CCC, Section 32 complicated funding mechanisms
The Commodity Credit Corporation and Section 32 discussed in a Hagstrom Report alert based on an interview with Senate Agriculture Appropriations Subcommittee Chairman John Hoeven, R-N.D., are more complicated than the article indicated.
Section 32 and the Commodity Credit Corporation are two separate accounts, not one, as indicated by the article. Although Hoeven referred to Section 32 as a source of money for trade aid, and President Donald Trump has said that tariff money can be used for a new round of aid, the Congressional Research Service noted in a recent report that it appears both the Market Facilitation Program payments that went to the commodity producers and the purchases of meat, fruit and vegetables and nuts most likely came from the Commodity Credit Corporation.
The Agriculture Department entity was established in 1933 and federally chartered by the CCC Charter Act of 1948 to “buy, sell, lend, make payments and engage in other activities for the purpose of increasing production, stabilizing prices, assuring adequate supplies, and facilitating the efficient marketing of agricultural commodities.”
Under its Charter Act, CCC has authority to borrow from the Treasury, but in recent years that amount has been limited to $30 billion per fiscal year.
Section 32 of the Agricultural Adjustment Act of 1935 created a permanent appropriation that since 1935 has set aside the equivalent of 30% of annual customs receipts to support the farm sector through the purchase of surplus commodities and a variety of other activities.
According to the Congressional Research Service, most of the appropriation is transferred to the Agriculture Department’s child nutrition account, with a separate amount transferred to the Commerce Department for fisheries activities. “The Secretary of Agriculture, acting through USDA’s Agricultural Marketing Service, has had broad discretion in how to spend the remaining non-transferred (unobligated and carryover) money,” CRS said in a 2016 report.
But CRS said in a February report, “The administration’s trade aid announcement does not specify whether the CCC or Section 32 authority is being used to make the purchases under the announced Food Purchase and Distribution Program. However, the scale of the $1.2 billion program indicates that the CCC is most likely the source since the typical annual amount of funding available in Section 32 for purchases is rarely more than half of this amount. Whether from the CCC or Section 32, the administration’s purchases appear to use distribution channels similar to those under Section 32.”
Whether the administration uses Section 32 for trade aid or not, it is true, as Trump has said, that the government’s tariff income is rising.
The appropriation for Section 32 is expected to go up from $10.6 billion to $15.1 billion for fiscal year 2020 due to the increased tariff income from the increase in tariffs imposed on foreign products by the Trump administration, according to the explanatory notes in the Agriculture Department’s fiscal year 2020 budget request. Section 32 gets 30% of tariffs from the calendar year prior to the start of a fiscal year. Calendar year 2018 is the last full calendar before Oct. 1, 2019, which is the beginning of fiscal year 2020. Almost all of that increase goes to the transfer for child nutrition programs, based on formulas in the statute that keep the amounts for other uses constant or in line with inflation.
In its fiscal year 2020 budget request, the Trump administration has proposed to fund the programs currently funded by Section 32 directly and permanently from the Treasury instead of relying on a portion of U.S. customs receipts. The administration said that this proposal would increase transparency by providing mandatory appropriations in lieu of customs receipts, thereby reducing the variability from fluctuating receipts and providing funding for all of programmatic needs. In addition, the proposal would eliminate the likelihood that large unobligated balances could accrue for Congress to rescind and use for other purposes.❖