Agricultural Law Letter - January-February 1998

MARCH-APRIL 1998

The Impact of a Tobacco
Settlement on Farmers
by Richard Pasco

Although the tobacco companies have walked away from a settlement deal with Congress as of the writing of this article, the tobacco debate is far from over. Congress may enact tobacco legislation with or without the tobacco industry's full assent. The revenues from a tobacco bill are vital to funding both parties’ legislative agenda. Any major new initiative this year or next will need the revenue generated from a tobacco settlement. Too much money and too many concerns are left on the table for Congress not to work something out on tobacco.
Lead by Chairman John McCain, the Senate Commerce Committee reported out comprehensive tobacco legislation (S. 1415, the “National Tobacco Policy and Youth Smoking Reduction Act”) on April 1. This bill would raise cigarette prices $1.10 a pack over five years, while denying the tobacco companies the degree of protection from lawsuits that it sought in the original $368.5 billion deal brokered last summer.
The Senate Commerce Committee approved bill should serve as the chief vehicle for an agreement on tobacco and the ultimate passage of a complex tobacco bill that expands Food and Drug Administration regulatory authority, grants new funds to states, limits the liability of the tobacco industry, funds programs for children, places limits on advertising, and provides relief for tobacco farmers. However, the McCain proposal steers clear of how tobacco industry payments of $516 billion over 25 years (as prescribed by the bill) would be used to fund a plethora of pet legislative initiatives.
Just as members of Congress, tobacco farmers have been busy trying to extract as much as possible from any comprehensive settlement or legislation.
Title X of the Senate Commerce Committee bill addresses the needs of tobacco farmers and communities, and is referred to as the "Long-Term Economic Assistance for Farmers Act" or the "LEAF Act." In fact, S. 1415 incorporates many of the features of S. 1310, introduced by Sen. Wendell Ford on Oct. 23, 1997.
The Commerce Committee bill is expected to provide the chief vehicle for reform of the tobacco program in the Senate, with floor consideration of S. 1415 scheduled as soon as the week of May 18, but no later than June 1. Should the bill not be considered in this time frame, it will be difficult to enact a bill this year. However, a substitute bill may be offered by the Senate Republican leadership. The substitute could substantially change and downsize the Commerce Committee bill. Furthermore, the House has yet to stake out its course on tobacco legislation.
As for the farm assistance title of the tobacco legislation, the Republican leadership substitute could contain provisions that are similar to S. 1313, a bill introduced by Senate Agriculture Committee Chairman Richard Lugar on Oct. 24, 1997.
S.1313 terminates the tobacco quota system and provides buy out of the tobacco quota, with transition payments over three years. In contrast, S.1415 continues the quota system for non-flue-cured tobacco growers and provides an elaborate system of grants over a 25-year period, including grants to tobacco warehouse owners. Quotas for flue-cured tobacco growers are replaced with tobacco production permits.
If the Lugar bill is not included in the leadership substitute, it will likely be offered as a floor amendment. Chairman Lugar’s approach or other proposals could form the basis for enacting new agricultural provisions effecting tobacco farmers. This article examines the agricultural provisions of the Senate Commerce Committee bill and compares them to S. 1313.

Types of Tobacco & Income
The two major types of tobacco are burley and flue-cured. North Carolina is the largest producing state of flue-cured tobacco and Kentucky is the largest producer of burley tobacco. Burley tobacco production represents about 40% of all U.S. tobacco production. While 16 states produce tobacco, North Carolina and Kentucky combined, account for 65% of U.S. tobacco production.
In 1997, approximately 124,000 farms harvested 795,000 acres, yielding 1.646 billion pounds of tobacco. The farm value of the total 1997 tobacco crop is approximately $3 billion.
For the three-year, 1994-1996 period, the Congressional Research Service (CRS) determined the share of cash receipts from tobacco as a percentage of the U.S. total for the six substantial tobacco growing states as follows:

