Fiscal Conservative Organizations Outraged at Farm Bill Process

June 19, 2013

Dear Representative:

On behalf of the millions of members our organizations represent, we are outraged at the process surrounding the consideration of the Federal Agriculture Reform and Risk Management Act of 2013 (H.R. 1947), the Farm Bill. After two years of Farm Bill debate occurring everywhere but on the House floor, there is a pent up demand to amend and debate the bill. With a price tag of nearly $1 trillion, we believe taxpayers deserve a more robust debate and too many common sense amendments have been denied an up or down vote.

On June 10th, Speaker Boehner issued a challenge to you and your colleagues regarding the Farm Bill. He said, “If you have ideas on how to make the bill better, bring them forward. Let’s have the debate, and let’s vote on them.” And lawmakers responded, submitting 230 amendments to the Rules Committee. The speaker also promised that “The [Majority] Leader and I will encourage the Rules Committee to provide a fair process that will allow for a vigorous and open debate.”

The Rules Committee evidently had a different idea, only accepting 103, or 45 percent of the amendments filed to this nearly $1 trillion piece of legislation. This is in contrast to other legislation considered this Congress that despite costing far less had a much greater percentage of filed amendments accepted.

The Farm Bill amendments that were discarded included ones that would have helped reform farm and nutrition programs. In a cynical maneuver not in keeping with the Speaker’s direction, the Rules Committee structured the amendment process in an attempt to ensure that the least possible reform would happen. Many smaller reform amendments would have had a greater likelihood of passage. Popular amendments that would make sweeping reform such as splitting the nutrition title off the Farm Bill were left behind. Here’s a handful of the reform amendments – big and small - that the Rules Committee denied an up or down vote. Our individual organizations may support or oppose some of these, but we agree that all deserve debate:

• Amendment (freestanding) to set an Adjusted Gross Income limit on crop insurance premium subsidies
• Amendment to eliminate support for the Brazil Cotton Institute (the House has supported this before)
• Amendment to bifurcate the Farm Bill into agriculture and nutrition bills
• Amendment to eliminate the Harvest Price Option that enables farmers to get higher crop insurance payouts than the level they were initially insured to
• Amendment (freestanding) to limit the crop insurance premium subsidy to $50,000
• Amendment to sever Supplemental Nutrition Assistance Program categorical eligibility
• Amendment to prohibit lawmakers or their spouses from receiving benefits or subsidies authorized by the bill
• Amendment to eliminate two year continuation of direct payments for cotton
• Amendment to block grant Supplemental Nutrition Assistance Program to the states
• Amendment (freestanding) to cap crop insurance industry subsidies at $900 million per year and rate of return at no more than 12 percent

The Farm Bill is a massive piece of legislation. We urge the House not to jam this bill through the floor without adequate debate and attempts at reform. For more information please contact Josh Sewell, Taxpayers for Common Sense, at 202-546-8500 or josh[at]taxpayer.net.

Sincerely,

Americans for Prosperity
Campaign for Liberty
Club for Growth
FreedomWorks
R Street Institute
Taxpayers for Common Sense
Taxpayer Protection Alliance

To be considered an eligible airport for EAS funding, Congress mandated a subsidy of no more than $1,000 per passenger. According to figures compiled by TCS, Lewistown and Miles City were the two most expensive remaining EAS airports on a per passenger basis, since service to Ely, NV was terminated by DOT earlier this year. Since our numbers are based on 2011 passenger totals (the most recent publicly released data) and the DOT is working with the 2012 numbers, things actually look worse at these two airports than we thought. The cost to taxpayers per passenger from Lewistown was $2,009 and from Miles City was $2,337. The Miles City number was markedly higher than our calculation due to a significant drop in passengers in 2012.

According to the DOT order, subsidized service will continue through July 15, 2013, at which point Silver Airways is free to drop the service or continue it subsidy-free. It would appear highly unlikely the airline could continue the service.

At least one other airport also likely exceeds the $1,000 per passenger limit: Macon (GA). According to DOT the airport served 1,389 passengers between October 2011 and September 2012. Based on that passenger number, the per-passenger cost to taxpayers at Macon is just shy of $1,500. In addition to exceeding the $1,000 cap, Macon is also afoul of a second change Congress made, which mandates an eligible airport to support 10 enplanements per day. Macon currently supports only 2.2 enplanements per day. Despite these low totals, DOT earlier this year released a request for proposals to continue the service, stating it "will monitor both the subsidy per passenger rate and the 10-enplanement threshold during this upcoming contract to ensure compliance with the statute." Despite the woeful performance of this airport, taxpayers can apparently look forward to providing continued subsides into the forseeable future.

EAS is a federal subsidy program created in the 1970s as part of airline deregulation. The program provides smaller airports that meet certain criteria with subsidies to airlines to provide service to larger, hub airports. Though the program was intended to be temporary, taxpayers across the nation now spend more than $200 million each year so that a privileged few in just 117 (soon to be 115) communities can be guaranteed convenient air service.

Among other federal agencies and programs, this bill includes funding for the Army Corps of Engineers, the Bureau of Land Management, and the Department of Energy. Notably, the bill would include funding for the Department of Energy loan guarantee program, mixed-oxide (MOX) fuel fabrication facility, small modular reactor program, and the United States Enrichment Corporation’s research, development, and demonstration program.

With little discussion, the bill was passed by a voice vote and will likely be voted on by the full House Appropriations Committee next week.

To view the full text of the FY2014 Energy and Water Appropriations bill, click here.

“The road is one of the most egregious examples of a pattern in which Gov. Bob McDonnell’s administration relentlessly pushes a major highway project despite abundant evidence that the money could be spent more wisely elsewhere.”
…
“Taxpayers ought to demand they first prove the roads are cost-effective.”
…
“The Charlottesville project, designed to bypass congestion on Route 29 in northern Albemarle County, should certainly be rethought.”

In an analysis, Jim Bacon – a Virginia blogger and himself an avowed bridge opponent – points out McCartney’s piece is unique because it steps out of the Post’s “readership zone” and covers an important story from another part of the state. Lack of coverage of projects in northern Virginia (Dulles Rail, for example) in the downstate part of the state, and similar lack of coverage of downstate projects (U.S. 460, Hampton Roads tunnel) in northern Virginia generally leave taxpayers unable to see the “big picture” of how money is being spent. That’s not good for anybody.

While this column is a great first step toward wider attention to the wasteful Charlottesville Bypass proposal, project opponents would like to see the Post go farther and write a “follow the money” expose to uncover project supporters, how they will benefit if the project is built, and what the real costs will be for taxpayers. Given the skepticism exhibited in Mr. McCartney’s column, we join in hoping the Post will devote the resources to getting to the bottom of why a project with so few public benefits is so high on the McDonnell administration’s priority list.

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Taxpayers for Common Sense is grateful for the hundreds of generous individuals and charitable foundations who support our work each year. It is thanks to our donors that we are able to pursue our mission with integrity, and we want our supporters to understand that we are using your support effectively and efficiently.

Click here to view TCS’ Charity Navigator Profile.
Click here to DONATE to Taxpayers for Common Sense online or here to download a contribution form for the mail.
 

Yesterday was yet another low for Congress. The Senate passed a Farm Bill without any real effort to trim the bloat and waste. They voted on only 15 of the 259 amendments filed on the bill, meaning many reform amendments were shut out of proceedings.  What a way to lead. The House version, which will be up next week, doesn’t look any better.

The agriculture sector is expected to experience record profits this year, yet it is the only sector where business owners receive guaranteed income through the subsidies they get from government – meaning your taxpayer dollars. You would think that with a record national debt, Congress would go after this low-hanging fruit. Instead, they refuse to lead and continue to pass bills that only serve special interests!

This is unacceptable. We need to keep the pressure on. Support our efforts to show Congress that there are common sense ways to create a more accountable and cost-effective farm safety net – see our proposals here.

And if that isn’t enough to get your goat, debate on the Water Resources Development Act is about to begin in the House, and there are Representatives actually talking about bringing earmarks back! Seriously. Some apparently think the only way to fix the nation’s infrastructure is by Congress designating funding for their chosen projects – and we know how that worked out before (see: Bridge to Nowhere). Your support will help us remind Congress why earmarks have no place in policy making. 

We expect more of the same all summer. We’ll be reading hundreds of pages of bills, tracking where your dollars are going. With your support, we’ll take our solutions to the halls of Congress. And we’ll make sure the media knows the truth. We’ve been in dozens of media outlets in the last month, including CNN and MSNBC; we’re posting a blog every week on US News & World Report; we’re appearing on DC’s News Channel 8 every other Tuesday -- and of course sending you the Weekly Wastebasket every week.

It’s gonna be a long summer, but we’re committed to watching out for you, the taxpayer.  Thank you for your support.

Sincerely,

Ryan Alexander
President

P.S. Once again, Taxpayers for Common Sense has been awarded a “4-star rating” by Charity Navigator for our organization’s “fiscal health and commitment to accountability and transparency.” You can be assured your tax-deductible donation will be used well!

In addition to transferring farm business risks onto the backs of taxpayers, shallow loss programs also create numerous unintended consequences. Since so few strings (if any) are attached to these programs, producers are encouraged to plant crops on acres that are more likely to have crop failures, like native grassland, wetlands, and highly erodible farmland. And with no enforceable limits on the amount of subsidies any one farm business can receive, the largest agribusinesses reap the most benefits. One of the most problematic new shallow loss programs (and potentially the most expensive) proposed during the 2012 and 2013 farm bill debates is the Supplemental Coverage Option (SCO). This fact sheet describes SCO in depth and stresses the dangerous precedent it sets for the future of agriculture policy.

History of Shallow Loss Programs

The first shallow loss programs to be written into law include the Supplemental Revenue Assistance Payments (SURE) and Average Crop Revenue Election (ACRE) programs. Unlike traditional farm subsidy payments, they were included in the 2008 farm bill to cover so-called systemic risks (several years of low prices or widespread disasters). Even though ACRE and SURE offered lucrative subsidies, they were so complex that farmers and lawmakers alike viewed them as failures. Nonetheless, they provided the foundation for a plethora of new and even more complicated shallow loss proposals to be introduced during the 2012 farm bill debate, including SCO. Due to fiscal concerns, the 2012 farm bill debate bled into 2013 since a one-year extension of current law was passed. Aside from SCO, the 2013 farm bills include additional shallow loss entitlements such as the Senate’s Agriculture Risk Coverage (ARC), House Agriculture Committee’s Revenue Loss Coverage (RLC), and a dedicated program solely for upland cotton in both bills called Stacked Income Protection Plan (STAX).

Supplemental Coverage Option (SCO) Explained

SCO has great potential to not only shift risks onto the backs of taxpayers, but also to add billions more to our national debt. It would put taxpayers on the hook for ensuring up to 90 percent of agribusinesses’ expected profits each year, even though farm income is at a near-record high. SCO would be added to an already generous suite of taxpayer-paid farm supports available to agricultural producers, including marketing assistance, low-interest loans, biofuels subsidies, dairy and sugar supports, conservation payments, direct payments, and most importantly, crop insurance.

The federal crop insurance program has quickly grown into the largest government support for agriculture. Most producers currently purchase heavily subsidized insurance to guard against a loss of crops, but more likely, a drop in income. More specifically, a majority of producers choose revenue-based policies that guarantee approximately 70 percent of anticipated income although higher levels of coverage are available, up to 85 percent. On average, producers pay only 38 cents out of each dollar of insurance coverage while taxpayers pick up the other 62 cents. In 2012, more than 120 crops were insured on 282 million acres, and after tallying losses from widespread drought, the total taxpayer cost of crop insurance will likely exceed $14 billion, topping the Fiscal Year 2011 record of $11 billion.

SCO, among other shallow loss programs, would be stacked on top of a suite of existing crop insurance subsidies. While crop revenue insurance pays for so-called deeper losses, SCO guarantees a shallower band of revenue, ensuring that agricultural producers bear virtually no risks that other industries face. Producers would receive payments if crop losses on individual farms fall below 85 percent of an expected level or if area-wide yields drop just five percent from a guaranteed level. With high levels of crop insurance coverage (85 percent, for instance), taxpayers pay only 38 percent of the premium cost, but SCO would set a new precedent whereby taxpayers subsidize 65 percent of the cost of each policy.  Under SCO, the public would not even know who is receiving taxpayer subsidies or how many dollars have been paid to each landowner or agribusiness. In other words, SCO is a major step backward in the quest to reform farm subsidies and allow agribusinesses to manage more of their own risks. Instead of reining in crop insurance, lawmakers are actually attempting to expand it and make it more expensive.

Differences between SCO Programs in 2013 House and Senate Farm Bills

Despite the similarities noted above, the two versions of SCO (in the 2013 Senate- and House Agriculture Committee-passed farm bills) have differences to note. See Table 1 for more details.

Cost of Shallow Loss Programs Is Greatly Underestimated

Similar to cost overruns in the federal crop insurance program, the actual cost of SCO will likely be much higher than currently projected by the Congressional Budget Office (CBO). Already, CBO has significantly increased its cost projections for SCO (see Table 2). In April 2012 when the Senate farm bill was passed out of the Agriculture Committee, the program was predicted to cost taxpayers just $682 million over the next ten years.  In March 2013, when new CBO cost estimates were released, SCO was projected to cost taxpayers four to seven times as much - $3 to $5 billion (in the Senate and House 2012 farm bills, respectively).   While the most recent cost estimates for the House and Senate bills declined slightly (due to a few tweaks to decrease their expected taxpayer cost), economists predict that even the most expensive cost estimates may be underestimated by two to three times or more.

The actual cost of SCO will depend on the following variables:

• Participation rates:  SCO participation rates will be much higher than those for ACRE since producers had to give up a portion of direct payment subsidies in exchange for ACRE subsidies; no such requirements are included in SCO. Participation rates will also be affected by the extent to which private crop insurance companies encourage producers to sign up for the program.
• Cost of overlapping payments:  with so many shallow loss and crop insurance programs, taxpayers will likely pay for overlapping and duplicative dips in expected revenue.
• Implementation of SCO:  USDA will have an incredible amount of leeway implementing the program since few details are provided in current legislation, and it is so complicated that even seasoned economists debate its impacts.
• Number of crops eligible for subsidies:  any crop eligible for crop insurance can receive SCO subsidies, but most subsidies will flow to crops like corn, soybeans, and wheat.
• State of the farm economy:  volatility of crop prices and how quickly the U.S. recovers from one of the most severe droughts in a generation will also affect the SCO’s final taxpayer cost. For example, if high crop prices and poor growing conditions persist, payouts could be huge.

As an example of how the total cost of SCO could be greatly underestimated, take the federal crop insurance program. After passage of the 2008 farm bill, crop insurance was projected to cost taxpayers $7 billion in 2012, but the final tally will likely exceed $14 billion.  To illustrate just how far projections can stray from reality, take the corn market. In 2007, USDA estimated 2012 corn yields would average 163 bushels/acre, production would total 13.66 billion bushels, and the average price would be $3.50 per bushel.  But for 2012 crops, USDA projects yields will only total 123.4 bushels/acre (24 percent lower), total production will barely exceed 10.78 billion bushels (27 percent lower), and prices will rise to $7.20 per bushel on average (over twice as high).  In other words, since SCO payments are dependent on these same fluctuations, CBO’s cost projections could be significantly underestimated.

Two studies have attempted to simulate historical SCO payments. Texas A&M University researchers found that annual subsidy payments from SCO and a new government-set price support program called Price Loss Coverage (PLC) could range from $79,000 for cotton to $126,000 for rice. They also predicted producers would choose SCO and PLC over another shallow loss program called RLC due to participation restrictions.  In addition, Nick Paulson from the University of Illinois calculated that SCO’s net payment per acre would average $28 in Illinois (assuming 80 percent revenue coverage chosen for crop insurance).  He also estimated that SCO revenue payments in Illinois would have been triggered in half of the past 35 years, meaning that revenue fell below 90 percent of an expected level in each of these years.  These huge payments would be more costly than those from the discredited direct payment program they were intended to replace, effecting zeroing out any savings that have been touted by Agriculture Committee leaders.

Ensuring Profit Margins for Agribusinesses

If this wasn’t enough, both the House and Senate farm bills also create new profit margin insurance policies within crop insurance. If passed, nearly all agricultural producers would be able to ensure hefty profit margins with taxpayer dollars. In addition to traditional revenue- or yield-based insurance policies, producers could also enroll in either an individual or area-based profit margin insurance policy and then receive payouts if revenue failed to exceed expenses. According to University of Illinois research, large farms would be the major beneficiaries since USDA would use an average cost of production for all producers without tailoring it to different farms.  The government would ensure that every producer is treated the same and stays in business regardless of whether or not his or her land is conserved, best management practices are used, input costs are minimized, fields are located in areas with a competitive advantage, etc. Producers would be incentivized to discontinue other less costly and/or smarter risk management strategies since risks would instead shift onto taxpayers.

Similar reckless policies are being proposed in the dairy industry even though federal biofuels mandates and other market interventions are a large part of the underlying problem. Dairies relying on large feed purchases (mainly corn) are going out of business with high crop/input prices.  Like the new margin insurance program, proposed milk policies would pay dairies if average feed costs exceeded a national average milk price.  Again, one measure would be applied to all dairies as if they were all located in the same region, are the same size, etc. Making taxpayers responsible for ensuring agribusiness profit margins would set a dangerous precedent and set our country backward when the focus should be bringing agricultural policies into a modern era and making a dent in our nation’s $16.8 trillion debt.

Unintended Consequences for Consumers and Taxpayers

Several unintended consequences are destined to occur with unlimited SCO subsidies available to agricultural producers with little to no strings attached, including:

• Conflict of interest:  since SCO is designed as an add-on to the already heavily subsidized federal crop insurance program, conflict of interests will arise when crop insurance companies and agents compete to sell more policies to receive larger taxpayer checks.
• Payment distribution:  the largest agribusinesses will reap the most subsidies since SCO payments are unlimited and the lack of means testing would continue the practice of sending subsidy checks to millionaires and agribusinesses flush with cash.
• Risky production decisions:  producers will be encouraged to plant in risky areas since payments increase as the number of planted acres increases. The more acres enrolled in SCO, the more subsidies available.  In addition, unlike other agricultural subsidy programs, SCO subsidies in the 2013 House farm bill aren’t accountable to taxpayers, meaning that agribusinesses can plant in risky areas without meeting minimum conservation standards. And since only a handful of crops will likely take in most SCO subsidies, farmers will likely limit annual rotations and plant government-favored crops instead of responding to market signals.
• Costly administration:  SCO will be costly and difficult to administer with numerous, complicated details to navigate.
• Crowding out the private market:  private companies already providing shallow loss coverage will be crowded out of the insurance market by government subsidies and would be forced to compete on an unlevel playing field.
• Producers will rely more on Washington:  Producers will likely reduce their insurance coverage (which they pay a greater percentage of) and sign up for more heavily subsidized shallow loss programs like SCO; since the Senate bill would allow producers to participate in multiple shallow loss programs, CBO projects that taxpayer costs will increase as agricultural producers shift risks onto taxpayers’ backs.

Conclusion

Instead of forcing taxpayers to pay for new costly income guarantee programs that lock in record profits, crowd out private insurance companies, dispense unlimited subsidies, and create new special interest carve-outs, Congress should instead focus on reining in crop insurance and creating a more cost-effective, transparent, accountable, and responsive agricultural safety net. Simply adding more layers to the status quo will not solve underlying problems, including excessive risk taking at taxpayer expense and huge costs with little to no public benefit. What is already a flawed and expensive system will only become worse with the introduction of programs like SCO that will not solve last year’s drought or flooding concerns but rather cause even more unintended consequences. And especially during a time of record national debt and deficits, Washington should not guarantee the profits of any businesses. Numerous other risk management strategies exist to cover shallow dips in revenue, like utilizing diversification, alternative lines of credit, vertical integration, better liquidity, hedging, forward contracting, off-farm income, and private crop insurance. If private insurance companies were able to compete on a level playing field without government intervention, additional risk management options would become available. After nearly a century of government support, Washington should be decreasing, not increasing, its role in individual farm business decisions and allowing the private market to operate on a level playing field.

For more information, visit www.taxpayer.net, or contact Joshua Sewell, josh at taxpayer.net.

This hearing was the latest in a long series of Congressional hearings and briefings on various aspects of the RFS and federal renewable fuels policy. In Feb. 2013, TCS Vice President Steve Ellis moderated two educational briefings in the House and Senate detailing how the federal biofuels mandate has fallen short of meeting its goals of achieving American energy independence, reducing greenhouse gas emissions, and spurring rural economic development. He also highlighted how the RFS’ guaranteed market for biofuels has caused numerous unintended consequences and long-term liabilities that result in more harm than good.

TCS President Ryan Alexander testified before the same House committee in Feb. on “Government Spending: How Can We Best Address the Billions of Dollars Wasted Every Year.” She pointed to multiple layers of subsidies available to the well-established corn ethanol industry which exist in addition to the RFS mandate, “The ethanol industry has already received federal subsidies of one form or another over thirty years, including the Volumetric Ethanol Excise Tax Credit (VEETC) and a tariff on ethanol imports into the U.S. While VEETC and the ethanol tariff ended in 2011, the industry still benefits from a myriad of other subsidies, grants, loan guarantees, and other supports in the federal tax code and farm bill.”

While most of yesterday’s witnesses share the same concerns, they highlighted other concerns that arise when the federal government mandates production of mature biofuels or even those that don’t yet exist in significant quantities. Lucian Pugliaresi, President of Energy Policy Research Foundation Inc., testified how the lack of advanced and cellulosic biofuels production from so-called “next-generation” biomass sources such as perennial grasses and agricultural residues have not kept up with RFS volume mandates. Hence, the U.S. is up against the “blend wall,” or the maximum amount of biofuels that can be blended into the fuel supply, as Jack Gerard, President and CEO of the American Petroleum Institute explained.

Joel Brandenberger, President of the National Turkey Federation responded to numerous questions about job losses in the livestock and poultry industries and increased food prices as a result of over 40 percent of the corn supply being diverted to ethanol production. Dr. Jeremy Martin, Senior Scientist at the Union of Concerned Scientists, added that higher food prices partially caused by expanded corn production are not only being seen domestically, but also across the “developing world, accelerating deforestation, and exacerbating other problems like water pollution.” Finally, Rep. Jordan (R-OH) repeatedly asked the Environmental Protection Agency’s (EPA) witness Christopher Grundler whether the Agency has developed detailed criteria for how to determine whether or not biofuels mandates are causing “severe economic harm” to our country; just last year, numerous state governors cited this legislative provision when requesting EPA to waive inflexible mandates that were causing corn and food prices to increase during one of the worst droughts in history. Mr. Grundler admitted that EPA lacks a consistent definition of what constitutes “severe harm.”

While Congress has not yet acted to reform the 2007 mandate, we look forward to engaging in vigorous debates on legislative and administrative proposals to stop harmful giveaways to corn ethanol.

• The last two farm bills cost $400 billion more than predicted
   
• Most of this bill’s savings occur after this farm bill expires in 2018
   
• The bill actually increases spending in FY14 with promises to save later

The Farm Bill IS a Baseline Protection Bill

• The Ag Committee circles the wagons to keep more cash under their purview, squandering billions from eliminating discredited direct payments, and taking credit for $6 billion in sequester savings
   
• Three redundant “shallow loss” income entitlement programs are created to keep subsidies flowing to a sector projected to generate record farm profits in 2013
  • Supplemental Coverage Option (SCO) – 65% subsidized
  • Stacked Income Protection (STAX) – 80% subsidized
  • Agriculture Risk Coverage (ARC) – 100% subsidized

The Farm Bill IS NOT a Response to the Drought

• The bulk of this bill was written in 2011, long before the drought occurred
   
• This bill is not an evaluation of what worked and what did not in 2012
   
• This bill makes taxpayers responsible for guaranteeing revenue for select producers through new, parochial crop insurance carve-outs: peanut revenue, catfish margin, business interruption for poultry, seafood harvesters, alfalfa, and more.

The Farm Bill Ignores Economic Reality and the Deficit

• The Agriculture economy is booming, having experienced its two best years in a generation and this year is projected to be even better
   
• This bill is designed to funnel cash when times are good, but not great, through “shallow loss” programs. Shallow is by definition not catastrophic
   
• Sequestration is in full force, yet this bill diverts billions of savings from eliminating direct payments to create new entitlement programs
   
• Crop insurance has exceeded its CBO score at passage every year since the last Farm Bill. There is no evidence this expensive trend will change

This trillion dollar business-as-usual farm bill IS NOT in the interests of taxpayers.

For more information please at 202-546-8500 or josh<at>taxpayer.net.

Oppose Landrieu Farm Bill Amendment #1113: Gutting Flood Insurance Reforms

June 3, 2013

Dear Senator,

On the heels of increasing the insolvent National Flood Insurance Program’s borrowing authority by $9.7 billion as part of the Superstorm Sandy supplemental spending package, Sen. Landrieu (D-LA) is repeating efforts to try to gut the modest reforms achieved in the reauthorization of the program not even a year ago. This time she is trying to attach the amendment to the Farm Bill (S.954 The Agriculture Reform, Food and Jobs Act of 2013), which is under consideration on the Senate Floor.

The federal flood insurance program, which takes in roughly $3.5 billion in premiums annually, is about $24 billion in debt to the taxpayer. That total is climbing as claims resulting from Sandy are paid out. Ultimately, the program may be in as much as $30 billion in debt to taxpayers, until the next storm hits that is. In an attempt to make the program more actuarially sound, the reform bill that passed last summer included a provision that would reduce the program subsidies by allowing rates to gradually increase to the full-risk based cost. The Landrieu amendment would delay that common sense approach for at least three years. This approach isn’t means-tested or targeted, it is a blanket subsidy extension that would continue the program’s insolvency.

It’s past time for Uncle Sam to stop encouraging people to live in harm’s way with subsidies. In the end, delaying these reforms helps no one, least of all taxpayers. For more information please contact Steve Ellis at 202-546-8500 or steve(at)taxpayer.net.

Sincerely,

Americans for Prosperity

Competitive Enterprise Institute

Cost of Government Center

Council for Citizens Against Government Waste

National Taxpayers Union

R Street Institute

Taxpayers for Common Sense

Taxpayers Protection Alliance

What Sen. Stabenow conveniently overlooks is that when farmers or ranchers purchase a crop insurance policy, almost two-thirds of the “bill” is covered by taxpayers by way of an insurance premium subsidy. So while a farmer or rancher pays some cash for a policy on one of more than 120 crops in the program, he or she is only paying on average 38 percent of the actual cost while taxpayers pick up the rest.

A subsidy is a subsidy, whether it comes in a check, direct deposit, or is masked so you never see the true cost of the subsidized program. When taxpayer dollars reduce your costs, you get a subsidy.

Here are a few other programs where folks “get a bill not a check” that Sen. Stabenow’s logic would say aren’t subsidies:

• Oil and Gas Tax Breaks – Oil and gas companies can reduce their tax burden by billions using targeted tax breaks—tertiary injectants, depletion allowance, and intangible drilling costs, among others. But come April 15, they get a tax bill not a check. 

• Cash for Clunkers –Taxpayers sent nearly $3 billion to car dealers who sold new cars to folks who cashed in a clunker. While their new car had up to $4,500 shaved off its sticker price, every car buyer walked out of that showroom with a bill not a check.

• Essential Air Service – For 35 years we’ve subsidized flights between rural airports, by as much as $1,905 per seat. But when one of those passengers goes to board that plane, it was with a ticket that came with a bill not a check.

• Electrical Vehicle Income Tax Credit – When car buyers purchase new electric vehicles, they are eligible to receive up to a $7,500 tax break on their income taxes. There’s more money in their pocket thanks to taxpayers, but they left the dealership with a bill not a check.

• Medicare Part D –Taxpayers spend more than $60 billion subsidizing prescription drugs for seniors as part of Medicare Part D. However, when your grandmother checks in with the pharmacist, she gets a bill not a check. 

Getting a bill, not a check, is irrelevant. However you get the handout, it’s still a subsidy.

Guest speakers:

• Dr. Arjun Makhijani, President of the Institute for Energy and Environmental Research
• Autumn Hanna, Senior Program Director at Taxpayers for Common Sense
• Tom Clements, Southeast Nuclear Campaign Coordinator with Friends of the Earth
• Sara Barczak, High Risk Energy Choices Program Director with Southern Alliance for Clean Energy

To view our power point presentation, click here OR see the attached document.

To listen to the audio & video along with the other guest speaker presentations, click here.

For more information on taxpayer subsidies for small modular reactors, see our materials below:

• First Award for Small Modular Reactor Program Announced (April 2013)

• White House Budget Proposes Spending More On Small Modular Reactors, Winner of 2013 “Golden Fleece Award” (April 2013)

• Energy Department Announces Second Round of Small Modular Reactor Funding (March 2013)

• Taxpayer Subsidies for Small Modular Reactors (February 2013)

• TCS President Statement on Golden Fleece Awarded for Federal Spending on Small Modular Reactors (February 2013)

• Golden Fleece Award Goes to Department of Energy for Federal Spending on Small Modular Reactors (February 2013)

The Department of Energy (DOE) owns the Paducah facility which was leased to USEC in 1998 and the company has operated since 1999. For years, DOE has handed over tens of millions worth of uranium to USEC and assumed millions more in depleted uranium liabilities in order to boost USEC’s bottom line. Yet, over the past few years, the value and credit rating of USEC has plummeted leaving taxpayers further in debt with nothing to show for it. The closing of the Paducah gaseous diffusion plant is one more sign that USEC is in major financial trouble and the Department of Energy should avoid handing over any additional taxpayer money.

For more information, please contact Autumn Hanna at 202-546-8500 x112
or autumn <at> taxpayer.net.

This is obviously a shocking and concerning event. Like the I-35W bridge collapse in Minneapolis in 2007, this bridge was also considered “fracture critical,” which means that when a specific part of the bridge fails, the entire bridge is prone to failure. Unlike in Minneapolis, however, the Skagit River Bridge was not considered to be in particularly bad shape. According to the Associated Press, there were 759 bridges in Washington State with a lower sufficiency rating. The bridge was considered “functionally obsolete” – which generally means it doesn’t meet current design standards, not that it’s unsafe – not “structurally deficient” which would indicate some failure of one or more bridge elements.

In other words, the Skagit River Bridge would likely not be at the top or even near the top of a prioritized list of bridges requiring repair in Washington State. At the same time, however, this bridge was certainly past its intended lifespan (it was built in 1955, making it 58 years old) and likely carrying far more vehicles per day than it was originally intended. So if this bridge was not higher on the list of priorities, consider what that says about the rest of the systems bridges.

In 2011, TCS did a report that looked at the state of the nation’s bridges (Bridging the Gap: Redirecting Investments to Fix the Nation's Bridges). Despite improvement to the overall rate of deficient bridges in recent decades, we found that more than 11% of all existing bridges are structurally deficient. In addition, several other factors are likely working against states’ ability improve on this number: Congress recently stripped the requirement that a certain percentage of federal dollars be spent on bridge upkeep; investment overall in transportation is declining; and the nation’s transportation funding is constantly strained because the federal gasoline tax hasn’t been increased since 1993.

The collapse of the Skagit River Bridge is another reminder that maintenance and upkeep of our existing transportation facilities is crucial to the safety and wellbeing of the nation.

