[House Report 106-300]
[From the U.S. Government Publishing Office]
106th Congress Rept. 106-300
HOUSE OF REPRESENTATIVES
1st Session Part 2
======================================================================
AGRICULTURAL RISK PROTECTION ACT OF 1999
_______
September 22, 1999.--Committed to the Committee of the Whole House on
the State of the Union and ordered to be printed
_______
Mr. Combest, from the Committee on Agriculture, submitted the following
SUPPLEMENTAL REPORT
[To accompany H.R. 2559]
This supplemental report shows the cost estimate of the
Congressional Budget Office with respect to the bill (H.R.
2559), as reported, which was not included in the report
submitted by the Committee on Agriculture on August 25, 1999
(H. Rept. 106-300).
This supplemental report is submitted in accordance with
clause 3(a)(2) of Rule XIII of the Rules of the House of
Representatives.
This supplemental report also contains additional report
language to section 303 of the Section-by-Section Analysis to
part 1 of the report.
U.S. Congress,
Congressional Budget Office,
Washington, DC, August 9, 1999.
Hon. Larry Combest,
Chairman, Committee on Agriculture,
U.S. House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 2559, the
Agricultural Risk Protection Act of 1999.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Craig Jagger.
Sincerely,
Barry B. Anderson
(For Dan L. Crippen, Director).
Enclosure.
H.R. 2559--Agricultural Risk Protection Act of 1999
Summary: H.R. 2559 would amend the Federal Crop Insurance
Act in a number of significant ways. First, it would increase
premium subsidies to reduce the cost to producers of purchasing
crop insurance. The bill also would encourage development of
and provide subsidies for privately developed crop insurance
products. It would make adjustments in how producers' expected
yields are calculated for purposes of determining crop
insurance liability and premium costs. In addition, H.R. 2559
would make a number of other changes in crop insurance designed
to improve the program's integrity and would change the
administrative structure of the Department of Agriculture's
Risk Management Agency (RMA), which oversees the program.
CBO estimates that enactment of H.R. 2559 would increase
direct spending for federal crop insurance by $6.1 billion over
the 2000-2004 period. Because the bill would affect direct
spending, pay-as-you-go procedures would apply. H.R. 2559
contains no intergovernmental or private-sector mandates as
defined in the Unfunded Mandates Reform Act (UMRA) and would
impose no costs on state, local, or tribal governments.
Estimated cost to the Federal Government: The estimated
budgetary impact of H.R. 2559 is summarized in Table 1. The
costs of this legislation fall within budget function 350
(agriculture).
TABLE 1.--ESTIMATED BUDGETARY IMPACT OF H.R. 2559, THE AGRICULTURAL RISK PROTECTION ACT OF 1999
----------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars
-----------------------------------------------
1999 2000 2001 2002 2003 2004
----------------------------------------------------------------------------------------------------------------
DIRECT SPENDING
Crop Insurance Spending Under Current Law:
Estimated Budget Authority.................................. 1,699 1,565 1,522 1,580 1,647 1,725
Estimated Outlays........................................... 1,667 1,618 1,558 1,551 1,612 1,685
Proposed Changes:
Estimated Budget Authority.................................. 0 1,080 1,366 1,435 1,512 1,684
Estimated Outlays........................................... 0 471 1,191 1,394 1,467 1,583
Crop Insurance Spending Under H.R. 2559:
Estimated Budget Authority.................................. 1,699 2,645 2,888 3,015 3,159 3,409
Estimated Outlays........................................... 1,667 2,089 2,749 2,945 3,079 3,268
----------------------------------------------------------------------------------------------------------------
basis of estimate
The Federal Crop Insurance Corporation (FCIC) subsidizes
the cost of federal crop insurance, which makes indemnity
payments to insured producers who suffer yield or revenue
losses. Producers receive premium subsidies that reduce their
costs of purchasing such insurance. Private insurance companies
receive payments as compensation for their costs of selling and
servicing crop insurance policies for FCIC. These payments are
based on the premiums charged for the policies they sell.
Private insurance companies also share with FCIC the risk of
gain and loss on the policies they underwrite. Because these
risks are not shared proportionally, private companies, in
aggregate, earn underwriting gains in most years.