Background on Tobacco Policy
Since the early 1930's, most tobacco grown in the U.S. has been under a federal government program that limits production and guarantees a price that is significantly higher than any market price. A number of legislative changes have been made to the program, but the remaining constant has been the marketing quota, which limits tobacco production. To sell tobacco at the market and be eligible for price support, a tobacco farmer must have quota.
Nonrecourse price support loans are the other significant feature of the tobacco program in addition to marketing quota. The federal government makes loans to producer-owned cooperative associations which, in turn, make advance payments to growers for tobacco that does not sell for at least the established support rate.
The national marketing quota is the amount of tobacco judged sufficient to meet annual domestic and export demand, but at prices above the legally mandated 1998 support prices of $1.628 per pound for flue-cured and $1.778 per pound for burley. However, the Secretary of Agriculture administers this program so that the production of tobacco is held below demand. Thus, by restricting production, farm income is supported through artificially high market prices and buyers of tobacco, and ultimately consumers, bear the cost of the price support program.
Minimum selling prices are guaranteed to farmers through Commodity Credit Corporation (CCC) nonrecourse loans. At the auction sale barn, each lot of tobacco goes to the highest bidder, unless that bid does not exceed the government's loan price. If the bid is low, the farmer is paid the loan price by a price stabilization cooperative, with money borrowed as a nonrecourse loan from the CCC. This tobacco would be consigned to a cooperative, which redries, packs, and stores the tobacco as collateral for the borrowed money. The cooperative sells the tobacco, with the proceeds going to repay the CCC with interest. Thus, the loan program provides a financing mechanism to store tobacco for long periods of time as necessary to balance supply with demand.
High prices for tobacco have made tobacco quotas a valuable asset for the owners of land to which the quotas are assigned. Data from Kentucky put the average lease rate in 1996 at $0.40 cents per pound. When farms are sold, tobacco quotas have brought on average an additional $2.10 cents per pound above the price of land without any tobacco quota.

No-Net-Cost Program Assessments
Tobacco growers must contribute to a designated account to be eligible for program benefits. Since 1982, any losses of principal and interest must be recovered through assessments on farmers and tobacco buyers to ensure the operation of the tobacco price support program at no-net-cost to the taxpayer.
Congress instituted assessments for producer contributions and purchaser assessments for a no-net-cost tobacco fund and marketing assessments for a no-net-cost tobacco account to reimburse the CCC for any net losses sustained under loan agreements with marketing associations. The no-net-cost assessment of 1997 crops of tobacco were established at 0.24 cents per pound on burley tobacco and 0.379 cents per pound for flue-cured tobacco. Price supported tobaccos also are subject to budget deficit reduction marketing assessments (as a result of the Omnibus Reconciliation Act of 1990) equal to 1% of the national price support level, which generated about $28 million in revenue in fiscal year 1997. Producers and purchasers of tobacco share in this assessment equally, so each must pay a non-refundable marketing assessment of 0.5% of the national price support level to the CCC each year.

Tobacco Community Revitalization
Trust Fund
The Senate Commerce Committee bill establishes a "Tobacco Community Revitalization Trust Fund" in the U.S. Treasury. Each fiscal year, funds are to be appropriated and transferred to this trust fund from "amounts contributed by tobacco product manufacturers and tobacco product importers" and an amount allocated from the National Tobacco Settlement Trust Fund established by the national tobacco settlement legislation.
S. 1415 earmarks $28.5 billion over 25 years to the Community Revitalization Trust Fund from tobacco manufacturer and importers. These companies are to contribute to this trust fund on a market share basis, with contributions of $2.1 billion per year for the 10-year period from 1999-2008, and $500 million per year for the 15-year period from 2009-2023.
Such trust funds are to be available for making annual expenditures after October 1, 1998, for:

Payments for lost tobacco quota for each of fiscal years 1999 through 2023 (but not to exceed $1.65 billion annually for any fiscal year, unless additional monies are needed for acceleration of payments for lost tobacco quota);

Industry payments for all USDA costs associated with administration of the tobacco support program, including costs to the federal government of carrying out crop insurance programs for tobacco, and costs associated with agricultural research, extension, or education activities associated with tobacco;

Tobacco community economic development grants (but not to exceed $375 million for each of fiscal years 1999 through 2008, and $450 million for each of fiscal years 2009 through 2023);

Assistance provided under the tobacco worker transition program (but not to exceed $25 million for any fiscal year); and

Farmer opportunity grants under Subpart 9 of Part A of Title IV of the Higher Education Act of 1965 (but not to exceed $42.5 million for each of the academic years 1999/2000 through 2003/2005, and an amount increasing $7.5 million every five-year period to $72.5 million for academic years 2019/2000 through 2023/2024).