Background - Current Agricultural Policy Structure

The current agricultural subsidy system is a maze of market distorting policies that reward a handful of large farm businesses at the expense of taxpayers. The system results in costly inefficiencies that detract from program goals and produce numerous unintended consequences. The federal government subsidizes a disproportionate amount of the risks agribusinesses face to the detriment of taxpayers, consumers, and agriculture as a sector making it less competitive, less resilient, and less accountable for its impacts. These programs and policies are made up of direct federal expenditures, programs that shift business risk from producers to taxpayers, and mandates that create or influence market conditions. Examples include direct payments, government-set target prices, industry specific programs, highly subsidized crop insurance, disaster programs, trade policies, biofuels mandates, subsidized loans, and many more.

Agriculture Subsidy Accountability – Principles for Reform

A more adequate, effective, and efficient agriculture safety net can be created by meeting the following four reform-minded principles:  cost-effective, accountable, transparent, and responsive.

(1) Cost-effective

• Eliminate duplicative and wasteful subsidies:  With numerous agricultural subsidy programs striving to achieve similar goals and cover the same risks, agribusinesses ultimately receive duplicative payments that waste taxpayer dollars. Outdated subsidies must be eliminated once and for all.
• Cut income guarantee subsidies:  Washington should not guarantee any industry’s profits – including agriculture. Subsidy programs must only pay out during true times of need, not every year or after a bountiful harvest or record profits. Because new “shallow loss” income guarantee subsidies would only increase the government’s role in the everyday business decisions of agricultural producers, at great cost and with little public benefit, they should be rejected outright.
• Allow agribusinesses to assume more risk:  Instead of shifting nearly all risks onto taxpayers, agribusinesses should assume more of their own business risks. Numerous unsubsidized private risk management options exist, like hedging, private crop insurance, off-farm income, diversification, contracting, and vertical integration.
• Allow private sector to compete on level playing field:  The federal role in the agricultural safety net is to help protect against risks that the private sector is incapable of effectively managing, not crowd out the private sector out of convenience or the benefit of parochial interests.
• Only pay for additional conservation practices:  Instead of paying agribusinesses to implement conservation practices that they would employ on their own, either as routine business practice or in response to reasonable health and welfare regulations, millions of taxpayer dollars could be saved by only paying for additional practices that produce measurable public benefits and reduce downstream and future costs of the agriculture industry’s impacts. To achieve full cost-effectiveness, payments must be targeted to areas most in need and to practices with the greatest measurable impact.

(2) Accountable

• Limit market intrusions:  Subsidy programs should not distort agricultural markets, perpetuate unintended consequences, inflate land prices, alter planting decisions, or promote excessive risk taking at taxpayer expense. Subsidies shouldn’t incentivize agribusinesses to plant crops on marginal lands where success is unlikely and that would likely not be cultivated in the absence of federal subsidies. 
• Meet minimum accountability standards:  Agribusinesses must use best management conservation practices in exchange for any taxpayer support. Rotating crops, conserving wetlands, using conservation tillage practices, and other time-tested industry-standard means should be employed to reduce downstream costs of agricultural pollution, conserve land for future generations, and reduce taxpayer liabilities.
• Achieve measurable results:  Taxpayers have a right to know which agriculture programs receiving federal dollars are achieving measurable results. Agricultural programs must have improved performance measures and metrics in order that spending can be prioritized and targeted toward the most effective projects with the best return on investment.
• Target subsidies to the needy:  Federal taxpayers cannot afford to dispense unlimited agricultural subsidies to profitable agribusinesses or landowners that are divorced from the actual risks involved in agricultural production. Reasonable limits and stricter definitions on which agribusinesses qualify for subsidies must be utilized to ensure that federal programs do not work at cross-purposes.
• Eliminate corporate welfare subsidies:  Corporate subsidies that place taxpayers in the position of covering the expected and inevitable costs of business decisions should be eliminated (like subsidizing crop insurance companies to sell and service subsidized policies, paying for swine odor reduction research, or mitigating pollution caused by large animal feeding operations). Businesses must be accountable for the inevitable ramifications of their business decisions.

(3) Transparent

• Make agricultural subsidy programs transparent:  At one point or another, all taxpayer subsidies have been shielded from the public eye. It’s time all subsidies became transparent and available in an easily accessible and understandable format. If agribusinesses object to the public’s right-to-know, they can turn down federal subsidies and instead utilize unsubsidized risk management options.

(4) Responsive

• Make agriculture responsive to current needs by repealing permanent farm bill law:  Agriculture policy should not be based on outdated policies developed decades ago that no longer meet modern needs. Keeping permanent law in place serves one purpose:  forcing lawmakers to choose bad policies over disastrous ones. This cynicism must end.
• Separately consider farm and nutrition policies:  Lawmakers should separate farm policies from nutrition policy in order to separately debate the merits of each. Tying nutrition policy to agricultural policy provides a disservice because the needs of producers don’t necessarily intersect with the needs of nutrition program participants. For too many years, the special interest wishes of farm subsidy proponents have dictated the outcome of agricultural and nutrition policies rather than the needs of average farmers and consumers.
• Eliminate special interest subsidies and parochial programs:  Provide an adequate and appropriate agricultural safety net that provides public benefits rather than special interest subsidies and parochial programs. Taxpayers cannot afford to insulate individual agricultural businesses from the physical and market conditions impacting their operations.

Conclusion/Recommendations

The time has come that U.S. agricultural policies become more cost-effective, transparent, accountable to taxpayers, and reflective of today’s modern production practices. Taxpayers and America’s farmers alike deserve an adequate, effective, and efficient agricultural safety net that limits unintended consequences, eliminates long-term liabilities, and allows private risk management options to compete on a level playing field. Taxpayers have a right to know where their taxpayer dollars are going and which programs produce the best return on investment. Producers should strive to operate under free markets that aren’t littered with unnecessary distortions and arbitrary special interest carve-outs that pick winners and losers. Making federal agricultural policies more accountable to taxpayers and the public will not only save billions of federal dollars, but will also reduce barriers for beginning farmers, conserve land for future generations, and promote a more resilient American agriculture. 

For more information, visit www.taxpayer.net, or contact Joshua Sewell, josh at taxpayer.net.

Last year, the full Senate and the House Agriculture Committee each passed bills that included more government subsidies for favored crops and special interest carve-outs for everything from cotton to catfish, which have no place in  modern agricultural markets. This month, House and Senate Agriculture Committees produced new bills with similar special interest carve-outs that fail to reduce the government’s role in agriculture. The agribusiness and crop insurance industries convinced the Agriculture Committees to expand the already heavily subsidized federal crop insurance program and create new agribusiness entitlements called “shallow loss,” which create even more generous government-guaranteed profit margins for favored crops like corn, soybeans, and wheat. While lawmakers largely agreed to eliminate the indefensible direct payment program, these outdated subsidies will likely be in effect until at least September, when the current farm bill expires.

Whether through lobbying expenditures or political campaign contributions, the agribusiness and crop insurance industries continue to make their mark on our nation’s agricultural policies. Former Members of Congress even exert influence to get special carve-outs for their clients like new popcorn and peanut subsidies and profit margin guarantees for cotton and dairy. Some current members of the House and Senate Agriculture Committees and/or their spouses receive the very subsidies they are tasked to oversee. Not surprisingly, it is difficult to end this web of inefficient and ineffective agricultural subsidies to get our nation’s finances under control.

Lobbying Power

Agribusiness and crop insurance interests spent $95.3 million lobbying Congress and various federal agencies last year – more than $261,000 per day.   Since 2006, they have spent more than $615 million lobbying the federal government. In Figure 1 below, note that lobbying ramps up in years leading up to farm bill deliberations (before 2008 and 2012). The farm bill is a massive piece of legislation that covers wide-ranging topics from nutrition assistance and rural development to agricultural crop subsidies.

Revolving Door Lobbyists

Agribusiness and crop insurance interests also fielded 764 lobbyists, more than one for each member of Congress. More than half of these lobbyists were revolving door personnel, meaning they know the ins and outs of Washington, having previously worked or interned on Capitol Hill, at the White House or presidential campaign, or for a federal agency. Of these lobbyists, about two-thirds (510) were examined more closely since they lobby to make agricultural and/or crop insurance subsidies or policies more lucrative for their clients.  Over 40 percent worked or interned on Capitol Hill and one of every four worked or interned for a House or Senate Committee. More specifically, at least 33 lobbyists formerly worked at the U.S. Department of Agriculture (USDA) and 38 worked or interned on the House or Senate Agriculture Committee. Table 1 includes more information about the former employers of these 510 agribusiness lobbyists.

At least 98 of these lobbyists are advocating to specifically retain or expand the current maze of crop insurance subsidies that likely cost taxpayers a record $14 billion in fiscal year 2012 while padding the bottom lines of profitable crop insurance companies and agribusinesses. Of these 98 lobbyists, 14 worked on the House or Senate Agriculture Committee, 12 previously worked at USDA, and 12 worked for a non-Ag Committee. Below are more details about just 10 of these well-connected crop insurance lobbyists:

• Tom Sell: formerly Director of Intergovernmental Affairs at USDA and Deputy Chief of Staff on the House Agriculture Committee, Sell now lobbies on behalf of groups like the Crop Insurance Professional Association.
• Jeff Harrison: formerly Counsel on the House Agriculture Committee, Harrison now lobbies with Tom Sell and former Representative Larry Combest (R-TX). He doesn’t hide the fact that he was one of the lead lawyers writing the 2000 Agricultural Risk Protection Act, which greatly expanded crop insurance subsidies, and the 2002 Farm Bill’s Commodity Title.
• Michael Torrey: formerly a Deputy Chief of Staff at USDA, Torrey now lobbies for the Crop Insurance and Reinsurance Bureau and Crop Insurance Research Bureau.
• Michael McLeod:  formerly Staff Director on the Senate Agriculture Committee, McLeod helped found McLeod, Watkinson & Miller which lobbies on behalf of the American Association of Crop Insurers and Western Peanut Growers Association.
• William O’Conner:  formerly Chief of Staff on the House Agriculture Committee under Chairman Larry Combest, O’Conner also now lobbies for the American Association of Crop Insurers and Western Peanut Growers Association.
• Dale Moore: formerly a Chief of Staff at USDA and Legislative Director on the House Agriculture Committee, Moore now lobbies for the American Farm Bureau which is affiliated with American Farm Bureau Insurance Services, Inc.
• Brent Gattis: formerly Deputy Chief of Staff on the House Agriculture Committee, Gattis now lobbies for the National Association of Crop Insurance Agents.
• H R Bert Pena and Phillip Fraas: formerly Counsel and Chief of Staff on the House Agriculture Committee, respectively, Pena and Fraas both now lobby for the National Crop Insurance Services and American Peanut Shellers Association.
• Stephen Frerichs: Frerichs previously worked at the Office of Management and Budget (OMB) focusing on agricultural insurance issues.  He now lobbies on behalf of Rain & Hail, an approved crop insurance provider that receives taxpayer subsidies.

But the revolving door doesn’t close there. At least seven Members of Congress also lobby on agricultural and crop insurance issues, including two who helped write the 2002 farm bill:

• Larry Combest:  as a former Republican Congressman from Texas and Chairman of the House Agriculture Committee from 1999 to 2003, Combest wrote the 2002 farm bill and the 2000 Agriculture Risk Protection Act (ARPA) which greatly expanded crop insurance subsidies. In 2005, he founded Combest, Sell, and Associates with Tom Sell to lobby for groups like the Crop Insurance Professional Association, National Grain Sorghum Producers, Minnesota Corn Growers Association, Cotton Warehouse Association of America, American Sugar Alliance, USA Rice Federation, and Western Peanut Growers Association. 
• Charlie Stenholm: as a former Democratic Congressman from Texas, Stenholm helped write the 2002 farm bill as Ranking Member of the House Ag Committee.  He now lobbies for Syngenta AG, Federal Agricultural Mortgage Corp, and Rolling Plains Cotton Growers.
• Lauch Faircloth: a former Republican Senator from North Carolina, Faircloth served on the Appropriations, Banking, and Small Business Committees; he now lobbies for Dow Chemical.
• Vic Fazio: a former Democratic Congressman from California, Fazio served on the powerful Appropriations Committee and was the head of the Democratic Congressional Campaign Committee.  He now lobbies for Archer Daniels Midland and Dow Chemical.
• Don Nickles:  a former Republican Senator from Oklahoma, Nickles served as Chairman of the Senate Budget Committee and was a member of the Energy and Natural Resources, Finance, Joint Printing, Joint Taxation, and Rules and Administration Committees. He also served in leadership as the Republican Whip.  He now lobbies on behalf of Monsanto Co.
• Bill Paxon: a former Republican Congressman from New York, Paxon served on the House Commerce Committee and was the head of the National Republican Campaign Committee. He now lobbies for Archer Daniels Midland and Dow Chemical.
• Vin Weber: a former Republican Congressman from Minnesota, Weber served on the powerful House Appropriations Committee and as a member of House Republican Leadership. He now lobbies for Agstar Financial Services.

Campaign Contributions to Agriculture Committee Members

The agribusiness and crop insurance sectors also exert influence by contributing to political campaigns, particularly to members of House and Senate Agriculture Committees. During the 2012 election cycle, Political Action Committee (PAC) donations from agribusinesses (minus tobacco and forestry interests) hit a record $17.3 million while political contributions from crop insurance interests totaled nearly $4 million.  Agribusiness and crop insurance PACs send 30 percent of their campaign contributions to members of the House and Senate Agriculture Committees even though these individuals only make up 12 percent of Congress. Table 2 includes a list of the largest agribusiness and crop insurance-related contributors to the Agriculture Committees.

The top Senate recipients of agribusiness and crop insurance PAC donations were Agriculture Committee Chairwoman Stabenow (D-MI) and former Ranking Member Roberts (R-KS), who received $508,015 and $228,467 during the 2012 election cycle, respectively. Sen. Cochran (R-MS), who became Ranking Member in 2013, received only $17,000, but that will likely change. The top House recipients were Chairman Lucas (R-OK) and Ranking Member Peterson (D-MN), who received $541,367 and $415,482, respectively. Table 3 lists PAC donations to all Ag Committee members.

Even Members of Congress and Their Spouses Reap Agricultural Subsidies

Lobbying expenditures and political contributions are not the only examples of conflicts of interest in our nation’s agricultural policies. At least 11 members of the Agriculture Committees or their spouses have received agricultural subsidies, either directly or through various trusts, limited liability companies, corporations, partnerships, or other legal entities. Three of these Representatives hold top posts on the House Agriculture Committee – Chairman Lucas, Ranking Member Peterson, and Rep. Neugebauer, the second top Republican on the General Farm Commodities and Risk Management Subcommittee which happens to be in charge of crafting agricultural and crop insurance subsidies.

Conclusion

Our nation’s agricultural safety net is in dire need of reform. The farm bill must be reformed to reflect today’s modern production practices and the current state of the farm economy. Taxpayers can no longer afford to dispense unlimited and unnecessary subsidies to some of our country’s most profitable crop insurance companies and agribusinesses, especially as the agriculture industry comes off one of its best years of profits in a generation. A path toward a more cost-effective, transparent, accountable, and responsive agricultural safety net can be found. But first, special interests, their connections, and conflicts of interest must be exposed if we ever hope to break the cycle of status quo policies that have dominated U.S. agriculture policy since the Great Depression.

For more information, contact Joshua Sewell at 202-546-8500 x116, or josh at taxpayer.net.

The combination of Superstorm Sandy and the current fiscal and political climate offers a significant opportunity to make a long-term and positive impact on disaster policy to the benefit of communities, taxpayers, and the natural environment. People who previously watched disasters on the Weather Channel and cable news suddenly experienced the storm in their front yards, in the prosperous economic heartland of the mid-Atlantic. The sheer number of people and population centers affected by Sandy has helped shift the debate about disasters from one about helping “other people” to a conversation about national disaster policy.

There is an equal opportunity, however, that Superstorm Sandy’s legacy could be decreased resilience and increased risk to property and lives if it simply reinforces our nation’s current knee-jerk-reaction-oriented disaster planning.

There is wide agreement that there is a significant role for the federal government in disaster response, both immediate aid and assistance by federal agencies and funding to rebuild infrastructure. Tax dollars should be spent effectively, efficiently, and for the benefit of all and not narrow special interests. By re-orienting post-disaster spending to encourage rebuilding that makes people, property, and infrastructure less vulnerable and more resilient, we can ensure that future disasters cost far less. Similarly, by restructuring federal spending programs to pre-spond to disaster by not encouraging high risk development in the first place and encouraging measures that mitigate an increased resiliency in the face of climate change and sea level rise, we also reduce the costs of the inevitable future disasters.

Sandy’s Legacy

Not all large scale disasters have a lasting policy impact. Katrina and the other storms of 2005 resulted in very few policy changes. But like the Ash Wednesday storm of 1962 – which resulted in the federal government’s involvement in shore protection – Sandy has real potential to affect policy, not the least of which is that more House lawmakers’ districts were affected by Sandy than any disaster in memory. It’s up to advocates of smarter disaster policy to ensure policy change recognizes that in the face of sea level rise and climate change, rebuilding in the same manner and in same place is not sustainable.

In the aftermath of Sandy, there have been calls for buyouts of especially vulnerable property and smarter rebuilding from elected officials in New York and New Jersey. But at the same time lawmakers from the affected region have touted the effectiveness of U.S. Army Corps of Engineers’ efforts at beach replenishment and construction of dunes and berms in reducing storm damage. This convenient explanation - "damage would have been worse without the constructed protection” - fails to recognize that Sandy was not the worst possible storm, and damage would have been further reduced if these areas had not been as developed in the first place.

Many in Washington are trying to write-off advocates of smarter floodplain management and disaster preparedness, claiming the choice is between retreat and reinforcement. This is a false choice with loaded words. Though Americans don’t like retreating, what we’re proposing is advancing to higher ground and moving out of harm’s way when it makes the most sense. Buyouts and relocations with residual flood and storm protection are the best choice in some locales, while in others reinforcing the flood protection may be most economical and efficient. And defenders of the no retreat, reinforce at all costs strategy ignore what millions now know for the first time—that they are vulnerable to natural disasters. Ignoring this reality will put people in harm’s way.

Furthermore, by working with natural systems, communities and infrastructure can be less vulnerable with good environmental outcomes. In fact, environmental restoration can be one of the most effective tools for reducing disaster impacts.

Current Policies Promote Risky Development

Whether you are talking about floods or wildfire, drought or earthquake, government has both a balkanized and myopic approach to disaster prevention/ mitigation/ response and climate change. The initiatives are spread across many programs and agencies, and often are not informed by one another. To make matters worse, some of our infrastructure and insurance policies not only encourage development in harm’s way, but also keep people in the same place even after the inevitable disaster occurs. 

The federal government promotes high-risk development by removing much of the economic risks for the beneficiaries of development. The availability of subsidized (through the form of below market rates) federal flood insurance, predominantly federally funded flood and storm damage reduction projects, post-disaster funding assistance (for all the different types of disasters such as fire as well as flood), and a litany of federal development programs from road-building to community development block grants all serve to shift financial risk to federal taxpayers, thereby encouraging more intensive development and rebuilding in high risk areas.

The federal funding provided in the recent supplemental appropriations bill for “Sandy relief” had very little instruction as to how to prioritize the funding decisions, or even that reconstruction would make communities, people, and property less vulnerable. Much of the funding was provided at full federal expense, removing local and state funding "skin in the game” that can serve as disincentive to simply rebuilding as before. The bill also rushes to automatically green light any project that meets vague criteria of increasing protection. Congress is essentially abdicating its oversight authority and pushing Washington to a wild, wild, west scenario for floodplain management and disaster planning. Thus far, that is the greatest lesson of Sandy.

The inherently wasteful nature of the ad hoc, knee-jerk approach to post-disaster funding is colliding with the fiscal challenges facing the nation. Local communities, state governments, and other non-federal entities have to shoulder more, not less, of the costs. This provides an opportunity to argue that a more consistent federal investment in prevention would be both more fiscally prudent and preclude the need for emergency spending in all but the largest events. 

A key to making these disaster reform policies and proposals stick is community engagement. Communities that are prepared and have planned for the inevitable disasters that strike are more likely to not simply rebuild as before, but take advantage of the tragedy to come out the other side as more resilient and less vulnerable to future disasters.

Levers of Opportunity for a More Rational Disaster Policy

Too often funding provided for infrastructure pre- and post-disaster serves as a “funded un-mandate” where taxpayers are not sure their investments are being spent in ways that will lead to less future disaster risks or to reduce costs. Most federal infrastructure programs do not rigorously take into account climate change and predicted sea level rise, but in the coming decades, the built environment -- bridges, beaches, wastewater and water supply projects, energy generation infrastructure, and ports -- will be dramatically affected by changing weather.

In the past, disaster related spending – both for mitigation and post-disaster response – was littered with earmarks for parochial interests of powerful lawmakers.

A renewed interest in disaster spending and policy opens up opportunities in both the regular budget process and the Stafford Act (1974 legislation that governs federal disaster response) for reform efforts in the 113^th Congress. Here are few of the areas of concentration:

Army Corps of Engineers

From debris removal to pumping sand on beaches the Corps of Engineers is on the front lines of disaster recovery and response. All too often the response and construction work has lead to the next disaster as people and property are put back in harm’s way with protection that may work in small and medium size events, but cannot protect against large and extreme events.

The agency is oriented toward structural large-scale solutions designed to prevent damage. The consequences of those solutions often encourage people and infrastructure to remain in harm's way inevitably eading to increased damage in large-scale events that overwhelm the protection. Furthermore, large infusions of cash provided to the Corps after a disaster leads it to rebuild in nearly the same way or pick ill-conceived dormant projects off the shelf and construct them in the name of future protection. The evaluation system for project selection needs to be reoriented to ensure that projects that permanently reduce risk (e.g. buyouts) are given preference in the decision-making process. Furthermore, all projects should have contingency plans for post-disaster because in some cases speed, rather than reason, is the rationale for rebuilding as before.

The authorizing legislation for the Corps, the Water Resources Development Act, is presently under debate in the Congress.

Community Development Block Grants (CDBG)

This large pot of cash ($16 billion in the Sandy supplemental) that goes to states and localities comes with very few strings attached to ensure smarter development. While reducing risk for low to moderate income communities is one of the acceptable outcomes, it should be the guiding directive. This is not an insignificant amount of funding. Since 2000, more than $45 billion has gone through the CDBG disaster relief account. Furthermore, greater weight should be provided in the general CDBG formula granting process for plans that include a significant amount of disaster mitigation.

Crop Insurance

The existing system of agriculture subsidies encourages farming that virtually guarantees regular disaster relief. The heavily subsidized crop insurance program guarantees farmers income which encourages over production of lucrative commodity crops and promotes their cultivation on marginal lands which can lead to increased flooding and increased chemical use. While the droughts of 2012 were the worst in a generation, farm profits were at near record levels. And while crop insurance cost taxpayers a record $14 billion in 2012, the corn crop was still the sixth largest ever. Reducing federal crop insurance subsidies would encourage the highly profitable farming industry to use risk management tools that take advantage of market (such as futures) and traditional (such as crop rotation) tools, while not encouraging planting on marginal land.

Federal Emergency Management Agency (FEMA)

Even within FEMA, the programs and policies for mitigating disaster are balkanized and not mutually reinforcing. Greater emphasis and spending should go to projects that move people and critical infrastructure out of harm's way. Disaster relief funding should be provided with a sliding scale cost-share that rewards communities and states that have credible post-disaster plans. A revamped Community Rating System could help in this area. Furthermore, communities should be required to adopt sustainable building codes and mitigation plans to be eligible for the full federal match.

Forest Service

In too many cases the wildfires the Forest Service is fighting are made more risky and deadly because of encroachment of property owners and even subdivisions into the wildland urban interface. The recent droughts and the looming impact of climate change will only exacerbate this problem. The historic open checkbook attitude to wildfire suppression costs has discouraged proactive planning and restoration investments. Also, the growth of private contractors for suppression operations has created a lobbying class for this approach. One key element to reducing risk and cost will be tying federal spending to changes in on the ground management and zoning law enforcement.

National Flood Insurance Program (NFIP)

Some reforms to the subsidized federal flood insurance program were included in the 2012 legislation that reauthorized the program for another five years. However, further reforms are needed to remove subsidies for high risk development. While the program took in $3.5 billion in premium revenue in 2011, it was $17 billion in debt to the federal taxpayer. After Sandy, the indebtedness may rise to as much as $30 billion.

The mandatory purchase requirement under NFIP should either be strengthened to include properties outside the 100 year floodplain or should be abandoned. The current threshold creates a binary system where the public feels that there is no need for flood insurance if you have 100 year protection. In addition, we have already seen efforts to roll back the 2012 reform bill (Biggert-Waters) and delay the incremental steps toward real risk based rates. If there is a true need for premium supports for lower income individuals, these should be done as temporary subsidies separate from the risk based rates. 

Transportation Funding

One of the legacies of Sandy is the image of flooding in New York City’s subway system and tunnels. Simple mitigation measures at the subway entrances or inflatable bladders to block flood waters could have reduced damage significantly, for instance. But most notably, there wasn’t a plan for a very predictable flooding event. Mitigation planning and disaster response should be a portion of all transportation projects and transportation plans must take into account how to rebuild more resiliently. One of the best examples of this is the removal of the Embarcadero Freeway after the 1989 Loma Prieta earthquake and construction of the at-grade boulevard.

Wastewater and Drinking Water Funding

Clean water and drinking water infrastructure is, unsurprisingly, a magnet for development. But little has been done to ensure that the EPA’s Clean Water and Drinking Water State Revolving Loan Funds encourage less large infrastructure and smaller distributed systems that better integrate the natural systems. Furthermore, because of the very nature of this type of infrastructure it will almost be always constructed in the floodplain, so incorporating protection and disaster planning in initial planning is critical.

The polarization of current budget debates and the paralysis of Congress demand new voices and new insights to move reform forward, along with a persistent presence pushing back on the constant efforts of the most entrenched interests. 

For more information, please contact Ryan Alexander, President at (202) 546-8500 x104 or ryan@taxpayer.net; or Steve Ellis, Vice President at x126 or steve@taxpayer.net. 

Last year we saw the Agriculture Committees peddling their trillion dollar bills—which history shows us will likely cost much more than predicted—as “deficit reduction.” In reality, they took every opportunity to cut as little as possible. Accidentally saving too much, they added $1.1 billion of additional spending on pet projects during their Committee mark up. After going to the Senate floor, $500 million more was tacked on. And once the CBO scored the bill for this Congress, turns out it really only saved $13 billion.

The bill scheduled to be on the Senate floor tomorrow continues us on that path:

• The bill promises to cut spending, by first increasing spending by $800 million in 2014.
• Two-thirds of the $17.8 billion in “savings” occur after 2018 when this five-year farm bill expires and is replaced with a new subsidy-filled farm bill. Only $5.6 billion is cut between 2014-2018.
• More than half the potential $50 billion in savings found from cutting discredited ACRE, direct, and Counter-Cyclical payments, is squandered on new “shallow loss” business income entitlements and government mandated minimum prices.
• If all optional programs - or discretionary programs as they’re known in Washington - are funded throughout the life of the farm bill, they would COST taxpayers an additional $40 billion (since CBO normally only provides an estimate of mandatory spending, these two are listed separately). Together, the Senate farm bill’s mandatory and discretionary programs would COST taxpayers $22 billion MORE over ten years.

With taxpayers saddled with $17 trillion in debt, sequestration in full force, and a nearly $650 billion deficit predicted for this year, the Agriculture Committees need to do more, not less.  Taxpayers must demand their Senators get serious about reining in spending instead of circling the wagons to resist making government work at reducing our deficit.

Support the Bipartisan Assisting Family Farmers through Insurance Reform Measures Act (AFFIRM)

May 15, 2013

Dear Representative,

The undersigned organizations urge you to support the Assisting Family Farmers through Insurance Reform Measures (AFFIRM) Act recently introduced by Representatives Ron Kind (D-WI) and Tom Petri (R-WI). The AFFIRM Act would help rein in the spiraling cost of the federal crop insurance program, which has quickly become the most expensive taxpayer subsidy for agriculture. The bill would also take commonsense steps to make the crop insurance program more accountable to taxpayers, limit unnecessary market distortions, and increase public transparency.

According to the U.S. Department of Agriculture’s Risk Management Agency, the highly subsidized federal crop insurance program cost taxpayers a record $14 billion in FY12. Due to high commodity crop prices, expanded program participation, and the introduction of new policies that shift additional risks onto taxpayers, the program’s total cost quadrupled over the past decade alone. Federal crop insurance subsidizes policies covering not only a loss of crops, but the majority of its cost is spent guaranteeing business income for well-off producers coming off one of their best years of farm profits in a generation. The program also spends $1.3 billion per year subsidizing crop insurance companies to administer the program. Finally, the government also picks up a greater portion of losses during poor growing years, such as last year, putting additional risks squarely on taxpayers.

The AFFIRM Act would accomplish the following objectives (cost savings presented as ten-year estimates):

• Bring crop insurance in line with other agricultural subsidy programs by allowing taxpayers to see where their dollars are going, limiting annual premium subsidies to $40,000 per producer, and applying means testing to eliminate subsidies for large agribusinesses earning over $250,000 in adjusted gross income per year (expected savings of $6.1 billion);
• Reduce taxpayer subsidies provided to private insurance companies to administer crop insurance policies and reduce the taxpayer burden of covering a greater percentage of losses from high-risk policies (expected savings of $3 billion);
• End the practice of subsidizing private crop insurance companies at a rate above the industry average (expected savings of $1.8 billion).

We commend Reps. Kind and Petri for their leadership and urge you to cosponsor the AFFIRM Act to help rein in out-of-control spending on crop insurance and begin to get our nation’s finances under control.

Sincerely,

American Commitment

Americans for Tax Reform

Campaign for Liberty

Center for Individual Freedom

Competitive Enterprise Institute

Cost of Government Center

Council for Citizens Against Government Waste

FreedomWorks

National Taxpayers Union

R Street Institute

Taxpayers for Common Sense

Taxpayers Protection Alliance

House and Senate Agriculture Committees Introduce "New" Farm Bills

While the Agriculture Committees finally agreed to eliminate the outdated direct payment program, except for Cotton which gets two years of “transition” payments in the House bill, they plow these savings into other new and potentially more costly and market-distorting entitlement programs that guarantee anticipated levels of income for agribusinesses. The $955 billion Senate bill and $940 billion House bill both not only include new special interest carve-outs but also fail to shave more than two to four percent off projected food and agriculture spending over the next ten years. Some of the new goodies in the Senate farm bill include government-set target prices – especially higher price floors for peanuts and rice, which were added to pacify the Southern farm lobby and Southern senators.

The addition of target prices, plus higher spending on the already highly subsidized federal crop insurance program and taking credit for $6.4 billion in savings that were already scheduled to occur under government-wide sequestration, tells taxpayers that the Agriculture Committees are unwilling to do their fair share to help pay down our debt and eliminate unnecessary and unaccountable subsidies for one of the brightest sectors of our economy. While agriculture is expected to reap record farm profits this year, Washington is taking a step in the wrong direction, proposing new multi-billion dollar subsidies that most farmers never even asked for.

Finally, even though the 2013 farm bill drafts are nearly identical to those that passed the House Agriculture Committee and full Senate last year, several new sections were added. Most of the following provisions are intended to benefit certain organizations or constituencies within the authoring members’ districts or states:

Additions to 2013 Senate Farm Bill  

1. Sec. 1202. Upland cotton price floor for loan rates:  reduced from $0.47 to $0.45 per pound (unknown which Senator requested this addition but likely added to placate Southern interests).
    
2. Sec. 4209. Multiagency task force:  to provide recommendations for U.S. Department of Agriculture (USDA) commodity programs within the Food and Nutrition Service (FNS) to ensure commodity food programs support the agriculture sector and contribute to health and wellbeing of individuals in the U.S. (unknown which Senator requested this addition).
    
