March 21, 1978
Page 7785
Mr. MUSKIE. Mr. President, I note that for the first time today we have a good attendance on the floor. I really am inclined to conclude that there is no point in the chairman of the Senate Budget Committee spending a day on this floor to provide information on the budget and economic consequences of a bill like this; but I think I have some obligation to try for a few minutes. I doubt that it makes any difference. It seems to be the mood of the Senate to vote for anything that has the words "farm bill" in the title.
But last year there were 11 key issues on the floor of the Senate involving the question of whether or not the Senate would support the congressional budget resolution. The Budget Committee lost eight of those votes. Today, the Budget Committee has lost every vote that has been taken. In last year's vote of 11 votes, only 16 Senators voted for the budget most of the time.
I put the table in the RECORD this morning. I left out the names. It is my hope that not letting the other shoe drop might have some useful effect, but only 16 Senators last year voted to support the budget.
I wish to make a second point, and I made this point earlier when there were fewer Senators here.
We have examined some of the March 15 reports of committees. I gave Senators two totals they can digest.
The Appropriations Committee has recommended appropriations for fiscal year 1979 of $508 billion.
The Finance Committee has set revenues at $428 billion. All Senators can subtract as well as I.
Those two figures would mean a deficit in fiscal year 1979 of $80 billion, and that does not take into account the reports of other committees, many of which I know propose additional spending not reflected in those numbers.
And those numbers do not include the cost of this bill.
Now with respect to this bill, there is another point that to me is even more significant than the numbers we now have. I assume a substantial majority to support the Talmadge-Dole-McGovern bill. But nobody knows what the budgetary, inflationary, and economic consequences of that combination is.
This was put together at the last moment. The McGovern amendment did not even come to my attention until near midnight last night. We have an analytical arm in the Congressional Budget Office. It has not been able to give us the analysis which the budget process is supposed to give us so that we can vote intelligently. So we do not know. We have heard numbers. I have used the best I have got. We do not know what the budget cost for 1978-79 is.
The Dole amendment by itself was a $3 billion for 1978 and 1979. The McGovern bill by itself was a $1.9 billion for 1978-79, but you do not necessarily add those two numbers and be fair. Nobody knows.
As for the inflation effect, CBO has told us, because I pressed them to give us something today, that the inflation impact of Dole, McGovern, Talmadge is1 full percentage point added to the rate of inflation, because of the impact on carryover stocks, which are our protection for stable markets, which are our protection against bad crop years.
Excessive exports are going to be down from the 1 billion bushels of wheat that we had in 1972 to 600 million on feed grains. We are going to drop from the 2.1 billion bushels of feed grains that we had in 1972 to 300 million, and those numbers in 1972 were not sufficient to protect us against runaway prices when we had 2 poor crop years in the 2 years following.
Now all of this is imprecise information because we have not taken the time, and nobody on this floor was interested in taking the time to get a final and full analysis.
We had a prime example today of voting without knowing what we are voting for, and we think we are doing a favor for the agricultural sector of our economy. We may learn otherwise in a year or two.
I have seen too many examples of ad hoc pieces of legislation rushed through here under the pressure of emotion and urgency and emergency that later proved not only not to solve the problem that the sponsors urged, but to create the side effects that were worse than the original problems.
Well, I am not sure how long this budget process is going to survive, but I doubt if it can survive this kind of situation.
It is like the Bill of Rights. The Bill of Rights is tested by bad clients. It is the people who commit crimes who test the Bill of Rights.
Well, with respect to the budget it is not the good bills that test it usually. It is the tough choices that test it. As far as I can see over the last 2 years, when we came to the tough choices, the Senate backed down.
The PRESIDING OFFICER. Who yields time?
Mr. DOLE. Mr. President.
The PRESIDING OFFICER. The Senator from Kansas.
Mr. DOLE. Mr. President, may I take a minute to voice a vote of confidence for the so-called flexible parity concept.
