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Repeal of $3 Billion Crop Insurance Cut Clears Congress

The Senate cleared a long-term transportation bill late Thursday after soundly rejecting a last-ditch effort to restore a $3 billion cut to the crop insurance program. 

The cut, which was part of the two-year budget agreement enacted in November, would be repealed by the highway legislation to fulfill a pledge the House GOP leadership made to House Agriculture Chairman Mike Conaway, R-TX, before votes on the budget deal.

Senators Jeff Flake, R-AZ, and Jean Shaheen, D-NH, forced a vote on the cut Thursday by raising a point of order against including the repeal provision in the transporation measure. The Senate rejected their move, 75-22, and then approved the legislation, 83-16. 

“We are often accused in this body of reversing cuts that we make before the ink is dry,” Flake said. “In this case, we made a deal and reversed the cuts before the ink was even put to paper. If we're going to get serious about controlling our deficits and addressing our debt we've actually got to stick to some of the cuts we've made.”

The bill replaces the $3 billion through a reduction in the Federal Reserve dividend that goes to big banks.

Senate Agriculture Chairman Pat Roberts, R-KS, said the crop insurance cut would be “egregious and harmful, counterproductive, contract-breaking.” 

“The message from farm country couldn't be more clear: Do not target crop insurance,” he said.

The manager of the five-year transportation bill, Environment and Public Works Chairman Jim Inhofe, R-OK, warned that the point of order, if approved, would have sidetracked the entire legislation.

The legislation, which also would revive the Export-Import Bank, now goes to President Obama for his signature. The House approved the measure earlier in the day, 359-65. It would be the longest extension of highway programs since 1998.

The budget agreement requires the Agriculture Department to cap the insurance companies' rate of return at 8.9%, down from the current 14.5%. 

The cut was supposed to be made through renegotiating the Federal Crop Insurance Corporation's Standard Reinsurance Agreement (SRA) with the companies. Since 2011 the rate of return has varied from a loss of 15% in fiscal 2012, a drought year, to a gain of 13% in fiscal 2014. Insurance companies argue that their real rate of return is closer to 4%.

Long-time critics of federal crop insurance program, like Senator Flake and the Environmental Working Group (EWG), are keeping the pressure on for additional cuts to crop insurance. 

Earlier in the day, EWG released a new report, written by Iowa State Economist Bruce Babcock, which argued that the original $3 billion cut would have no impact on the availability of crop insurance policies or the premiums paid by farmers.

Instead, Babcock said that agents' commissions would bear most of brunt of the proposed cost cutting “because their commissions increased faster than the other components of the companies' delivery costs.” 

“The reality is that the cuts are a modest reduction in taxpayer support for crop insurance,” said Babcock. “Rather than devastating or killing the program, as some industry members may allege, the lower subsidies would not affect profits, but instead result in a more efficient, but still far from lean, delivery system for the insurance.”

Babcock argued that the budget agreement's focus on rate of return for the crop insurance industry is wrong.

“It would be much better, cleaner, and more transparent for USDA to put the crop insurance delivery system out for competitive bid - get these companies to compete against each other for delivering crop insurance, and then we wouldn't have any argument over what the rate of return ought to be,” he told reporters during a conference call.

Babcock also said that USDA's Farm Service Agency (FSA) should be allowed to deliver crop insurance - as they did during much of the 1980s. 

“Allow FSA to bid on this. After all, they've been trained by the Risk Management Agency on how to run a crop insurance business. That's called the Agricultural Risk Coverage (ARC) subsidy,” Babcock added.

While farm groups supported FSA delivery of programs like ARC in the 2014 farm bill, most of the major organizations routinely argue in favor of the current public/private delivery system of crop insurance. 

Written by Philip Brasher

 for Agri-Pulse Communications. Sara Wyant also contributed.

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