3. Sec. 4210. Food and Agriculture Service Learning Program:  designed to “increase knowledge of agriculture and improve the nutritional health of children”; authorization of $25 million in appropriations to be available until expended (included in Local Farms, Food, and Jobs Act introduced by Sen. Sherrod Brown (D-OH)).
    
4. Sec. 7207. Agricultural Genome Initiative:  would amend the current Agricultural Genome Initiative, stating that a consortium of eligible entities can apply for matching funds awards (unknown which Senator requested this addition).
    
5. Sec. 9002. Biobased Markets Program:  forestry was added as an eligible feedstock (S. 463 introduced by Sens. Pryor (D-AR), Blunt (R-MO), King (I-ME), Collins (R-ME), Crapo (R-ID), Hatch (R-UT), Boozman (R-AR), and Chambliss (R-GA), the latter two of which serve on the Senate Agriculture Committee).
    
6. Sec. 12106. National animal health laboratory network:  USDA Secretary can enter into grant and other funding agreements to respond to bioterrorist threats; appropriations of $15 million each fiscal year 2014 to 2018 (According to a recent press release on the bill’s introduction by Sen. Bennet (D-CO), “Colorado State University (CSU) houses one of the core member laboratories in the National Animal Health Laboratory Network (NAHLN)” and “Bennet will urge the Committee to include the Animal and Public Health Protection Act in [the 2013] Farm Bill”; Bennet is a member of the Senate Agriculture Committee).
    
7. Sec. 12107. National poultry improvement plan (NPIP):  USDA Secretary should continue to administer the avian influenza program (although not on the Senate Agriculture Committee (Sen. Carper (D-DE) has been an advocate in the past).

While a few positive reforms are included in the respective 2013 farm bills, much more needs to be done to save taxpayers at least $100 billion and make agricultural programs more cost-effective, transparent, and accountable to the public.

Washington’s Farm Policy is a nearly trillion dollar tangle of agriculture subsidies, welfare payments and environmental patronage. There is tremendous need for reform. Current subsidy programs are rooted in the 1930s, when prices for crops and livestock bottomed out and farm families were desperate for income. Agriculture today could not be more different. Farmers are pulling in record-high levels of income and carrying record-low levels of debt. Technology has eliminated many of the risks that once plagued farming, and the profitability of crops that go without subsidies demonstrates independent agriculture is viable in the 21st Century. There is no way to justify continuing to give tens of billions of dollars to the farm industry.

Farm Policy: The “Terrible Twelve”
(That actually relate to farming)

1. Direct Payments. Taxpayers are lavishing billions of dollars on successful farm enterprises whether or not the farm is actually growing the crops for which they are receiving the subsidies or growing any crop at all. Contact: Diane Katz diane.katz at heritage.org and Fran Smith fbsmith at cei.org

2. Federal Crop Insurance. In 2012 taxpayers spent more than $14 billion subsidizing agriculture businesses buying crop insurance (and thus subsidizing insurance companies) for everything from almonds to oysters. Contact: Andrew Moylan amoylan@rstreet.org and Josh Sewell josh at taxpayer.net

3. Shallow Loss Programs. A new open-ended income program will put taxpayers on the hook for guaranteeing record prices. This shallow loss coverage would cost taxpayers billions of dollars and potentially violate World Trade Organization rules. Contact: Josh Sewell Josh at taxpayer.net and Andrew Moylan amoylan at rstreet.org

4. USDA Trade Promotion Programs. Taxpayers spend some $200 million annually to support advertising campaigns that benefit large corporate enterprises and agricultural special interests. Contact: Leslie Paige lpaige at cagw.org

5. Sugar Program. A small number of sugar producers receive enormous benefits, while the costs are spread across the U.S. economy, harming consumers, taxpayers, and the sweetener-using industries. Contact: Fran Smith fbsmith at cei.org

6. Dairy Market Stabilization Plan (DMSP). The DMSP would impose government controls and regulations on the nation’s milk supply, penalize farmers for exceeding government milk production "quotas," artificially inflate the price of dairy products for families and drive the cost of federal food programs higher. Contact: Leslie Paige lpaige at cagw.org

7. Target Prices. Government-set price targets—about 40% higher than the previous farm bill and in many cases higher than record levels seen between 2005 and 2010—would expose taxpayers to billions in payments if crop prices dip slightly. Contact: Josh Sewell josh at taxpayer.net

8. Rural Broadband. The Rural Utilities Service Broadband Loan Program is a classic example of waste and market distortion. In addition to the cost, in many areas, the practice of guaranteeing loans serves to undercut existing private-sector investment. Contact: David Williams davidwilliams at protectingtaxpayers.org and James Valvo jvalvo at afphq.org

9. Mandatory Assessments. Mandatory assessments on farmers to promote commodities cost consumers and skirt constitutional provisions that only Congress has the power to tax. The program also violates basic principles of free speech, forcing some producers to pay to communicate messages against their will. Contact: Diane Katz Diane.Katz at heritage.org

10. Cotton Program. Federal subsidies for domestic cotton are so high, they violate international trade rules. To keep Brazil from enacting retaliatory tariffs which would hurt American consumers, taxpayers send a $147.3 million check to the Brazilian Cotton Institute every year. Contact: James Valvo jvalvo at afphq.org

11. Ethanol. The Feedstock Flexibility Program is the definition of cronyism. With taxpayer dollars, the federal government buys up subsidized surplus sugar and sells it at a loss to ethanol makers. Contact: Fran Smith fbsmith at cei.org

12. Biomass. Since 2008, the Biomass Crop Assistance Program (BCAP) has proven to be a failure. Even though this wasteful, market-distorting program is replete with loopholes and is not currently funded, it would be revived by the draft farm bill. Contact: Josh Sewell Josh at taxpayer.net

May 8, 2013

Dear Senator:

On behalf of the millions of members our organizations represent, we urge you to make fundamental changes to the misguided and costly provisions in S. 601, the Water Resources Development Act (WRDA). Unless WRDA is significantly amended to be more responsible and less costly, we urge you to oppose the bill.

Costly - The price tag for WRDA will be far greater than the $12 billion in the Congressional Budget Office (CBO) estimate. In fact, it could easily be double. The provision (Section 1003) to allow the Administration to disregard cost containment caps for three years could end up costing taxpayers billions more than CBO estimated. CBO indicated that they only counted three projects that are currently eligible. But the administration has indicated that 30 or more projects could be eligible before the provision sunsets. In addition, the CBO score does not include the legislation’s mandated increase in spending from the Harbor Maintenance Trust Fund which would represent up to a $5.5 billion increase in the 10-year score. Furthermore, there are a litany of changes to allow increased in-kind crediting for local sponsors work, which serve to increase the cost to taxpayers. And the bailout of the barge industry, through full federalization of the Olmsted Locks and Dam project, puts taxpayers on the hook for both the project’s runaway $3 billion price tag and will require all non-federal funds contributed so far be reimbursed to the Inland Waterways Trust Fund. This back door budget gimmick will allow the same money to be spent twice to subsidize other over budget projects.

Earmarkish – While the committee avoided outright earmarks, there are several provisions that are akin to earmarks. Section 2047 deals with flood gates that are constructed, before enactment of the bill as part of hurricane protection project and cross an inland navigation channel, a very rare circumstance. For these lucky project sponsors, instead of the operations and maintenance (O&M) costs being 100 percent local responsibility, the federal government would be responsible for 65 percent of those costs. The provision targets a pair of floodgates in New Orleans. Title VIII, which deals with the Harbor Maintenance Trust Fund sets the precedent that those funds may be used for dredging berths (the driveway and parking spot for ships) and constructing confined disposal facilities for contaminated sediments, both of which have traditionally been a non-federal responsibility. It also creates special program for “donor ports” and “energy ports” that would provide them with extra funding. While this provision could benefit other ports, it appears to be heavily targeted toward the ports of Los Angeles and Long Beach in California (donor ports) and New Orleans (energy port). Numerous other highly parochial provisions have been air dropped into the managers amendment.

Blanket approval to Corps - The bill appears to simply rubber stamp whatever project or cost overrun approval the U.S. Army Corps of Engineers recommends. While we appreciate the effort to avoid earmarks for new project authorizations, we believe the response should not be to just approve whatever the Administration recommends, but to demand projects meet certain enhanced cost-benefit criteria, subject them to prioritization, and to limit the number of projects. With an estimated project backlog of more than $60 billion for the agency, we cannot simply pile more projects on the to-do list.

Zombie Beaches - The bill has a provision to simply extend beach replenishment projects that are reaching the end of their 50-year life. This provision not only allows nourishment projects to be extended by 15 years with some additional study, but provides a by-default extension of up to 3 years while the Corps studies whether to extend federal involvement. This provision has been long sought on behalf of two North Carolina beach projects. These are projects that were conceived in the 1960s and have benefitted from heavy federal subsidies. Lawmakers should not automatically extend these, or other, projects without thorough review. In addition, this would end-run 1999 cost-sharing changes that required local interests pay 50 percent of ongoing renourishment costs and grandfather a reduced 35 percent rate.

Backlog management -The bill contains a "BRAC" style commission to reduce the backlog of authorized but not constructed projects, but so many projects are excluded from consideration it is far from clear that this effort will help. In fact, this bill could result in an increase in the backlog by adding billions more in new authorizations than the “BRAC” deauthorizes and increasing the federal share of projects costs thus reducing the “buying power” of each federal dollar.

Un-kind contributions – In-kind contribution changes in Sections 2011, 2012, and 2013 threaten to undermine the long-established cost-share system, increase the federal tab for projects, and reduce Congress and Corps oversight and direction on federal water projects. Corps projects typically have some amount of local cost-sharing which can be met in part by in-kind contributions to help the project along. The changes in S. 601 would retroactively change the rules (going back to 2007) to allow more projects to be eligible for in-kind credits (including the notoriously wasteful “environmental infrastructure” projects). They would allow “banking” of credits greater than the required local share to be used to offset local costs on other projects – this would increase federal project costs. And lastly, allow for crediting of local interests work, including study and design, prior to agreements between the federal government and locality or even a determination of a federal interest in a project. This could turn the Corps into simply a middle man to pass federal cash through to local interests. Furthermore, it could skew project decisions away from national interest toward special interest.

Worse on the Floor – It is clear that there will be several amendments to make this bill worse on the floor. Most notably will be efforts to further bailout the virtually bankrupt Inland Waterways Trust Fund by eviscerating cost share rules through Senator Casey’s (D-PA) S. 407, Reinvesting In Vital Economic Rivers and Waterways Act. The history of WRDAs past indicates there will be strong efforts to increase the cost of this bill through many other amendments with parochial or project-specific benefits.

S. 601 is chock full of policy proposals and project approvals that would be very costly for taxpayers. In its current form this bill should be rejected. For more information contact Josh Sewell, 202-546-8500 or Josh <at> taxpayer.net.

Sincerely,

Americans for Prosperity
Club for Growth
Competitive Enterprise Institute
Council for Citizens Against Government Waste
FreedomWorks
National Taxpayers Union
R Street Institute
Taxpayers for Common Sense
Taxpayers Protection Alliance

During the hearing, Chairman Simpson (R-ID) questioned the President’s proposed fee increase for grazing on public lands. The BLM manages approximately 160 million acres of public grazing lands and the FY2014 budget proposes a $1 increase to the current fee of $1.35 per Animal Unit Month (AUM) assessed from grazing private livestock on public lands. Chairman Simpson asked how the funds collected from the fee would be used. Kornze informed the committee that the $1 per AUM increase would be used to bolster administrative efforts to reduce the backlog of approximately 5,000 grazing permits and for cost-recovery efforts within the program.

Ranking Member Moran (D-VA) asked Kornze if he could discuss the difference in fee rates between grazing on private lands and public lands. Kornze stated that the rates vary substantially. The $1.35 per AUM federal fee is generally much lower than what is assessed by state and private landowners which follow market value more closely. On average, Kornze stated, state fees range from $4-$7 per AUM with private landowners tending to charge evener higher. In response, Moran said “it would appear that there is some subsidy going to those [ranchers] that [graze on] federally owned lands.” 

The fair market value of renewable energy development on public lands was the second focus on the subcommittee hearing. BLM Acting Director Kornze noted that 41 renewable energy projects have been permitted and constructed on public land in recent years. Chairman Simpson and Representative Pingree (D-ME) questioned Kornze on the difference in cost between developing renewable projects on public versus private lands. Kornze did not produce an answer during the hearing but assured the subcommittee that fair market value was being met.

Taxpayers for Common Sense has highlighted grazing giveaways for many years and most recently in our Green Scissors 2012 report. Reforming grazing fees to reflect fair market value could create more than $320 million in revenue over the next ten years. TCS also highlighted in our 2010 report “Fair Market Value: For Wind and Solar Development on Public Land” how BLM’s current system has failed to ensure taxpayers receive fair market value when compared to other energy development programs such as oil and gas, coal, hydropower, and geothermal.

With nearly $17 trillion in debt and $1 trillion deficits, the topics discussed in today’s hearing are a step in the right direction but further action must be taken. Ensuring fair market value for federal taxpayers for publically owned resources is essential in these tight budget times. The current fees and systems for grazing, renewable energy development, hardrock mining, and fossil fuel development on public lands fall dramatically short and practices at the BLM must be reformed.

BCAP is currently not funded, since funding for all energy title programs expired at the end of Fiscal Year 2012 and was not renewed when the current farm bill was extended through September 30, 2013. With the exception of long-term contracts that the government already agreed to unless lawmakers apply retroactive funding in the next farm bill or another piece of federal legislation BCAP will not receive additional support for Fiscal Year 2013.

Background

BCAP is funded though the energy title of the farm bill. The farm bill, renewed approximately every five years, is a wide ranging piece of legislation that funds everything from nutrition assistance programs and broadband internet to agricultural subsidies for the production of crops such as corn and soybeans. More specifically, the energy title of the farm bill, first introduced in 2002, provides grants, loans, and other subsidies to energy efficiency, biofuels, and bioenergy (heat and power) projects. In total, the 2008 farm bill energy title’s 13 major programs were projected to cost taxpayers $1.1 billion over five years (FY08-12). 

Subsidies provided through BCAP go to facilities ranging from universities receiving research and development grants to investigate new uses for biomass sources such as wood and agricultural residues to large, established corn ethanol companies receiving grants for annual production of biofuel. Other energy title projects funded by taxpayers include the collection, storage, harvest, and transportation of biomass sources to bioenergy or biofuels facilities (namely, through BCAP); anaerobic digesters that create heat and power from animal waste; grants and loans to individuals or companies installing ethanol dispensers at gasoline stations or wind, solar, and geothermal systems; and federally backed loan guarantees for so-called next generation biofuels facilities that produce biofuels other than corn ethanol. While intended to support the next generation of biofuels derived from non-food sources and other renewable forms of energy, the farm bill energy title has also spent taxpayer dollars on the mature corn ethanol industry, supporting biomass sources with numerous unintended consequences, and even paying for updates to farmers’ irrigation equipment and grain dryers.

Funding Challenges Due to Glaring Program Loopholes

Initially, the U.S. Department of Agriculture’s Farm Service Agency only implemented the portion of BCAP which paid up to $45 per ton to collect, harvest, store, or transport biomass materials (called matching payments).  It wasn’t until recently that project areas have been approved to pay farmers or landowners to plant perennial grasses and fast-growing trees to transport to facilities that convert crops to fuel or heat/power. BCAP was projected to cost $70 million over five years, but since Congress initially allowed a blank check to be written each year from taxpayers, the program checked in at nearly $500 million over budget just in 2010.  Worse yet, BCAP failed to incentivize the types of projects its proponents fought for just two years earlier (planting of grasses and trees). Instead, large pulp and paper companies collected nearly all of the taxpayer subsidies by taking advantage of a glaring loophole. Loggers and truckers also pocketed collection and transportation payments by conducting business that they would have been engaged in regardless of BCAP payments. With pressure from Congress and USDA’s own Office of Inspector General, the government halted the matching payment program, limited BCAP expenditures to $17 million in FY12, and is now only paying farmers to actually plant feedstocks for so-called “next generation” biofuels.

Types of Feedstocks Receiving Taxpayer Funding

The types of crops currently eligible for BCAP subsidies are summarized in Table 1 by project area.  About two-thirds of the 11 approved project areas will grow various perennial grasses, including miscanthus, a tall perennial grass used to produce cellulosic ethanol. The remaining four project areas will produce either camelina, an oilseed crop, for use in biodiesel production or woody biomass (like poplar and willow trees) for use in heating, power, or cellulosic ethanol facilities. Crops or other forms of biomass ineligible for payments include commodity crops that receive traditional farm subsidies such as corn and soybeans, invasive and noxious plants, manure and animal byproducts, municipal solid waste, and algae.

Conclusion

The Biomass Crop Assistance Program has faced several implementation challenges since its introduction in the 2008 farm bill. BCAP has failed to meet its stated goals of spurring production of next-generation bioenergy and biofuels crops and instead came in significantly over budget while funneling taxpayer dollars to large pulp and paper companies for business activities that they would have engaged in anyway. Both Congress and USDA’s own Inspector General have highlighted shortcomings of the program. Questions from independent sources such as the National Research Council have also arisen about the feasibility of second-generation biofuels, such as cellulosic ethanol produced from BCAP-subsidized feedstocks including perennial grasses and woody biomass. For these reasons, BCAP should not be renewed.

For more information, contact Taxpayers for Common Sense at 202-546-8500.

MAP’s Benefits are Overstated

For years, MAP’s poor implementation and cost inefficiencies have led several independent organizations to call for major reforms to the program. The Government Accountability Office (GAO) criticized USDA’s Foreign Agricultural Service for its estimates of this program’s economic effectiveness, calling them “overstated” and “inconsistent with Office of Management and Budget cost/benefit guidelines.”  GAO also questioned MAP’s ability to increase exports in targeted markets.

In 2007, the Congressional Budget Office (CBO) called for MAP spending to be cut because 20 percent of its budget was spent to promote individual brand names.  CBO found MAP duplicative of other USDA trade promotion programs, including the Foreign Market Development Program (FMD), Technical Assistance for Specialty Crops (TASC), Quality Samples Program (QSP), and the Emerging Markets Program (EMP).

Loopholes Bolster Large Corporations’ Bottom Lines

Even though a decade ago Congress deemed large companies ineligible and MAP funding was no longer supposed to be never-ending, program loopholes allow companies to continue benefiting from taxpayer subsidies year after year. Taxpayer money spent by MAP on behalf of the National Confectioners Association, promoting American brands abroad, benefit candy companies such as Mars, Nestle, Hershey, Godiva, Ghirardelli, Jelly Belly, and Kraft Foods.  Through its promotion of the U.S. Hide, Skin and Leather Association, MAP spending benefits Cargill and Tyson Foods, which recorded combined sales in excess of $165 billion in 2012.  And taxpayer funding for the U.S. Meat Export Federation has helped companies like Hormel Foods, Monsanto, and DuPont Pioneer every year since 2006.  The list goes on and on.

Taxpayer Spending Doubled Since 2002

With a massive $16 trillion federal debt, MAP should be one of the first programs on the chopping block. Its spending has doubled from $100 million in 2002 to $200 million today.  Eliminating the program would save taxpayers $2 billion over the next ten years and inject a small dose of common sense into our country’s agricultural policy.

Special Interest Giveaways

MAP is only one of many taxpayer-paid programs making up a menu of agricultural subsidies, which include federal loans, direct payments, target prices, crop insurance, biofuels supports, and other trade promotion programs. During the last seven years, from FY06-12, in excess of $1.35 billion in MAP subsidies has gone to 80 trade organizations, cooperatives, and corporations. Of these, the top 15 recipients accounted for nearly two-thirds of all MAP funds (see Table 1). Cotton Council International, the export promotion arm of the National Cotton Council, was the largest recipient, followed by the U.S. Meat Export Federation.

Taxpayers further subsidize activities benefiting many of the same companies through other, duplicative trade promotion programs. Federal spending on four programs - FMD, TASC, QSP, and EMP – totaled $184 million from FY06-11 (note:  this is a conservative number since information was only available through FY10 for some programs). Table 2 breaks down spending totals from all five of these programs by respective categories. Since USDA fails to provide details about many of the taxpayer grants, the top funding category is a catch-all. Groups representing the following special interests round out the top ten list:  fruit, livestock/poultry, cotton, nuts, wood/forestry products, beer/wine, grains, wheat, and dried fruit. Pet food came in at #18 with nearly $10 million in taxpayer subsidies since 2006. Other surprises lower on the list include trade subsidies for sheep, fish, popcorn, honey, fur/leather, and even baked goods.

Notable Instances of Questionable Deficit-Financed Spending

Market Access Program

1. Rogue Creamery:  This small company has received marketing assistance through MAP-supported organizations, including the Western United States Agricultural Trade Association (WUSATA) and the U.S. Dairy Export Council (USDEC). With taxpayer support, Rouge Creamery was able to participate in the 2003 World Cheese Awards in the United Kingdom where it won “Best Blue Cheese” and “Reserve Champion” awards. According to USDA, “the company earned additional accolades at trade shows within the past six years that helped pique interest among international buyers.”
2. The Popcorn Board:  $1.93 million from FY06-12; presumably funded a popcorn promotion website including Encyclopedia Popcornica where “you’ll find science, history and the answers to everything you've ever wanted to know about popcorn but were too busy eating to ask.”
3. Brewers Association Inc.:  $2.2 million from FY06-12, a portion of which was used to assist Brazilian trade personnel with their travel to the Denver Great American Beer Festival and to cover seminar costs; EMP funds were spent on a China Beer Distributors Education Program and Brazil Craft Beer School Seminars.
4. California Tree Fruit Agreement:  $13.95 million from FY06-12, $35,000 used to mount a Chinese food media tour to California in conjunction with the stone fruit (peaches, plums, and nectarines) harvest season which resulted in more than $100,000 of free advertising in Chinese media (television and food publications) in key Chinese markets of Shanghai and Guangdong.
5. Pet Food Institute:  $9.9 million from MAP over the FY06-12 timeframe and $94,152 in FY09 from EMP; in 2012, MAP funds were used to operate programs in China, Japan, Mexico, the Philippines, Taiwan, Costa Rica, El Salvador, Guatemala, and Panama while EMP funds were used to study pet food market conditions in India, Philippines, and Turkey.
6. National Potato Promotion Board:  $36.5 million from FY06-12 to “help promote the export of U.S. frozen potato products, dehydrated potatoes and fresh potatoes to Japan, China, Korea, Mexico, Central America, Taiwan, Thailand, the Philippines, Malaysia, Singapore, Indonesia, Hong Kong, and Vietnam and seed potatoes in Latin America and Africa.”

Emerging Markets Program

1. California Agricultural Export Council: $175,000 from FY08-10 for “Phases Two and Three of the China Moon Cake (round and rectangular pastries) Project.”
2. U.S. Dry Bean Council:  $47,540 in FY09 for a “Southeast Asia Snack Workshop.”
3. U.S. Livestock Genetics Export, Inc.:  $132,374 in FY09 for “Demonstration of Fertility with Use of U.S. Frozen Boar Semen” in the Philippines.
4. Flavor and Extract Manufacturers Association:  $137,850 in FY10 for “Increasing Understanding of U.S. and International Flavor Safety Evaluation Processes” in Southeast Asia.
5. U.S. Grains Council:  $220,080 in FY09 for development of a “Swine Demonstration and Technical Training Farm” in China.
6. USA Dry Pea and Lentil Council:  $96,130 in FY09 for “Technical Support for Southeast Asian Instant Noodle Manufacturers.”
7. SIAM Professionals:  received $101,000 in FY10 to “identify logistic constraints and consumer trends” for fresh produce in China; SIAM consults for organizations such as Coca-Cola, Monsanto, Syngenta, Burger King, Dunkin’ Donuts, Hershey Foods, Sunkist Growers, Wendy’s International, and Deere & Co.

Market Access Program Should be Eliminated

With the growing need to tighten the government’s belt, taxpayers cannot afford to continue subsidizing wasteful corporate welfare to pad the bottom line of profitable corporations and agribusinesses. Corporations can afford to manage and fund their own outreach and advertisements. It’s time the Market Access Program and other duplicative trade promotion programs were eliminated. 

For more information, contact Joshua Sewell at 202-546-8500 x116, or josh@taxpayer.net.

The 2008 farm bill energy title provided $75 million in mandatory funding for FY2009 and $245 million in FY2010 for the Biorefinery Assistance Program; additional funding of $600 million was available through annual appropriations bills.  However, since funding for all energy title programs expired at the end of FY12 and was not renewed when the current farm bill was extended through September 30, 2013, the biorefinery program will not receive additional funding in FY13 unless lawmakers apply retroactive funding in the next farm bill or another piece of federal legislation. Regardless, current loan guarantee recipients will continue to receive federal backing in case of a default.

Background

The Biorefinery Assistance Program is funded though the energy title of the farm bill. The farm bill, renewed approximately every five years, is a wide ranging piece of legislation that funds everything from nutrition assistance programs and broadband internet to agricultural subsidies for the production of crops such as corn and soybeans. More specifically, the energy title of the farm bill, first introduced in 2002, provides grants, loans, and other subsidies to energy efficiency, biofuels, and bioenergy (heat and power) projects. In total, the 2008 farm bill energy title’s 13 major programs were projected to cost taxpayers $1.1 billion over five years (FY08-12). 

Facilities that receive taxpayer support from energy title programs range from universities receiving research and development grants to investigate new uses for biomass sources such as wood and agricultural residues to large, established corn ethanol companies receiving grants for annual production of biofuel. Other energy title projects funded by taxpayers include the collection, storage, harvest, and transportation of biomass sources to bioenergy or biofuels facilities; anaerobic digesters that create heat and power from animal waste; grants and loans to individuals or companies installing ethanol dispensers at gasoline stations or wind, solar, and geothermal systems; and federally backed loan guarantees for so-called next generation biofuels facilities that produce biofuels other than corn ethanol (through the Biorefinery Assistance Program). While intended to support the next generation of biofuels derived from non-food sources and other renewable forms of energy, the farm bill energy title has also spent taxpayer dollars on the mature corn ethanol industry, supporting biomass sources with numerous unintended consequences, and even paying for updates to farmers’ irrigation equipment and grain dryers.

Taxpayer-Backed Loans for Biofuels Companies

Since 2009, about $1.02 billion in treasury-backed loan guarantees for ten companies were finalized or conditionally approved. Some loan guarantee recipients have filed for bankruptcy since then, leaving taxpayers holding the bag for millions in losses. For instance, after receiving an $80 million government-backed loan guarantee, Range Fuels, a cellulosic ethanol facility planning to use woody biomass as a feedstock, shut down in Jan. 2011 without producing any fuel. Taxpayers lost millions of dollars when Range Fuels went into bankruptcy. Table 1 includes a list of companies receiving a final loan guarantee or a conditional commitment from USDA.

Types of Facilities Receiving Taxpayer-Backed Loans

About two-thirds of the Biorefinery Assistance Program loans provide guarantees to just four facilities, three of which were announced in 2012. These biorefineries plan to use the following materials as biofuels feedstocks:  woody biomass, municipal solid waste, agricultural residues (such as corn stalks and leaves), and perennial grasses. Six other facilities plan to process algae, municipal solid waste, or other organic waste into advanced biofuels and biogas. Table 2 includes a list of project types in USDA’s Biorefinery Assistance Program.

Support for Corn Ethanol

As stated above, even though corn ethanol facilities are not eligible to receive taxpayer-backed loan guarantees through this program, a facility using corn and soybean oil for biodiesel production still received a $25 million taxpayer-backed loan. This support is on top of an already expensive and generous list of taxpayer subsidies for corn ethanol and biodiesel production. Although the ethanol tax credit and tariff expired at the end of 2011, corn ethanol continues to receive special interest loan guarantees and subsidies through the tax code, several farm bill energy, crop insurance, and commodity programs. Subsidies are also available for the production of biodiesel from various sources, including corn and soybeans.

Support for Woody Biomass

Wood residues, fast-growing trees, and other forms of woody biomass have received over $350 million in taxpayer-backed loan guarantees through the energy title’s Biorefinery Assistance Program. But woody biomass is another biofuel and bioenergy feedstock that is eligible for generous subsidies through several other different government programs, including at least eight of the 15 farm bill energy title programs. As noted, one of the two loans for cellulosic biofuel derived from woody biomass was provided to Range Fuels, a failed project that left taxpayers on the hook for millions of dollars in losses. The same month that Range Fuels defaulted on their loan, the government awarded Coskata a loan guarantee of $250 million, the largest sum of taxpayer money that had ever been promised to one company through this program. Based in nearby Georgia, Coskata plans to use the same technology and feedstock as Range Fuels.

Conclusion

The Biorefinery Assistance Program puts taxpayer dollars toward potentially risky projects that are unlikely to ever lead to commercial production of next-generation biofuels. The program has also considered putting taxpayer dollars toward corn-based biofuels, a mature industry that has received federal subsidies for more than 30 years. While the largest ethanol subsidy – the ethanol tax credit known as VEETC – expired at the end of 2011, corn ethanol production is still mandated through the federal RFS mandate and receives various other subsidies through the Dept. of Energy, USDA energy programs, and federal tax code. Since millions of taxpayer dollars were already lost with the failure of cellulosic ethanol producer Range Fuels, additional taxpayer dollars should not be put at risk toward future Biorefinery Assistance Program projects.

For more information, contact Taxpayers for Common Sense at 202-546-8500.

Here, we focus on a specific set of loan guarantee applicants - biofuels and biomass projects within the program’s renewables category. Most renewable projects were considered under section 1705 which was primarily for projects like wind, solar, and biofuels although additional funding remains available for renewable and energy efficiency projects through the 1703 program. The 1705 section of Title XVII is the only section that has any finalized loan guarantees although the 1703 program has several conditionally committed loans. Only two companies, Abengoa Bioenergy U.S. Holding and POET, LLC, have received the final go-ahead for a taxpayer-backed loan on a biofuels or biomass energy project although POET later withdrew from the program.

Other biofuels/biomass companies are awaiting final approval of their loan guarantee applications. A recent Government Accountability Office (GAO) report revealed two applications for undisclosed biomass projects are being actively reviewed under the 1703 program.  Since so-called “advanced biofuels” have failed to live up to their proponents’ expectations and are not yet produced at a commercial scale, taxpayers could stand to lose even more if additional DOE loan guarantees are granted to risky projects.

DOE Loan Guarantee Program Taxpayer Concerns

To qualify for a taxpayer-backed loan, projects must “avoid, reduce or sequester air pollutants or greenhouse gases (GHGs), employ new or significantly improved technologies, and provide a reasonable prospect of repayment.”  But projects applying have had little success in demonstrating their ability to meet these bare minimum requirements provided in the original Title 17 statute. And there is little within the program structure to hold DOE accountability for meeting these criteria. Instead of clarifying and strengthening the original law, DOE regulations for the program further eroded taxpayer protections.

Under the current structure of the program, there are several significant taxpayer concerns, including the massive scope of projects that can apply to the program, underestimated costs, the weakening of taxpayer rights in the event of default, and the unclear administration of loans, among others. The structure of the program forces taxpayers to provide backing for up to 80 percent of the cost of projects, making the federal government the only real entity taking risk for many of these projects even though other projects have withdrew loan applications and progressed with private financial backing. Further, the final rule promulgated by DOE opened the program to subordinating taxpayers in the event of a default. This means, as occurred with Solyndra, that federal taxpayers are not necessarily first in line to get their money back from whatever funds can be salvaged during bankruptcy proceedings. These problems are on top of a program that has startlingly little transparency and has been poorly managed.