I share some of the statements made by my distinguished colleague from Maine, the chairman of the Budget Committee, but I would again say that if we take the estimates of the CBO it is not a very rosy picture.
We checked some of their figures against present-day prices and I know there is the charge that now we have all three of these bills lumped together and I guess you add up the total cost of each and say that is going to be the cost of what—
Mr. MUSKIE. I said to the Senator we have not done that. I very carefully said a few moments ago I would not do that because I cannot do it.
Mr. DOLE. The Senator had a $3 billion figure for the Senator from Kansas.
Mr. MUSKIE. I said that I got that from the combination.
Mr. DOLE. I do not think the $3 billion figure applies to this Senator.
Mr. MUSKIE. The Senator has not used the same source as we rely on. He has made it clear that he prefers his own analysis.
I must rely on the CBO, which is our independent analytical arm created by the Congress for that purposes. The Senator would have us choose to go with our own computer rather than the CBO. That is another breakdown of the process.
Mr. DOLE. I do not suggest that at all. I would say to my distinguished chairman that it does seem to this Senator that if we are going to figure out costs for the flexible parity concept, we must take a realistic look at what the market prices are going to be when acreage is set aside. The market prices are going to go up.
Now when we talk about stable prices, you are talking about low prices and the farmers have had it bad enough. They would like to make a profit. They want to stay on the farms. They want to educate their children. They want to pay their bills.
We can talk all day long about justice and the CBO, but if we do not have a farmer left in this country the prices are going to go right out of this room for the American consumer, and I just suggest—
Mr. MUSKIE. Will the distinguished Senator yield?
Mr. DOLE. I will in a minute.
I just suggest — let us just take cotton. The CBO used the estimate of a market price of 46 cents a pound. The market price is 57 cents a pound. The target price is 60 cents a pound. So you make a bigger exposure for the Government if you use a lower market price.
I just think we have to be realistic. There is not a Senator in this Chamber who does not believe that if you set aside acreage, lower the production of a commodity, the market price is going to go up. That is the law of supply and demand.
But the Congressional Budget Office did not even assume that would happen, and I just suggest that we have a responsibility to take this into account.
We are not irresponsible because we happen to believe that what we are doing will not cost 1 cent. In fact, the chairman's bill, I think, will save about $90 million.
Mr. TALMADGE. $90 million?
Mr. DOLE. In the next 2 years, and I think the flexible parity concept offered by this Senator and many other Senators, Democrats and Republicans, will end up in saving the American taxpayers money.
Mr. McCLURE. Will the Senator from Kansas yield to the Senator from Idaho?
Mr. DOLE. I am happy to yield to the Senator from Maine and then to the Senator from Idaho.
Mr. MUSKIE. I have never been one to argue that budget processes do not work. If the budget process does not work, it means that Congress has lost the one institution it has created to set priorities, to assure stability of the economy to the best of our wisdom, and if it does not work, the loss will be not only mine and the Senator from Kansas, but the loss will be the farm population of this country, the consumer population of this country, the taxpayer population of this country.
Mr. President, I ask unanimous consent that the CBO estimate of the Dole bill be printed in the RECORD. It speaks for itself and it speaks very well.
There being no objection, the estimate was ordered to be printed in the RECORD, as follows:
CONGRESSIONAL BUDGET OFFICE,
Washington, D.C.,
March 19, 1978.
Hon. EDMUND S. MUSKIE,
Chairman, Committee on the Budget,
U.S. Senate,
Washington, D.C.
DEAR Mr. CHAIRMAN: In response to your request of March 16, enclosed is a copy of the Congressional Budget Office cost estimate of S. 2481, the Flexible Parity Act of 1978.
Also enclosed in response to your request is a CBO staff analysis of the estimated effects of both S. 2481 and H.R. 6782 on production, prices, exports and stocks by crop underlying our separate cost estimates of the two bills. This staff analysis also discusses the possible effects on these factors if both bills were enacted and implemented.