However, such trust funds are not to be used "in a manner that results in a decrease, or an increase relative to other crops, in the amount of the crop insurance premiums assessed to participating tobacco producers under the Federal Crop Insurance Act.”

Tobacco Farmer Compensation
S. 1415 provides payments to quota holders, quota lessees, and quota tenants for lost tobacco quota as a result of declines in the tobacco market. The legislation also recognizes that there are different marketing conditions regarding the two most prominent types of tobacco grown in the U.S. – flue-cured and burley. Hence, S. 1415 provides separate monetary payout and quota-buyout incentives for flue-cured and burley tobacco producers.
Reimbursements are to be made based on the average base quota for each tobacco producer. The Secretary of Agriculture determines the base quota level for the 1995 through 1997 marketing years for each quota holder, quota lessee, and quota tenant. For a quota holder, the base quota level is the average farm marketing quota established for the farm owned by the quota holder for the 1995 through 1997 marketing years.

Compensation Procedures
for Burley Tobacco
Beginning with the 1999 marketing year, the Secretary of Agriculture is required to make payments to eligible burley quota holders, burley quota lessees, and burley quota tenants as reimbursement for lost burley tobacco quota as a result of a decrease in demand for domestically produced burley tobacco.
To be eligible to receive payments under the Senate Commerce Committee bill, a burley quota grower must prepare and submit to the Secretary an application that demonstrates to the satisfaction of the Secretary for the 1997 marketing year, that the burley quota holder realized income from the production of tobacco through the active production of burley tobacco or other involvement in the farm, including the lease and transfer of burley tobacco quota to another farm or the hiring of a burley quota tenant to produce burley tobacco.
For burley quota holders, payments are to be based on the number of pounds by which the farm marketing quota is less than the 1995-1997 base quota level for the quota holder multiplied by $4 per pound. Payments for lost burley quota are subject to a lifetime limitation of $8 per pound.
Burley quota lessees are limited to compensation of 50% of the average number of pounds of burley tobacco quota established for the farm in the 1995-1997 marketing year, less 25% of this amount if a burley quota tenant was the principal producer of the burley tobacco quota. For burley quota tenants, the compensation is limited to 50% of the average number of pounds of burley tobacco quota for the 1995-1997 period, and 25% of this same amount if the quota tenant was the principal producer of burley tobacco on the farm and certain other situations.
Payments are to be accelerated any time the national marketing quota is below 50% of the national tobacco marketing quota for the 1998 marketing year for three consecutive years, or if Congress abolishes the tobacco support program.

Option to Relinquish
Burley Quota
Each burley quota holder is provided the option of relinquishing the farm marketing quota or farm acreage allotment for burley tobacco in exchange for annual payments for each of fiscal years 1999 through 2008. The total payment for burley quota holders exercising their options to relinquish quota is obtained by multiplying the base quota level for the burley quota by $8 per pound. However, the amount of payment to a burley quota holder for a marketing year is limited to 1/10 of the lifetime payment limitation of $8 per pound.
Notification to exercise the option to relinquish quota must be made by January 15, 1999. Quota holders who relinquish their quota are ineligible for any other payments for lost or relinquishing quota.

Reissuance of Burley Quota
If a burley quota holder exercised the option to relinquish a tobacco farm marketing quota or acreage allotment, a burley lessee or tenant that was the primary producer during the 1998 marketing year is given the option of having such quota reallocated to a farm owned by the burley quota lessee or tenant. However, the burley quota lessee or tenant will only have one year from the date on which a farm marketing quota or allotment is relinquished to exercise this option.