Specifically related to biofuels, loan applicants are not required to meet minimum criteria set forward in the federal Renewable Fuel Standard (RFS), for instance, reducing GHGs by at least 20 percent, only using wood thinnings from non-federal forestlands, or utilizing crops or crop residue harvested from previously farmed land. For biomass energy projects, few eligibility requirements are necessary for taxpayer support besides a few minimum emissions level targets for sulfur dioxide, particulate emissions, and nitrogen oxide.  Again, there are no limitations on where or how biomass sources (like wood, agricultural residues, grasses, etc.) are harvested. Hence, several unintended consequences can occur such as more water and air pollution, conversion of wildlife habitat and sensitive land to cropland, and higher food prices if appropriate mitigation measures are not taken. Due to the program’s poor structure and lack of adequate safeguards, taxpayers are forced to back risky projects and potentially fund long-term liabilities.

Details about Biofuels Loan Guarantees and Applicants

In all, nearly ten known biofuels/biomass companies have applied for millions in DOE loan guarantees through the agency’s Biomass Program.  Only one, Abengoa, plans to accept $132.4 million in taxpayer backing for its cellulosic ethanol facility in Kansas. Founded in 1984 and headquartered in Seville, Spain, Abengoa has received two other DOE loan guarantees totaling $1.65 million for its California and Arizona solar projects.

POET, LLC, the largest corn ethanol producer in the U.S., also received a $105 million loan guarantee from DOE to help finance its cellulosic biofuels facility in Iowa but later backed out after agreeing to instead partner with Royal DSM, a life and material sciences company. This brings into question why federal backing is needed when private investors are willing to move forward with promising projects and/or technologies. Two other companies withdrew their applications but limited information is available so they are not included in this summary.

Bluefire Renewables, formerly known as Bluefire Ethanol Inc., is still awaiting a final decision from DOE on taxpayer backing of its Fulton, Mississippi, cellulosic ethanol facility. DOE rejected its initial request for a $40 million loan guarantee at its proposed Lancaster, California, facility, but is now considering a $250 million loan at its new location. As noted above, other facilities may be under consideration by DOE for loan guarantees, but details are not publicly available. More information about these and other candidates is listed in Table 1 below.

Other Federal Taxpayer Supports for Biofuels

Several other taxpayer supports for biofuels exist, including the U.S. Department of Agriculture’s Biorefinery Assistance Program which also provides government-backed loan guarantees. This program is funded through the federal farm bill’s energy title in addition to others like the Bioenergy Program for Advanced Biofuels, Biomass Crop Assistance Program, and Rural Energy for America Program, which fund various corn ethanol and advanced biofuels projects. Another program in USDA’s Rural Utilities Service recently provided three biomass plants with $264 million in taxpayer-backed loan guarantees; each of the facilities located in Hawaii, Colorado, and Texas will convert woody biomass into power. 

Various subsidies are also scattered throughout the federal tax code, including the Cellulosic Biofuel Producer Tax Credit which pays $1.01 for each gallon of cellulosic ethanol produced and the Alternative Fuel Mixture Excise Tax Credit which pays $0.50 for each gallon of biomass-derived fuel blended with gasoline or diesel. Finally, other smaller programs at DOE fund cellulosic ethanol facilities, including the Small-Scale Cellulosic Biorefineries Program which had $114 million in total loan guarantee authority in 2008 but only finalized a few loan guarantees since then. 

Cautionary Tale:  Range Fuels

While Range Fuels, a biofuels company aiming to become the first to produce wood-based cellulosic ethanol at commercial scale in Soperton, Georgia, did not receive a DOE loan guarantee, the company did receive significant taxpayer backing before it went out of business in Dec. 2011. ,  Range Fuels received a $46 million DOE grant and a $40 million USDA loan guarantee before reportedly costing taxpayers a total of $86 million from various USDA and DOE programs. Examples such as Solyndra and Range Fuels should provide a cautionary tale for taxpayer backing of new loan guarantees for biofuels and biomass projects.

Conclusion

The DOE Loan Guarantee Program poses serious risks for taxpayers including underestimated program costs, unreasonable default risks, and a questionable need for government backing given opportunities for private financing. With currently more than $34 billion in loan guarantee authority available, taxpayers have a considerable stake in the successes or defaults of the projects involved. Combined with the fact that cellulosic ethanol has failed to meet production mandates, the entire program should be scrapped so taxpayers are not put on the hook for risky projects or those that could be financed by private investors.

For more information, please visit our website at www.taxpayer.netor contact Autumn Hanna at 202-546-8500 x112 or autumn@taxpayer.net.

The real problem of this approach is that the next “crisis” of sequestration is undoubtedly right around the corner, and if this is any precedent, Congress will be on the hunt again soon for another way to “pay” to undo the cuts. A more responsible approach would be for Congress and the administration to hammer out an agreement on the specifics as to where the cuts should actually come. The piecemeal approach is inefficient and will only serve as a distraction from the bigger work Congress needs to be addressing.

(9:07am) Call it what you want – piecemeal, sequestration whac-a-mole, a band-aid – but a Senate-passed bill (s. 853) to avoid the automatic spending cuts to the nation's air traffic control system is without a doubt one thing: a gimmick. The bill allows the transfer of as much as $253 million in unspent money from the Airport Improvement Program (a capital account) to the operations account of the FAA, which pays the salaries of air traffic controllers.

For more details, see our analysis of the Senate's approach.

Instead of borrowing money from the future to spend today – the most common approach to deficit spending - the Senate bill would instead essentially promise future spending cuts to avoid the cuts that were supposed to happen this year. A somewhat unique approach for these unique times, but in the end the result is exactly the same: spending likely increases, the deficit goes up, and Congress has managed to push off the hard decisions for another day. The only way this would work is if Congress actually cuts future spending from the Airport Improvement Program. But avoiding cuts is exactly what Congress is doing with this bill, so what reason do we have to believe they'll stick to those future cuts any better? If this whole argument sounds familiar, it should. It's exactly the same approach that got us to a $16.8 trillion debt and hundreds of billions in annual deficits.

This current environment in Washington prioritizes spending based on an issue's ability to garner national media attention. No doubt that the FAA furloughs were an inconvenience. All of the spending cuts will cause some pain. And since the cuts take a little bit from every single federal account (instead of cutting spending more from accounts that are less essential) Congress and the administration have made this more painful than it needs to be. But since the furloughs captured the media's attention, the program was spared. This is the first high profile issue, but Congress also previously spared meat inspectors and some pentagon cuts as well. Is this really the best way to decide how we spend our federal dollars or what programs can really withstand to be reduced? Certainly not. But at the moment it appears this may be the new way of doing business in Washington. The ball is in the House of Representatives' court. It is expected to take up the bill on Friday, and will likely pass it before flying out of town for the weekend. The President has said he would sign the bill.

It has been impossible to avoid the furor created by the sequestration-forced across-the-board-cuts now that air traffic controllers have been furloughed and flights are being delayed in cities across the U.S.

It’s useful to recall how we got into this mess. Congress and the President wanted a budget doomsday device so awful it would force lawmakers to come up with $1.2 trillion in targeted deficit reduction. Failure to do that would whack a bit of each program in fiscal year 2013 (known in Washington-speak as the sequester). Evidently, they underestimated their own pain threshold for stupid budget policy and so here we are. What can’t be underestimated is policymakers ability to procrastinate and try to find an easy way out instead of doing the heavy lifting that is required to actually solve a problem.

Policymakers have floated several bad to worse options for temporarily ending the furloughs and getting the controllers back to work for the rest of the fiscal year. Any way you look at it, they are budget gimmicks.

Option 1: Grant the administration flexibility to conduct a one-time transfer of $250 million from the Airport Improvement Program. Sens. Collins (R-ME) and Udall (D-CO) have been working on a bill along these lines.

Option 2: Give the Secretary of Transportation authority to move money from anywhere in the DOT budget into the FAA operations budget. Sens. Hoeven (R-NE) and Klobuchar (D-MN) have been working on this approach.

Option 3: Use a fake spending offset. Senate Majority Leader Reid (R-NV) has drafted legislation  that would replace the entire slate of across-the-board spending cuts and “pay” for it with money saved from ramping down the wars. This budget gimmick – the so-called peace dividend - is a popular offset for additional spending, having been proposed as a way to pay for additional infrastructure spending in the president’s budget. But in reality this isn’t an offset in any way. All of the realistic budget scenarios assume the war funding would not be spent, so these savings are just on paper, while the spending it would offset is all too real.

These options continue us down the same path that created the mess in the first place: putting off hard choices for another day. Some shared sacrifice is necessary to get our budgetary house back in order, and sometimes it’s going to be painful. For years we have been spending beyond our means. The blunt instrument of across-the-board cuts makes it more painful than necessary, but unless Congress is prepared to undo the sequester in a responsible, paid-for manner, reversing the difficult parts one by one just sets the expectation that eventually all of the cuts will be reversed. Here’s a plan for $2 trillion in deficit reduction that we came up with last year.

The administration is not blameless here either. Instead of reducing spending from the beginning of the fiscal year (which started on October 1), the FAA (and other agencies) sat on its hands and only implemented cuts when the sequester actually began. This made the effects worse because now all of the cuts – which were laid out a year ago – need to be squeezed into seven months of spending. Better planning would not have saved us from furloughs, but it may have blunted the impact somewhat.

The Senate appears on the verge of a compromise that will avert the furloughs and get the controllers back to work. The angry calls from constituents may have a role to play, but we are guessing their desire to get back home for the weekend may also spur action. Washington is, after all, one of the cities most affected by the resulting flight delays. Prospects for this approach in the House, however, are not as clear.
Once again, we are beating the drum asking Congress to roll up its sleeves and actually solve a problem instead of using budget gimmicks. Maybe they’ll surprise us. But if recent history is any guide, expect political expediency to win the day.

"Nearly 10 years and two restructuring efforts since FutureGen's inception [in 2003],
the project is still in its early development stages," the report says.

Over the years, the FutureGen Project has experienced many political and financial setbacks—from losing partners and building sites to outright cancellation—FutureGen’s past is riddled with failure. The project was revived in 2009 when the American Recovery and Reinvestment Act (ARRA) directed more than $1 billion to Ameren Corporation and the FutureGen Industrial Alliance. Prior to this award, the project was appropriated $174 million between FY2004-2008.

Today, approximately $34 million of the $1 billion award has been spent but it is still unclear if the project will be able to use the remaining funds before they expire on December 31, 2015—along with other unused ARRA funding. The project is currently projected to start construction in 2014 and begin commercial operation in 2017.

DOE recently approved Phase II of the project in February 2013. This includes preliminary design, per-construction and engineering and is expected to last approximately 16 months. While project proponents continue to appear to be moving forward, the CRS report notes, “questions remain as to whether or not FutureGen 2.0 will succeed.”

We don’t think it’s a question. For years, FutureGen has been doomed to failure. The only question that remains now is will the project take taxpayers' $1 billion down with it.

Asking taxpayers to finance high-risk, high-cost energy projects is fiscally irresponsible—especially in the current fiscal climate. If FutureGen is to continue moving forward, the mature and profitable members of the FutureGen Industrial Alliance and industry partners should bear the full risk and cost of the project, not federal taxpayers.

The funding for B&W’s award will come from DOE’s small modular reactor licensing technical support program which so far has been appropriated $134 million. In March 2012, DOE committed to obtaining funding for up to $452 million of support over five years for the licensing of the first small modular reactors. In November 2012, B&W was selected among four other applicants to receive the first award to demonstrate its SMR design. For their SMR work, B&W is partnering with Bechtel Power Corporation and the Tennessee Valley Authority (TVA) to construct and install up to four SMRs at TVA’s Clinch River site.

In March 2013, DOE announced plans for a second funding opportunity for up to $226 million for its SMR program. While some in Congress and at the DOE are selling small modular reactors as the next best thing, the commercial viability of these mini-nukes remains in question. To date, there are no reliable cost estimates for SMRs creating major uncertainties whether SMRs will be able to compete with large-scale reactors in the future.

If DOE believes there is a ‘need and market’ for SMRs, the mature and profitable nuclear industry should bear the full risk and cost of making SMRs a reality. In these tight budget times, federal taxpayers cannot afford to provide additional subsidies to the nuclear power industry.

To start, the 2008 farm bill, a massive piece of legislation covering topics ranging from nutrition assistance to broadband internet, provides government subsidies for the now-mature ethanol industry, including corporate giants such as Archer Daniels Midland. The majority of support for corn ethanol in the farm bill comes from the energy title programs like the Rural Energy Assistance Program. Subsidies for corn ethanol also litter the tax code – including tax breaks for biodiesel and blender pumps – in addition to Department of Energy loan guarantees and other subsidies scattered throughout the federal government.

Members of the House and Senate Agriculture Committees have said they would like to see Congress pass a farm bill this year that “by and large” contains similar language to bills passed in the full Senate and House Agriculture Committee last year (but which never became law). If this occurs, corn ethanol would continue to receive handouts through the energy title. The mature corn ethanol industry should no longer receive taxpayer support, whether through infrastructure subsidies for ethanol blender pumps in the tax code or production subsidies in the farm bill’s energy title. Given the nation’s current fiscal health, these subsidies are more egregious than ever.

Corn Ethanol Supports in the Farm Bill

Realizing that the corn ethanol industry had already received its fair share of federal handouts, House and Senate Agriculture Committees ultimately prohibited corn starch ethanol from qualifying for energy title spending authorized in the 2008 farm bill. Their intention was to allow the next generation of biofuels (advanced fuels made from non-food sources like agricultural residues, wood waste, and perennial grasses) to receive a greater share of grants, loan guarantees, and other subsidies. But even though corn ethanol facilities are prohibited from receiving energy title funding, at least four of its 15 programs allowed nearly 90 million taxpayer dollars to be spent on corn-based biofuels from 2009 to 2012, in addition to potential taxpayer liabilities with the federal backing of conditional loan guarantees in the U.S. Department of Agriculture’s (USDA) Biorefinery Assistance Program.

Corn ethanol producers also avoided the restrictions on corn starch ethanol by convincing USDA to add ethanol blender pumps to its list of projects eligible for energy funding in the farm bill, even though Congress never authorized this controversial use of taxpayer dollars. Recipients can also circumvent energy title program eligibility rules by refining biofuels from corn oil instead of corn starch and producing fuels like butanol and biodiesel instead of ethanol.

In addition to the numerous special-interest supports corn ethanol has received over the years, including tax breaks, an import tariff, and infrastructure subsidies, a federal production mandate called the Renewable Fuel Standard (RFS) also heavily benefits corn ethanol. Thankfully, the tariff and $6 billion-per-year tax credit were forced into retirement at the end of 2011, but the RFS mandate still requires oil and gas companies to blend increasing amounts of ethanol with gasoline each year. The maze of historic subsidies for corn ethanol has allowed the federal government to pick winners and losers, distort energy and agriculture markets, and contributed to expansion and overproduction of ethanol in the industry.

Corn ethanol has exceeded its RFS mandate every year since the mandate originated. With annual ethanol production around 14 billion gallons, most U.S. gasoline is now a mixture of 90 percent gasoline and 10 percent ethanol. Ethanol used in our nation’s vehicle fleet is primarily from corn despite requirements that increasing volumes consist of second-generation biofuels like cellulosic ethanol and advanced biofuels derived from non-food feedstocks.

Farm bill energy title programs supporting corn-based biofuels, in addition to other forms of renewable energy, include the following: 

Corn Ethanol Supports in the Federal Tax Code

Some subsidies for corn ethanol are still scattered throughout the federal tax code. Two of the most prominent are listed in the table below. Ten-year cost estimates are derived from the Joint Committee on Taxation.

Corn Ethanol Supports: Taxpayer and Environmental/Consumer Costs

Federal supports for corn ethanol result in increased economic and environmental costs. Corn ethanol’s historic trifecta of federal subsidies, a production mandate, and import tariff, combined with agricultural subsidies that increase as agribusinesses engage in riskier production practices and convert more land to corn, has resulted in higher costs for consumers, taxpayers, and other industries.   Ethanol producers compete with other users, including livestock, food manufacturers, industrial users, and exporters, for a limited supply of corn. Today, more than 40 percent of corn production is converted into vehicle fuel.

While ethanol proponents such as the National Corn Growers Association promised several years ago that corn yields would keep up with the additional corn required for ethanol production, they failed to meet expectations. In fact, while corn ethanol production increased nearly eight-fold over the past decade, yields failed to keep up since corn production only increased by 25 percent, mainly due to an increase in corn acreage.  States with huge increases in corn acreage (and lower reliance on diversified crop rotations) primarily include those in the lower Mississippi River Basin and dry areas of North Dakota, South Dakota, Nebraska, Oklahoma, Texas, and Montana.  For these reasons, corn stocks have dropped to dangerously low levels and some livestock herds are the lowest they’ve been in decades due to short supplies. And since yields failed to keep up with demand, corn producers have torn up pasture, native grassland, and switched from other crops to plant the most acres to corn in over 75 years.  The numerous unintended consequences and public costs of expanded corn ethanol production are listed below.

Taxpayer Costs

• Federally-Funded Conservation Clean-up Programs:  as agricultural subsidies spur agribusinesses to plant crops on risky, marginally productive lands, federal conservation program funding is often used to clean up the resulting agricultural pollution and attempt to undo the damage that has been caused by misguided federal biofuels supports.
• Increased Crop Insurance Payments:  taxpayers have seen an increased cost of crop insurance since corn ethanol production has not only contributed to higher crop prices but has also resulted in an expansion of corn and soybean acres. In fact, a recent study by researchers at South Dakota State University found that between 2006 and 2011, 1.3 million acres of grassland were converted to corn and soybeans partially as a result of biofuels mandates and subsidies.  Because crop insurance premium subsidies are tied to crop prices, as prices increase, so does the total cost of the highly subsidized federal crop insurance program. In addition, taxpayers are also put on the hook for risky production practices like planting input-intensive crops on land that has never been cropped before because agribusiness can receive subsidies to plant corn on converted grassland and other highly erodible land prone to crop failures. Finally, as the livestock industry’s profit margins are squeezed with more corn being diverted to ethanol production, taxpayers are forced to pay for more insurance indemnities for programs such as the Livestock Gross Margin insurance policy.
• Increased Costs to Federal Dairy Programs:  a new farm bill program proposed in 2012 would create a profit margin guarantee for dairy producers to compensate for high feed costs that they are currently experiencing (partially due to the fact that over 40 percent of the corn crop is used for ethanol production).
• Taxpayer-Funded Disaster Programs:  similar to crop insurance, when farmers plant corn in risky areas (for instance, poor growing areas in North or South Dakota or dry areas of Nebraska), the cost of disaster programs increases since the probability of crop losses increases.
• Increased Food Aid and Countries’ Import Bills:  higher crop prices due to corn ethanol production increase costs of food aid to needy countries and reduce the amount of food that developing countries can afford with stagnant or decreasing budgets. Corn exports have actually decreased in recent years as more corn is used for ethanol production.  Tufts University researchers found that from 2006 to 2011, U.S. ethanol production cost net corn importing countries $11.6 billion in higher corn prices; ActionAid notes that “more than half this cost was borne by developing countries.”
• Higher Nutrition Program Costs:  higher food prices increase the cost of nutrition programs and decreases purchasing power of programs such as the Supplemental Nutrition Assistance Program (SNAP, or food stamps) and the Women, Infants, and Children (WIC) Program.

Environmental/Consumer Costs

• Environmental and Public Health Costs:  with more and more acres being converted into input-intensive corn and soybean production to meet the RFS and farmers attempting to maximize short-term profits at the expense of long-term soil productivity, fertilizer and chemical runoff has increased, resulting in increased costs for downstream users. Since corn is the largest user of nitrogen fertilizer and pesticides, nearly half of U.S. inputs are applied to corn (46 and 43 percent, respectively).  More water pollution has increased water treatment costs for municipalities, resulted in lower returns for fishermen in the Gulf of Mexico (due to the presence of the annual dead zone), and lessened opportunities for fishermen, hunters, and recreational water users to enjoy the benefits of clean water sources and adequate wildlife habitat.
• Increased Food Prices:  prices of meat, poultry, eggs, and dairy products have increased as greater levels of corn ethanol production contributed to corn prices quadrupling over the past decade. A large percentage of the production costs of these foods can be attributed to corn prices.  The Congressional Budget Office (CBO) also found in 2009 that one-fifth of the increase in corn prices between 2007 and 2008 could be attributed to increased corn ethanol production. The International Food Policy Research Institute (IFPRI) agreed, estimating that “40 percent of the rise in corn prices between 2000 and 2007 was due to global ethanol demand.”
• Increase or No Impact on Gas Prices:  both government and academic studies have found that overall, ethanol use has either slightly increased gasoline prices or had no impact on gasoline prices at all despite claims from the ethanol industry that ethanol reduces gasoline prices. This is primarily due to the fact that ethanol has less energy content than gasoline and hence results in lower gas mileage for drivers.
• Increased Infrastructure Costs of Higher Blends of Ethanol:  as the country’s fueling infrastructure struggles to keep up with the shift to higher blends of ethanol (such as the Environmental Protection Agency’s recent approval of 15 percent ethanol, or E15), consumer costs increase, including damage to vehicles, cost of replacing blender pumps and storage tanks at fueling stations, and replacement of snowblowers, chainsaws, outboard motors, and other small equipment that is not compatible with higher blends of ethanol.

Conclusion

It’s time the mature corn ethanol industry survived on its own two feet without taxpayer support. After more than 30 years of federal backing, corn ethanol subsidies scattered throughout the federal tax code and farm bill energy title should be eliminated once and for all. Economic, environmental, and public health costs would also decline if unintended consequences of ethanol production were ended, benefiting drivers, consumers, and the general public.

For more information, contact Taxpayers for Common Sense at 202-546-8500.

The 2008 farm bill energy title provided the Repowering Assistance Program with mandatory funding of $35 million to be used during the life of the five-year legislation, with opportunity for additional funding through annual spending bills.  Even if Congress intended to continue the program beyond FY12, it would have to identify a funding source since this and other energy title programs do not have a funding baseline into FY13 and beyond. Funding was also not renewed for the Repowering Assistance Program during the extension of the current farm bill, through Sept. 30, 2013.

Background

The Repowering Assistance Program is funded though the energy title of the farm bill. The farm bill, renewed approximately every five years, is a wide ranging piece of legislation that funds everything from nutrition assistance programs and broadband internet to agricultural subsidies for the production of crops such as corn and soybeans. More specifically, the energy title of the farm bill, first introduced in 2002, provides grants, loans, and other subsidies to energy efficiency, biofuels, and bioenergy (heat and power) projects. In total, the 2008 farm bill energy title’s 13 major programs were projected to cost taxpayers $1.1 billion over five years (FY08-12). 

Facilities that receive taxpayer support range from universities receiving research and development grants to investigate new uses for biomass sources such as wood and agricultural residues to large, established corn ethanol companies receiving grants for annual production of biofuel. Other energy title projects funded by taxpayers include the collection, storage, harvest, and transportation of biomass sources to bioenergy or biofuels facilities; anaerobic digesters that create heat and power from animal waste; grants and loans to individuals or companies installing ethanol dispensers at gasoline stations or wind, solar, and geothermal systems; and federally backed loan guarantees for so-called next generation biofuels facilities that produce biofuels other than corn ethanol. While intended to support the next generation of biofuels derived from non-food sources and other renewable forms of energy, the farm bill energy title has also spent taxpayer dollars on the mature corn ethanol industry, supporting biomass sources with numerous unintended consequences, and even paying for updates to farmers’ irrigation equipment and grain dryers.

Taxpayer Support for Corn Ethanol Facilities

Since 2009, just $7 million of taxpayer funding has been dispensed from the Repowering Assistance Program all of which has been spent on two corn ethanol facilities - Lincolnway Energy, LLC in Iowa and Western Plains Energy, LLC in Kansas. In Sept. 2010, Lincolnway received $1.9 million to install a boiler which converts wood and other biomass to energy. In April 2012, Western Plains received $5 million to replace its natural gas energy source with a biogas digester; the digester will be powered with manure from a local feedlot. USDA has considered four other biorefineries for Repowering Assistance payments, three of which are corn ethanol facilities. The only other program applicant, ESE Alcohol Inc in Kansas, uses seed waste to produce ethanol. More information about the recipients and other applicants can be found in Table 1.

For over 30 years, the corn ethanol industry has benefited from generous subsidies, tax breaks, an import tariff, and a production mandate called the Renewable Fuel Standard (RFS). Thankfully, the tax credit and tariff expired at the end of 2011, but the RFS mandate still exists, requiring that 15 billion gallons of corn ethanol be used by 2015 and in years thereafter. In addition to these generous supports, the corn ethanol industry is still able to qualify for additional subsidies within the farm bill’s energy title that were intended to be targeted toward next-generation biofuels produced from non-food crops. The mature corn ethanol industry has also received subsidies through the Repowering Assistance Program, even though payments are supposed to support facilities utilizing next-generation biomass feedstocks.

Conclusion

The Repowering Assistance Program has failed to meet its stated goals serving only as another way to channel more taxpayer dollars to the mature corn ethanol industry. After thirty years of federal subsidies, it is time this industry stood on its own two feet. It’s time this wasteful program end. The Repowering Assistance Program should not be renewed in the next farm bill.

For more information, contact Taxpayers for Common Sense at 202-546-8500.

FOR IMMEDIATE RELEASE
April 10, 2013

CONTACTS:
Steve Ellis, (202) 546-8500 x126, or steve@taxpayer.net
Ailis Wolf, (703) 276-3265, or aawolf@hastingsgroup.com

WHITE HOUSE BUDGET PROPOSES SPENDING MORE ON SMALL MODULAR REACTORS, WINNER OF 2013 “GOLDEN FLEECE AWARD”

Even Before Administration’s Budget: $100 Million in “Mini Nuke” Corporate Welfare Already Doled Out, Today’s Announcement Continues Commitment to Half Billion Dollars in Subsidies

WASHINGTON, D.C.///April 10, 2013///Less than six weeks after the nonpartisan group Taxpayers for Common Sense (TCS) handed out its latest “Golden Fleece Award” to the Department of Energy for committing more than half a billion dollars in corporate welfare for the development and licensing of “small modular reactors” (SMRs), the White House today announced that it wanted to continue down this wasteful track by providing $70 million to SMRs in its Fiscal Year 2014 budget proposal, plus additional research and development funds.

For ongoing budget analysis on this and many other provisions included in the White House budget, visit www.taxpayer.net.

Ryan Alexander, president, Taxpayers for Common Sense, said:  “This is supposed to be a time of great austerity in Washington. We cannot afford to pile more market-distorting subsidies to profitable companies on top of the billions of dollars in subsidies we already give to nuclear power. If the industry believes in small modular reactors and a reactor in every backyard, that’s wonderful … but don’t expect the taxpayer to pick up the tab.”

As Taxpayers for Common Sense noted in February, the federal government already paid for a version of SMR R&D when small reactors were designed for the U.S. Navy’s nuclear submarine fleet. Now some highly profitable companies – including Babcock & Wilcox, Westinghouse, Holtec International, and Fluor Corporation – are at the federal trough for another round of federal support for small modular reactors that could go into suburban American neighborhoods.

Prior to the unveiling of the President’s budget, the Department of Energy had already provided nearly $100 million for these so-called mini reactors while their commercial viability remains in question. In addition, DOE has committed up to $452 million over the next five years in an attempt to commercialize up to two separate SMR projects by 2022.

In March 2013, the Department of Energy announced a second funding opportunity for SMRs as part of the $452 million commitment. The second funding opportunity intends to support the commercialization of one additional SMR project as late as 2027.

In making the Golden Fleece Award, Taxpayers for Common Sense highlighted the following issues:

• “Hot-tub” sized reactors … and king-sized costs? The vision the industry and DOE seem to be peddling is a chicken in every pot, a car in every garage, and a reactor in every basement. It’s hard to see the large-scale viability. Absolutely no one is clamoring to buy an SMR because there is no assurance that the electricity will be remotely competitive with power from other sources.  New nuclear power today is uncompetitive by a very wide margin.  At today’s natural gas prices, SMRs would have to produce electricity at half the projected cost of conventional reactors to compete.

• The case being made for federally subsidized SMRs directly contradicts the case that already has been made by the same industry for federal subsidized large reactors.  There are no reliable cost estimates for SMRs. Nuclear vendors are notorious for underestimating costs, and there is no actual experience.  Since the 1950s, the nuclear industry worldwide has consistently pushed for larger reactors on the theory that economics would improve if the high fixed costs of building safe plants could be spread over more kilowatt hours. SMRs represent a reversal of this reasoning and call into question the extensive federal support now being offered to promote a “nuclear renaissance” based on standardizing and sticking to a few large reactor designs.

• There is no assurance that SMRs would pass regulatory muster.  The United States Nuclear Regulatory Commission (NRC) has stated it is not fully prepared to license small modular reactors. In 2008, NRC estimated that it would have a regulatory review process in place to license the first small modular reactors within five years. However in a May 2012 the NRC said, “If an appreciable fraction of total SMR initiatives materialized, it would create an untenable situation for the NRC.”

• SMRs come with several additional question marks. Major issues for taxpayers include the lack of long-term radioactive waste storage, the creation of additional targets for terrorist attacks across suburban America, the cost of added security to protect the new facilities, etc.

Titled “Taxpayer Subsidies for Small Modular Reactors,” a related TCS background report is available online at www.taxpayer.net. 

ABOUT TCS AND THE AWARD

Taxpayers for Common Sense is a 501(c)(3) non-partisan budget watchdog serving as an independent voice for American taxpayers. The mission of TCS is to achieve a government that spends taxpayer dollars responsibly and operates within its means. The organization works with individuals, policymakers, and the media to increase transparency, expose and eliminate wasteful and corrupt subsidies, earmarks, and corporate welfare, and hold decision makers accountable.

The Golden Fleece Award was created in 1975 by the late Senator William Proxmire. It is intended to highlight instances of wasteful spending. After retirement, Sen. Proxmire served as Honorary Chairman of Taxpayers for Common Sense's Advisory Board and passed the mantle of the Golden Fleece to the organization in 2000.

EDITOR’S NOTE:   A streaming audio replay of a related February 27, 2013 news event is available on the Web at http://www.taxpayer.net.

For our full analysis on this most recent recipient of the Golden Fleece: Taxpayer Subsidies for Small Modular Reactors

April 10, 2013

Dear Senator:

We write urging greater scrutiny of misguided and potentially costly provisions in S.601, the Water Resources Development Act of 2013. It is our understanding that the Senate may take up consideration of S. 601 soon. After rushed consideration in committee, and with the Senate’s attention elsewhere, we believe the Senate and taxpayers deserve a thorough vetting of this far reaching legislation.

The Congressional Budget Office (CBO) estimates the legislation’s impacts on projects, policy, and cost-sharing would cost taxpayers more than $12.5 billion, yet because of budget rules this estimate does not reflect the true potential price tag. For instance, the bill is full of a myriad of provisions that would serve to undercut long-standing cost sharing rules; placing greater burdens on federal taxpayers at a time of severe budgetary pressures.

We have several concerns with the legislation. The bill appears to simply approve whatever the U.S. Army Corps of Engineers recommends. While we appreciate the effort to avoid earmarks for new project authorizations, we believe the response should not be to just approve whatever the Administration recommends, but to demand projects meet certain enhanced cost-benefit criteria, subject them to prioritization, and to limit the number of projects. With an estimated project backlog of more than $60 billion for the agency, we cannot simply pile more projects on the to-do list.