Additional information has been provided to the Committee staff concerning the details of the CBO cost estimates and staff analysis.
Sincerely,
JAMES BLUM,
(For Alice M. Rivlin, Director).
Enclosures.
CONGRESSIONAL BUDGET OFFICE,
Washington, D.C.,
March 19, 1978.
Hon. HERMAN E. TALMADGE,
Chairman, Committee on Agriculture, Nutrition, and Forestry,
U.S. Senate,
Washington, D.C.
DEAR MR. CHAIRMAN: Pursuant to Sections 403 and 308 of the Congressional Budget Act of 1974, the Congressional Budget Office has prepared the attached cost estimate for S. 2481, a bill to provide producers of wheat, feed grains, and upland cotton the opportunity to receive parity prices for their 1978 crops; to amend the Agricultural Trade Development and Assistance Act of 1954; and for other purposes.
Should the Committee so desire, we would be pleased to provide further details on the attached cost estimate.
Sincerely,
JAMES BLUM, (For Alice M. Rivlin, Director).
[From the Congressional Budget Office]
COST ESTIMATE, MARCH 19, 1978
1. Bill number: S. 2481.
2. Bill title: Flexible Parity Act of 1978.
3. Bill status: As ordered by the Senate Committee on Agriculture, Nutrition, and Forestry, March 15, 1978.
4. Bill purpose: S. 2481 provides for a variable parity program for the 1978 crops of wheat and corn. Producers may select one of seven set aside levels for wheat, or one of eight set aside levels for corn. Each set aside level corresponds to a specific target price. For cotton, one set aside choice would be available.
S. 2481 also increases the 1978 crop loan rates to $2.40 for corn and $2.85 for wheat. In addition, the release prices for the farmer-held grain reserves are to be based on parity prices rather than on loan rates.
S. 2481 also amends the Agricultural Trade Development and Assistance Act of 1954, as amended, as follows:
(1) Section 301 amends Title II of the Act to increase the minimum tonnage distribution in fiscal year 1978 by such tonnage of commodities as can be purchased by an additional expenditure of $250 million; and,
(2) Section 302 amends Title I of the Act to require the Secretary of Agriculture to provide financing of not less than $1,050 million for the purchase of U.S. agricultural commodities under agreements entered into during fiscal year 1978.
5. Cost estimate: The following table represents the estimated budget authority and outlays for direct spending programs in S. 2481:
6. Basis for estimate: This estimate assumes this legislation is enacted prior to April 15, 1978. The estimate is the change from the CBO current policy/current law base.
COMMODITY PROGRAMS
CBO's current policy projection of contract authority necessary for the Commodity Credit Corporation, is $1,104 million in fiscal year 1978. This amount will be new budget authority in fiscal year 1978. The decrease in outlays in fiscal year 1978 under the provisions of S. 2481, if enacted, would reduce estimated contract authority (new budget authority) to zero.
The variable parity program has not previously been implemented as a government support mechanism, so there is no historical basis for projecting producers' reactions. Because each farmer's situation and judgment are likely to differ, a uniform distribution of base acreage over each of the possible set aside categories was assumed for wheat and corn. For example, with eight set aside alternatives available for corn, one-eighth of CBO's estimated base acreage was allocated to each of the alternatives. This implies 100 percent participation in the set aside program, but at many different levels (in the case of cotton, 100 percent participation at the 20 percent level was assumed) . The average set aside on corn is about 32 percent, and the average set aside on wheat is about 35 percent.
CBO did not adjust its base acreage estimates for possible shifts among crops. Under these assumptions, wheat production would be reduced to 1.6 billion bushels from the current projection of 1.8 billion bushels. Corn production would be reduced from 6.2 billion bushels to 5.0 billion bushels, and cotton production from 13.4 million bales to 10.7 million bales.