Flue-cured Tobacco Production Permits
S. 1415 amends the Agricultural Adjustment Act of 1938 to terminate farm marketing quotas for flue-cured tobacco. This means the legislation abolishes the quota system for flue-cured tobacco.
Upon termination of flue-cured marketing quotas, the Secretary of Agriculture is required to issue individual tobacco production permits to those persons who were the principal producers of flue-cured tobacco during the 1997 marketing year. However, even after elimination of the quota, the Secretary would continue to determine the national and individual production level.
All flue-cured quota owners, who are not actual producers, will be required to relinquish their quotas in exchange for a payment. The quotas are to be yielded by November 15, 1998. Relinquishing quota owners are to be paid annually 1/10 of a lifetime limitation of $8 per pound times their base quota level.
Thus, flue-cured tobacco growers are to receive payments of up to $8 per pound spread over the 10-year period from 1999 to 2008 in 10 equal installments. In determining the tobacco poundage, the Secretary will establish the production quantity eligible for payment for the 1995 through 1997 marketing years.

Tobacco Community Economic
Development Block Grants
S. 1415 requires that block grants be made to tobacco-growing states to enable them "to carry out economic development initiatives in tobacco-growing communities." As previously mentioned, the block grants would begin at an amount up to $375 million per year in 1999 and rise to $450 million per year beginning in 2009. To be eligible for such block grants, states must prepare and submit an application containing a description of the activities the state will carry out using the funds received under the grant and a designation of an appropriate state agency to administer such funds.
The amount of the grant allotted to each state will be in the same ratio of the total farm income of the state derived from the production of tobacco during the 1996 through 1998 marketing years. Additionally, a state is only to assist a county that has in excess of $100,000 in income derived from the production of tobacco during one more of the 1995 through 1997 marketing years.
These grant funds must be used to carry out economic development activities, including:

Rural business enterprise activities described in the Consolidated Farm and Rural Development Act;

Down payment loan assistance programs that are similar to the program described in the Consolidated Farm and Rural Development Act;

Activities designed to help create farm and off-farm employment in rural areas;

Activities that expand existing infrastructure, facilities, and services;

Activities by agricultural organizations that provide assistance directly to participating producers to assist in developing other agricultural activities that supplement tobacco-producing activities;

Initiatives designed to create or expand locally owned value-added processing and marketing operations in tobacco-producing communities;

Technical assistance activities by persons to support farmer-owned enterprises, or agriculture-based rural development enterprises (not less than 4% of the amounts received by a state must be used to carry out technical assistance); and

Initiatives designed to compensate tobacco warehouse owners for lost revenues and assist the tobacco warehouse owners in establishing successful business enterprises (not less than 6% of the amount received by a state must be used for tobacco warehouse owner initiatives during years 1999 through 2008).

Using the 1994-1996 share of tobacco receipts, rather than the 1996-1998 basis, which is not yet available, the CRS determined that the six major tobacco states would receive the following funds in the form of rural community tobacco development grants over 25 years:

Tobacco Warehouse Owner Compensation
Under the Senate Commerce Committee bill, tobacco warehouse owners are to receive direct payments of not less than 80% of at least 6% of the total block grants to states, if there is "any decline in the annual volume of tobacco sales as compared to the volume of tobacco sales during the 1998 marketing year.” This means tobacco warehouse owners would be guaranteed at least $18 million per year for each of the first 10 years 1999 through 2008, for a total of $180 million to offset any reductions in the volume of tobacco sales.
The CRS calculated the direct payment distribution to tobacco warehouses and determined that 126 warehouse owners would each receive on average at least $1,428,571 over a 10-year period. In fact, in some states the compensation would be higher. For example, the four warehouse owners in Georgia are projected to receive at least $2,825,836 a piece over 10 years.
These funds are to be used to “compensate tobacco warehouse owners for lost revenues and assist the tobacco warehouse owners in establishing successful business enterprises.” Such grants to a particular class of business appear to be unprecedented in agricultural legislation.
It also should be noted that this is the minimum amount of compensation that warehouse owners are eligible for – they can lobby for more than a 6% of the funds from the “Tobacco Community Revitalization Trust Fund” in years 1999 through 2008, and similar funding levels in years 2009 through 20023.