Premium subsidies
Much of the bill's impact on direct spending would come
from increases in premium subsidies. FCIC estimates a total
premium cost for each crop insurance policy based on expected
losses in a given year for that policy. The total premium cost
for a policy depends on a number of factors, including the
level of crop insurance coverage chosen by the producer.
Generally, crop insurance coverage is the percent of expected
crop production or value insured. For example, if a producer
buys a yield loss insurance policy at the 65 percent coverage
level, then 65 percent of expected production (as determined by
FCIC) is insured. If actual production is less than 65 percent
of expected production, the producer receives an indemnity
payment. Other things being equal, the total premium cost is
higher at higher coverage levels because losses occur more
often at those levels.
With FCIC's premium subsidies, a producer pays only part of
the total premium cost and the government pays the rest. Under
both current law and H.R. 2559, the premium subsidy rate (the
percent of the total premium that is paid by the government) is
higher at lower insurance coverage levels and lower at higher
insurance coverage levels. For example, the premium subsidy at
the 50-percent coverage level is 55 percent of the premium
under current law; it would rise to 67 percent of the premium
under H.R. 2559. At the 65-percent coverage level, the premium
subsidy is 41.7 percent of the total premium under current law;
it would be 59 percent under H.R. 2559.
The outlay impact of higher premium subsidies depends on
what producers do with the extra subsidy dollars that they
receive from the government. Producers could simply maintain
the same level of crop insurance protection (which would be
cheaper to purchase under H.R. 2559) and use the extra subsidy
dollars for other business or personal purposes. In that case,
the only extra cost for federal crop insurance would be the
higher premium subsidies on existing coverage.
Alternatively, producers could choose to buy more federal
crop insurance because not only would their current coverage be
cheaper under H.R. 2559, but additional crop insurance
protection would be cheaper as well. They could buy more crop
insurance protection on the same acres or buy insurance for
crops or acres that they currently do not insure. Because the
government's costs are based on the amount of crop insurance
sold, if producers buy more crop insurance, government costs
will show further increases beyond those directly caused by the
higher premium subsidies.
Taking into account projected increases in insurance
coverage, CBO estimates that the changes in premium subsidy
rates specified in H.R. 2559 would cost $345 million in fiscal
year 2000, $4.2 billion over the 2000-2004 period, and $10.9
billion over the 2000-2009 period, as shown in Table 2.
TABLE 2.--COMPONENTS OF THE ESTIMATED COSTS OF H.R. 2559
----------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars
--------------------------------------------------------
2000- 2000-
2000 2001 2002 2003 2004 2004 2009
----------------------------------------------------------------------------------------------------------------
Change in Budget Authority............................. 1,080 1,366 1,435 1,512 1,684 7,077 17,014
========================================================
Change in Outlays:
Increase premium subsidy rates for all buy-up plans 345 835 960 1,004 1,082 4,226 10,873
Adjust yields used for crop insurance calculations. 97 205 215 221 231 969 2,285
Additional changes to 508(h) current revenue 25 87 98 103 107 420 1,044
products--Pay full premium subsidy and reduce
delivery expense costs............................
Pay full premium subsidy on other 508(h) products.. 17 45 60 68 79 269 865
Expand RMA authority for pilot programs............ 2 4 5 5 6 22 57
Establish livestock insurance pilot program........ 0 9 25 35 47 116 391
Allow Coop CAT purchases and association licensing 10 20 20 20 20 90 205
fees..............................................
Make prevented planting an option and equalize 1 2 2 2 2 9 20
across crops......................................
Change income limits for the Non-Insured Assistance 0 2 3 3 3 11 26
Program...........................................
Change double-cropping rules....................... -9 -19 -20 -21 -23 -92 -221
Promote new policies and research and development.. 0 20 45 48 51 164 437
Reduce delivery expense and loss adjustment costs.. -17 -19 -19 -21 -22 -98 -223
--------------------------------------------------------
Total Change in Outlays........................ 471 1,191 1,394 1,467 1,583 6,106 15,759
----------------------------------------------------------------------------------------------------------------
Yield adjustments
The dollar amount of crop insurance that a producer is
eligible to buy depends in part on the expected yield for the
producer's farm. Generally, FCIC considers the expected yield
for a producer's farm to be the average of actual yields in
previous years. An actual yield that is very low can
significantly lower the average yield, thus reducing the amount
of insurance that a producer can buy. In addition, if a
producer's average yield is sufficiently below the county
average, the premium necessary to provide a given level of
insurance is higher.
