Congress Should Stop Abrogating Its Spending Power and Rein in the USDA Slush Fund

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Congress Should Stop Abrogating Its Spending Power and Rein in the USDA Slush Fund

February 19, 2021 17 min read Download Report

Authors: Daren Bakst and Joshua Sewell

Summary

Over the past few years, the U.S. Department of Agriculture (USDA) has set a terrible precedent by greatly expanding its use of the Agriculture Secretary’s discretionary spending authority under the Commodity Credit Corporation (CCC) Charter Act. This new and expansive use of the CCC creates a USDA slush fund that allows the Agriculture Secretary to spend money on almost anything. The USDA’s use of the CCC in recent years for trade aid to farmers was based on questionable authority, and now the Biden Administration may push for programs that are even less likely to be authorized under the law, such as climate change programs. Congress needs to stop abrogating its spending power and restore some normalcy back to the discretionary use of the CCC, which had generally been used in a limited manner.

Key Takeaways

The USDA has set a terrible precedent by greatly expanding its use of discretionary spending authority under the Commodity Credit Corporation Charter Act.

This expansive use may lead to potential end-runs around congressional authorization to create new programs, such as those focused on climate change.

Congress needs to restore normalcy with the Commodity Credit Corporation so that Congress, not the USDA, exercises its spending power under the U.S. Constitution.

Over the past few years, the U.S. Department of Agriculture (USDA) has set a terrible precedent by greatly expanding its use of the Agriculture Secretary’s discretionary spending authority under the Commodity Credit Corporation Charter Act.REF Congress has only exacerbated the problem by passing appropriations language that arguably suggests an after-the-fact blessing of these actions.REF

The Agriculture Secretary has far too much discretion under the Charter Act, but up until recently, this discretionary power has generally not been abused. Over the past few years, this has changed. The spending under the Charter Act has vastly expanded in terms of amount, as well as in scope, providing assistance beyond simply helping farmers, while undermining congressional primacy in crafting federal agricultural policy. This Issue Brief is not focused on whether Congress should spend money on certain programs. Instead, it focuses on returning to, and ensuring, the limited use of the Agriculture Secretary’s discretionary spending under the Charter Act. This is critical to ensuring that Congress, not the USDA, exercises its spending power under the U.S. Constitution.

The Commodity Credit Corporation and Recent Developments

Since 1933, the Commodity Credit Corporation (CCC) has served as a funding mechanism for federal agricultural programs. The CCC is a wholly owned corporation of the United States government that is authorized to borrow up to $30 billion from the U.S. Treasury to make payments for agricultural programs.REF This borrowing authority, which Congress replenishes every year as part of the appropriations process, allows the CCC to make payments without waiting on annual appropriations for each specific program. Except for federal crop insurance, the CCC is generally the means by which agriculture-related farm bill programs are funded, such as price-support and conservation programs.REF

In general, Congress specifically authorizes how CCC money should be spent, usually through omnibus farm bill legislation. In addition,, the Agriculture Secretary, under section 5 of the Charter Act,REF has broad discretionary power to use the CCC in support of U.S. agriculture.REF However, for the most part, this discretionary authority has not been used to any significant extent.REF From 2012 to 2017, Congress even expressly limited the Agriculture Secretary’s ability to use this discretionary spending authority under the Charter Act.REF But then came the $28 billion of so-called trade aid to farmers in 2018 and 2019, consisting primarily of the Market Facilitation Program (MFP),REF which was funded with the Agriculture Secretary’s discretionary spending authority. This was followed by $20.5 billion in COVID-19 food assistance in 2020 using this same authority.REF

Special interests have taken notice of this new willingness to use the CCC in a very expansive manner. Legislators in the previous Congress made extreme legislative proposals to amend the CCC to expand the Agriculture Secretary’s discretionary authority and to increase the CCC’s borrowing limit from $30 billion to $68 billion. Quite simply, these proposals becoming law would mean that the $30 billion available for the CCC to spend each year would more than double.REF Fortunately, these proposals were not enacted. However, they will inevitably turn up again in the current Congress.