In addition the legislation mandates full payout of the annual revenues generated by the Harbor Maintenance Tax for harbor dredging. There are problems with the Harbor Maintenance Tax and Trust Fund, but this provision does little to solve them. Instead of just paying out the cash because it is burning a hole in lawmakers’ pockets, Congress should try to reform the system by establishing prioritization of funding, reducing the inherent cross-subsidies, or reducing the tax. Making matters worse, the legislation rolls back non-federal cost-sharing for port maintenance dredging and enables the Harbor Maintenance Trust Fund to pay for projects like berth dredging and confined disposal of contaminated sediments which have always been the responsibility of the ports, not the federal taxpayer.

The bill has a provision to simply extend beach replenishment projects by 15 years when their 50-year authorized life expires. These are projects that were conceived in the 1960s and have benefitted from heavy federal subsidies. Lawmakers should not automatically extend these, or other, projects without thorough review. In addition, cost-sharing rules were changed to require a 50 percent cost-share from sand pumping project beneficiaries starting in 1999. The committee bill would apparently end-run that policy and grandfather a reduced 35 percent local cost-share for these extended beach replenishment projects.

The bill contains a "BRAC" style commission to reduce the backlog of authorized but not constructed projects, but so many projects are excluded from consideration it is far from clear that this effort will help. In fact, this bill could result in an increase in the backlog.

Finally, while the project authorization avoids earmarks, there are several provisions in the bill that are targeted toward narrow interests that could be viewed as akin to earmarks. We believe this “working the equation backward” approach to public policy is inappropriately tipping the scales toward particular beneficiaries and problematic in the same way as earmarks, even if it doesn’t meet the technical definition.

The above are a few of the provisions we would like to highlight, but clearly this important legislation needs to be subjected to further review and debate. For more information contact Josh Sewell, 202-546-8500 or Josh(at)taxpayer.net.

Sincerely,

Americans for Prosperity
Club for Growth
Competitive Enterprise Institute
Council for Citizens Against Government Waste
FreedomWorks
National Taxpayers Union
R Street Institute
Taxpayers for Common Sense
Taxpayers Protection Alliance

Links into our live-stream analysis:

April 18, 3:45 PM Hardrock Mining Royalty and Abandoned Mine Land Fee
April 12, 3:30 PM No Additional Authority for Loan Guarantee Program
April 12, 11:45 AM Advanced Biofuels Receive Spending Carve-outs in DOE & USDA Budgets
April 12, 11:00 AM Dr. Seuss and the Budget
April 11, 4:30 PM Nuclear Weapons Get Another Break?
April 11, 3:00 PM Fossil Fuel Tax Breaks on the Chopping Block Again
April 10, 7:50 PM Big Weapons Still Collecting Big Dollars
April 10, 7:20 PM Perennial Crop Insurance Cuts Yield Little Annual Savings
April 10, 6:10 PM Doing the Same Thing and Expecting a Different Result
April 10, 5:24 PM President's Budget Uses Billions from So-Called "War Savings" to Fund Transportation
April 10, 5:00 PM Improvements to Oil and Gas Collections
April 10, 3:20 PM Fossil Energy Budget: Unconventional Fossil $ Cut, Increased Funding for “Clean” Coal Technology
April 10, 3:00 PM Pentagon Playing Ostrich Again
April 10, 2:30 PM Reforming Food Aid
April 10, 2:20 PM Wasteful Essential Air Service Spending Levels: Up, Up, and Away
April 10, 2:00 PM Support for Small Modular Nuclear Reactors Continues
April 10, 1:55 PM War Savings Again Proposed for Infrastructure Spending
April 10, 1:50 PM Agriculture Savings Leave a Lot on the Table
April 10, 1:30 PM MOX Facility on Track for Slowdown
April 10, 12:30 PM Trimming the Trimmings
April 10, 11:30 AM Statement by TCS President Ms. Ryan Alexander
April 10, 11:15 AM FY14 President's Budget Request Documents

(April 18, 2013) 3:45 PM

Hardrock Mining Royalty and Abandoned Mine Land Fee

As with other recent budget requests, the President’s FY14 Budget calls for several public land management reforms including a royalty for hardrock mining and related abandoned mine land fee. The budget calls for a minimum five percent royalty for hardrock mining and an abandoned mine land fee to help cover the costs associated with cleanup efforts. These proposals are estimated to generate $80 million and $1.8 billion, respectively, over the next ten years.

Under the General Mining Law of 1872, the hardrock mining industry is able to extract valuable taxpayer-owned hardrock minerals such as gold and silver from public lands for free. Making matters worse, companies often abandon their mining sites once they are no longer profitable—forcing taxpayers to pay for reclamation costs.

Legislation proposing a royalty rate for the hardrock mining industry has been introduced in previous Congresses but has yet to be enacted into final law. Many of these proposals have included a significantly higher royalty rate than included in the President’s budget request. A 12 percent royalty, as has been proposed in various bills, would be in line with other onshore extractive industries (i.e. coal, oil, and gas) and represent a far better step forward for federal taxpayers.

(April 12, 2013) 3:30 PM

No Additional Authority for Loan Guarantee Program

The President's FY2014 budget request calls for no additional loan guarantee authority or credit subsidy appropriations for the Title XII Innovative Technology Loan Guarantee Program. For the second year, the Administration has left their $36 billion proposed increase for nuclear loan guarantees by the wayside.—In both the FY11 and FY12 budget requests the Administration asked for the massive increase, despite $18.5 billion in nuclear loan guarantee authority already on the books unused.

It’s not surprising this year’s request mirrors last year’s, the program has come under increased scrutiny since the first default to solar panel manufacturer Solyndra. In that case taxpayers lost $500 million but the losses could be much higher if DOE continues with the program. One sitting commitment could risk more than $8 billion taxpayer dollars on a nuclear reactor that has already experienced significant cost overruns.

Currently, the loan guarantee program has $34 billion in existing authority for all eligible energy technologies and the authority has no expiration date. Among the 13 applications valued at $15.1 billion that are considered active by DOE, four have received conditional commitments and could move this year. Three of the conditional commitments are for one project: Southern Company’s Plant Vogtle nuclear reactor project in Burke County, Georgia—valued at $8.33 billion. The other conditional commitment is for AREVA’s Eagle Rock uranium enrichment project in Bonneville County, Idaho—valued at $2 billion. It was recently revealed that the program will offer a second solicitation for applications for the fossil sector in the near future.

Although no new authority was requested, this year’s budget included $48 million for operational costs—$10 million above the FY13 request for the program’s administration.

(April 12, 2013) 11:45 AM

Advanced Biofuels Receive Spending Carve-outs in DOE & USDA Budgets

The President’s FY14 budget includes numerous pots of spending for advanced biofuels - renewable fuels intended to be produced from so-called second generation feedstocks. Advanced biofuels include the production of ethanol from sugarcane, biodiesel from vegetable oils and other feedstocks, and cellulosic biofuels derived from perennial grasses, algae, or wood or agricultural residues. Even though the federal Renewable Fuel Standard (RFS) requires 21 billion gallons of advanced biofuels to be produced by 2022, the industry has been slow to get off its feet since it faces numerous economic and technological challenges. In fact, a 2011 National Academy of Sciences study found that advanced biofuel production was unlikely to meet its government mandates or reduce greenhouse gas emissions, as required by law.

Nonetheless, the DOE and USDA budget requests propose several funding carve-outs for biofuels technologies:

U.S. Dept. of Agriculture (USDA)

• Biomass Research and Development Initiative (BRDI):  $26 million for the Biomass Research and Development Program which provides grants to companies, universities, and government research centers to research, develop, and demonstrate new ways to refine various types of feedstocks and crops into biofuels or biobased chemical and products. As USDA’s budget acknowledges, BRDI supports “corn grain ethanol.” For more information on BRDI, see our recent fact sheet.
• Rural Energy for America Program (REAP):  $238 million in program level funding to primarily promote solar, wind, hydropower, geothermal, and similar projects in rural areas. To date, REAP has funneled nearly $3 million to the mature corn ethanol industry. For more information on REAP, see our recent fact sheet.

Department of Energy (DOE)

• Advanced Research Projects Agency-Energy (ARPA-E):  $350 million “to support transformational research in clean energy in areas such as solar energy and advanced biofuels.”
• Energy Security Trust:  $2 billion over the next decade from “Federal oil and gas development revenue [to be invested] in a new Energy Security Trust…[in technologies] that will allow us to run our cars and trucks on electricity, homegrown biofuels, renewable hydrogen, and domestically produced natural gas.”
• Long-term research and Bioenergy Research Centers:  long-term research funding “to promote advanced vehicles, including a battery and energy storage hub, continued fuel cell research, and three Bioenergy Research Centers aimed at developing the scientific understanding underpinning new technological solutions that will enable increased production of advanced biofuels.”
• Office of Energy Efficiency and Renewable Energy – technology development:  $282 million – increase from $200 million in FY13 - “to develop and demonstrate conversion technologies to produce cellulosic ethanol and other advanced biofuels, such as algae-derived biofuels and “drop-in” replacements for diesel and jet fuel, for civilian and military uses.”

(April 12, 2013) 11:00 AM

Dr. Seuss and the Budget

As you peruse the budget appendix (what you don’t?!) you’ll find a multitude (well 193) of line items for “Transportation of Things.” Considering the federal government is budgeting to spend $21.6 billion transporting “things” in FY14, you can be sure Conrad and Sally are not the only ones being visited by Thing 1 and Thing 2. Yup, Uncle Sam is aiding and abetting the Cat in the Hat. Thankfully the funding level is down from $30.0 billion in FY12. Who says budgets can’t be fun and educational.

Okay, okay. “Transportation of Things” isn’t really non-seussical, it’s the object class assigned to government spending moving goods and materials around, for example military equipment and mail. But it’s still a very vague area of spending and according to an analysis by GSA last year, it has grown 40% since 2000. That’s a lot of stuff, err… things.

(April 11, 2013) 4:30 PM

Nuclear Weapons Get Another Break?

The nuclear weapons budget is an important contributor to the part of the federal budget known as “National Defense.” National Defense is mostly comprised of funding for the Defense Department and nuclear weapons functions of the National Nuclear Security Agency (NNSA), which oversees our nuclear weapons stockpile and the facilities where they are maintained. Modernizing these weapons and facilities, otherwise known as the nuclear weapons “complex,” is a major topic in Washington right now. So how could NNSA fail to get its FY14 budget details out at the same time as the White House? We know from those documents that NNSA received $7.87 billion for weapons-related functions, a $300 billion increase from FY13. But the web site of the Department of Energy (DOE), in which NNSA is located, says only that budget justification documents are “not available at this time.” And the NNSA web site just provides an optimistic press release with few details, an exception being the fact that a uranium processing facility at the Y-12 national security complex (which we recommended eliminating) will receive some $300 million.

Since the nuclear weapons complex is one part of government that both Congress and the Oval Office seem keen on growing—nuclear weapons dodged sequestration last month when Congress added money back for them in the CR—we think NNSA should be a little more conscientious. This is particularly true when you consider NNSA's terrible record of cost and schedule overruns. Looks like their past is catching up with their present.

(April 11, 2013) 3:00 PM

Fossil Fuel Tax Breaks on the Chopping Block Again

In line with previous budget requests, the President's FY2014 request calls for the repeal of twelve subsidies in the tax code for the fossil fuel industry. The budget proposes the elimination of four coal and eight oil and gas tax preferences totaling approximately $44 billion in revenue over the next ten years.

Among the four coal subsidy cuts, the elimination of the percentage depletion allowance for coal and hardrock mineral fossil fuels brings in the highest total at nearly $2 billion over the next ten years.

Three significant oil and gas industry subsidies make up the majority of remaining taxpayer revenue earned by ending these unnecessary giveaways--the elimination of the expensing of intangible drilling costs (about $11 billion), percentage depletion allowance for oil and natural gas wells (just shy of $11 billion), and domestic manufacturing tax deduction for oil and natural gas companies (more than $17 billion).

(April 10, 2013) 7:50 PM

Big Weapons Still Collecting Big Dollars

Our 2012 report Spending Even Less, Spending Even Smarter detailed how we can save nearly $700 billion from defense over the next decade by eliminating or delaying programs not essential to our national security. From the looks of the FY14 request, the White House disagrees with many of our suggestions. Here are the amounts requested for the major weapons programs listed in our report.

Our savings: $61.7 billion by replacing two of the three F-35 variants with the F/A-18 E/Fs which are less expensive and have comparable capabilities.
FY14 Request: $8.4 billion for the F-35 program, essentially full funding for 29 aircraft.

Our savings: $18.4 billion by cutting aircraft carriers from 11 to 10 and Navy wings from 10 to 9.
FY14 Request: $1.7 billion for the CVN-21 Ford Class Carrier. This is more than double the most recent request.

Our savings: $18 billion by cutting four submarines from the next-generation fleet.
FY14 Request: $1 billion for the Ohio Replacement Program, double last year’s request.

Our savings: $17.1 billion by replacing the V-22 Osprey with less expensive, more reliable alternative helicopters.
FY14 Request: $1.8 billion to continue procurement of 21 aircraft.

Our savings: $6 billion by freezing development of unproven Ground-Based Midcourse Defense System (GMD)
FY14 Request: More than $1 billion, $100 million more than last year. This includes a down payment on a $1 billion increase in GMD spending recently announced by Defense Secretary Chuck Hagel in response to provocations by North Korea.

Our savings: $6 billion by canceling future satellites of the Space-Based Infrared System (SBIRS).
FY14 Request: $935.7 million, more than $30 million over last year’s request.

Our savings: $230 million by eliminating unrequested funding for the M1 tank.
FY14 Request: $280 million for M1 Abrams upgrades, roughly what the Pentagon asked for in FY13.

Our savings: $187.2 million by canceling the Lockheed Martin variant of the Littoral Combat Ship.
FY14 Request: $2.4 billion, roughly equal to last year’s request. The Pentagon is pushing ahead with the program even though its cost has doubled because it wants to deploy them to the Asia-Pacific.

(April 10, 2013) 7:20 PM

Perennial Crop Insurance Cuts Yield Little Annual Savings

After being knocked down last year by the House and Senate Agriculture Committees, the President’s detailed changes to the federally subsidized crop insurance program have popped back up. We’ve written at length about federal crop insurance and are glad anytime we see efforts to trim instead of expand its price tag. But this is another area where it begs the question of how much effort the administration will put into realizing these changes. 

Most of the suggested cuts aren’t new plantings, but ones that failed to bear any fruit last year. (See the Pruning Crop Insurance section of last year’s budget analysis).

Taxpayers can save billions more through other common sense reforms to crop insurance. But we’ll harvest no savings unless the administration, and Congress, get serious.

(April 10, 2013) 6:10 PM

Doing the Same Thing and Expecting a Different Result

This Administration is hardly the first to trot out previously rejected ideas budget after budget. But after a while you have to ask: is this just budgetary muscle memory, is something different this time, or is this just an easy way to make the numbers look a little better because these policy proposals save money or raise revenue? If it’s the latter, then it’s a problem. Because the savings or revenue won’t be there at the end of the budget process, but you can bet at least some of that additional spending they offset will be.

So you have the President proposing to collect fees from the inland navigation industry. Or consolidating all the business and trade agencies into the Commerce department. Or reducing agriculture subsidies. Or cutting large airports out of the Airport Improvement Program. Yes, Mr. President we agree! But Congress doesn’t. So unless you are willing to put your shoulder to the wheel and fight for these cuts, they aren’t worth too much. They just end up in the round file of some Congressional office.

We want to work to make these and other smart cuts and policy changes happen, but there has to be effort from the White House to see it through.

(April 10, 2013) 5:24 PM

President's Budget Uses Billions from So-Called "War Savings" to Fund Transportation

In addition to the $50 billion in immediate infrastructure spending (see earlier post) “paid for” with savings from the reduction in military operations in Iraq and Afghanistan, the president’s budget relies on this gimmick for billions more in infrastructure spending in coming years.

In future years, fuel tax revenues will lag far behind even current surface transportation program spending levels. Instead of coming up with sustainable solutions that will shore up the program into the future, the president’s budget relies on a so-called “reauthorization reserve” of $88 billion funded with “war savings” between now and 2020 to cover the shortfall and even allow for a 25 percent increase from current levels. In addition to the $18.8 billion transferred by Congress from the Treasury into the transportation program, the president proposes an additional $2.55 billion transfer in FY14. It also appears that this budget intends to cover a full ten years (until 2024) of this reauthorization reserve, for spending that is approved under the next reauthorization by occurs after the reauthorization has expired, though it does not indicate if this will cost anything additional in the out years.

In addition, the president would make the rail program part of a broader Transportation Trust Fund, and fund it for five years at $40 billion, also derived from the drawdown in war spending.

(April 10, 2013) 5:00 PM

Improvements to Oil and Gas Collections

The President’s budget for the Department of the Interior for FY14 includes a number of retreads for oil and gas royalty reform, but also adds a couple of new proposals that could help in the administration of oil and gas leases and royalty collection. First, it would charge a fee to offset the cost of inspections at oil and gas wells on public lands. Similar inspection fees have been charged for the last several years for offshore oil and gas wells – extending this fee to onshore wells is a step in the right direction. Second, the budget would stop the accrual of interest on royalty overpayments by oil and gas companies. The current policy encourages the companies to overpay and increases administrative costs for the agency, which must calculate refunds with interest on a huge number of royalty accounts.

(April 10, 2013) 3:20 PM

Fossil Energy Budget: Unconventional Fossil $ Cut, Increased Funding for “Clean” Coal Technology

Overall the budget request would provide $429 million for fossil energy research and development—slightly higher than its FY2013 budget request of $421 million. The FY2013 Continuing Resolution included $537 million for the program. In line with previous year priorities, the Administration has included increased funding for Carbon Capture and Storage (CCS) and Power Systems—or “clean” coal—technologies and cut funding for Unconventional Fossil Fuel Technologies in its FY2014 Office of Fossil Energy Budget Proposal.

For CCS technologies, the budget request includes $276.6 million for fiscal year 2014. Among the four CCS sub-programs, the budget would provide $112 million for carbon capture technology—a 62 percent increase from $69 million provided in FY2013 and $61 million for carbon storage technology—down from $115 million in FY2013.

Funding for Unconventional Fossil Energy Technology was cut entirely. In the Continuing Resolution the program received $5 million.

For decades, billions of taxpayer subsidies for fossil energy R&D have gone out the door. CCS and unconventional fossil fuel development have proven little more than a waste of taxpayer dollars time and time again. Whether its oil shale, liquid coal or “clean” coal these next generation fossil technologies are nothing more than money losers.

(April 10, 2013) 3:00 PM

Pentagon Playing Ostrich Again

The Defense Department, which maintains its status as the largest consumer of discretionary spending with $526 billion for base FY14 funding, is once again taking the ostrich approach to budgeting.  Rather than keeping its budget under the caps set by sequestration, the Pentagon is riding on the White House claim that proposed savings in other areas such as entitlements will help agencies like DOD dodge the knife.

This is folly for many reasons. The one criticism that echoed from both sides of the political aisle during recent hearings about sequestration’s impact on the defense budget was that DOD’s refusal to plan for sequestration only pushed hard choices down the road, ultimately making them even more difficult by allowing DOD to spend money it didn’t really have. The Continuing Resolution passed last month to fund the federal government through October barely saved DOD’s bacon by allowing it more flexibility in the way it allocated reductions. But by maintaining sequestration-level budget caps, the legislation made Congressional intent clear: Hard times are here, and the Pentagon has to face them just like everyone else.

Military chiefs argue that sequestration prevents strategic cuts. But by refusing to make the reductions necessary to avoid it again, DOD is effectively ceding budgetary decision-making to Congress, which is hardly strategic when it comes to military spending. Even the relatively mild savings efforts DOD has proposed so far have been largely rolled back by lawmakers, and new reduction proposals—such as ending some drone programs and keeping older cargo planes—will probably meet the same fate. In fact, fear of going on record as "cutting defense" was one of the primary reasons lawmakers allowed sequestration to happen.

Meanwhile, some of the biggest money-guzzlers in the Pentagon are allowed to live on in the FY14 budget proposal, such as the F-35 Joint Strike Fighter. We'll be posting updates on all of the savings proposals in Spending Even Less, Spending Even Smarter, our report with the Project on Government Oversight on how to save nearly $700 billion in defense expenditures over the next decade.

(April 10, 2013) 2:30 PM

Reforming Food Aid

In one of the major reforms where the Administration tipped its hand leading up to the budget release, the FY14 request includes long overdue reforms in international food aid. The proposal would shift a large percentage of the food aid from being in-kind (food purchased domestically and shipped overseas) to cash and vouchers for local purchase, which is more cost-effective and yields aid sooner. This would shift funding out of USDA and into USAID.

In addition, it would end the monetization programs to support private volunteer organizations overseas. These programs would give organizations food to sell and use that money to fund relief efforts. The GAO has estimated at least 25 percent waste from this type of aid.

While we would like a bolder approach (this proposal still retains 55 percent in-kind aid in the International Disaster Assistance program, for instance), the more efficient nature of this approach coupled with $500 million in savings over ten years is a good first step.
 

(April 10, 2013) 2:20 PM

Wasteful Essential Air Service Spending Levels: Up, Up, and Away

When Congress last year passed the Federal Aviation Administration reauthorization, one area of focus was the Essential Air Service (EAS), a relic of airline deregulation in the 1970s. One much ballyhooed “successes” of the bill was a restructuring of this program to reduce the amount taxpayers are forced to invest on an annual basis. (Read more about EAS and the changes to the program here).

Well, things are headed in the wrong direction.

Though the program has hovered around $200 million for a couple of years, the president’s FY14 budget would increase this to $246 million. While we know that what the president asks for isn’t necessarily what he’s going to get, there is a footnote in the DOT budget justification that gives us pause: “The Payments to Air Carriers/Essential Air Service estimated obligations reflect the FY 2014 program level needed to continue this program.” In other words, the $246 million request is what DOT believes will be required to continue the program through the next fiscal year.

We were critical of the modifications Congress made to the EAS program last year. In part because we believed they didn’t go far enough, but more relevant here was our concern that the changes could actually result in higher spending levels on this program (see our analysis here). It appears those chickens are coming home to roost.

(April 10, 2013) 2:00 PM

Support for Small Modular Nuclear Reactors Continues

Similar to last year’s request, the President’s FY14 budget includes funding for small modular reactors within the Office of Nuclear Energy. The budget request would provide $70 million for DOE’s SMR design certification and licensing support program—an increase of $5 million from what was provided in FY2012. The budget would also provide $20 million to SMR research, development, and demonstration (RD&D) through the Reactor Concepts RD&D program.

In March 2012, DOE committed up to $452 million in grants for design certification and licensing support, dependent on Congressional appropriations. Yet, the commercial viability of these modular reactors remains in question. Recently, DOE announced a second solicitation for applications to receive cost-shared funding through the SMR program.

TCS gave the SMR program our Golden Fleece award in February 2013 for handing out hundreds of millions to the profitable nuclear industry.

Click here to view our recent press release on continued funding for small modular reactors.

(April 10, 2013) 1:55 PM

War Savings Again Proposed for Infrastructure Spending

The president’s budget includes $50 billion in funding for “immediate transportation investments to support critical infrastructure projects.” Of this, $40 billion would go to “Fix it First” projects and $10 billion for “competitive programs to encourage innovation in completing high value infrastructure projects.” (see chart below)

To pay for this massive outlay, the president’s budget assumes it will use war “savings.” Money that we would have spent in Iraq and Afghanistan, that now won’t be spent there, can magically be used to pay for infrastructure investments. It’s a little like carrying a massive credit card debt, but going out to party when the car is paid off. The responsible move is to use the money that would have gone to the car payment and pay down the credit card.

If this all sounds familiar, it should. Since passage of the original stimulus package in February 2009, there have been four very similar propsals, including this one, in which President Obama seeks to commit $50 billion to additional infrastructure funding. You can read our analysis of last year's proposal here. And the war savings proposal is not new either, having showed up in several iterations for several years now, though last year was the first time it was proposed that a portion of those savings would be committed specifically to infrastructure.

(April 10, 2013) 1:50 PM

Agriculture Savings Leave a Lot on the Table

The President’s budget request for the Department of Agriculture includes a number of positive, but timid reforms to the agriculture safety net that, if enacted, would save taxpayers $38 billion over the next decade ($6 billion more than was proposed last year). However, the President’s level of savings leaves a lot on the table. Taxpayers could save tens of billions more if bolder high-level reforms were proposed and savings weren’t left to whither on the vine. While some of the reforms are long overdue, more detail is needed to see exactly how he plans to cut $11.8 billion from the highly subsidized crop insurance program, for instance (see update entitled "Perennial Crop Insurance Cuts Yield Little Annual Savings" in this post). Hopefully the U.S. Department of Agriculture will put more meat on the bones when it releases its budget plan this afternoon, so stay tuned (again, see aforementioned post). 

Since billions more can be saved while still providing agricultural producers an adequate safety net, the President’s budget request common sense reforms should be expanded. These changes would reform the outdated maze of agricultural subsidies which rewards a handful of agribusinesses growing favored crops:

• Eliminating direct payments:  a “temporary” subsidy introduced in 1996 that is paid regardless of need, crop prices, or whether a producer is even planting a subsidized crop. (President’s stated savings = $29.7 billion. It would be closer to $50 billion if the Average Crop Revenue Election program was eliminated as well)
• Reducing subsidies for crop insurance companies and farmer premiums:  the federal crop insurance program is unlike the home, car, or health insurance policies that are familiar to most people. Instead of individuals or companies covering the full cost of their insurance protection, the federal taxpayer significantly subsidizes insurance policy holders, agents, and companies. Beneficiaries, on average, pay only 40 percent of the cost of their insurance policies. The program quadrupled in cost over the past decade, costing taxpayers an estimated record $14 billion in FY12. (President’s stated savings = $11.8 billion. By rolling premium subsidies back to the still generous levels available in 2000 the savings would be $40 billion)
• Better targeting conservation programs:  several agricultural conservation programs could be better targeted to reduce risks and downstream costs for not only producers, but also the public. Some programs, such as the Environmental Quality Incentives Program, shovel subsidies to large  agribusinesses  to  help  them  comply with  the inevitable  costs  of  doing  business. These funds could be better spent on targeted programs that provide taxpayers the best return on investment. (President’s stated savings = $1.7 billion)

(Note that the President also proposes to “spend” $5 billion of these savings on disaster assistance for dairy and livestock producers and programs for specialty crops, bioenergy, and beginning farmers; hence, the overall savings drop from $43 billion to $38 billion.)

As the President acknowledges, the agriculture sector “continues to be one of the strongest sectors of the U.S. economy, with net farm income expected to increase 13.6 percent to $128.2 billion in 2013,” which would be the highest level of farm profits in history. For these and other reasons, now is the time to scale back wasteful and duplicative agricultural subsidies, save at least $100 billion for taxpayers, and create a more cost effective, accountable, transparent, and responsive farm safety net.

(April 10, 2013) 1:30 PM

MOX Facility on Track for Slowdown

The FY14 budget request includes $503 million for the Fissile Materials Disposition (FMD) program, which includes the MOX Fuel Fabrication Facility, but also notes that the facility is becoming too expensive. The Administration plans to examine “the feasibility of alternative plutonium disposition strategies.” According to budget documents, this examination could in result in a slowdown of construction at the facility.

The FMD program received $708 million in the Continuing Resolution for Fiscal Year 2013 and $667 million in fiscal year 2012. So the request would represent a nearly 30 percent reduction from FY13 funding levels.

(April 10, 2013) 12:30 PM

Trimming the Trimmings

The President’s budget again includes a Cuts, Consolidations, and Savings document that is a perennial favorite of TCS. We wrote about this in our U.S. News Blog post yesterday. But this year the document itself is substantially cut and consolidated.  While the President identifies 215 programs for savings of $539 billion over 10 years, he does so in only 10 pages, most of which are simply tables. Last year’s was 213 pages long.

What is missing is the detailed explanation for why or how these changes will be made. We’re happy to again see the President listing where cuts can be made, but think he needs to give the American public more details. For example, what steps will be taken to shave $11.8 billion from crop insurance? What’s meant by multi-agency food aid reform? And even before you detail how you're consolidating it, what is the Department of Energy’s W 78/88 Life Extension Program?

We know what these things mean –trimming subsidies to farmers and insurance companies, injecting some common sense into our food aid programs, and the W78/88 is a nuclear warhead, but we’re nerds. Your average taxpayer looking for common sense ways to make government work probably isn’t spending their free time investigating all of these details.

With some of the programs, inquisitive minds are  directed to “the respective agency’s Congressional Justification submission” or another table in the President’s budget to find more details. But many just seem to be on the list. We’ll keep looking, but now is a time for more details, not less.

(April 10, 2013) 11:30 AM

Statement by TCS President Ms. Ryan Alexander

The President’s budget is late getting to the starting gate, but is still an important part of the puzzle. It provides detail to many spending provisions that are glossed over in the House and Senate budgets. The $3.77 trillion package includes new revenue and changes to entitlement spending. It also includes gimmicks like tapping the predicted overseas troop reductions to offset shortfalls in the highway trust fund. Now that the President, House, and Senate have spoken with their budgets, it’s up to our elected officials to get to work hammering out fiscal year 2014 spending bills so we don’t end up in the same budgetary debacle we’ve seen in recent years.

(April 10, 2013) 11:15 AM

FY14 President's Budget Request Documents

After a two month delay, the President released his fiscal year 2014 budget proposal today. The tome, weighing in at $3.77 trillion, details everything from Pentagon spending to the funding levels for the National Institute for Standards and Technology. Taxpayers for Common Sense staff will be combing through the budget over the next several hours and days and bringing to light various issues hiding behind the numbers, so check back often.

Relevant Documents:

• The Budget
• Full Cuts, Consolidations, and Savings
• Analytical Perspectives
• Historical Tables
• Appendix

The 2008 farm bill energy title provided $300 million in mandatory program funding for the BPAB from FY09-12, with opportunity for additional funding through annual appropriations bills.  Since funding for all energy title programs expired at the end of FY12 and was not renewed when the current farm bill was extended through September 30, 2013, BPAB will not be funded in FY13 unless lawmakers apply retroactive funding in the next farm bill or another piece of federal legislation.

Background

BPAB is funded though the energy title of the farm bill. The farm bill, renewed approximately every five years, is a wide ranging piece of legislation that funds everything from nutrition assistance programs and broadband internet to agricultural subsidies for the production of crops such as corn and soybeans. More specifically, the energy title of the farm bill, first introduced in 2002, provides grants, loans, and other subsidies to energy efficiency, biofuels, and bioenergy (heat and power) projects. In total, the 2008 farm bill energy title’s 13 major programs were projected to cost taxpayers $1.1 billion over five years (FY08-12). 

In particular, BPAB provides taxpayer subsidies to a range of facilities to increase annual production of biofuels. Other farm bill energy title programs provide taxpayer support for research and development grants to investigate new uses for biomass sources such as wood and agricultural residues; the collection, storage, harvest, and transportation of biomass sources to bioenergy or biofuels facilities; anaerobic digesters that create heat and power from animal waste; grants and loans to individuals or companies installing ethanol dispensers at gasoline stations or wind, solar, and geothermal systems; and federally backed loan guarantees for so-called next generation biofuels facilities that produce biofuels other than corn ethanol.

While intended to support the next generation of biofuels derived from non-food sources and other renewable forms of energy, the farm bill energy title has also spent taxpayer dollars on the mature corn ethanol industry, supporting biomass sources with numerous unintended consequences, and even paying for updates to farmers’ irrigation equipment and grain dryers.