However, the reduction in volumes produced would be partially offset by a lower volume of farmer-held reserves than is assumed in CBO's current projection. This occurs because of the change in the release price mechanism. Farmers are not likely to place additional grain in the reserve if the release prices are nearly double the current prices, and are likely to be continually rising as parity prices are adjusted. This could have the effect of taking the grain off the market indefinitely. The result is additional loan repayments on approximately 500 million bushels of corn and approximately 150 million bushels of wheat, part of which fall in fiscal year 1978 and part in fiscal year 1979.
The higher loan rates, which tend to push projected end-of-year prices upward, induce some additional repayments on existing loans. However, the higher loan rates induce increased gross lending on the 1978 crop.
With the uniform distribution assumption on set aside selection, the average target price for corn is estimated to be $2.76, and deficiency payments would average $0.36 per bushel, as opposed to the current projection of $0.10 per bushel. In addition, the assumption of a 100 percent participation rate doubles the volume of corn on which deficiency payments are made as compared to the current policy projection. These estimated increased payments would fall in fiscal year 1979.
For wheat, the average target price is estimated to be $3.85, resulting in deficiency payments averaging $1.00 per bushel (the current projection is $0.82). However, the volume on which deficiency payments are made would decrease from 1.6 to 1.5 million bushels. The resulting estimated increase of $542 million would fall in fiscal year 1979.
Cotton deficiency payments in fiscal year 1979 are estimated to increase by over $200 million. The deficiency payment is projected at $0.142 per pound, as opposed to a current projection of $0.08 per pound, but the increase is partially offset by the decrease in production.
Disaster payments in fiscal year 1979 would increase by an estimated $130 million as target prices increase.
In the fiscal years following 1979, market prices are assumed to decline from those in fiscal year 1978, but remain above currently projected levels. This results in a savings in net lending and deficiency payments as opposed to current policy projections.
AGRICULTURAL TRADE DEVELOPMENT AND ASSISTANCE ACT OF 1954 (P. L. 480) AMENDMENTS
Section 301 requires that in addition to the current law minimum distribution of 1.6 million metric tons, an additional $250 million worth of commodities must be distributed in fiscal year 1978. Transportation costs for the $250 million of additional commodities shipments would require $75 to $125 million depending on the mix of commodities shipped. The mix will determine unit acquisition costs, total tonnage and shipping costs per ton. If the entire $250 million worth of commodities were actually shipped, the increased costs in fiscal years 1978 and 1979 would be from $325 to $375 million. The lower end of the transportation cost range implies the same mix of commodities shipped under the $250 million increment as are currently being shipped. The CBO estimate assumes the current commodity shipping mix.
Section 203 of the Agricultural Trade Development and Assistance Act authorizes the Commodity Credit Corporation (CCC) to pay for the acquisition, processing, and transportation to designated ports of entry abroad of commodities distributed under Title II of the Act from its own resources. Section 403 of the Act authorizes the appropriation of such sums as may be necessary to carry out the purposes of the Act including such amounts as may be required to make payments to the Commodity Credit Corporation (CCC) for its actual costs incurred or to be incurred. Entering fiscal year 1978, the Title II program had available to it through appropriations Acts $648.8 million. If the full amount of commodities were purchased and shipped, the costs to the CCC would exceed this amount by $150 to $200 million. The President could cover this by requesting a supplemental appropriation for fiscal year 1978, or he could direct the Secretary of Agriculture to use the resources of the CCC to cover any obligations and seek an appropriation in fiscal year 1979 to reimburse the CCC.
The above cost stream assumes the President will seek a supplemental appropriation in 1978 for the full cost of commodities and transportation less the funds available to be carried forward into 1979. It also assumes a larger appropriation will be sought in fiscal year 1979 to cover the higher commodity prices from other provisions of the bill and the loss of funds carried forward.
