Washington Insider - Monday

Doing Something About the Weather

Here's a quick monitor of Washington farm and trade policy issues from DTN's well-placed observer.

SNAP Error Rate at All-Time Low

Despite a recession-fueled expansion in food stamp rolls, the percentage of Americans mistakenly receiving too much or too little under the program is at an all-time low, according to an analysis of USDA data by Stateline, a publication of the Pew Charitable Trusts.

In 37 states, error rates fell between fiscal year 2008 (the recession officially began in December 2007) through fiscal 2013, according to the Stateline analysis. During the downturn, many lawmakers argued that billions could be saved by cutting waste, fraud and abuse in the program, but the declining error rates cast doubt on that claim.

Food stamps, officially called the Supplemental Nutrition Assistance Program (SNAP), have been the focus of congressional attention for decades for that alleged "waste, fraud and abuse." However, error rates for the program have been falling for more than a decade, thanks to a mix of state and federal steps to reduce payment errors. In 2002, the national error rate topped 8%, while in fiscal 2013, the rate was just 3.2%. Still, the perception of the food stamp program by many on Capitol Hill as one rife with fraud and mismanagement will be difficult to change. It also will remain a perception that will continue to be used as a justification for further cutting funding for the program.

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Political Showdown Over Companies' Use of Tax 'Inversions' Expected to Get Ugly

Republican and Democratic senators are bracing for what is likely to become a major battle to rein in U.S. companies that relocate abroad to lower their corporate tax burden. The practice, formally called an "inversion," increasingly has been in the news, most recently when Burger King announced plans to move its headquarters to Canada.

Sen. Chuck Schumer, D-N.Y., last week introduced anti-inversion legislation, but Republicans, most notably Sen. Orrin Hatch of Utah, say Schumer's plan is overly punitive. Hatch, the ranking minority member of the tax-writing Finance Committee, has made it clear that he will not support any measure that is "retroactive or punitive."

Whether public outrage over tax inversions remains hot enough to politically affect the practice is not known at this time. But the issue is certain to remain on the front burner for the foreseeable future.

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Washington Insider: Doing Something About the Weather

Part of the support for the crop insurance safety nets now being offered depends on the idea that the premiums are science-based, with their cost based on coverage and actual histories. Now, however, the recent farm bill seems to have changed that to some degree.

Under normal crop insurance rules, producers' crop histories reflect both high and low yields, and the amount of coverage that can be purchased is smaller for those that tend to have poorer crops. However, the new farm Act has a provision that can give drought-damaged crops in any state a break by erasing the record of some bad yields.

Affected producers say they need this relief and will have trouble staying in business without it –– that they cannot get lenders to finance them for another year without expanded protection beyond what they could normally obtain.

However, critics argue that the "exclusionary" provision masks weather developments, especially the effects of climate change and could discourage producers from taking steps to prepare for future droughts, such as diversifying crops.

"We're allowing the individuals to take higher risk than they normally would and that puts our nation at a higher risk," Tim Gieseke, president of Ag Resource Strategies LLC, a Minnesota-based business that manages environmental quality plans for businesses, government agencies and private organizations told the press.

Professor Bruce Babcock of Iowa State University was even tougher. He thinks the new farm Act is moving "closer and closer to being a social welfare program and this is one manifestation of that." he said. "It's really trying to protect farmers from the realities of climate change, protect them financially... But it sure doesn't protect taxpayers."

Farmers' actual, record-based crop yields provide a basis for both the level of coverage they can buy as well as the premiums they have to pay. Taxpayers subsidize about 62% of the premiums. A farmer's yields are averaged over 10 years to come up with actual production histories, or APH. The lower the APH, the less coverage a farmer can buy.

The farm Act provision will allow growers to eliminate bad yields from APH calculations anytime the overall yields in the counties where they farm are at least 50% below average.

The exclusionary provision also will apply to neighboring counties, which means that a broad swatch of the southern Plains will benefit, along with many other areas of the country. The Congressional Budget Office estimated the provision would cost taxpayers $357 million over 10 years.

Farmers also say they are frustrated because USDA has yet to implement the provision. Despite pressure from House Agriculture Chairman Frank Lucas, an Oklahoma Republican who got the provision in the bill, Agriculture Secretary Tom Vilsack says USDA doesn't have the resources to get it implemented for another year because of the work entailed in developing other new programs established by the farm bill.

Southern Plains producers say they need help quickly. In 2011, there were more than 100 days in Texas and Oklahoma where the temperature exceeded 100 degrees and climate forecasts call for more frequent droughts across Texas and the Southern Plains in the future. The national climate assessment issued earlier this year warned that the droughts will deplete underground water supplies, forcing many farmers to stop irrigating crops and eventually reducing crop yields by a factor of two.

Because the risk of bad weather differs among regions, the value of crop insurance varies as well –– and, rules that allow poor yields to be excluded from APH calculations are expected to have differential consequences. As a result, Corn Belt economists are among those questioning the new rule most intensely, especially on the grounds that it raises questions of actuarial soundness of the system as a whole.

At a recent congressional hearing, a number of economists told the committee that questions regarding the integrity of the insurance program are not "inconsequential" considering how many producers rely on insurance. At the very least, they say, USDA must adjust the premiums paid by producers making this election to reflect the increased risks associated with the change.

One of the assertions often made by supporters of crop insurance programs is that, although many of the programs are heavily subsidized, at least those are transparent. However, the exclusionary rule threatens that assertion and likely will face serious future challenges including detailed studies of the rules' effects experts now say are underway. It will be important for producers to watch this process very carefully because it is fundamentally important to their main safety net program, Washington Insider believes.


Want to keep up with events in Washington and elsewhere throughout the day? See DTN Top Stories, our frequently updated summary of news developments of interest to producers. You can find DTN Top Stories in DTN Ag News, which is on the Main Menu on classic DTN products, on the News Menu on Farm Dayta, and on the News and Analysis Menu of DTN's newest Professional and Producer products. DTN Top Stories is also on the home page and news home page of online.dtn.com.

If you have questions for DTN Washington Insider, please email edit@telventdtn.com

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