Feedstocks Receiving Taxpayer Funding

Nearly $200 million were dispensed from 2009 to Nov. 2012 through the BPAB program. Table 1 illustrates which types of feedstocks received the most taxpayer subsidies over this timeframe. Together, soy biodiesel and corn ethanol facilities were awarded over half of all BPAB funding. Facilities converting animal fats, canola oil, vegetable oil, used cooking oil, or a combination of these received another 43 percent of funding. Those feedstocks or technologies collecting the few remaining dollars include wood pellets, seed waste, landfill gas, and anaerobic digesters.

Large Corn Biofuels Facilities Receiving Taxpayer Funding

The highest payments per project by far were awarded to large agribusinesses operating corn and soy biofuels facilities. This is despite the fact that corn ethanol facilities are not even eligible for funding through this program or defined as an advanced biofuel in any current federal legislation. Regardless, USDA is still funneling money to this mature industry, in addition to soy biodiesel facilities. From 2009 to 2012, 20 corn ethanol facilities and one corn oil biodiesel facility received $52.8 million in federal subsidies, an average of $2.6 million per project. See Table 2 for more information. The corn ethanol industry has already received more than its fair share of federal subsidies over the past 30 years, including energy and commodity subsidies in the farm bill, production tax credits, import tariffs, taxpayer-backed loans, and infrastructure support. In addition, corn ethanol production is mandated through the federal Renewable Fuel Standard (RFS); more specifically, the RFS mandate requires that 15 billion gallons of corn ethanol be used in U.S. motor gasoline by 2015.

Large Agribusinesses Receiving Subsidies for Biodiesel Production

Table 3 identifies several large agribusinesses receiving more than $1 million of taxpayer subsidies for biodiesel production. Biodiesel can be produced from corn oil, as noted above, or other feedstocks such as soy or other types of vegetable oil, animal fats, recycled cooking oil, etc. Notable companies receiving taxpayer support from 2009-2012 include the Renewable Energy Group, Louis Dreyfus, Ag Processing, Archer Daniels Midland, MN Soybean Processors, and Cargill Inc. Similar to the generous taxpayer supports corn ethanol has received over the past 30 years, biodiesel companies have also benefited from a $1 per gallon production tax credit for several years, on top of several other federal incentives.

Other Feedstocks Receiving Taxpayer Subsidies

As Table 1 illustrated, projects receiving the last few million dollars of BPAB payments converted either woody biomass or seed waste into biofuels or used anaerobic digesters or landfill gas to power bioenergy facilities. These payments were 18 to 69 times smaller than the average checks sent to corn ethanol facilities. Nineteen remaining projects were filed in the unknown category since too little detail was provided by USDA to determine which types of feedstocks are used in the facilities.

Conclusion

Even though the Bioenergy Program for Advanced Biofuels was intended to spur production of advanced biofuels, as the program’s title suggests, its funding stream reveals a different story. Instead of assisting small, rural residents or small businesses obtain financing to help second-generation biofuels derived from non-food feedstocks get off the ground, the program is instead funneling taxpayer dollars to large, profitable, and well-known agribusinesses. Government funding is also spent on mature biofuels industries like corn ethanol and soy biodiesel, which have enjoyed taxpayer backing for more than 30 years. Now more than ever, taxpayers should not be forced to fund corporate welfare and mature technologies, so the BPAB program must not be renewed.

For more information, contact Taxpayers for Common Sense at 202-546-8500.

Taxpayers for Common Sense (TCS) has done a comprehensive review of all current Essential Air Service (EAS) program agreements, which are based on proposals made by individual airlines to the Department of Transportation. The airlines lay out the terms they would require to provide service to what would be an otherwise unprofitable market.

Visit our Data Center to see the complete data set, some other interesting facts we found reviewing the data, and a map visualization of all EAS airports.

One interesting aspect to consider when looking at the EAS data is which airports are likely to be effected as a result of the air program reauthorization signed into law in 2012. That law changed the EAS eligibility rules to receive subsidized service. At present, to be eligible, an airport or community must¹:

1. Be 90 or more miles from the nearest medium or large hub airport.
2. Average 10 or more enplanements per day (this requirement does not apply if the airport is 175 miles or more from a medium or large hub airport).
3. Require a subsidy of less than $1,000 per passenger.
4. Have received subsidized air service between September 30, 2010 and September 30, 2011.

These requirements (in particular #4) have reduced the number of eligible communities to 121. When airline deregulation became law in 1978, it made eligible for subsidized service any community that, at the date of enactment, either received air service or was eligible to receive air service but such service was suspended. As a result, 480 communities (again, not including Alaska or Hawaii) were originally eligible. Now it is 121. At present, 117 of these receive subsidized service.

The first requirement pre-dates the recent changes, and though there are some airports that could be argued are within 90 miles of a hub, any airports this would eliminated have ostensibly been removed from the program already.

The enplanement requirement (#2) and subsidy cap (#3) –new as of the 2012 reauthorization – could potentially pare down the list of subsidized airports in the coming months and years. To date, only one airport – in Ely, Nevada – has lost its service due to these requirements. At the time, Ely had the distinction of the highest per passenger subsidy (a whopping $3,720) of all EAS airports, so it seems appropriate that it would be the first to lose its service. (See the U.S. DOT doc for this decision)

These nine communities had less than 3,650 enplanements in 2011, and are within 175 miles of a large or medium hub airport. By the new rules passed by Congress, they would not be eligible for future subsidies if they do not get above the 10 enplanements per day threshold:

In addition, there are three communities that require a subsidy of more than $1,000 to support air service at their location. These would also not be eligible:

At the end of March, Lewistown and Miles city received word that their service is slated to be terminated as a result of their required subsidy level exceeding $1,000. (See the U.S. DOT doc for this decision)

Though Congress believes these changes to the EAS program solve its greatest ills, the result would be only a tiny cut to the program. Eliminating service at these 11 airports would save $17 million, less than a ten-percent cut in the overall size of the program. Rapid cost escalation in recent years could itself wipe out these potential savings in future years, leaving taxpayers worse off than they are currently.

TCS has been calling for the elimination of EAS for many years, and there is no time like the present to get rid of this wasteful and unnecessary program. We are not alone in our opposition. Last year, during debate over the authorization of the nation’s air program and transportation appropriations bill, several members of Congress called for the program’s elimination, and an amendment to eliminate the EAS program received bipartisan support in the House. The Washington Post editorial board recently stated the EAS program should be zeroed out in favor of funding other, well, more essential federal programs.

Simply put, the EAS program has long outlived its intended purpose and needs to be eliminated.

---

1. None of these requirements apply to Alaska or Hawaii.

Taxpayers for Common Sense (TCS) has done a comprehensive review of all current EAS agreements, which are based on proposals made by individual airlines to the Department of Transportation. The airlines lay out the terms they would require to provide service to what would be an otherwise unprofitable market. To put it another way, the airlines tell the government how much they will need to operate a route they would otherwise not fly.

Our review of these agreements has resulted in the most up-to-date overview of how much it costs taxpayers each year to maintain service to these rural airports, how much it costs per passenger, and how many passengers are benefitting from the subsidized service.

At present, there is nearly $218 million worth of EAS contracts on the books to service 117 communities.

You can see the raw data behind each of these agreements, and download a copy for your own use here. 

You can see a map visualization of the data here.

And finally, for a mash up that shows how close many of these EAS airports are to hub airports, check this out.

In addition, here is an analysis of how this data informs what may change within the program based on last year's FAA reauthorization bill.

To compile this EAS data, TCS reviewed the most recent “rate order” issued by the U.S. Department of Transportation for each EAS airport. These rate orders contain the major of information included in the data set, including total dollar value, rate per flight, start and end dates, connecting airport, and more. These rate orders were obtained from www.regulations.gov, using the unique “docket” number assigned to each EAS airport. The 2011 enplanement data is from Federal Aviation Administration sources (http://1.usa.gov/aAVKrp). The “calculated subsidy per passenger” is calculated using total contract value and enplanements. Note that while the contract values are 2013 figures, the most recent enplanement data is from 2011. Though this will make for small variations in current per passenger subsidy rates, the differences are expected to be minor. 

Terms of Use

Because all of the data we offer is public information, we ask that all users agree to these basic terms of use, that:

• information provided by TCS in whatever form is meant for research, educational, or journalistic purposes only;
• TCS Data shall not be used for commercial purposes, to solicit contributions, or sold to third-parties;
• and that appropriate credit will be given to TCS for all reports, articles, mashups, or other use of our data, including a link back to our website for all items published on the web.

Today we got a big hint when Hagel gave a major policy address at National Defense University at Fort McNair in Washington. Hagel called a downturn in defense budgets “inevitable,” and correctly observed that the money-chewers in the defense budget were acquisitions, personnel costs, and overhead. In fact, many of his statements echoed recommendations in our May 2012 report with the Project on Government Oversight, Spending Even Less, Spending Even Smarter. Some examples:

·        “Despite pruning many major procurement programs over the past four years, the military’s modernization strategy still depends on systems that are vastly more expensive and technologically risky than what was promised or budgeted for.“ Exhibit A: The F-35 Joint Strike Fighter. The costs of most expensive acquisition program in the Defense Department’s history have nearly doubled to $400 billion dollars, but DOD continues to center its air strategy around the aircraft. We recommended canceling variants of the plane built for the Navy and Marines with capable but less expensive aircraft, for a savings of $61.7 billion.

·         “Fiscal realities demand another hard look at personnel – how many people we have (military and civilian), how many we need, what these people do, and how we compensate them for their work, service, and loyalty with pay, benefits and health care.” The cost of TRICARE, DOD’s health care system, has more than doubled in the last decade and now exceeds $50 billion. The minor reforms we recommend echo those made in a DOD review, and would save the department $76.5 billion over the next decade.

·         “Despite good efforts and intentions, it is still not clear that every option has been exercised or considered to pare back the world’s largest back-office.” We often point out that the Pentagon is the world’s largest bureaucracy, a word that is not synonymous with efficiency. DOD can save money by stopping the proliferation of stars and bars in the agency’s management ranks, as well as cutting down on service contractors—a goal set by Gates. Reducing DOD service contracts by 15 percent over the next ten years contractors would save a whopping $372 billion.

So does this speech make Hagel a fiscal warrior? Unfortunately, talking about change doesn’t make it so: Many of his observations have been made by others before him and even proposed to Congress, only to get shot down. Hagel also gets a demerit for repeating the old saw that DOD will be operating with "significantly less resources." From when, exactly? Sequestration will take the Pentagon "back" to our 2007 wartime budget, which was near its historical peak.

But Hagel gets a gold star for what may be the biggest change heralded by his speech: Admitting the need for “matching missions with resources,” meaning resources must inform strategy. “We cannot simply wish or hope our way to carrying out a responsible national security strategy and its implementation,” he said. Let’s hope the ears on Capitol Hill and in the Pentagon hear that common-sense  message.

Classic inside baseball. Above is just one nugget Taxpayers for Common Sense came across while reading page 237 of the  284-page Water Resources Development Act of 2013 that the Senate Environment and Public Works Committee recently passed out of committee.  Apparently they can’t do anything to address “the issue in paragraph (1)” because tax revenue decisions are another Committee’s job.

Actually, there’s plenty they can do to address the issue, like charging barge companies that use navigation locks, requiring a cost-share for Operation and Maintenance costs, or closing down deadbeat, money-losing waterways.  Instead they hide behind procedure and pass the buck.

This is what’s wrong with Congress. No one wants to lead. No one wants to make the tough decisions.

That’s why we’re here. Taxpayers for Common Sense is not afraid to make the tough calls and to hold government accountable to you, the taxpayer.  We keep the spotlight on how Congress makes (or doesn’t make) decisions about how they spend taxpayer dollars.  TCS has built its reputation as a reliable, nonpartisan voice advocating for the American taxpayer because we actually read the bills, highlight opportunities for reform, and propose solutions.

But we can’t do it without you. It is thanks to you, our team of supporters, that we have the roster and resources to dig through the spending bills and make this information public.

Spring may be the beginning of baseball season, but for a watchdog like TCS, it’s Budget Season. With the President’s 2014 budget about to be released and Appropriations debates starting in Congress, TCS staff will be poring through the various budget proposals, resolutions, Government Accountability Office reports, Congressional Budget Office analyses, and more to ensure that the American taxpayers’ interests are at the forefront of the decisions Congress and the President make about your money.

We’ll take what we find to the media, to the halls of Congress, and to you. And we need your financial support to help us cover all the bases.

And here’s a bonus! The first 20 donations of $75 or more will get a cool Taxpayer for Common Sense baseball cap, which has been generously donated to TCS!  So you can go out and enjoy America’s pastime assured that TCS has your back.

(If you would rather not receive the TCS baseball cap, let us know in the comment section on the donation form)

We truly depend on the support of people like you. Please donate today!

Sincerely,

Ryan Alexander
President

P.S. Thanks to a generous foundation supporter, for a limited time every new or increased donation we receive from donors like you will be matched 1:1, DOUBLING the impact of your tax-deductible donation!

Please share this message with your friends via email and on Facebook  and Twitter.

Background

The 2008 farm bill energy title provided $255 million in mandatory REAP funding for FY2009-2012, with additional funding offered through annual appropriations bills. Since funding for all energy title programs expired at the end of FY12 and was not renewed when the current farm bill was extended through September 30, 2013. REAP will not be fully funded in FY13 unless lawmakers apply retroactive funding in the next farm bill or another piece of federal legislation. However, REAP did receive $3.4 million in loan guarantee authority in the FY13 Continuing Resolution/annual agriculture spending bill.

REAP was created to provide grants and loans to rural businesses for energy efficiency projects, energy audits, feasibility studies, and installations of renewable energy systems. The program is administered by USDA’s Rural Development office.

REAP is funded though the energy title of the farm bill. The farm bill, renewed approximately every five years, is a wide ranging piece of legislation that funds everything from nutrition assistance programs and broadband internet to agricultural subsidies for the production of crops such as corn and soybeans. More specifically, the energy title of the farm bill, first introduced in 2002, provides grants, loans, and other subsidies to energy efficiency, biofuels, and bioenergy (heat and power) projects. In total, the 2008 farm bill energy title’s 13 major programs were projected to cost taxpayers $1.1 billion over five years (FY08-12). 

Facilities that receive REAP support range from universities receiving research and development grants to investigate new uses for biomass sources such as wood and agricultural residues to large, established corn ethanol companies receiving grants for annual production of biofuel. Other energy title projects funded by taxpayers include the collection, storage, harvest, and transportation of biomass sources to bioenergy or biofuels facilities; anaerobic digesters that create heat and power from animal waste; grants and loans to individuals or companies installing ethanol dispensers at gasoline stations or wind, solar, and geothermal systems (through REAP); and federally backed loan guarantees for so-called next generation biofuels facilities that produce biofuels other than corn ethanol. As this fact sheet shows, while intended to support the next generation of biofuels derived from non-food sources and other renewable forms of energy, the farm bill energy title has also spent taxpayer dollars on the mature corn ethanol industry, supporting biomass sources with numerous unintended consequences, and even paying for updates to farmers’ irrigation equipment and grain dryers.

Types of Projects Receiving Taxpayer Funding

While the majority of REAP funding goes to solar and energy efficiency projects, the USDA’s Rural Development office has also awarded $2.9 million to corn ethanol facilities and gasoline stations installing ethanol blender pumps to dispense higher blends of ethanol such as 15 or 85 percent ethanol (E15 and E85, respectively). Even though Congress did not authorize REAP funding to be spent on ethanol blender pumps, ethanol lobbyists went around lawmakers’ backs and convinced USDA to allocate more federal taxpayer dollars to this mature biofuel. This is in addition to over 30 years of billions of dollars in federal subsidies, tax credits, loans, and other federal taxpayer supports. Other surprises in the list of taxpayer-funded REAP projects include grain bin dryers, irrigation systems, oxygen monitoring systems for catfish farms, and construction of soy and waste vegetable oil biodiesel facilities.

As Table 1 shows, nearly two-thirds of grants and loan checks were written for solar, energy efficiency, energy audits, or grain dryer projects. The remaining taxpayer dollars went to the following types of projects:  wind (ten percent), biomass for use in biofuels or heat/power production (nine percent), anaerobic digesters (eight percent), corn ethanol and ethanol blender pumps (three percent), geothermal (two percent), soy and waste vegetable oil biodiesel (one percent), irrigation systems (one percent), and hydropower (one percent). The final two percent was spent on other projects like oxygen monitoring systems for catfish farms, unclassified renewable energy projects, and others with no description at all. Since the Aug. 2011, Sept. 2011, and portions of the June, Aug., and Oct. 2012 announcements failed to disclose what types of “energy efficiency” projects taxpayers paid for, the total number of subsidized grain dryers and irrigation systems may be underestimated.

Table 1 contains a summary of the types of projects that were funded through REAP grants and loans during the following USDA announcements:  Nov. 2010, Jan. 2011, Aug. 2011, Sept. 2011, June 2012, Aug. 2012, and Oct. 2012. The table only discloses how $102.8 million was spent on 2,810 projects since USDA did not provide detailed information about projects funded during earlier announcements.

Conclusion

Even though the Rural Energy for America Program was designed to promote renewable energy sources such as solar and wind, funding data suggests that taxpayer dollars have also been wasted on the mature corn ethanol industry, without Congressional approval. After more than 30 years of federal subsidies, it is time this industry stands on its own two feet. REAP funding has also subsidized the soy biodiesel industry which has received federal subsidies for more than a decade. Finally, taxpayer dollars were spent on normal costs of doing business such as replacing agricultural producers’ grain bin dryers, irrigation systems, and oxygen monitoring systems for catfish farms.

REAP dollars are being spent on mature biofuels technologies, projects with unintended consequences, and routine costs of doing business—demonstrating it is loaded with taxpayer waste. For these reasons and more, the program should not be renewed. 

For more information, contact Taxpayers for Common Sense at 202-546-8500.

April 2, 2013

The Honorable Tom McClintock
United States House of Representatives
434 Cannon House Office Building
Washington, DC 20515

Dear Representative McClintock:

Taxpayers for Common Sense writes in support of H.R. 807, the Full Faith and Credit Act which would prioritize principal and interest payments on U.S. debt if our borrowing limit is reached in the future. With less than two months until the U.S. will need to yet again raise the debt ceiling, taxpayers should be assured that our nation will not renege on debt incurred through past spending decisions.

H.R. 807 would simply require the United States Treasury to prioritize payments on the debt over other federal payments if Washington fails to raise the debt ceiling. Currently, the U.S. Treasury has discretion whether or not to prioritize payments on our national debt. If this legislation is enacted, it would also help ensure that the U.S. credit rating is not downgraded further since it would ensure our debt payments would be made in full.

Even if lawmakers were not serving in Congress when current spending levels were authorized, each Member of Congress has a responsibility to help get our nation’s finances under control and pay the debts we’ve already incurred. Political games should not be played with our nation’s credit. Instead, spending, entitlement reform, and tax reform should be tackled separately through regular order. The public needs to see what Congress says it wants to pay for, what we can’t afford, and what we need. Discussions should be forward-looking and not focus on debt that is already on the books.

We look forward to working with you in the weeks and months ahead to make the tough decisions that will set our country’s finances on a better path forward and help make government work. 

Sincerely,

Ryan Alexander
President

The first loan guarantee solicitation for fossil energy projects was announced in September 2008 and sought coal-based power generation and industrial gasification projects that incorporated carbon capture and sequestration (CCS) technology as well as advanced coal gasification projects. The solicitation received a total of eight applications requesting more than $17 billion in loan guarantees. As previously noted above, only one of eight applicants is currently active at DOE.

Putting the full faith and credit of the U.S. government behind multi-billion dollar, high-risk projects that the private sector won’t finance is fiscally irresponsible. If DOE intends to award the remaining $5.2 billion in loan guarantee authority for fossil energy projects, Congress and DOE must reform the inadequate taxpayer protections within the program—which lead directly to the hundreds of millions lost with default of the loan guarantee to Solyndra.

BRDI is funded though the energy title of the farm bill. The farm bill, renewed approximately every five years, is a wide ranging piece of legislation that funds everything from nutrition assistance programs and broadband internet to agricultural subsidies for the production of crops such as corn and soybeans. More specifically, the energy title of the farm bill, first introduced in 2002, provides grants, loans, and other subsidies to energy efficiency, biofuels, and bioenergy (heat and power) projects. In total, the 2008 farm bill energy title’s 13 major programs were projected to cost taxpayers $1.1 billion over five years (FY08-12).  Facilities receiving taxpayer support range from universities receiving research and development grants to investigate new uses for biomass sources such as wood and agricultural residues (through BRDI) to large, established corn ethanol companies receiving grants for annual production of biofuel. Other energy title projects funded by taxpayers include the collection, storage, harvest, and transportation of biomass sources to bioenergy or biofuels facilities; anaerobic digesters that create heat and power from animal waste; grants and loans to individuals or companies installing ethanol dispensers at gasoline stations or wind, solar, and geothermal systems; and federally backed loan guarantees for so-called next generation biofuels facilities that produce biofuels other than corn ethanol. While intended to support the next generation of biofuels derived from non-food sources and other renewable forms of energy, the farm bill energy title has also spent taxpayer dollars on the mature corn ethanol industry, supporting biomass sources with numerous unintended consequences, and even paying for updates to farmers’ irrigation equipment and grain dryers.

Boards and Committees Overseeing the Biomass Initiative

The two government agencies tasked with administering BRDI include the U.S. Department of Agriculture (USDA) and the Department of Energy (DOE). A Biomass Research and Development Board was created in 2000 to help facilitate interagency cooperation. In addition, a Technical Advisory Committee (TAC), made up of 30 to 40 members from industry, academia, nonprofits, and local government, provides advice and strategic planning to the government on the direction of the program.  Currently, representatives of companies benefiting from the development of the biofuels and bioenergy industry, like Archer Daniels Midland, Dupont, and Solazyme, serve on the Committee.

Types of Biomass Projects Receiving Taxpayer Funds

About three-fourths of the $133.1 million awarded from 2009 to 2013 through BRDI subsidized the following types of biomass:  general R&D for multiple types of biomass, woody biomass, perennial grasses, and sorghum. Other types of biomass receiving grants include vegetable oil, energy crops, algae, corn starch and corn oil, and municipal solid waste. Additional funding was awarded but due to a lack of detail on USDA and DOE’s websites about individual grants all project costs are not included in Table 1.

Corn Ethanol Grant Recipients

Corn-based biofuels have received over thirty years of generous subsidies, tax breaks, and government mandates. Yet, the industry is still able to qualify for additional subsidies within the farm bill’s energy title that were intended to be targeted toward next-generation biofuels produced from non-food crops. BRDI is no different. In FY2012, the Quad County Corn Cooperative received a $4.25 million grant to retrofit its corn starch ethanol facility in Iowa to produce byproducts that will be marketed to the biodiesel industry and feed markets.  Despite looming questions on the relationship of these types of recipients to the program’s intended goal of developing the next generation of biofuels, federal subsidies were still awarded through BRDI.

Woody Biomass Grant Recipients

Woody biomass is another biofuel and bioenergy feedstock that is eligible for generous subsidies through several different government programs, including at least eight of 15 farm bill energy title programs. Under BRDI, three private companies, one university, and one USDA research center received $24 million in grants to develop woody biomass into biopower and biofuels. Recipients include the following entities:

• Domtar Paper Company, LLC (SC):  To build “a demonstration plant to convert low-value byproducts and wastes from paper mills into higher-value sugar, oil, and lignin products.”
• Itaconix (NH):  To “develop production of polyitaconic acid from northeast hardwood biomass… [to use as a] replacement for petrochemical dispersants, detergents, and super-absorbents.”
• University of Minnesota (MN):  To “assess sustainability of forest-based biofuel feedstocks within the Lake States region.”
• U.S. Forest Service, Rocky Mountain Research Station (MT):  To “develop an integrated approach to investigate biomass feedstock production, logistics, conversion, distribution and end use centered on using advanced conversion technologies at existing forest industry facilities.”

Conclusion

While the Biomass Research and Development Initiative was intended to spur the development of next-generation biofuels derived from non-food sources, some federal funding has been used to benefit the mature corn ethanol industry. In addition, federal research and development dollars have been spent on for biofuels derived from vegetable oils even though these types of fuels have received subsidies for nearly a decade. Other taxpayer dollars are spent on forms of biomass that create unintended consequences and future liabilities. For these reasons, BRDI should not be renewed.

For more information, contact Taxpayers for Common Sense at 202-546-8500.

FOR IMMEDIATE RELEASE                                                                               
March 22, 2013                                                                    

CONTACT
Autumn Hanna, (202) 546-8500 x112

Interior punts decision to determine royalty rate on risky oil shale speculation

Washington, D.C. – Today, the Department of the Interior (DOI) announced a proposed rulemaking that presents four strategies for setting a royalty for commercial oil shale development. Under review for more than a year, only one scenario proposes a royalty rate for oil shale starting at 12.5%, the rate used for onshore oil and gas development. The DOI also released its final decision regarding which federal lands will be made available for oil shale research and tar sands activities. The royalty rate proposal is subject to a 60 day comment period.

“While TCS is pleased to see that the Department of the Interior is considering an option that allows for a royalty rate in line with traditional oil and gas development, the other options proposed, along with the lack of a commercially viable product, still leaves us concerned that taxpayers will not receive a fair return on commercial oil shale leases,” said Autumn Hanna, senior program director, Taxpayers for Common Sense.

Today’s announcement marks the final phase of Interior’s overhaul for managing oil shale activities on public lands. A previous rule adopted in 2008 set the royalty rate for oil shale at less than half the rate for conventional oil and gas development. This meant less revenue for both state and federal taxpayers. The other three options outlined in today’s proposal do not set a royalty rate, but offer varying rates such as a sliding scale royalty linked to the market price of oil and a process similar to that used in coal leasing to determine fair market value.

“Interior’s decision to review the royalty rate and consider options that do not favor oil shale development over traditional oil and gas is a step in the right direction. But the other options proposed that sidestep a decision on the royalty rate and rely on other leasing structures or market rates would jeopardize taxpayer revenue,” said Hanna.

The federal coal leasing program has recently come under fire from House and Senate Committee leadership and is the subject of a Government Accountability analysis and a Department of the Interior Inspector General review. Recent reports indicate taxpayers have lost billions on undervalued coal leases leading to insufficient payment of royalties.

“Taxpayers will continue to lose unless overall accountability on oil and gas, and coal extraction on federal lands is improved. Relying on these failed systems for the oil shale leasing program will only bring more taxpayer losses,” said Hanna.

Royalties and fees collected from resource development on public lands represent a valuable source of federal revenue. Yet, significant concerns have been raised that these revenues are not being collected, managed, and accounted for in a fair and accurate manner. According to a recent Government Accountability report, the Department of the Interior does not provide “reasonable assurance” that taxpayers are receiving their fair share of royalties from the production of oil and gas on public lands. As a result, taxpayers have lost billions on federal oil and gas leases that have been charged insufficient royalties or no royalties at all.

Taxpayers for Common Sense plans to review the royalty proposal released today and submit official comments on the rulemaking.

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More on oil shale subsidies and risk to taxpayers

• The federal government has already risked nearly $7 billion in taxpayer-backed loan and price guarantees on top of a suite of tax preferences on oil shale speculation.
• Despite these taxpayer-funded subsidies, efforts to make oil shale a commercially viable energy source have failed, including the Exxon-TOSCO Colony experiment in western Colorado. After being awarded a $1.15 billion loan guarantee it was abruptly shut down due to cost overruns and technological problems. Known as ‘Black Sunday,’ the overnight shutdown cost 2,000 people their jobs and devastated the local economy for decades.
• In February 2012, one of the top oil and gas companies, Chevron Corporation, abandoned its oil shale research, development, and demonstration lease.
• In 2012, a Congressional Budget Office analysis found that opening up public lands to commercial oil shale development would provide zero revenue.

Taxpayers for Common Sense is an independent and nonpartisan voice for taxpayers, working to increase transparency and expose and eliminate wasteful and corrupt subsidies, earmarks, and corporate welfare. For more information, visit: www.taxpayer.net
 

            
Support Begich-Flake Amendment #254

March 21, 2013

Dear Senator,

The undersigned organizations urge you to support Begich-Flake amendment #254 to the Senate Budget Resolution to bring transparency to the federally subsidized crop insurance program.

Federal taxpayers spent more than $14 billion on federal crop insurance in FY2012, including more than $7 billion in premium subsidies for producers who purchased crop insurance policies. Yet unlike other federal agriculture programs, including conservation programs, direct payments, and other commodity supports, taxpayers are unable to know the beneficiaries of these subsidies. Amendment #254 would require the Secretary of Agriculture to make federally subsidized crop insurance more transparent and bring it in-line with other federal agriculture programs.

We urge you to support Begich-Flake amendment #254 as a common sense step toward bringing transparency to the federal crop insurance program.

If you would like to discuss this further, please contact Joshua Sewell, josh [at] taxpayer.net or 202-546-8500 x116.

Sincerely,

Campaign for Liberty
Center for Individual Freedom
Competitive Enterprise Institute
Council for Citizens Against Government Waste
FreedomWorks
National Taxpayers Union
R Street Institute
Taxpayers for Common Sense
Taxpayers Protection Alliance
 

Created in Title XVII of the Energy Policy Act of 2005, the DOE loan guarantee program has received a total of 460 applications as a result of nine solicitations. To date, DOE has offered final loan guarantees to 28 projects valued at approximately $15 billion. According to the report, DOE considers 13 applications to still be ‘active.’ This number is down from the 50 considered ‘active’ during the No More Solyndras’ legislative debate last fall. In September 2012, Energy and Commerce Subcommittee Chairman Whitfield (R-KY) and other Members of Congress mentioned that 50 active loan guarantee applicants would have been grandfathered in under H.R. 6213, the No More Solyndras Act.

According to DOE, of the 13 applications still considered ‘active,’ eight are for energy efficiency and renewable energy projects, three for nuclear power generation projects, one for a nuclear front-end project, and one for a fossil energy project (See Table 1). Four of these applications have received conditional commitments valued at $10.3 billion while nine applications worth $4.8 billion are actively being reviewed. Left by the wayside—27 applications or $72 billion in requested loan guarantees are considered ‘inactive.’

One notable application deemed 'inactive' is the $2 billion loan guarantee for the United States Enrichment Corporation (USEC). This is good news, at least for now. With USEC near-bankrupt, it is about time this loan guarantee be dropped from the docket.

The four conditional commitments however, look likely to move and move soon. These four applications are directed towards only two projects: Southern Company’s Plant Vogtle nuclear reactor project in Georgia and AREVA’s Eagle Rock uranium enrichment project in Idaho. Southern Company’s Plant Vogtle project received its conditional commitments in 2010 to construct a pair of nuclear reactors; yet, the project continues to face significant project delays and cost overruns to the tune of $1 billion. Similarly, AREVA’s Eagle Rock project received its conditional commitment in 2010 to construct its uranium enrichment facility. However, the project was suspended in 2011 due to AREVA’s inability to maintain profits bringing the long-term viability of the project into question. According to the GAO analysis, AREVA is re-evaluating its corporate strategy—not a positive sign for taxpayers.

Whether it is $15 billion or the full $34 billion in loan guarantee authority still available, taxpayers have a considerable stake in the successes or defaults of DOE’s Title XVII program. Putting the full faith and credit of the U.S. government behind billion dollar, high-risk projects that the private sector won’t finance is fiscally irresponsible. The defaults of Solyndra and others have shown us this program is broken and taxpayers stand to lose billions, if it continues.

