Senate-passed levels than to those approved by
the House (see Table 2). The House on March 17, 2005, passed H.Con.Res. 95, requiring
the House Agriculture Committee to reduce spending on programs under its jurisdiction
by $797 million in FY2006, and $5.278 billion over five years (FY2006-FY2010). The
Senate on April 4, 2005, approved its resolution (S.Con.Res. 18) to require the Senate
Agriculture Committee to reduce mandatory USDA spending by a lesser amount: $171
million in FY2006 and $2.814 billion over the same five-year period. S.Con.Res. 18
contained a non-binding sense of the Senate amendment (Section 509) stating that any
mandatory agricultural savings should be achieved primarily through reductions in farm
commodity program payment limits. The committee adopted this provision on a 15-7
vote during markup on March 10; however, conferees dropped the provision from the
final agreement. (For more on payment limits, see CRS Report RS21493, Payment Limits
for Farm Commodity Programs: Issues and Proposals).
When the Senate resolution was debated on the floor, an amendment offered by farm
state Democratic Senators on March 17 to delete the agriculture reconciliation instructions
was defeated by a 46-54 vote. The approved reconciliation instructions in the conference
agreement are below the level of cuts requested by the Bush Administration for
mandatory USDA spending — $1.258 billion in FY2006 and $5.708 billion over five
years, as estimated by the Administration. (See “Administration Proposals,” below, for
more information.)
Table 2. FY2006 Budget Resolution Reconciliation Instructions to
Agriculture Committees
($ million)
FY2006
FY2006-FY2010
(1-yr.)
(5-yr.)
Reduction
Reduction
House-Passed Budget Resolution
797
5,278
Senate-Passed Budget Resolution
171
2,814
Final Conference Agreement
173
3,000
Administration Proposals for
FY2006 Agriculture Reconciliation
On February 7, 2005, the Bush Administration released its budget request for
FY2006, which contained numerous government-wide proposals for reducing mandatory
agricultural spending over a multi-year period. With respect to USDA mandatory
spending, these proposals would affect spending on the farm commodity price and income
support programs, and crop insurance and food stamps, and would require legislation to
make these changes.

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Among the Administration’s proposals affecting USDA programs are (1) a 5%
across-the-board cut in all payments received by farmers under the commodity support
programs; (2) a tightening of payment limits for these programs from the current level of
$360,000 per person to $250,000, which would also apply to certain benefits not included
under the current payment limit; (3) a requirement that certain commodity payments be
based on historical crop production rather than current production; (4) an assessment that
would be paid by sugar processors on all marketed sugar; (5) greater flexibility for USDA
to adjust government purchase prices for surplus dairy products, in order to minimize
government costs of the dairy price support program; (6) a reduction in subsidies to the
federal crop insurance program; and (7) the termination of a practice under which some
households with relatively high income/assets can qualify for food assistance because they
receive other public assistance.
According to Administration estimates, these proposals in total (if enacted) would
reduce baseline spending for mandatory USDA programs by $1.26 billion in FY2006, and
$5.7 billion over five years (FY2006-FY2010). The Administration also recommends a
two-year legislative extension of the Milk Income Loss Contract (MILC) program, which
would cost an estimated $1.2 billion and would reduce the total five-year savings from
$5.7 billion to $4.5 billion, according to Administration estimates. The Congressional
Budget Office independently estimated the Administration’s request for USDA mandatory
program reductions at $9.4 billion over five years, before taking into account the proposed
extension of the MILC program, which according to CBO estimates would reduce the net
savings to $8.1 billion over five years. The CBO estimate does not include an estimate
of the payment limit proposal.
For more on the Administration’s FY2006 budget request, see CRS Report
RS22071, The FY2006 Budget Request for the U.S. Department of Agriculture (USDA).
Issues for Congress
Now that Congress has approved a budget resolution specifying by how much
spending must be cut for programs under the jurisdiction of the agriculture committees,
attention now turns to what programs and in what form these cuts should be made.
Agriculture committee leaders in both chambers have stated that all relevant program
areas will be considered. Farm groups have been stating that farm commodity support
programs have already contributed their share to deficit reduction since the enactment of
the 2002 farm bill. They contend that actual spending for farm commodity support the
last three years has been some $15 billion below the CBO estimate for farm support
program spending at the time of enactment, and that this should be captured as savings
and credited as their contribution to reducing the deficit. However, budget rules do not
recognize this as savings, in the same way they do not hold the programs accountable
when actual spending is above budget estimates. Supporters of the programs further
argue that the 2002 farm bill should not be reopened, and that program authority should
be left intact until 2007, when the current farm bill expires.
The Administration proposal to achieve savings through the reduction in farm
program payment limits has generated significant debate, with the strongest opposition
emanating from cotton and rice growers in the South, who receive the largest average
payments under the programs, but have the largest production costs. The committees also
will be faced with the question of whether to reauthorize the Milk Income Loss Contract

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(MILC) program, which provides direct payments to dairy farmers when farm milk prices
are low. The MILC program, which expires September 30, 2005, is supported primarily
by small dairy producers. However, a proposed two-year reauthorization would cost an
estimated $1.3 billion, which would have to be offset by other spending reductions.
Extending the MILC program at a time when other commodity payment programs are
reduced has become a source of controversy. (For more on these issues, see CRS Report
RS21493, Payment Limits for Farm Commodity Programs: Issues and Proposals; and
CRS Issue Brief IB97011, Dairy Policy Issues.)

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