The Problems with the Expanded Use of CCC Discretionary Spending Authority

Following are just some of the problems that should be of major concern to policymakers and the public. The new and expansive use of the CCC:

Creates a USDA Slush Fund for Almost Anything. The trade aid arguably may not even have been authorized under the broad language in section 5.REF The Trump Administration, though, moved forward with the programs. The Biden Administration (and future Administrations of either party) may push other programs that are even less likely to be authorized under section 5. Future Administrations could also very well push mandates on farmers and use the CCC to fund their regulatory schemes.

There is an indication that the Biden Administration may use the CCC to quickly implement its preferred climate change policies, such as a carbon bank (a tradeable carbon credit system involving farmers)REF and possibly other policy goals. When it comes to programs like a carbon bank or other climate change policies, the language in section 5 almost certainly does not authorize unilateral creation of such programs. Section 5 has specific and express language that deals with environmental programs, explaining that CCC money can be used to “[c]arry out conservation or environmental programs authorized by law.”REF (Emphasis added.)

Based on this language, the climate change policies would first have to be authorized by Congress. Proponents might argue that climate change programs could fall under the other provisions in section 5. Besides being a weak argument, given that these other provisions deal with unrelated supply issues and marketing-related issues connected to agricultural commodities, such a claim would ignore the fact that Congress already spoke directly on environmental programs and would render this environmental provision superfluous.REF

Expands the Use of the CCC to Special Interests Beyond Farmers. The recent abuse of the Charter Act authority has led to legislation that would expand subsidy recipients well beyond farmers. For example, the Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act and the Responding to Epidemic Losses and Investing in the Economic Future for Producers Act proposed to permanently expand the Charter Act to “aid agricultural processing plants to ensure supply chain continuity during an emergency period.”REF

This language could arguably cover giving money to any party throughout the supply chain that processes agricultural commodities into some other product.REF This might mean giving money to food manufacturers, ethanol plants, bakeries, or even clothing companies, as they each process raw agricultural commodities into new products.REF The attempt to turn the CCC away from farmers to supply chain participants begs the question of where to stop. Grain merchants, feedlot operators, hedge funds trading in options, grocery stores, restaurants, candy manufacturers, and even individual consumers are all links in the agricultural supply chain for whom stimulus could affect consumption.

Invites Even Greater CCC Abuse. This recent expansive use of the CCC could merely be the start of bigger problems to come. In addition to trying to turn the CCC into a golden goose for special interests beyond farmers, there have been, and there will continue to be, attempts to amend section 5 to create even more discretionary reasons for the Secretary to provide money to special interestsREF and to expand the CCC’s borrowing limit from $30 billion to $68 billion.REF Based on Congressional Research Service data, from fiscal year (FY) 2005 to FY 2020, the only year in which the CCC exceeded the $30 billion in spending was in FY 2020 due to the Secretary’s distribution of trade aid and COVID-19 payments.REF Congress simply provided additional temporary borrowing authority to prevent a breach of the borrowing limit.

There is no basis for going beyond the $30 billion limit since the specifically authorized programs are not exceeding this spending level. In fact, there is usually room for billions of dollars in discretionary spending (thereby already giving the Secretary a generous “slush fund”).REF Increasing the $30 billion borrowing limit is just a way of increasing the amount of discretionary spending. Were the borrowing limit increased to $68 billion, this would likely give the Secretary a whopping $40 billion or more to spend each year as he or she deems fit.REF

To put $40 billion in context, this amount would usually be about double the cost of the federal crop insurance program, Title I subsidies, and conservation programs combined.REF It would be like creating an even bigger farm bill for farmers, but without Congress having to debate the programs or even passing legislation. This would turn the CCC from a funding mechanism for congressionally authorized programs into a massive slush fund controlled by the Agriculture Secretary.