Compensation to Agriculture Organizations &
Value-Added Operations
In the same vein, agriculture organizations that provide assistance to tobacco producers in developing other agricultural activities, and new initiatives that are designed to create or expand locally owned value-added processing and marketing in tobacco communities, are eligible to receive about 20% of the block grants received by the states, pursuant to S. 1415. Thus, agriculture organizations, including North Carolina, Kentucky and other tobacco state livestock, poultry and other value-added commodity organizations and initiatives could be eligible for about $75 million per year for the first 10-year period beginning in 1999, and $90 million per year in the 15-year period beginning in 2009.

Tobacco Worker Transition Program
The Senate Commerce Committee bill further provides assistance under a tobacco worker transition program that is not to exceed $25 million per year. These funds are to come from the newly established Tobacco Community Revitalization Trust Fund.
A group of workers, including workers involved in the manufacture, processing, or warehousing of tobacco or tobacco products, could petition for adjustment assistance. The Secretary of Labor is required to certify such groups if it is determined that a significant number or proportion of the workers "have become totally or partially separated, or are threatened to become totally separated" from a firm, and "the implementation of the national tobacco settlement contributed importantly to the workers' separation or threat of separation..." and to a decline in sales or production of the firm.
The adjustment assistance includes employment services, training (total training expenditures are not to exceed $12.5 million in any year), tobacco worker readjustment allowances (where "it is not feasible or appropriate to approve a training program for a worker"), job search allowances, and relocation allowances. However, none of these readjustment benefits or services are available to any individual who has received payments for lost tobacco quota. Higher Education Opportunity Grants to Farm Families
S. 1415 provides farmer opportunity grants under the Higher Education Act of 1965. Such educational grants are to be used to assist tobacco producers and their relatives in obtaining undergraduate degrees. These grants begin at an amount not to exceed $42.5 million for the first year and rise to $72.5 million over the last five years of the 25-year program. This bill provides a total of up to $1.4375 billion in higher education grants over 25 years.
The amount of individual grants would be $1,700 per year for a five-year period beginning in academic year 1999/2000, $2,000 per year beginning in academic year 2004/2005, $2,300 per year beginning in year 2009/2010, $2,600 per year beginning in year 2014/2015, and $2,900 per year beginning in year 2019/2020. If an individual attends an institution of higher education on less than a half-time basis during any academic year, the amount of the grant for which the individual is eligible is reduced by an amount to be established by regulation.
An individual may receive such grants as long as required for the completion of the first undergraduate degree. To be eligible for such education grants, the individual must be a member of a "tobacco farm family." These families include the tobacco producer, spouses, sons, daughters, stepsons, stepdaughters; and any brothers, sisters, stepbrothers, stepsisters, son-in-laws, or daughter-in-laws living with the tobacco producer; and any other dependents of tobacco producers.
Although no education grants may be awarded to any individual who is incarcerated in any federal, state, or local penal institution, an individual can study abroad if approved for credit by the eligible institution at which the individual is enrolled. The individual must maintain satisfactory progress in school, which means the individual is required to have "at least a cumulative C average or its equivalent, or academic standing consistent with the requirements for graduation, as determined by the institution, at the end of the second such academic year.”

General Immunity For Tobacco Producers
and Warehouse Owners
The Senate Commerce Committee bill provides general immunity to "a participating tobacco producer, tobacco-related growers association, or tobacco warehouse owner or employee." Tobacco producers and warehouse-owners are explicitly exempt from liability in any federal or state court "for any cause of action resulting from the failure of any tobacco product manufacturer, distributor, or retailer to comply with the national tobacco settlement legislation." Other Modifications to the Federal Tobacco Program
S. 1415 also contains technical changes to the tobacco quota program. In cases where tobacco marketing quotas are still in effect after enactment of the bill, USDA is required to conduct a statewide referendum on any proposal related to the lease and transfer of tobacco within a state, upon the receipt of a petition from more than 5% of the producers of that kind of tobacco in a state. If a majority of the state’s producers of that type of tobacco approve a proposal in a referendum, USDA must implement any such quota transfers and leases in the state.
Additionally, the legislation changes the penalties that are to be assessed to tobacco companies for failure to meet quota purchase agreements. The penalty is changed to 105% of the average market price for the type of tobacco involved during the preceding marketing year.