For more information, please contact Autumn Hanna at (202) 546-8500 x112 or autumn [at] taxpayer.net

One federal policy from which corn ethanol benefits heartily and is vigorously trying to protect is the federal Renewable Fuel Standard (RFS), which mandates 15 billion gallons of corn ethanol be used in U.S. motor fuel every year from 2015 to 2022, in addition to 21 billion gallons of biofuels produced from non-food sources such as agricultural residues and perennial grasses. Corn ethanol backers are trying to increase their market share by eating away at mandates for other types of biofuels such as ethanol or biodiesel produced from non-food feedstocks such as switchgrass, corn stalks, wood residues, municipal waste, etc. (known as “advanced biofuels”). Currently, corn ethanol is the only biofuel produced in commercial quantities since production of cellulosic ethanol derived from perennial grasses and agricultural residues has yet to move beyond the pilot or demonstration phase. If ethanol backers successfully eat away at mandates for other biofuels, the RFS will simply be a federal mandate for the production and use of corn ethanol while production of other biofuels continues to lag behind government projections.

Thankfully some policymakers heeded our call to end wasteful subsidies for ethanol and successfully defeated attempts to extend the ethanol tax credit and protective tariff allowing it to expire at the end of 2011. This occurred despite a well-funded campaign by corn ethanol lobbyists to either retain their $6 billion-per-year federal tax credit or expand subsidies for ethanol infrastructure projects like dedicated ethanol pipelines and ethanol blender pumps. But the fight does not end there. Lobbyists for the corn ethanol industry are continuing to seek more subsidies for these types of projects with the potential reauthorization of a new farm bill this year.

Several biofuels programs already exist that funnel taxpayer dollars to the mature corn ethanol industry through the farm bill’s energy title. For instance, in 2011, corn ethanol lobbyists convinced the U.S. Department of Agriculture (USDA) to allow gasoline stations to qualify for REAP subsidies that underwrite the cost of purchasing new ethanol blender pumps which dispense higher blends of corn ethanol. Other proposals have suggested that taxpayers should be on the hook to build dedicated ethanol pipelines or back federal loans for new biofuels facilities.

Organizations and companies lobbying for such special treatment of corn ethanol include well-known names such as Archer Daniels Midland, Cargill, POET LLC, and the American Farm Bureau. These groups use their connections, revolving door lobbyists, and huge lobbying expenditures and political contributions to increase the market share of corn ethanol through expanded subsidies and favorable policies in the federal tax code and energy and farm bills. Understanding this complicated nexus is the first step in helping ensure policymaker decisions are based on merit, not muscle.

Read the full fact sheet:  Political Footprint of the Corn Ethanol Lobby

Automatically authorizes all projects for which there is a completed Chief’s Report that the Asst. Sec. has referred to Congress.

SEC. 1003. PROJECT REVIEW

Allows projects to exceed their congressionally authorized cost (note under Sec 902 of WRDA 1986, a project that exceeds authorized cost by 20 percent has to be reauthorized by Congress).

Asst. Sec. submits to Congress a certification that the project needs to exceed its authorized cost in order, 1) “to protect life and safety, maintain critical navigation routes, or restore ecosystems”, 2) continues to provide benefits identified in the Chief’s Report, 3) for construction projects, a delay would cost money and the amount requested for the project in the President’s budget or in a work plan for the expenditure of funds for the fiscal year during which the certification is submitted will exceed the authorized cost of the project.

**While a new benefit cost analysis is mandated, the project does not have to satisfy a new BCA or a remaining BCA.

**The project simply needs to be in the President’s budget request or in a Corps produced work plan for slush-y funds provided in Appropriations. 

Additional information to accompany certification:

1. comprehensive review of the project and why it costs more,
2. an expedited analysis of the updated benefits and costs of the project (but will not stop it)
3. the new cost of the project

This provision expires after three years. Presumably because the Senate assumes they will be back to earmarking at that time.

SEC. 2003. CONTINUING AUTHORITY PROGRAMS

Increases the maximum funding level for all of the small projects done under continuing authorities. For Project modifications for improvement of environment, waives the requirement that the entire 25 percent non-federal cost-share cannot be in-kind contributions (currently 80 percent of the 25 percent can be in-kind, the remaining must be cash)

SEC. 2004 CONTINUING AUTHORITY PROGRAM PRIORITIZATION

A year after enactment the Asst. Sec. has to publish in the Federal Register and internet criteria for prioritizing funding provided for CAP projects, the status of each project, cost estimate for completion.

SEC. 2009 HYDROPOWER AT CORPS OF ENGINEERS FACILITIES

This section cites a 2012 Oak Ridge National Laboratory study and cherry picks the results to promote hydropower development at Corps dams, even making it a priority mission putting it for the first time on par with navigation, flood and storm damage reduction, and environmental restoration. According to the study cited, the actual power production from Corps dams is roughly a third of the max production analysis the bill points to. One concern would be that revenue from non-federal hydro development would be used to reduce inland waterway user contributions rather than reduce federal taxpayer contributions. Barge interests win, taxpayers lose.

SEC. 2010 CLARIFICATION OF WORK-IN-KIND CREDIT AUTHORITY (Drafted for Louisiana Only)

This cleverly amends WRDA 2007 (which allows it to benefit Louisiana without explicitly stating as such) to allow in-kind credit for non-federal entities’ work on studies, programs (added this bill), or projects conducted on or after (previously only before) an agreement was signed. Also allows any in-kind contribution for one study, program, or project that exceeds the cost-sharing level of that project to be applied to other projects.

SEC. 2011 TRANSFER OF EXCESS WORK-IN-KIND CREDIT

Amends Flood Control Act of 1970 to allow transfer of in-kind contribution for one study, program, or project that exceeds the cost-sharing level to apply to other projects. (for flood risk reduction or environmental benefits).

SEC. 2012 CREDIT FOR IN-KIND CONTRIBUTIONS

Amends Flood Control Act of 1970 to give in-kind contribution benefits to “environmental infrastructure” projects (this was a slush fund system set up by former Reps. Bud Shuster (R-PA) and Jack Murtha (D-PA) to get Corps pass through funding for wastewater and water supply infrastructure – which are not primary mission areas of the Corps and duplicate existing EPA loan programs). It also provides in-kind contributions to count for work before or after a federal/non-federal partnership agreement is signed. It also allows transferability of credits. The only taxpayer protection is that work done before an agreement is signed does not affect the before project condition (which could skew the cost-share analysis).

SEC. 2022 RESTORATION OF FLOOD AND HURRICANE STORM DAMAGE REDUCTION PROJECTS

Authorizes $250 million for the Asst. Sec. to restore flood and storm damage projects to authorized level of protection if settlement, subsidence, sea level rise, or new datum reduce the level of protection and the work is “feasible” (unclear if this includes a full BCA and alternatives analysis). This is a sweeping provision considering that almost by definition Corps project protection starts to erode the day it is completed. This even provides for Corps involvement in projects that have been transferred to the non-federal interest. The bill has a 10-year authorization, but asks if it should be permanent.

SEC. 2023. OPERATION AND MAINTENANCE OF CERTAIN PROJECTS

The Secretary may assume operation and maintenance activities for a navigation channel that is deepened by a non-Federal interest prior to December 31, 2012.

**Has to be on a federal waterway, already authorized by Congress, economically justified and environmentally acceptable

Allows non-federals to jumpstart navigation deepenings. These could be projects that might not be in the national interest, which is why they have not been funded. (This provision is narrow enough it appears to be written with specific projects in mind).

SEC. 2025. NON-FEDERAL PROJECT IMPLEMENTATION PILOT PROGRAM.

Within 180 days.

Evaluating having non-federal interests as project managers.

Identify up to 12 projects for flood risk management, hurricane and storm damage reduction, including levees, floodwalls, flood control channels, water control  structures, and coastal harbor and channel and inland harbor navigation.

• Must have been previously authorized for construction
• Have received federal funds (any time in the past)
• Have an unobligated construction account balance (for more than 2 consecutive years)
• After execution of project partnership agreement, unobligated funds transferred for construction, and additional amounts can be made available (out of authorized appropriation of $25 million annually FY14-FY18)
• NO change to cost-share.

Seems to just be a way to accelerate a few projects. The question is whether having a non-federal actor responsible for project management will make a difference or if this is giving the fox keys to the henhouse. Decentralization is a problem now (Districts being responsible for planning and not analyzing regional or watershed impacts of projects), so more decentralization doesn’t seem like the right cure.

SEC. 2026. NON-FEDERAL IMPLEMENTATION OF FEASIBILITY STUDIES. (Pilot Program)

Within 180 days.

Allows non-federal interests full project management on feasibility studies.

Can use non-federal funds, and will be credited toward the non-federal cost share. (Not an increase in non-federal funds, just an acceleration of when those funds are paid)

Secretary may transfer balance of any unobligated amounts for the study, or from up to $25 million authorized to be appropriated annually.

*Each non-federal interest has 180 days to submit “detailed project schedule, based on full funding capability.”

SEC. 2029 MILITARY MUNITIONS RESPONSE ACTIONS AT CIVIL WORKS SHORELINE PROTECTION PROJECTS.

Tells the Corps that they can remove munitions that they pumped up on a beach as part of beach renourishment project and bill the DOD agency that discarded the munitions (this happened on a NJ beach).

SEC. 2030 BEACH NOURISHMENT

Extends federal beach nourishment 15 years beyond the life of the project (which is often already 50 years).

SEC. 2032 STUDY ACCELERATION

Institutes the 3-3-3 plan.

Feasibility studies must be completed within 3 years, cost less than $3 million federal cost-share.

Requires many NON-PUBLIC reports. If a project is too complex to meet these requirements, the Asst. Sec. must notify non-federal sponsor within 30 days, after appropriations are received, Asst. Sec. has 60 days to notify non-Federal sponsor any changes due to inadequate appropriations.

Report – within 18 months and then annually, committees get a report on implementation of 3-3-3 plan, number of projects, amount of time it takes to complete studies, and any recommendations for additional authority.

This report is not required to be made public.

SEC. 2033 PROJECT ACCELERATION

Makes the Corps the de-facto lead agency for Environmental Impact Study (EIS) review. An agency other than the Corps can be a joint lead agency (this includes a state or local government entity). At 33 pages long, this provision establishes quite a bureaucratic process, without being clear that there is much benefit to taxpayers footing the bill.

SEC. 2034. FEASIBILITY STUDIES

Within 180 days

Requires Asst. Sec. to determine a set of milestones needed for completion of feasibility studies.

Requires each District engineer create a detailed project schedule (based on full funding capability—a condition that almost never happens) relating to these milestones established by the Secretary.

Must notify the non-Federal interests of the schedule within 180 days (for projects that received General Investigations funds FY09-enactment of this section) and within 90 for those started after determination of milestones.

Provide an annual report that lists all detailed project schedules and explains any missed deadlines—released to the public within 14 days after committees receive it. So Congress gets first read.

SEC. 2035 ACCOUNTING AND ADMINISTRATIVE EXPENSES

On request of a non-Federal interest, the Secretary shall provide a non-Federal interest a detailed accounting of the Fed expenses associated with a project. Secretary shall have National Academy of Public Administration conduct a study comparing existing salary and admin expense procedures to having a separate admin expense account for the Corps.

SEC. 2036. DETERMINATION OF PROJECT COMPLETION

For certain Corps projects (e.g. flood damage reduction) the non-Federal interest takes over operation and maintenance when a project or separable element is complete. This provides the non-Federal interest the ability to challenge (and delay) that transfer, requiring the Corps to find an independent expert to determine whether it is complete. This could delay transfer as long as 6 months.

SEC. 2039. ACCEPTANCE OF CONTRIBUTED FUNDS TO INCREASE LOCK OPERATIONS.

This pilot program can use contributions but only to increase lock hours, not maintain existing lock hours.

1. Secretary shall establish a pilot program for accepting and spending non-Federal money to increase the hours of operation of locks
2. Pilot program shall not affect periodic adjustment of lock operations based on increases in commercial traffic carried out by the Secretary
3. Requires a 180 day comment period before lock operation is modified
4. Yet another report. This one on cost-savings and economic impacts from reduced lockage hours. Required within one year. This is provided to committees NOT TO THE PUBLIC.
5. Before end of FY17 then annually, Secretary is required to report on pilot program. NOT FOR THE PUBLIC.
6. Requires annual study of commercial use of locks and any necessary adjustments based on the review.

SEC. 2040. EMERGENCY RESPONSE TO NATURAL DISASTERS.

Adds “projects” and repair and restoration “to design level” at the discretion of the Corps to address major deficiencies.

This seems on one hand to be a wide loophole for projects to exceed their current scope. The existing damaged project may not have been “to design level” and the “modifications…to address major deficiencies” may be significant. On the other hand, it doesn’t give the Corps the flexibility to revisit whether the existing project is appropriate in the first place or if some lower cost and/or non-structural project would meet needs.

SEC. 2044. HURRICANE AND STORM DAMAGE RISK REDUCTION PRIORITIZATION.

Pretty vague. No prioritization based on BCA. Will cover Sandy impacted areas, but also anywhere else ever declared a Major Disaster…Ever.

p. 147 – Report, A) list of feasibility studies that have a signed cost share agreement and received funds since 2009 and B) projects authorized more than 20 years but are less than 75% complete OR undergoing change report, reevaluation.

Identify the projects in this report that meet the vague priority criteria. And provide a plan to expeditious complete these projects (why a 20-year old project that hasn’t been completed more than 75% leads one to question whether this is being targeted for particular projects. This would be projects authorized in WRDA 92 or earlier).

For more information contact Joshua Sewell (josh [at] taxpayer.net or Steve Ellis (steve [at] taxpayer.net) or at 202-546-8500

Most of the Congressional additions to the defense bill are the same as those in last year’s appropriations bills, which added billions to the Defense Department’s budget request (lawmakers cut spending too, but the topline increased from the President’s request). Much of the additions resulted from appropriators adding money back for attempted DOD efficiency savings the committee considers “unrealistic,” but plenty of other adds represent pretty substantial re-prioritizations. Some of the biggest winners:

• National Guard - It’s no secret that the Guard successfully leveraged state governors and members of Congress to halt DOD’s attempt in its FY13 budget request to save money by retiring cargo planes – planes based at Guard bases around the country. Senator John McCain (R-AZ) complained about the bill’s funding for the C-23 Sherpa cargo plane, a Reagan-era plane that the Air Force wants to retire. Congress also adds back $282.5 million for "unjustified efficiency reductions" to the Air National Guard and $210 million to "retain Air National Guard force structure." Finally, the Army National Guard gets $100 million to modernize Humvees plus money to replace various helicopters.
• Army combat vehicles – The bill adds $140 million for Bradley tanks, $62 million for M-88 Hercules vehicles, and $181 million for the infamous M-1 Abrams tank, which we highlight in our report on defense savings recommendations.
• The Navy –the bill cuts small amounts from several support line items in the shipbuilding account in order to add $1 trillion for an extra DDG-51 Arleigh Burke destroyer; $40 million for “shipyard capital investment;” and $777.7 million in advance procurement funds for another Virginia class submarine. As a bonus, the Navy also gets $605 million for 11 extra F-18 Hornet fighter jets and $130 million for two extra KC-130J tanker aircraft.

But wait, there’s more! In non-defense spending, the bill adds $2.6 million to begin repairs on the NOAA ship Ka'imimoana, homeported in Pearl Harbor; $15 million for Pacific Coastal Salmon Recovery, a program highlighted by McCain; and millions for local FEMA programs. The administration’s request to reformulate a bunch of different the FEMA preparedness funds into a National Preparedness Grant Program was rejected and lawmakers stuffed funding back into old favorites: $93 million for a National Domestic Preparedness Consortium, which has several sites in historic appropriator states; $65 Million for a Center for Domestic Preparedness (a Shelby favorite), and $46.6 million for Operation Stonegarden, a border enforcement program that has been abused in the past.

And during the battles over the Sandy supplemental spending bill, Sen. Toomey got an amendment passed that removed the emergency designation from the Corps of Engineers construction funding in the bill. That meant that the more than $2 billion would count against the overall budget cap for energy and water spending. Never to fear, the appropriators appear to have robbed the MilCon/VA bill to backfill E&W. TCS will continue to dig into this bill as it wends it way through Congress.

Most importantly, Skanska-Branch’s recent proposal would replace “flyover” ramps (providing fairly seamless connection between the Bypass and adjoining roads) with a “3 lane diamond” interchange. This new interchange design would require vehicles to navigate two stop lights on a very steep slope to access the new bypass. This is particularly problematic for trucks, and according to VDOT’s own consultants, Parsons Brinkerhoff, it would take them nearly 2 minutes longer to navigate than with the flyover ramps. Two minutes of additional travel time may not seem like a lot, but here’s the kicker: that would all but completely wipe out the ENTIRE travel time savings of the quarter-billion dollar road! Since the intended purpose of the road is to reduce congestion on existing US29 (which we already know it won’t do) and facilitate movement of goods through this part of the state (which this analysis shows it won’t do), the road has been shown to be essentially worthless.

And that’s just the time savings loss from one interchange. There are other problems revealed in the documents Mr. Bacon reviewed, including concerns about how the interchange would function during high traffic events on the UVA campus. To accommodate these high traffic events and prevent total gridlock on the new road and the surrounding connecting roads during these times, it has been suggested an additional lane may be required on one of the project’s bridges. This would certainly drive up the cost of the project and make it an even worse deal for taxpayers.

Bacon concludes:

"Either way, taxpayers lose. Either they pay for a $244 million Bypass that provides little travel-time improvement and creates dangerous traffic conditions or they pay way more than they were told the project would cost."

As we’ve said for the better part of a decade, this project is not worthy of the significant investment that taxpayers are being asked to make and should be shelved before another dollar is wasted.

The second funding opportunity announcement states DOE intends to support the commercialization of one additional SMR design by 2025 however potentially as late as 2027—three to five years after the first round proposes to reach commercial operations. Moreover, DOE states only new applicants will be accepted. According to DOE, “Prime/lead applicants currently in negotiations for or in receipt of government financial assistance for similar SMR design/licensing FOAs are not eligible.” Potential applicants must submit a Letter of Intent to DOE before April 5, 2013 and full applications before July 1, 2013. No date was provided for when applicant(s) will be selected.

The Department of Energy has already provided nearly $100 million for these so-called mini reactors while their commercial viability remains in question. If DOE believes there is a ‘need and market’ for SMRs, the mature and profitable nuclear industry should bear the full risk and cost of making SMRs a reality. In these tight budget times, federal taxpayers cannot afford to provide any additional subsidies to the nuclear power industry.

For more information, please contact Autumn Hanna at (202) 546-8500 x112 or autumn [at] taxpayer.net.

The Department of Interior (DOI) is responsible for the oversight and management of approximately 700 million acres of public lands and waters of which DOI has leased nearly 30 million acres for oil and gas development over the past decade. DOI collects a percentage of industry earnings for oil and gas resources extracted from public lands and waters. As the resource owners, taxpayers have a right to a fair return for minerals extracted from public lands and waters. Similarly states and private landowners charge royalties for production on their lands.

According to the GAO, the Department of Interior does not provide “reasonable assurance” that taxpayers are receiving their fair share of royalties from the production of oil and gas on public lands. DOI is failing to meet its requirements to conduct production level verifications which have resulted in “missing data, errors in company-reported data…, sales data that did not reflect prevailing market prices…, and a lack of controls over changes to the data that companies reported.” As a result, DOI compromises its “responsibilities to oversee oil and gas development federal leases, potentially placing both the environment and royalties at risk.”

Royalties from public lands are a valuable source of federal revenue. Yet, without reliable and accurate data collection, taxpayers lose billions each year in under-reporting, under-collection, and mismanagement. In these tight budget times, these problems must be fixed.

For more information, please contact Autumn Hanna at (202) 546-8500 x112 or autumn [at] taxpayer.net.

Farm Bill Doubled in Cost over Past Decade

Just a decade ago, budget experts estimated that the 2002 farm bill would cost taxpayers $451 billion over ten years. Farm legislation passed in 2012 by the full Senate and the House Agriculture Committee was expected to cost more than double this amount - nearly $1 trillion over the next decade. More information can be found in Table 1. Most of the cost increase can be attributed to higher spending on the Supplemental Nutrition Assistance Program (SNAP, also known as food stamps), and highly subsidized crop insurance. About 80 percent of farm bill spending goes to nutrition programs, followed by subsidies for farm supports and crop insurance (13 percent), conservation programs (6 percent), and everything else which includes trade, energy, horticulture, research, rural development, etc. (1 percent).

To read the full fact sheet, see:  Path to Trillion Dollar Farm Bills.

In fact, while CBO projected in July 2012 that the Senate-passed farm bill would save $23 billion over the next ten years, as compared to business as usual, CBO’s most recent analysis anticipates a meager $13 billion in saving - $10 billion less. Similarly, the House Agriculture Committee-passed bill was originally estimated to save $35 billion but is now expected to reduce farm bill spending by only $26.6 billion over the next ten years.

This is just more evidence that Farm Bills are not deficit reduction bills. See our Fact Sheet: Cost of Recent Farm Bills for more details.

But as is often the case in the budget world, things are not all as they seem. So let’s do the math. The direct payment program costs taxpayers $5 billion per year, or $50 billion over ten years, so why does S. 388 only save $21.7 billion? Primarily because another subsidy program – the Average Crop Revenue Election (ACRE) program - is not eliminated alongside direct payments. Basically, farmers were able to pick to either get direct payments or participate in a “shallow loss” income guarantee program (ACRE), but almost all of them elected for direct payments because it was more generous. If direct payments were eliminated, agribusinesses would run to the other subsidy program – so that sucking sound you heard is almost $20 billion in savings going out the window.

Okay, so now we’re down to $30 billion in savings. Where did the other $9 go? Roughly $3 billion went to restore some disaster funding. Now we’re down to the last $6 billion that’s missing from the original $50 billion from eliminating direct payments. That’s the biggest insult. We lose $6 billion in deficit reduction because the Farm Bill agriculture programs are exempted from future sequestration cuts! A lot of the Farm Bill already was, the Supplemental Nutrition Assistance Program (SNAP, also known as food stamps) and Crop Insurance subsidies (incredibly), for instance. This bill would protect farm subsidies from future sequestration cuts, while preserving it on all the things the Administration is decrying: research, Pentagon, teachers, first responders, you name it. This comes after a year where despite the drought, farm country has had near record profits, record high crop and land prices, and record crop insurance payments costing taxpayers in excess of $14 billion! If anyone could afford the cut it’s Big Ag!

So let’s review: the 2012 Ryan budget proposed $30 billion in cuts to agriculture; the President proposed even more - $32 billion – in his 2012 budget; the 2012 House Farm Bill would have resulted in $35 billion in deficit reduction; and even the 2012 Senate Farm Bill would have reduced the deficit by $23.1 billion. But we now we are going to settle for a measly $21.7 billion in the 2013 Senate Democrats’ sequester avoidance bill? Pitiful. These “savings” would be wiped out by higher than expected crop insurance costs possibly even before this Congress is over. Worse yet, Senate Agriculture Committee Chairwoman Debbie Stabenow (D-MI) is reporting that the Ag Committees will have to find ZERO savings if they write a new farm bill this year. This is a dismal plan for deficit reduction.

If any sector can bear deficit reduction right now, it’s agriculture. While every other agency falls deeper into sequestration, crop prices and farmer income continue to skyrocket. However, Agriculture Committees have been unwilling to do their fair share. Most farmers are willing take full cuts to direct payments to save taxpayers $50 billion. Will the Agriculture Committees listen to their constituencies and step up to the plate?

A recent report from the Department of Energy’s Inspector General found that a questionable policy of the National Nuclear Security Administration that allows contractors to evaluate their own performance has not only proven ineffective but directly led to the security breach of a Tennessee nuclear facility by antiwar activists last summer.

This is particularly stinging for NNSA, the agency tasked with the care and feeding of our nuclear weapons arsenal. Like the rest of DOE, NNSA farms out most of its functions to contractors, including management of the nine weapons and research laboratories under its jurisdiction. Such heavy reliance on contractors requires a heavy hand with oversight. But in 2007, NNSA handed contractor oversight to the contractors themselves with the creation of a “contractor assurance system” in which contractors measured their own performance and progress.

The DOE IG report found that five years in, the system was not “fully functional.” That’s an understatement: In fact, the report found that federal officials’ hands-off approach to managing contractors was actually exacerbated by the review system because they believed it prohibited them from intervening when they saw contractors screwing up.

The most glaring example is the security breach at the Y-12 National Security Complex in Tennessee last July in which three anti-nuclear activists—one of them an 82-year-old nun—managed to break into the complex and spray graffiti on a building containing highly enriched uranium. The report found that a serious backlog of security equipment had not only gone unreported by contractors, but federal officials aware of the deficiencies felt it wasn’t their place to point it out. 

“NNSA has placed substantial reliance on its contractors' ability and willingness to identify and correct weaknesses that threaten the safe, secure, effective and efficient operation of the Department's national security facilities,” concludes the report. “Our findings suggest that this reliance may be unwarranted.” We suggest that NNSA stop this ridiculous practice pronto and start doing its job--not paying someone else to fail at it.

The vision the industry and DOE seem to be peddling is a chicken in every pot, a car in every garage, and a reactor in every backyard. A fraction of the size of conventional-scale reactors, SMRs would be manufactured by assembly line and transported by truck, ship, or rail to their destinations. With designs ranging in size from one-third the size of a large-scale plant to the size of a hot tub,  SMRs will also produce significantly less power: 300 megawatts electrical (MWe) or less compared to 1,000 MWe for a typical commercial-scale reactor.

But it’s hard to see the large-scale viability. No one is clamoring to buy an SMR because there is no assurance that the electricity will be remotely competitive with power from other sources.  New nuclear power today is uncompetitive by a very wide margin.  At today’s natural gas prices, SMRs would have to produce electricity at half the projected cost of conventional reactors to compete.  There is not the slightest indication that they can do so. 

The Administration has committed to providing more than $500 million dollars for licensing support and research and development for these downsized nuclear reactors. Subsidies for SMRs will come through the Department of Energy’s Small Modular Reactor Program and the private-public partnership at the Savannah River site in South Carolina.  So far, nearly $100 million in federal funds have been provided for SMRs through the program. Congress approved more than $95 million for DOE’s SMR program in FY2012, the President’s FY2013 budget proposal included $83 million for SMRs, and we expect the President’s budget request for FY14 will continue to ask for SMR funding.

Late last year, DOE announced Babcock & Wilcox (B&W) could receive any portion of the $452 million to commercialize its 180 MWe reactor through the SMR Program. The actual amount B&W will receive has yet to be determined. DOE also announced that there will be additional funding opportunities in the future.  We expect other international and highly profitable companies will be next in line to receive funding.

The needless giveaway of federal dollars must stop. SMRs will likely never be a good investment, but in the current fiscal climate taxpayers must be extremely concerned with any dollars DOE doles out.  High-risk, high-cost, and highly questionable, small modular reactors don’t just look like a bad investment, they are a ridiculous waste and that is the very definition of a Golden Fleece.

An Open Letter to President Obama and the Congress:

Spend Less, and Spend Smarter at the Pentagon

February 27, 2013

We, the leaders of the undersigned organizations, may not agree on many things, but we all agree on this: The time has come to reduce wasteful and ineffective Pentagon spending to make us safer. There has been a great deal of doomsday rhetoric about the effects of sequestration. Our organizations believe that sequester might not be the best way to reshape Pentagon spending, but that should not serve as an excuse to avoid fundamental reforms.

We aren’t alone. There is a growing consensus—among members of Congress from both sides of the aisle, policy wonks of various stripes, and even defense industry CEOs—that lawmakers can, and should, find areas for substantial savings in the Pentagon’s bloated budget. We and other military experts believe we can realize savings of at least $50 billion to $100 billion per year over 10 years in the Pentagon budget—without compromising national security. In fact, such savings will make us safer since our security depends on a sound strategy and a strong economy.

The Pentagon must confront the threat to our economy with the same vigor, determination, and skill it has shown toward other urgent tasks. Our military might is not measured by how many dollars we spend but how we spend our dollars.

There is no dearth of ideas for responsible Pentagon spending reductions. Below is a sampling of such recommendations made by our organizations and others with diverse interests and ideologies. To be clear, we do not agree among ourselves on every recommendation listed here. However, we are united in the belief that there are plenty of ways to strategically target pork-barrel projects and programs designed to fight the Cold War instead of 21^st century threats. What seems lacking is the political will to have a meaningful discussion over the structure of our armed forces—a structure that is sensible as well as sustainable.

Mr. President and Members of Congress, the American people are counting on your courage to stand up to the big-spending status quo that has squandered all too many taxpayer dollars in the name of national security. This means proposing a comprehensive framework to realign and reform the Pentagon budget. When you do, we will stand by you as you make our country stronger and our future more secure.

Below are just some of the recommendations that have been put forward. Please note the savings listed here are 10 year estimates, except for the Cato Institute and Project on Defense Alternatives and one of the Citizens Against Government Waste recommendations, which are for FY 2013 only.

The signatories to this letter are:

Americans for Tax Reform, Campaign for America's Future, Center for Freedom and Prosperity, Council for Citizens Against Government Waste, Cost of Government Center, CREDO, Freedom Action, Friends Committee on National Legislation, National Priorities Project, National Taxpayers Union, Peace Action, Progressive Democrats of America, Project On Government Oversight, Republican Liberty Caucus, R Street, Take Back Washington, Taxpayers for Common Sense, Taxpayers Protection Alliance, USAction, U.S. PIRG, Women’s Action for New Direction, and Win Without War.

Cato Institute and the Project on Defense Alternatives

Defense Sense, Options for National Defense Savings in FY 2013, May 2012

End Littoral Combat Ship Procurement at 10      $2 billion

Slow procurement of Virginia class submarines        $2 billion

Missile Defense Reforms        $2.5 billion

The Center for a New American Security

Sustaining Pre-eminence, May 2012

Downsize military headquarters        $40 billion

Trim the civilian workforce by 100,000        $50 billion

The Center for American Progress

$100 billion in Politically Feasible Defense Cuts, December 2012

Replace the over-budget F-35C with the effec­tive and affordable F/A-18E/F        $17 billion

Reduce the number of deployed nuclear weapons        $28 billion

Reform the Pentagon’s outdated health care programs        $40 billion

Citizens Against Government Waste

Defense Cuts, December 2012 and MisguidedMissile.org

Delay rebuilding Abrams tanks the Army doesn’t want        $3 billion

Cancel the Medium Extended Air Defense System        $195 million (one year)

National Taxpayers Union & U.S. Public Interest Research Group

Toward Common Ground, September, 2011

Cancel C-27J Cargo Aircraft        $1.46 billion

Change depots pricing structure        $2.47 billion

Pause development of the Ground Combat Vehicle        $14.0 billion

Rand

A Strategy Based Framework for Accommodating Reductions in the Defense Budget, Focus on Western Pacific Scenario October 2012

Cut two Marine regiments and two tactical fighter squadrons        $23-27 billion

Reducing the size of the Navy fleet by 5%        $35-41 billion

Remove six Army brigades from the force         $84-99 billion

The Project On Government Oversight and Taxpayers for Common Sense

Spending Even Less, Spending Even Smarter, May 2012

Replace the V-22 Osprey with MH-60 and CH-53 helicopters        $17.1 billion

Withdraw 40,000 troops from Europe        $32 billion

Replace the B and C models of F-35 with F/A-18E/F Super Hornet        $62 billion

The Stimson Center

A New U.S. Defense Strategy for a New Era, November 2012

Reducing infrastructure billets        $100 billion

Relying less on contractor support        $110 billion

Increase health care fees and cost-sharing        $40-110 billion

Congressional Progressive Caucus Co-Chairs Reps. Keith Ellison and Raul Grijalva

The Balancing Act: Cut Handouts Not Jobs, February 2012

Reduce General and Flag Officers to a Cold War standard        $1 billion

Limit military bands        $2 billion

Limit the purchase of Virginia-class subs to one per year        $22 billion

Senator Tom Coburn

Back in Black, July 2011

Cut non-defense defense spending at “The Department of Everything”        $68 billion

Reduce nuclear weapons force structure        $79 billion

Reform TRICARE Standard and Prime for military retirees        $115 billion

To reach our groups for more information, please contact Angela Canterbury, Director of Public Policy at the Project On Government Oversight, at 202-347-1122 or acanterbury@pogo.org.

