The Balanced Budget Amendment

Implications for Agriculture

Tuesday, January 28, 1997

The Balanced Budget Amendment

Implications for Agriculture

From the Appendix, USDA Production Flexibility Contract:

"7. Modifications
"B. In the event a statute is enacted during the effective period of this contract under which CCC would be required to materially change the terms of this contract, CCC may require signatories to elect between acceptance of modifications consistent with the provisions of such statue or termination of the contract. The signatories agree to notify CCC of an intention to withdraw from the contract within 10 days from the date of the notice of such modifications and further agree that failure to notify CCC shall constitute agreement to the modifications."

Executive Summary

Family farmers and rural areas will be much harder hit than most sectors and regions by the deep, abrupt budget cuts and new parliamentary procedures that will come about with adoption of a constitutional amendment to balance the budget. The "pro-cyclical" nature of the amendment, which will force the deepest budget cuts during economic slowdowns, will only compound economic risks to farmers that were already substantially increased by the 1996 Farm Bill, which dramatically weakened the government safety net for agriculture. The amendment will tend to magnify and prolong agricultural slowdowns, recessions and disaster-related emergencies.

Many in Congress are insisting that Social Security, defense or other programs be protected from budget impacts of the balanced budget amendment. Yet despite widespread support for the amendment among agricultural leaders, no farm-belt legislators are insisting that farm and rural spending programs be held harmless from amendment-generated budget cuts.

Review of the fine print in the new "Freedom to Farm" contracts shows that payments are not "guaranteed" for 7 years, but can and probably will be reduced if the amendment comes into effect. "Guaranteed," 10-year Conservation Reserve Program payments are similarly vulnerable.

Farmers would do well to heed Treasury Secretary Robert Rubin's warning that the balanced budget amendment will obstruct federal assistance for natural disasters. In recent years, farmers have been the single biggest and most frequent recipients, receiving nearly 60 percent of all federal disaster aid dollars. Any potential complications or delays in federal disaster assistance caused by a balanced budget amendment could create a major crisis for agriculture.

Proponents of the balanced budget amendment are disingenuous when they argue that the amendment simply requires the government to do what families do--live within means. In fact, families living by the amendment's rules would have to pay for all long term investments like homes or college education from a single year of earnings alone, with no borrowing. The "family budget" comparison is especially inappropriate for most commercial-sized farm families. One out of seven (14 percent) has extreme debt repayment problems, with average debts of $309,000 and current incomes sufficient to support a debt of only $49,000.

Especially deep and harmful amendment-driven budget cuts will be focused on major discretionary spending items in the USDA budget that are crucial to agriculture's future productivity: agricultural research and conservation.

While efforts to balance the federal budget and steadily reduce deficit spending make sense for agriculture, the balanced budget amendment will not serve agriculture's interests in the long or short term, whether one's philosophy of farm assistance is "return to parity," Freedom to Farm or green payments.

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