Using the currently shipped mix of commodities, CBO assumes additional $250 million would purchase 1.1 million tons of commodities, or nearly a seventy percent increase to the current program. With half of the fiscal year passed, CBO assumes that both programing and shipping an increase of that magnitude in fiscal year 1978 is not possible. The above cost stream assumes the shipments will take place in fiscal years 1978 and 1979. However, completing all shipments could take more than two years if donees cannot be found for all the food that can be purchased with the $250 million. Section 302 of this bill directs the Secretary to donate not less than $1,050 million for the purchase of agricultural commodities under agreements entered into during fiscal year 1978 under Title I of the Act. Section 409 of P. L. 480 requires that new spending authority for Title I be limited to such amounts as are provided in appropriations acts. Entering fiscal year 1978, the President had $1.0 billion including receipts available for Title I. Shipments of $1,050 million plus transportation costs of $105 million in fiscal year 1978 would exceed this level by $155 million, and would require subsequent appropriations.
It is assumed, however, for purposes of this cost estimate that the President will negotiate and carry out agreements under Title I in conformance with the other provisions of the Act, including the requirement that the President shall take reasonable precautions to safeguard usual marketings of the United States, to assure that sales under this title will not unduly disrupt world prices of agricultural commodities or normal patterns of commercial trade with friendly countries, and to assure Title I sales do not displace any sales which would otherwise be made for cash dollars.
It is further assumed that in order for an agreement to be signed and commodity shipped in fiscal year 1978, the agreements must be under active consideration now. CBO estimates of the potential for new agreements over the Administration's current allocation range from $120 to $200 million. This estimate assumes the current allocation plus $120 of new agreements will be signed.
These new shipments are estimated to increase costs from the CBO current estimate by $216 million to $986 million. The CBO current estimate assumes that additional budget authority of $231 million is available in fiscal year 1978 for Title I purposes so that no new appropriations would be needed to cover the additional costs of Section 302.
Fiscal year 1979 costs are increased by higher commodity prices only. The CBO cost estimate assumes the level of commodity shipments is not affected by this legislation. The authorization level would be increased by the higher commodity prices and the smaller amount of funds carried forward from fiscal year 1978.
7. Estimate comparison.
Commodity programs: USDA has estimated the combined fiscal year 1978 and 1979 costs of this bill at $1.5 billion, about $0.8 billion lower than CBO's estimate. USDA estimates an increase of $2.8 billion in deficiency payments, as opposed to CBO's estimated increase of $2.4 billion. However, USDA estimates a decline in net lending of $1.3 billion, while CBO estimates a net decrease of only $0.1 billion.
USDA assumes some acreage shifts from soybeans to corn, and from oats, flax, and sunflowers to wheat and barley. USDA also assumes a low participation rate in the corn program. The average corn target is $3.17, (compared to CBO's $2.76) and the average wheat target is $4.29 (compared to CBO's $3.85). Estimates of market price do not differ substantially.
P. L. 480 amendments: None.
8. Previous CEO estimate: None.
STAFF ANALYSIS OF ESTIMATED EFFECTS OF
H.R. 6782 AND S. 2481
The enactment of one bill or the other is likely to have a different result than the enactment of both bills.
SINGLE BILL ENACTMENT
Production is projected to decrease under each bill, but would decrease less with H.R. 6782 than with S. 2481. The estimated decrease in production for feed grains is approximately 200 million bushels for H.R. 6782, compared to approximately 1.2 billion bushels for S. 2481. The decrease in wheat production is about the same for both bills, about 300 million bushels.
The estimates for harvested acreages of wheat under both H.R. 6782 and S. 2481 are roughly equivalent (4649 million acres). Feed grain acreage is estimated at about 8082 million for H.R. 6782, but only 7977 million for S. 2481. The feed grain acreage going out of production under H.R. 6782 is assumed to be composed largely of barley and grain sorghum, while the set aside acreage for S. 2481 will probably be drawn from corn.