H.R. 2559 would set a minimum yield for each year for each
crop. In years when the actual yield is below the minimum
yield, the minimum yield would be used to determine the average
yield for crop insurance calculations. Because this new yield
would be higher than FCIC's expected yield, a producer could
buy a higher dollar amount of crop insurance, and FCIC would
expect to pay more indemnities. As a result, FCIC would need to
set higher premiums, but because of the premium subsidies, the
government would bear much of the cost. Because other crop
insurance costs, such as reimbursements to private companies,
are based on the amount of premiums charged, these costs would
increase too. CBO estimates that adopting the yield adjustment
provisions of H.R. 2559 would cost $97 million in fiscal year
2000, $969 million over the 2000-2004 period, and $2.3 billion
over the 2000-2009 period.
Privately developed crop insurance products
Some of FCIC's crop insurance products are developed by
FCIC while others are developed by private insurance companies
under section 508(h) of the Federal Crop Insurance Act.
Currently, revenue insurance products developed by private
insurance companies receive premium subsidies that are lower
than FCIC's standard yield insurance policies. H.R. 2559 would
allow these revenue products to receive the same premium
subsidy. To partly offset the cost, H.R. 2559 would reduce the
payment made to private companies for selling and servicing
these revenue insurance products. Other privately developed
insurance products are not eligible for premium subsidies from
FCIC and have been sold by private companies without any
subsidies. H.R. 2559 would allow these policies to receive
subsidies from FCIC. CBO estimates that adopting these
provisions would cost $42 million in fiscal year 2000, $689
million over the 2000-2004 period, and $1.9 billion over the
2000-2009 period.
Other provisions
The provisions discussed above account for about 95 percent
of the estimated costs of H.R. 2559. The bill would make a
number of other changes in crop insurance. Such changes include
provisions that would implement a limited livestock insurance
program, change rules as to when and how producers can plant a
second crop after a first crop either could not be planted or
was planted and failed, fund research on new crop policies and
risk management products, allow cooperatives to pay the
insurance fee for basic insurance coverage, and reduce the
rates at which crop insurance companies are paid to sell and
service insurance policies. CBO estimates that these additional
provisions would save $13 million in 2000, but would cost $222
million over the 2000-2004 period and $692 million over the
2000-2009 period.
Pay-as-you-go-considerations: The Balanced Budget and
Emergency Deficit Control Act sets up pay-as-you-go procedures
for legislation affecting direct spending or receipts. The net
changes in outlays that are subject to pay-as-you-go procedures
are shown in the following table. For the purposes of enforcing
pay-as-you-go procedures, only the effects in the current year,
the budget year, and the succeeding four years are counted.
--------------------------------------------------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars
-------------------------------------------------------------------------------------
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
--------------------------------------------------------------------------------------------------------------------------------------------------------
Changes in outlays................................................ 0 471 1,191 1,394 1,467 1,583 1,722 1,830 1,938 2,037 2,126
Changes in receipts............................................... Not applicable
--------------------------------------------------------------------------------------------------------------------------------------------------------
Intergovernmental and private-sector impact: H.R. 2559
contains no intergovernmental or private-sector mandates as
defined in UMRA and would impose no costs on state, local, or
tribal governments.
Estimate prepared by: Craig Jagger.
Estimate approved by: Robert A. Sunshine, Deputy Assistant
Director for Budget Analysis.
additional report language to section 303
Sec. 303. Research and development, including contracts regarding
underserved commodities
In contracting for the research and development of new
policies, plans of insurance, and materials under this section
the Committee intends for the Corporation to prescribe its own
procedures governing contracting without regard to federal
acquisition regulations. The Committee expects the procedures
established will ensure contracts are entered into and
completed so the policy, plan of insurance, or material can be
offered to producers in the next reinsurance year or in a
timely manner. Furthermore, the Committee expects the
Corporation to consult with beneficiaries of the policy, plan
of insurance, or material to ensure that any research and
development is carried out by an entity with expertise in the
area. Finally, the Committee expects that procedures
established maximize the amount of funding actually available
for research and development and minimize any overhead involved
in complying with such procedures.