Order Code RS22086
Updated November 1, 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
The FY2006 budget resolution (H.Con.Res. 95, H.Rept. 109-62) contains
reconciliation instructions that require authorizing committees to report legislation to
reduce spending on mandatory programs within each committee’s jurisdiction. The
resolution instructed the House and Senate Agriculture Committees to report legislation
reducing spending on USDA mandatory programs by $173 million in FY2006 and $3.0
billion over five years (FY2006-FY2010). The House and Senate Agriculture
Committees have completed action on their recommendations ($3.7 billion in the House
and $3.0 billion in the Senate). The two measures would reduce spending on farm
commodity and conservation programs in varying ways. The House measure also
eliminates funding for various rural development programs and reduces food stamp
spending. The Senate extends authority for a dairy income support program, which
would require an offset of its projected cost. Reconciliation floor action is expected in
November. 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
Congressional Research Service { The Library of Congress

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must be approved by both chambers and signed by the President before it becomes law.
(For more on budget reconciliation procedure, see CRS Report 98-814, Budget
Reconciliation Legislation: Development and Consideration, by Bill Heniff, Jr., and CRS
Report RL30458, The Budget Reconciliation Process: Timing of Legislative Action, by
Robert Keith.)
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-Year
total
FY2006-
FY2006
FY2007
FY2008
FY2009
FY2010
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 Budget Resolution Reconciliation Instructions
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 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

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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 did require that each committee submit its
recommendations to its respective budget committee no later than September 16, 2005,
to be included in the reconciliation measure that each chamber subsequently considers.
However, with congressional attention focused on Hurricane Katrina relief and recovery
in September, committee reconciliation action was postponed until October.
Administration Proposals
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.
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. 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), by Jim Monke.
House and Senate Agriculture Committee Reconciliation Action
The House and Senate Agriculture Committees have approved separate versions of
budget reconciliation legislation to reduce mandatory USDA spending over five years.
The Senate committee version, approved October 19, 2005, contains a CBO-estimated net
reduction of $3 billion over five years; the House committee version, approved October
28, provides estimated cuts of $3.7 billion over the same timeframe. The FY2006 budget
resolution gave both agriculture committees instructions to cut spending under their
jurisdiction by $3 billion. However, House leadership subsequently instructed all of the
authorizing committees to cut additional spending in order to offset some of the cost of

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hurricane assistance. The recommendations made by the agriculture committees are
reported to their respective budget committees, where they are consolidated with other
committee recommendations into an omnibus reconciliation bill (S. 1932 in the Senate,
pending in the House). Floor action is expected in November.
Both committee versions make net reductions in farm commodity support programs
($1.0 billion in the House and $1.7 billion in the Senate), which differ in how these targets
would be reached. Both make across-the-board reductions in commodity payments — the
Senate measure reduces all farm program payments by 2.5%, the House reduces only
direct payments by 1%. In both measures, the upland cotton step-2 program would be
eliminated effective August 1, 2006, in response to Brazil’s successful challenge of the
program in the World Trade Organization (WTO). Both measures also contain provisions
that change the timing of commodity support payments without reducing the overall
payment. Only the Senate measure contains a two-year extension of the Milk Income Loss
Contract (MILC) program, which expired September 30, 2005. The Senate measure also
provides a four-year extension of the commodity support programs (to 2011) in order to
preserve baseline spending beyond 2010 at the higher pre-reconciliation level of spending.
Both measures reduce authorized spending for various mandatory conservation
programs ($760 million in the House and $1.054 billion in the Senate), with the
Conservation Security Program receiving the largest reduction. Both also reduce spending
on a mandatory research program in varying degrees. The House committee measure
eliminates all funding for several mandatory rural development programs and also reduces
food stamp spending by $844 million over five years.
(See Table 2 on the next page for a detailed comparison of the two committee
measures.)
Issues for Congress
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. An amendment to
reduce payment limits might be offered to the reconciliation bill on the Senate floor.
Policymakers also will be faced with the question of whether to reauthorize the Milk
Income Loss Contract (MILC) program, which provides direct payments to dairy farmers
when farm milk prices are low. The MILC program, which expired September 30, 2005,
is supported primarily by small dairy producers. However, a proposed two-year
reauthorization would have to be offset by other spending reductions. Extending the
MILC program at a time when other commodity payment programs are reduced has been
a source of controversy. (For more on these issues, see CRS Report RS21493, Payment
Limits for Farm Commodity Programs: Issues and Proposals, by Jim Monke; and CRS
Issue Brief IB97011, Dairy Policy Issues, by Ralph Chite.)

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Table 2. Comparison of House and Senate Agriculture Committee
Reconciliation Provisions
Congressional Budget Office (CBO) Estimate of 5-year Savings (-) or Costs (+), million $
House
Senate
Farm Commodity Support Programs
Reduce farm commodity program payments (Senate: cut all payments by 2.5%,
-$238 - $1,296
2006-2010 crops; House: cut direct payments by 1%. 2006-2009 crops)
Penalty of 1.2% of loan rate for nonrecourse sugar loan forfeitures (Senate)
- $65
Eliminate the upland cotton Step-2 program on Aug. 1, 2006 (House & Senate)
-$282
- $282
Reduce advanced direct payments (House: from 50% to 40% in crop years 2006 and
-$513 - $1,088
2007; Senate: 50% to 40% in 2006, to 29% in 2007-2011)
Gross Farm Commodity Program Reductions
-$1,033 -$2,731
Two-year extension of the MILC Program to Sept. 30, 2007 (Senate)
+ $998
Net Farm Commodity Program Reductions
-$1,033 -$1,733
Conservation Programs
Reduce authorized enrolled acreage in Conservation Reserve Program (Senate)
- $129
Limit spending for Environmental Qualities Incentive Program (Senate)
- $104
Limit authorized spending for Conservation Security Program (House & Senate)
-$478
- $821
Eliminate Agricultural Management Assistance funding in FY2007 (House)
-$31
Reduce Watershed Rehabilitation Program and prohibit carryover of funds (House)
-$225
Total: Conservation Program Reductions
-$734 -$1,054
Energy and Rural Development (RD) Programs
Eliminate funds for Renewable Energy & Energy Efficiency Program (House)
-$23
Eliminates all FY2007 funding, prohibits carryover of funds, and rescinds
unobligated funds as of 9/30/06 for the following RD programs:
Value-Added Agricultural Product Market Development Grants (House)
-$160
Rural Business Strategic Investment Grants (House)
-$100
Rural Business Investment Program (House)
-$89
Rural Firefighters and Emergency Personnel Grants (House)
-$50
Enhanced Access to Broadband Telecommunication in Rural Areas (House)
-$47
Total: Energy and Rural Development Program Reductions
-$469
$0
Research: Reduce funding for Initiative for Future Ag & Food Systems
-$620
- $227
(House and Senate)
Food Stamps
Limit categorical eligibility to recipients of TANF cash assistance, FY06-10 (House)
-$569
Increase waiting period for immigrants from 5 years to 7 years (House)
-$275
Total: Food Stamp Program Reductions
-$844
$0
Net Change in Mandatory Spending Outlays
-$3,700 - $3,014

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