Conclusion
Tobacco farmers will have to carefully look at their options and determine which approach for using tobacco settlement funds makes the most sense. Chairman Lugar’s proposal provides a one-time direct payment of $12.6 billion to tobacco farmers for a buyout of the tobacco quota, and transition payments of $1.1 billion over three years for those who continue production. Should tobacco farmer take the money up front as proposed by Chairman Lugar or should they wait for various promised benefits spread over a 25-year period as proposed in the Senate Commerce Committee bill? This is especially risky since delivery of such future benefits may never materialize as budgets get tighter and the necessary funds are simply no longer available as future Congresses tend to be less sympathetic to tobacco farmers.
It is unlikely that whatever tobacco bill Congress passes this year or next will be the final legislation on this issue, as anti-tobacco advocates continue to be dissatisfied and mount further attacks on the tobacco industry. It also should be recognized that non-tobacco interests in tobacco growing communities could organize just like the tobacco warehouse owners to get a piece of the action that could go directly to tobacco farmers.

Richard Pasco is an attorney in the firm specializing in legislative, environmental, agricultural, food safety and trade law.

Agriculture Loses a Little Giant
by Michael McLeod

With the passing of Horace Godfrey on April 5, agriculture lost one of its truly legendary figures. In recent years, Horace was known as an outstanding sugar lobbyist. Certainly, he deserved the accolades of his former clients, the sugar producers, because he succeeded in resurrecting and maintaining a program for them which has made the industry very profitable. That the program still survives today is a tribute to Horace's foresight and skill as an agricultural lobbyist.
However, to merely describe Horace as a sugar lobbyist does not do justice to his long-standing commitment and service to the nation and its agricultural economy. I can recall as if it were yesterday Senator Talmadge, my employer at the time, introducing me to a dapper little man with a twinkle in his eye. "Mike, I want you to meet Horace Godfrey," said Talmadge. "He knows more about agriculture than any man in Washington."
In my formative years as a legislative assistant, committee staffer, and Staff Director and General Counsel of the Senate Agriculture Committee, I had occasion to rely on Horace's knowledge and understanding of both the politics and the policy of our farm programs many times. Although he represented the sugar industry, he was always free to provide advice, counsel and expertise on any other commodity, even though he might have no financial connection with it. It was his special knowledge and willingness to help on matters in which he did not have a financial interest which set Horace apart from other agricultural lobbyists.
When Horace began his agricultural consulting firm in 1969, he had already had a very distinguished career in government. He began his career in agriculture as a college student working part-time as an employee of the U.S. Department of Agriculture in 1934. In 1949, he became executive director of the North Carolina Agricultural Stabilization and Conservation state office of USDA. In that position, he was responsible for the operation of federal farm programs in North Carolina. With the election of President Kennedy, he became National Administrator, Agricultural Stabilization and Conservation Service, in USDA. In that capacity, he had the responsibility of administering all federal farm programs. Horace served in that position till the end of the Johnson administration in 1968.
Throughout Horace's career, he always found time to be very active in the community in which he lived, whether it was North Carolina or Northern Virginia. He contributed much to his local communities as well as to his state and nation. He remained an active member and patron of the Calvary United Methodist Church until his death.
During Horace's long career, he received much recognition of his contributions. In 1995, he was named by the Raleigh News and Observer as "Tarheel of the Week." He received several civil service awards for distinguished service during his government career. In 1988, he was honored by the establishment of two Caldwell scholarships at North Carolina State University in his name. He was chosen as one of the 100 most influential people in private Washington by the Washingtonian Magazine in 1988, and by Regardie's in 1990. In 1989, he was chosen by his peers in the sugar industry as "Sugar Man of the Year - 1989."
However, it was in his private role as a skilled behind-the-scenes operative that Horace excelled. He served as an valued confidant to several Secretaries of Agriculture, both during his public service and in subsequent years. His support helped position Sec. Bob Bergland to be selected Secretary.
Horace was born in Waxhaw, North Carolina. He is survived by his wife, Clara Isles Harris Godfrey, a native of Halifax County, North Carolina, and seven children: Doug, David, Gloria, Candice, Rita, Miriam, and Bill; and eleven grandchildren.
Horace will be missed and remembered fondly by a much wider circle of people–all of those that were favored to make his acquaintance and to count him as a friend for the many years of his public and private service.

