Federal Budget Cuts Eliminate Crop Insurance Premium Refunds

April 12, 2011

The budget deal agreed to by President Barack Obama and Republican and Democratic leaders last Friday to avoid a government shutdown calls for $28 billion in spending cuts to the budget to fund the government until Sept. 30, on top of $10 billion already enacted.

Now, the House and Senate must pass the legislation carrying out the deal. If passed, the $38 billion in total cuts would represent the largest domestic spending reductions in U.S. history but they will have only a small effect on the projected $1.4 trillion budget deficit for this year.

“These are real cuts that will save taxpayers money and have a real impact. Many will be painful, and are to programs that we support, but the fiscal situation is such that we have to act,” President Obama said in releasing the details.

The plan cuts $13 billion from programs at the Departments of Labor, Education, and Health and Human Services as well as more than $1 billion across other non-defense agencies. There will be reductions to housing assistance programs and some health care programs along with $8 billion in cuts to the State Department and foreign assistance.

Also, the Defense Department will lose $18 billion for programs deemed unnecessary by the Pentagon.

It also targets $630 million in earmarked transportation projects and $2.5 billion in transportation funding that is ready to be earmarked. In addition, it eliminates $30 million for a job training program that was targeted at certain student loan processors.

Among the programs being slashed is one that gives farmers rebates on their crop insurance premiums if they have not filed any claims for a period. The President noted that the premiums themselves are already subsidized by the federal government.

This crop insurance program was set up in January by the Risk Management Agency (RMA) in the U.S. Department of Agriculture. The department set aside an estimated $75 million a year for the refunds, with the money coming from savings from a new contract it negotiated with crop insurance companies.

The new budget deal slashes the funds available for the refunds by $35 million, effectively killing the program for this fiscal year.

In January, RMA said it expected that the refunds would go to almost 68,000 farmers and ranchers (about 14 percent of individual farmers and ranchers who have buy-up crop insurance), with an average estimated refund of $1,000.

Earlier this year, RMA negotiated a new Standard Reinsurance Agreement (SRA) with the private insurance companies that deliver the federal crop insurance program. The negotiation generated savings of $6 billion over the next 10 years. According to RMA, two-thirds of the savings, or $4 billion, went to reducing our national deficit, while $2 billion was used to improve and expand programs for America’s farmers and ranchers. Of that $2 billion, approximately $750 million over 10 years, or $75 million a year, was dedicated to providing this proposed refund to farmer and ranchers.

The refund program is intended to reward farmers who purchase crop insurance for their risk management needs and who demonstrate “best possible management practices for eliminating or lessening loss from natural causes,” according to RMA.

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