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GPR Knifed For Budget Savings: Washington Style

By Steve Griffin

The federal budget, deficit and debt battles in Washington D.C. are a source of continuous drama, political posturing and mostly slight of an accountant's pencil. The eleventh hour compromise that averted a shutdown of many federal government offices and services recently is expected to be followed by a similar threat when the federal debt ceiling will need to be raised in May.

The USDA Risk Management Agency (RMA) has been promising a new crop insurance "Good Performance Refund" (GPR) since last winter that supposedly would reward farmers, even dead ones, who had not had claims on their crop insurance for a number of years or in excess of their paid premiums with a refund, averaging $1,000 per eligible producer. RMA Administrator William Murphy estimated the payout would be $75 million annually ($750 million over ten years).

RMA had a three "S" deadlines for the program—sales closing (in March), Spring, and Summer. It now appears that all three deadlines will be missed. RMA has not even responded to January public comments on the proposed regulations that seriously questioned its legality.

White House officials say $35 million cut is a "budget savings"

As part of the compromise with the House of Representatives, the White House is now claiming a $35 million "cut" by stalling GPR for the rest of 2011 (not sure what happened to the rest of the $75 million). GPR is a program that has not yet passed regulatory and statutory scrutiny, the beneficiaries not determined, and the mechanism to disburse the funds unresolved. It is like me, telling my wife, that we saved $25,000 by not buying the car we had not picked out; we could not afford, and, in the end, probably would not buy. Only in Washington, DC would this kind of activity be viewed as hard fought "deficit reduction" and "budget savings."

Of course, the House Agriculture Committee is saying that "they" have already contributed a disproportionate share to deficit reduction.  The Administration (RMA) extracted $6 billion dollars of baseline spending from crop insurance providers and their agents by imposing the new 2011 standard reinsurance agreement. Two billion dollars was promised to be reserved for new risk management programs (like GPR) and $4 billion explicitly labeled as contributing to "deficit reduction." The feds did reduce and cap administrative costs and significantly reduce the opportunity for crop insurers to earn underwriting profits. 

Only in Washington would this kind of "murky math" be tolerated

However, much of the so-called $6 billion in "savings" from crop insurance was not actually reduced expenditures.  It was created by pushing expense reimbursements and underwriting gain payments from one fiscal year into the next fiscal year—pushing February payables to October; and advancing receivables earlier from October back to August (across the fiscal year line September 30). In other words, the government is paying for only nine years of crop insurance expenses in the ten fiscal years. The tenth year of expenses is still owed but by not paying it within the ten year window it is counted as "savings." The scheme also means receiving eleven years of farmer premiums in the ten year window, offsetting program costs—more "savings". 

Of course, this kind of bookkeeping does not come without real costs to the private insurers who will be required to finance their government receivables for over a year--requiring significant additional capital and, of course, interest costs. The result will be the consolidation of the industry (which has already begun) to fewer better-capitalized companies who are able to finance the government. The result will be less competition for agents and provision of services.

Only in Washington could this kind of accounting slight of hand and transfer of debt be portrayed as a positive contribution to the fiscal affairs of the government. But less we agriculturalists complain too much---as we applaud deficit reduction, such pencil "savings" makes fiscal discipline a lot less painful to our sacred budgetary cows. 

NOTE: Steve Griffin is an independent crop insurance consultant (not an agent) based in West Des Moines, IA. He consults with the USDA's Risk Management Agency, crop insurers, and with farmers on crop insurance issues and disputes. He can be contacted at www.aggiexpert.com.