Mr. McLeod is a partner in the firm and practices agricultural and agribusiness law. He is a former General Counsel and Staff Director for the Senate Agriculture Committee.

The Senate Votes to Use
Agricultural Funds for Highways
by Stephen Frerichs

The Senate passed by a vote of 57 to 41 its budget resolution, the first balanced budget in 30 years. This historic event includes a mixed bag of news for agriculture.
The budget resolution is less than substantive law, but is more than the usual "Sense of Congress Resolution." It does not require the President’s signature because it does not become law. Once a budget resolution conference is completed and passed, it becomes a fiscal blueprint for Congress. It is enforceable on Congress only. Substantive changes to law that are inconsistent with the budget resolution are subject to points of order. In some years the budget resolution sets the stage for a budget reconciliation bill, although no reconciliation bill is expected this year.
The resolution itself is usually predominately a set of numbers at the "macro" level. Line-item or detailed programmatic changes are generally not in the resolution, however, the budget committee staff often make assumptions about specific program changes to demonstrate that the macro numbers are attainable. These assumptions can be found in the report language.
The Senate passed budget resolution assumes an increase in discretionary spending for function 350 (agriculture) above the Balanced Budget Agreement of roughly $100 million in budget authority and $200 million in outlays. According to the budget committee, this assumption is slightly higher than the President’s request. This is the good news.
The bad news is that the Senate budget assumes a decrease of $107 million in budget authority and outlays in 1999 from function 350 agriculture mandatory accounts and a reduction of $603 million in budget authority and $598 in outlays over the 1999 to 2003 period. These cuts are assumed to help pay for the increase in highway spending, which is part of the Senate budget. According to the budget report, elimination of the Market Access Program and reductions in the Commodity Credit Corporation automated data processing funds are assumed to achieve the bulk of these reductions. Although not in the report, budget committee staff assumed that elimination of crop insurance for tobacco would achieve the remaining savings necessary to meet the function 350 budget cuts. While these specific programmatic cuts in agricultural spending are technically not required, the dollar amounts of savings from agriculture will be required if the conference agreement contains these reductions.
The Senate budget also impacts agriculture spending in one other manner. It assumes that the cuts in food stamp administrative payments, currently part of Research Reauthorization Act (Conference Report 105-492), would be used to pay for the increase in highway spending. The research bill would spend the food stamp savings for increased agricultural research, crop insurance and expanded food stamp eligibility for legal aliens.
The Senate recently passed the Research Authorization Act by a vote of 92 to 8. As of the writing of this article, the House has not scheduled a vote on the research conference report, nor has the House Budget Committee reported its budget resolution. While the tardiness of the House Budget Committee is not without precedent, it is unusual. Without a conference budget resolution, spending allocations for the Appropriations Committee are not set. Normally, appropriation subcommittees begin to mark-up in June. So the delay in establishing a budget resolution may trigger a delay in the appropriations process.

Stephen Frerichs is an economist specializing in budgetary issues that relate t agricultural programs. Before coming to McLeod, Watkinson & Miller, he was a budget analyst at the Office of Management and Budget for eight years.

The Agricultural Law Letter is published to highlight recent changes and developments in the law and public policy. As with any publication of this type, it is essential that before any action is taken based upon this information, competent, individualized, and professional advice should be obtained. Copyright 1997 by McLeod, Watkinson & Miller. Reproduction in part or in whole is permitted with permission from McLeod, Watkinson & Miller. Contact Suzanne Bucciarelli at (202) 842-2345, or write to One Massachusetts Avenue, NW, Suite 800, Washington, D.C. 20001. Subscriptions to the newsletter are $25 per year.