The market prices projected for the 1978 crop year are likely to be higher under S. 2481 than under H.R. 6782 for wheat and corn. While both bills restrict production and tend to move market prices upward, S. 2481 also increases loan rates. The loan rate increase exerts an additional upward push on market prices. Projected 1978 crop year prices for corn are roughly $2.40 per bushel with S. 2481 and $2.10 per bushel for H.R. 6782, compared to the current policy projection of $2.00 per bushel. Projected 1978 crop year prices for wheat are $2.85 per bushel with S. 2481 and $2.65 per bushel with H.R. 6782, compared to the current policy projection of$2.49 per bushel.
The estimated direct effect of H.R. 6782 on consumer prices is an increase of .15 to .20 percent in 1979. The estimated direct effect of S. 2481 on 1979 consumer prices is a .35 to .50 percent increase. It is possible that further price increases in 1980 would occur as a result of secondary effects.
The variable parity option in S. 2481 is estimated to increase the average target price for corn to $2.76 per bushel and the average target price for wheat to $3.85 per bushel for the 1978 crops.
These increases, together with increased program participation, more than offset decreases in production volumes, and increase projected deficiency payments in fiscal year 1979 by $2.4 billion. With H. R 6782, targets are static, but market prices increase and volumes decline. The net effect is a decrease in projected deficiency payments of $800 million in fiscal year 1979.
The higher market prices generated by H.R. 6782 would result in a net lending decrease of roughly $600 million in fiscal year 1979. Under S. 2481, there is a probable decrease in net lending of $1.2 billion in fiscal year 1978, but an increase of $1.0 billion it fiscal year 1979. The 1978 decrease occurs because of the farmer-held reserve does not reach the volume projected under current policy, and because end-of-year market prices induce higher repayments. However in fiscal year 1979, the higher loan rate, together with declining end-of-year prices, increase net lending.
Exports of corn and wheat would be reduced minimally under H.R. 6782, less than one percent in fiscal year 1979. However with S. 2481 the export volume of corn is estimated to drop twelve percent in fiscal year 1979 and the export of wheat drops eleven percent.
Wheat stocks are estimated to drop by approximately 17 percent, and feed grains drop by about 5 percent by the end of marketing year 1978 under H.R. 6782. Wheat stocks under S. 2481 drop by about 33 percent and feed grains by about 47 percent by the end of marketing year 1978. With S. 2481, the wheat stocks in the farmer-held reserve are reduced by 50 percent and feed grain stocks in the farmer-held reserve are reduced by 91 percent over the volumes with current policy and H.R. 6782.
BOTH BILLS ENACTED
The legal implications of the enactment of both bills are not clear. The order of enactment, the timing, and the manner in which USDA chooses to administer the programs will also help determine the combined effects.
If both programs are fully implemented, and H.R. 6782 is administered so as to meet the acreage objectives in the bill, acreage and production would be reduced beyond that estimated for either bill alone. Using CBO's current assumptions on set aside participation with S. 2481, wheat production would be likely to be around 1.1 billion bushels. However, if all farmers chose both the 50 percent set aside under S. 2481, and an additional 15 million acres were bid out of production, production could be as low as 700 million bushels, slightly more than domestic consumption. With CEO's current assumptions on set aside participation for S. 2481, feed grain production would probably be about 4.1– 4.8 billion bushels, depending on the crops taken out for the additional set aside. However, with H.R. 6782 if all farmers were to choose both the 50 percent set aside, an additional 10 million acres were bid out of production, production could be as low as 3.0– 3.7 billion bushels. Stocks would be cut substantially in all cases.
With the enactment of both bills, there is clearly a possibility of greatly increased prices for wheat and feed grains. In addition, the risks associated with crop failure are magnified.
Government outlays for deficiency payments and net lending would be likely to. decrease in the face of much higher market prices. However, the amount required for set aside payments would increase.