Ignores Representative Government and Separation of Powers. Congress, not the USDA, has spending power under the U.S. Constitution. While the existing overly broad language in section 5 of the Charter Act is arguably an improper delegation of this spending power by delegating too much discretion to the Agriculture Secretary, at least the USDA had used this authority in a fairly limited manner. The recent spending spree, though, has changed all of this and made the application of section 5 a significant problem. When the USDA decides to spend tens of billions of dollars with little or no congressional direction, as is happening now under section 5, the USDA is in effect exercising spending power.

Unlike Members of Congress who represent and are accountable to their constituents, the USDA has no such obligations. The voice of the American people on spending matters is represented through Congress. When Congress gives away this power, it is in effect silencing the voice of the people and avoiding accountability for the spending of taxpayer dollars.

The CCC should not be used as a way of creating major policy out of whole cloth or serve as an end run around congressional authorization. Recent Agriculture Secretaries have done just that by using Charter Act authority to create new subsidy programs.REF Former Agriculture Secretary Tom Vilsack, who has been nominated to serve in the same position again, appears to want to continue this trend.REF

Recommendations for Policymakers

The recent expansive use of the CCC must be reined in. Legislators should certainly reject the extreme efforts to make the problem even worse, such as by increasing section 5 discretion or increasing the CCC borrowing authority. The real question, though, is how this expansive use can be reined in when the genie is out of the bottle. In addition to the USDA reining in the discretionary spending, Congress should:

  • Limit section 5’s application to authorized programs at specified funding levels. This is the ideal solution. The CCC should simply be used as a means to fund those programs that Congress has authorized at the levels provided by Congress. This would include removing all discretionary spending powers that currently exist in section 5. Some would claim that this solution would prevent the USDA from using the CCC to quickly address problems for farmers. However, Congress has been more than willing to pass legislation, such as through appropriations, to quickly address any alleged unforeseen harm being suffered by farmers,REF or
  • Make commonsense changes to section 5 to address the worst abuses. If the ideal solution is not adopted, Congress should, at a minimum, take steps to ensure that the discretionary spending authority under section 5 of the Charter Act is not abused and is limited in its use. These steps include:
  • Limiting discretionary spending under section 5 to directly helping farmers and ranchers to address damage caused by unforeseen natural events, such as disasters and disease, not already covered by existing agricultural programs and which constitute emergencies that must be addressed immediately;
  • Prohibiting the CCC from being used for special interests beyond farmers and ranchers, including special interests that have an indirect connection to farmers;
  • Allowing discretionary power to be used only on programs to address temporary and targeted problems;
  • Requiring express congressional authorization to continue any discretionary use of section 5 beyond one year;
  • Properly accounting for existing authorized programs that help farmers and ensuring there is no duplication of assistance; and
  • Requiring the USDA to be transparent about how a program works (including how recipients of any benefits were selected) and to explain why the spending is clearly authorized under section 5. The past Congress included language in the House-passed HEROES Act that would help to accomplish this transparency objective.REF

Conclusion

By allowing the CCC to be used as a slush fund by the Agriculture Secretary, Congress is abrogating its spending power. The current abuses need to be reined in. If the CCC abuse continues, Administrations from both parties will attempt to use questionable statutory authority to create programs, possibly with little or no real connection to agriculture, to fulfill their political and ideological objectives.

Congress needs to get things back under control before this abuse becomes the new norm. In doing so, Congress would be taking action to protect the integrity of the lawmaking process and the interests of the American people.

Daren Bakst is Senior Research Fellow for Agricultural Policy in the Thomas A. Roe Institute for Economic Policy Studies, of the Institute for Economic Freedom, at The Heritage Foundation. Joshua Sewell is Senior Policy Analyst at Taxpayers for Common Sense.

Authors

Daren Bakst
Daren Bakst

Senior Research Fellow in Agricultural Policy

sewell
Joshua Sewell

Senior Policy Analyst, Taxpayers for Common Sense