SMRs will likely never be a good investment, but in the current fiscal climate taxpayers must be especially concerned with any dollars DOE doles out.  High-risk, high-cost, and highly questionable, small modular reactors don’t just look like bad investment they are a ridiculous waste. For a range of reasons, subsidies for SMRs equal nothing more than another handout for the nuclear industry.

Appendix One: Company Profiles | Appendix Two: Legislation

SMRs: High-risk, Unknown Costs

To date, there are no reliable cost estimates for SMRs. Nuclear vendors are notorious for underestimating costs, and there is no actual experience manufacturing or building SMRs.  Since the 1950s, the nuclear industry worldwide has consistently pushed for larger reactors on the theory the economics would improve if the high fixed costs of building nuclear plants could be spread over more kilowatt hours. SMRs represent a reversal of this reasoning and call into question the extensive federal support now being offered to promote a “nuclear renaissance” based on standardizing and sticking to a few large reactor designs.  While commercial scale reactors of 1,000 MWe or greater could cost at least $8 billion, DOE officials have projected the first SMRs will cost approximately $1 billion per 100-150 MWe.  When asked about operation and maintenance costs compared to commercial scale reactors, the federally-owned Tennessee Valley Authority (TVA) said it expects it to be higher.  The Department of Energy has already provided nearly $100 million for these so-called mini reactors while their commercial viability remains in question. DOE has committed up to $452 million over the next five years in an attempt to fund up to two separate demonstration projects.

Federal Subsidies for Small Modular Reactors

Federal support for SMRs is provided through a subsidy program for commercial nuclear power that can be traced back to the 1950s when federal subsidies for nuclear power reached astronomical levels.  Not only did the government develop reactor and enrichment technology for the private sector, it also assumed legal responsibility for nuclear waste disposal, something never done for any other industry.  In addition, the government issued multimillion-dollar development grants for many reactor technologies (most since abandoned) and distributed research reactors around the world. 

At the same time, the U.S. Navy started developing smaller nuclear reactors for naval ships and the Army’s Nuclear Power Program constructed eight experimental mini-reactors for use in rural operations.  Since then, interest in using SMRs within the military and for domestic energy applications has grown. From 1999 to 2004, DOE’s Nuclear Energy Research Initiative awarded research and development grants to public, private, and non-profit entities in support of SMR development.

Two federal initiatives currently provide support for the commercialization of SMRs: the recently created DOE Small Modular Reactor Program and the private-public partnership program at DOE’s Savannah River site in South Carolina. To date, nearly $100 million in federal funds have been provided for SMRs through the Small Modular Reactor Program. Congress approved more than $95 million for DOE’s SMR program in FY2012 (See Table 1). The President’s FY2013 budget proposal of $770 million for the Office of Nuclear Energy included $83 million for SMRs.

Below are brief descriptions of the DOE SMR Program and the Private-Public partnership program at DOE’s Savannah River site.

DOE’s Small Modular Reactor Program

In March 2012, the Department of Energy announced a public-private cost-share funding opportunity aimed at commercializing SMR technology.  Within the announcement, DOE stated it would select up to two SMR proposals to receive up to $452 million in cost-share funding for design certification and licensing support, dependent on Congressional appropriations. The funds would help the SMR designs reach a commercial operation date before 2022. DOE’s funding opportunity extended from 2012 and 2016 and required taxpayers to provide up to 50% of project costs.

Taxpayers would also fund continued SMR research and development. The SMR Program is funded through two separate annual budget lines including “Licensing Technical Support” and “Advanced Concepts Research and Development.” The Licensing Technical Support sub-program would “provide support for design, certification, standards, and licensing.”   Moreover, the Advanced Concepts R&D sub-program provides taxpayer-backed support to the nuclear industry through reactor design and concepts development.

The DOE SMR program is behind schedule. According to the FY2013 budget justification, DOE planned to select up to two designs by September 2012  but announced a month later it had missed the deadline. In response to the funding opportunity announcement, four companies applied: Westinghouse Electric Company, Generation mPower LLC, SMR LLC, and NuScale Power LLC (See Table 2 or Appendix One for more information on individual applicants).

As of February 2013, DOE has only selected one applicant. In November 2012, DOE announced the first SMR design to be awarded cost-share funding. Babcock & Wilcox (B&W) could receive any portion of the $452 million to commercialize its 180 MWe reactor. The final amount B&W will receive has yet to be determined. While DOE only announced one of potentially two selections, it also stated it intends to provide additional funding opportunities in the future.

Earlier this month, B&W announced it had signed a contract with TVA to start preparing an NRC construction permit application for its proposed reactors at TVA’s Clinch River site.  Yet according to the United States Nuclear Regulatory Commission (NRC), TVA initially intended to submit its application in late 2012.  A B&W-TVA press release says the companies plan to submit an application in 2015—three years behind schedule.

Savannah River Nuclear Development Site

In March 2012, DOE’s Savannah River site and Savannah River National Laboratory (SRS) signed three Memorandums of Agreement (MOA) for public-private partnerships with small modular reactor companies to commercialize SMR technologies.  Located in South Carolina, DOE’s SRS provides support ranging from technology demonstration to design certification and licensing assistance.   This support is in addition to the SMR program.

In one Memorandum of Agreement, SRS plans to invite the National Nuclear Security Administration (NNSA) to discuss incorporating mixed oxide fuels (MOX) into SMR LLC’s design. When soliciting proposals for public-private partnerships, SRS said it intends to develop SMR designs that are capable of using fuel based from surplus plutonium and spent reactor fuel as a potential alternative to storing spent nuclear fuel at Yucca mountain.

Created in 1950, the federally-owned, privately-managed Savannah River complex was established to manufacture materials needed for nuclear weapons development during the Cold War. Since then, the 310-square mile complex has ceased producing weapons materials and housed much of DOE’s experimental nuclear research and development including mixed oxide fuels, environmental management, and waste storage technologies to the benefit of private industry. Savannah River has an annual budget of approximately $2.5 billion.

Current Applicants Seeking Federal Subsidies

Five small modular reactor projects have applied for support from DOE to date, but none of the five different reactor designs have been licensed by the NRC. NRC and DOE aim to award the first design certification license by 2018 and final construction/operating license by the early 2020s. Currently, all five projects are in the pre-application phase with NRC working towards initial design certification.
All but one SMR project would develop an integral pressurized light water reactor (iPWR) while the other would develop a fast neutron reactor (FNR).

NRC Not Ready For SMRs

The United States Nuclear Regulatory Commission has stated it is not fully prepared to license SMRs. In 2008, NRC estimated it would have a regulatory review process in place to license the first SMRs within five years.  However, in May 2012 the NRC stated “If an appreciable fraction of total SMR initiatives materialized, it would create an untenable situation for the NRC.”

This is because the regulatory framework for licensing SMRs does not fully exist. It has yet to be determined whether many of the proposed qualities of SMRs, such as generation capacity, modularity, and security features, are covered under the current licensing process for new nuclear reactors.  Most of all, NRC hasn’t decided whether it will license individual reactors or issue a combined license for a multi-reactor facility—for example GmP’s ’four pack’ or Holtec’s ’twelve-pack.’  As of December 2012, NRC projected to complete certification for B&W, NuScale, and Westinghouse’s reactor designs in 2017, though a final schedule has yet to be released.

There are questions whether NRC will uphold current regulatory standards for SMRs. The Nuclear Energy Institute (NEI) argues NRC should reduce decommissioning cost assurances (i.e. funds set aside for cleanup after the reactor is shut down); annual fees paid to NRC; the number of control room operators on site; and insurance requirements in the event of a nuclear accident.

Under current law, SMR operators would provide the same decommissioning cost assurances as all other U.S. reactors. NEI proposes SMR operators apply for a short-term exemption and ultimately change the law in the long term.  Under the Omnibus Budget Reconciliation Act of 1990, all nuclear reactor licensees are also required to pay an annual fee that makes up the majority of NRC’s budget authority. This fee is divided equally among the nation’s 104 nuclear reactors. NEI proposes changing this requirement and linking annual fees to output levels, which would significantly reduce rates for SMR operators.

Questions about safety and security requirements have also been raised. Since many of the SMR designs being developed include “passive safety” features, industry is in discussions with NRC about adjusting requirements. Proposals include reducing the required number of plant operators on site and decreasing the size of the emergency planning zone.  Reducing security checkpoints at SMR plants is also being considered as a cost-cutting effort.

“The current insurance and indemnity requirements … for multiple reactor modules that collectively exceed 100 MWe may not provide adequate assurance to the public that all claims resulting from a nuclear incident at such a facility would be compensated.”

– Michael Johnson, Director of Office of Nuclear Reactors, NRC. SECY-11-0178. December 2011.

Although significantly smaller than traditional reactors, SMRs will still require significant insurance in the event of an accident. New nuclear reactors are currently covered by the Price-Anderson Act for accidents valued at over $12.6 billion. Price-Anderson may fall dramatically short in the case of SMRs, however. Under the Act, reactors that produce 100 MWe or greater must hold the maximum amount of private insurance available ($375 million) as well as a “retrospective insurance plan.” Smaller reactors producing less than 100 MWe must also hold the maximum amount of private insurance (between $4.5 and $75 million), but are not required to hold the additional plan. Multi-reactor facilities consisting of reactors between 100 MWe and 300 MWe that produce less than 1300 MWe are treated as a single entity for insurance purposes. The Act does not address combinations of reactors under 100 MWe, such as Gen4 or Fluor’s reactor designs.

Summary: Taxpayer Concerns

In these tight budget times, federal taxpayers cannot afford yet another giveaway to the heavily-subsidized nuclear power industry. Continued taxpayer-backed support for SMR licensing in addition to R&D giveaways amounts to just another subsidy in a suite of federal supports for the nuclear industry. More than 100 reactors operated by 30 companies exist in the United States; the nuclear industry, not federal taxpayers, must lead the way if SMRs are to reach commercial viability.

Even the nuclear industry has said they can move forward without subsidies. Senior Vice President of Holtec International Pierre Oneid said his company aims to commercialize its SMR design whether or not it receives a federal cost-share subsidy.

- James Hammond. “Holtec, NuHub to Partner on Small Reactor Grant.” GSA Business. April 2012.

In the Department of Energy’s materials on SMRs, the agency argues there is a “need and a market” in the United States for SMRs. In reality, no one is clamoring to buy an SMR because there is no assurance the electricity will be remotely competitive with power from other sources.  New nuclear power today is uncompetitive by a very wide margin.  To compete with today’s natural gas prices, SMRs would have to produce electricity at half the projected cost of conventional reactors.  There is not the slightest indication they can do so.

During times of economic stress, the nuclear industry has a tradition of rushing forth to proclaim a new technology just around the corner will sweep current problems aside.  Unfortunately, these visions have an equally long tradition of expensive failure, most often at taxpayers’ expense. The Department of Energy’s efforts to spend taxpayer dollars on Small Modular Reactors will simply continue this legacy of failure and must be rejected.

For more information, please contact Autumn Hanna at (202) 546-8500 x112 or autumn[at]taxpayer.net

Appendix One: Company Profiles

Babcock and Wilcox Company

Generation mPower, LLC (GmP) is a jointly-owned subsidiary of Babcock & Wilcox Nuclear Energy Inc. (B&W) and Bechtel Power Corporation. Established in 1867, B&W is a public utility component manufacturer and government contractor based in Charlotte, NC with more than 12,000 employees. B&W made nearly $170 million in net profits in 2011. Bechtel is one of the largest engineering and construction companies in the United States with more than 50,000 employees. Founded in 1898, Bechtel Power Corporation is headquartered in San Francisco, CA.

GmP was founded in 2010 following two years of research and development, and intends to commercialize its 125 MWe small modular reactor by 2018.[1] GmP is partnering with the federally-owned Tennessee Valley Authority (TVA) which aims to construct a ‘six pack’ of SMRs at TVA’s Clinch River site in Tennessee.[2] In 2012, GmP altered its reactor design to increase generation capacity to 180 MWe,[3] downsized its plans to only four reactors at TVA’s Clinch River site, and delayed the proposed initial operating date until 2022—dependent on plant licensing from NRC.[4] GmP’s reactor is proposed to be 83 feet tall by 13 feet wide, have a four-year refueling lifecycle,[5] and construction period of three years.[6] As of May 2012, more than $200 million has been spent on the development of GmP’s SMR design.[7] Most recently, GmP signed a contract with TVA to start preparing the NRC construction permit application for the proposed reactors at TVA’s Clinch River site.[8] GmP aims to submit its design certification application in 2014.[9]

Babcock & Wilcox has designed and built seven of the 104 current operating nuclear reactors in the United States.[10] TVA currently operates six commercial reactors and will advise GmP throughout the NRC licensing process.[11] According to a recent presentation, TVA has been working on the commercialization of SMRs since 2009.[12] GmP’s plans are backed by the Generation mPower Industry Consortium and advisory council—a collection of more than a dozen public utility suppliers.[13]

Fluor Power Corporation

NuScale Power, LLC is a majority-owned subsidiary of Fluor Power Corporation with close ties to the Idaho National Engineering and Environmental Laboratory (INEEL) and Oregon State University (OSU). Founded in 1912, Fluor is a global engineering and construction company headquartered in Irving, TX. Fluor has more than 43,000 employees worldwide and net profits of nearly $600 million in 2011. Overall, Fluor’s largest contribution to the project has been providing $30 million to NuScale (simultaneously becoming a majority owner) for continued research and development in 2011.[14] Fluor itself has little or no experience designing nuclear reactors.

Founded in 2007, NuScale Power LLC aims to commercialize its 45 MWe reactor by 2020.[15] NuScale’s SMR design is a product of a more than decade long partnership between the federally-managed Idaho National Engineering and Environmental Laboratory and Oregon State University—dating back to 2000. Soon after the company was founded, NuScale was awarded exclusive rights to the SMR design which had been developed through this partnership with funding from DOE.[16] Soon after, NuScale signed a memorandum of understanding with Kiewit Contractors Company that Kiewit will provide construction services once NuScale’s SMR design has been approved by NRC.[17] As of February 2012, approximately $130 million has been spent on the development of NuScale’s SMR design.[18]

NuScale is one of three companies awarded a public-private partnership to commercialize its SMR design at DOE’s Savannah River site in South Carolina. Once NuScale has demonstrated its 45 MWe reactor, it intends to build a ’12 pack’ to produce a total of 540 MWe at one facility. In one 2008 presentation, NuScale proposed combining up to 30 reactors at one facility.[19] NuScale’s 45 MWe SMR design is proposed to be 65 feet high by 14 wide,[20] last up to 60 years,[21] and have a two-year refueling interval.[22]

NuScale’s plans are backed by a Customer Advisory Board—a collection of more than a dozen public utility suppliers and organizations.[23]

*Noteworthy: Fluor Corporation is a joint-owner of the corporation (Savannah River Nuclear Solutions, LLC) that manages and operates the Savannah River site facilities.

Gen4 Energy Incorporated

Founded in 2007 and headquartered in Denver, Colorado, Gen4 Energy Inc. (formerly Hyperion Power Generation Incorporated) is a private company focused on commercializing its 25 MWe small modular reactor design. A participant in DOE’s Technology Transfer Program, Gen4 SMR design is the sole product of the federal Los Alamos National Laboratory (LANL).[24] Exclusive rights to the 25 MWe reactor design developed by LANL were awarded to Gen4 soon after it was founded and nearly a dozen LANL employees continue to work on SMR design today.[25]

Gen4 is one of three companies with a public-private partnership agreement with DOE’s Savannah River Site to commercialize its small modular reactor design. Gen4’s design is the smallest of the federally supported SMR designs, describing its reactor as “about the size of a typical backyard hot tub.”[26]

Unlike the other four applicants, Gen4 announced in early 2012 it would not pursue DOE’s SMR cost-share funding opportunity.[27] “While we will not pursue the Licensing [public-private partnership], we are excited to continue our work under our Memorandum of Agreement with DOE to deploy our advanced reactor at Savannah River,” stated David Carlson, Gen4 Energy’s Chief Operating Officer.[28] Gen4’s reactor design is proposed to last ten years after which the entire reactor module must be replaced.[29]

Holtec International Incorporated

SMR, LLC is a wholly-owned subsidiary of Holtec International Incorporated. Established in 1986 and headquartered in Jupiter, FL, Holtec is a public utility components manufacturer specializing in waste storage facilities with operations worldwide. While Holtec is a global leader in power plant waste management and has supported the construction of nuclear reactors in the past, it has little to no experience designing nuclear reactors.

Founded in 2011, SMR LLC aims to complete design certification in 2013[30] and commercialize its 160 MWe reactor by 2018.[31] In addition to the cost-share funding opportunity, SMR LLC is one of three companies awarded a public-private partnership to further develop its reactor design at DOE’s Savannah River site in South Carolina. Notably, within SMR LLC’s memorandum of agreement with DOE, the company agrees to discuss incorporating MOX fuel into its design with the National Nuclear Security Administration.[32] SMR LLC’s reactor is proposed to have a four-year refueling cycle and last up to 80 years.[33] Most recently, Holtec altered its reactor design to decrease generation capacity to 145 MWe and refueling intervals of three years.[34]

SMR LLC’s plans are supported by NuHub, Exelon, Entergy, PSEG, First Energy, and SCE&G which have agreed to share operation responsibilities if and when the demonstration project is constructed.

Westinghouse Electric Company

Formed in 1886, Westinghouse Electric Company is a service provider to nearly every corner of the nuclear power industry. Westinghouse is a subsidiary of Toshiba Nuclear Energy Holdings Inc. with more than 14,000 employees and is headquartered in Monroeville, PA with operations worldwide. Westinghouse has significant experience designing and building nuclear reactors. Currently, 48 of the 104 operating nuclear reactors in the United States have been designed and built by Westinghouse[35] with another 14 proposed reactors under consideration.[36]

Westinghouse announced plans in February 2011 to commercialize its 200 MWe small modular reactor by 2021.[37] The design is largely based off Westinghouse’s AP1000 reactor design which was approved by the Nuclear Regulatory Commission (NRC) in December 2011.[38] Westinghouse’s SMR design is proposed to be 89 feet tall by 39 feet wide,[39] have a refueling period of two years, and a lifespan of 60 years.[40] In addition to power generation for public utilities, Westinghouse envisions its SMRs to supply on-site power for coal-to-liquid operations, as well as tar sands and oil shale development operations.[41] Most recently, Westinghouse altered its reactor design to increase generation capacity to 225 MWe.[42] Westinghouse aims to submit its design certification application in 2014.[43]

Westinghouse intends to build its first SMR in partnership with public service utility Ameren Missouri, at Ameren’s Calaway site.[44] Westinghouse’s plans are also backed by the “NexStart SMR Alliance”—a coalition of more than a dozen public utility suppliers.[45]

Appendix 2: Legislation

In the 112^th Congress, six pieces of legislation were introduced in order to provide federal support for small modular reactors. Most notably, Senator Mark Udall (D-CO) introduced the Nuclear Energy Research Initiative Improvement Act of 2011 (S. 1067) that would have earmarked $250 million to SMRs between 2012 and 2016. Furthermore, three of the six bills call for public-private cost-share agreements as the main funding mechanism for a small modular reactor program. Below are brief summaries of each piece of legislation.

• November 1, 2011 – Rep. Thomas Rooney (R-FL) – H.R. 3302: Restore America Act of 2011
  • Rep. Rooney’s bill would require the Nuclear Regulatory Commission (NRC) to provide a report to Congress with policy recommendations for streamlining licensing of SMRs and then administer those recommendations within one year. The bill had no cosponsors.
• June 16, 2011 – Sen. Kent Conrad (D-ND) – S. 1220: Fulfilling U.S. Energy Leadership Act of 2011
  • Sen. Conrad’s bill would require NRC to establish a program to streamline the licensing of a standard SMR design through public-private cost-share agreements within ten years. The bill had no cosponsors.
• June 3, 2011 – Rep. Jim Matheson (D-UT) – H.R. 2133: FUEL Act
  • Rep. Matheson’s bill would require DOE to carry out a SMR RD&D program to support the commercialization of SMRs through public-private cost-share agreements. The bill had no cosponsors.
• May 25, 2011 – Sen. Mark Udall (D-CO) – S. 1067: Nuclear Energy Research Initiative Improvement Act of 2011
  • Sen. Udall’s bill would require DOE to carry out a nuclear RD&D program including SMRs with annual appropriations of $50 million for five years, totaling $250 million. The bill had three cosponsors: Sens. Jeff Bingaman (D-NM), Lisa Murkowski (R-AK), and Amy Klobauchar (D-MN).
• March 8, 2011 – Sen. Jeff Bingaman (D-NM) – S. 512: Nuclear Power 2021 Act
  • Sen. Bingaman’s bill would require DOE to carry out a SMR RD&D program to support the commercialization of two SMR reactor designs through public-private cost-share agreements so industry can obtain a design certification NRC by January 1, 2018. The bill had seven cosponsors: Sens. Mary Landrieu (D-LA), Lisa Murkowski (R-AK), Mark Pryor (D-AR), Mark Udall (D-CO), Michael Crapo (D-ID), James Risch (R-ID), and Roy Blunt (R-MO).
• March 3, 2011 – Rep. Devin Nunes (R-CA) – H.R. 909: Roadmap for America’s Energy Future
  • Rep. Nunes’ bill—similar to Rep. Rooney’s bill—would require NRC to provide a report to Congress with policy recommendations for streamlining licensing of SMRs and then administer those recommendations within one year. The bill had 73 Republican cosponsors.

FOR IMMEDIATE RELEASE
February 27, 2013

CONTACTS:
Steve Ellis, Taxpayers for Common Sense, 202-546-8500 ext 126, steve@taxpayer.net
Ailis Wolf, The Hastings Group, 703-276-3265, aawolf@hastingsgroup.com

Golden Fleece Award Goes to Department of Energy for Federal Spending on Small Modular Reactors

$100 Million in “Mini Nuke” Corporate Welfare Already Doled Out, Another Half Billion Dollars Or More in the Pipeline for Major Corporations that Could Pay for Own R&D, Licensing

WASHINGTON, D.C. -- The federal government is in the process of wasting more than half a billion dollars to pay large, profitable companies for what should be their own expenses for research & development (R&D) and licensing related to “small modular reactors” (SMRs), which would be about a third of the size or less of today’s large nuclear reactors.  In response, the nonpartisan group Taxpayers for Common Sense today handed out its latest “Golden Fleece Award” to the Department of Energy for the dollars being wasted on SMRs.

Titled “Taxpayer Subsidies for Small Modular Reactors,” a related TCS background report is available online here.

Ryan Alexander, president, Taxpayers for Common Sense, said:  “The nation is two days away from the across-the-board budget cuts known as sequestration. But at the same time we are hearing the Department of Energy and the nuclear industry evangelizing about the benefits of small modular reactors. In reality, we cannot afford to pile more market-distorting subsidies to profitable companies on top the billions of dollars we already gave away.”

Autumn Hanna, senior program director, Taxpayers for Common Sense, said:  “The nuclear industry has a tradition of rushing forth to proclaim that a new technology, just around the corner, will take care of whatever problem exists. Unfortunately, these technologies have an equally long tradition of expensive failure. If the industry believes in small modular reactors and a reactor in every backyard – great – but don’t expect the taxpayer to pick up the tab.”

The federal government already paid for a version of SMR R&D when small reactors were designed for the U.S. Navy’s nuclear submarine fleet. Now some highly profitable companies – including Babcock & Wilcox, Westinghouse, Holtec International, and Fluor Corporation -- are at the federal trough for another round of federal support for small modular reactors that could go into suburban American neighborhoods.

The TCS Award announcement takes place a few weeks before the release of President Obama’s latest budget outline, which is expected to call for a continuation of SMR licensing and R&D funding at taxpayer’s expense. The Department of Energy has already provided nearly $100 million for these so-called mini reactors while their commercial viability remains in question. In addition, DOE has committed up to $452 million over the next five years in an attempt to fund up to two separate demonstration projects.

In making the Golden Fleece Award, Taxpayers for Common Sense highlighted the following issues:

• “Hot-tub” sized reactors … and king-sized costs? The vision the industry and DOE seem to be peddling is a chicken in every pot, a car in every garage, and a reactor in every basement. It’s hard to see the large-scale viability. Absolutely no one is clamoring to buy an SMR because there is no assurance that the electricity will be remotely competitive with power from other sources.  New nuclear power today is uncompetitive by a very wide margin.  At today’s natural gas prices, SMRs would have to produce electricity at half the projected cost of conventional reactors to compete.  There is not the slightest indication that they can do so.

• The case being made for federally subsidized SMRs directly contradicts the case that already has been made by the same industry for federal subsidized large reactors.  “There are no reliable cost estimates for SMRs. Nuclear vendors are notorious for underestimating costs, and there is no actual experience.  Since the 1950s, the nuclear industry worldwide has consistently pushed for larger reactors on the theory that economics would improve if the high fixed costs of building safe plants could be spread over more kilowatt hours. SMRs represent a reversal of this reasoning and call into question the extensive federal support now being offered to promote a ‘nuclear renaissance’ based on standardizing and sticking to a few large reactor designs.”

• There is no assurance that SMRs would pass regulatory muster. “The United States Nuclear Regulatory Commission (NRC) has stated it is not fully prepared to license small modular reactors. In 2008, NRC estimated that it would have a regulatory review process in place to license the first small modular reactors within five years. However in a May 2012 the NRC said, ‘If an appreciable fraction of total SMR initiatives materialized, it would create an untenable situation for the NRC.’”

• SMRs come with several additional question marks.   Major issues for taxpayers include the lack of long-term radioactive waste storage, the creation of additional targets for terrorist attacks across suburban American, the cost of added security to protect the new facilities, etc.

SMRs have been the focus of a considerable amount of uncritical news media coverage in recent months.

A fraction of the size of conventional-scale reactors, small modular reactors are intended to be manufactured by assembly line and transported by truck, ship, or rail to their destinations. With designs ranging in size from one-third the size of a large-scale plant to “hot-tub” sized, SMRs would also produce significantly less power.

The Golden Fleece Award was created in 1975 by the late Senator William Proxmire. It is intended to highlight instances of wasteful spending. After retirement, Sen. Proxmire served as Honorary Chairman of Taxpayers for Common Sense's Advisory Board and passed the mantle of the Golden Fleece to the organization in 2000.

EDITOR’S NOTE: A streaming audio replay of the news event will be available on the Web here as of 5 p.m. EST on February 27, 2013.

# # #

Taxpayers for Common Sense is an independent and nonpartisan voice for taxpayers, working to increase transparency and expose and eliminate wasteful and corrupt subsidies, earmarks, and corporate welfare. For more information, visit: www.taxpayer.net 

For our full analysis on this most recent recipient of the Golden Fleece: Taxpayer Subsidies for Small Modular Reactors

For a streaming audio replay of the news event, click here. (available after 5pm on 2/27/2013)

According to Virginia Department of Transportation (VDOT), the purpose of the project is to increase efficiency and safety along the existing US29 corridor, and reduce travel times for motorists travel through, not to, Charlottesville. Project proponents believe this new road would mean a faster trip for trucks coming from downstate on the way to DC or New York City and congestion reduction on the existing road. Evidence suggests that neither is true, however, calling into serious question why this project is being considered, and potentially explaining why it's been on the drawing board since 1984.

An analysis of the claim that it would save time for truckers and other through-travelers  indicates that the time savings will be as little as one minute compared to navigating the existing US29, a negligible savings on a multi-hour journey markets in the Northeast. In addition, the new road would likely do little to improve conditions for travel within Charlottesville. VDOT’s own traffic forecasts indicate very little improvement in driving conditions on US 29 if the bypass is constructed, especially during the morning and evening peak periods. Congestion will still remain a significant problem in need of a solution, with or without a bypass.

Even worse, significant changes to the project in the most recent bid accepted by VDOT will further reduce any travel time savings and other project benefits, making it a worse taxpayer investment. Keep in mind that these changes (details to follow) were accepted because the proposal had to be shoehorned to fit a specific dollar amount ($136 million), which allows proponents to claim that the price of the project hasn’t increased. More on that in a moment.

The project’s southern terminus lies at the edge of the University of Virginia campus, and significant changes to the project were accepted in this area to help the contractor shave millions off the price tag. Normally, that would be something we would applaud. But in this case, the changes raise serious questions about safety and road utility.

The bypass will now utilize the local road system at its southern end for a brief period, allowing it to include a very steep 11.4% grade slope (the maximum slope on a highway would likely be 6%). This is less expensive because the contractor would be spared from blasting through the existing mountain to reduce the grade. Though less expensive, this design is extremely unsafe for southbound trucks coming down such a steep slope and a potential disaster for pedestrians (ie. UVA students and faculty) crossing the road at the bottom of the hill. Northbound trucks would face the challenge of climbing that steep slope, made even more difficult by the fact that there are two stop lights on the existing local road. The problems with the current design of the southern terminus are so acute that several trucking operations have indicated they would likely avoid using the road because of these safety concerns, and it's hard to imagine that the university would not demand changes to keep students safe from harm.

The northern terminus of the road also poses significant challenges, which are being ignored in the interest of reducing the project's perceived cost. North of Charlottesville, the bypass would reconnect with US 29 in a rapidly developing area, such that trucks coming off of the bypass would still have to navigate a congested stretch of road before they would be clear of Charlottesville’s traffic.

One might ask why we would oppose a plan that reduces the overall cost of the bypass. The reason is two-fold. For one, the current proposal reduces the overall benefit and utility of the bypass. This makes its price tag even worse from a benefit-cost perspective. And more importantly, there is every indication that the contractor will improve the proposed design (especially at the southern terminus, where it appears unlikely the University would not raise serious concerns with the proposal) and simply tack the cost onto the project after the fact. For this reason, there is good reason to believe that the final price tag will surpass the current $250 million estimate.

The politics surrounding this project do little to make us feel any better about the motivations for its relatively sudden revival. After years of opposition, the Albemarle County Board of Supervisors quickly reversed course on the project without any public input at the very tail end of a meeting about a completely different matter. In addition, just a couple of weeks ago a member of the Commonwealth Transportation Board (CTB), James Rich, was given the heave-ho for his opposition to the project. One important reason for his opposition is that the Culpeper District, which he used to represent on the CTB and where the bypass would be located, has a six-year budget of $338 million. The bypass would consume at least 70% of those funds, and possibly more if the price rises as expected.

The simple fact is that we can find no reason to believe that this project is worthy of taxpayer investment. Virginia Department of Transportation is trying to push this project ahead based on an assessment that is many years old, even after significant changes were made to the project. At the very least, this project deserves a much harder look and the public deserves to know the true cost and potential drawbacks of this project. In the final analysis, we believe taxpayers would be better of if the project was killed outright and the state were to sell off the many properties it has acquired through eminent domain to recover the investment taxpayers have already made to date. There are too many important priorities in Virginia and across the nation, and too little resources to get even the most important of those done. To build a stinker like the Charlottesville Bypass just makes accomplishing those priorities that much more of a challenge.

Selected resources about the project:

Editorial by Jim Rich, former CTB representative: http://www.readthehook.com/109094/road-nowhere-western-bypass-must-be-stopped

Details of the Skanska/Branch contract award: http://www.virginiadot.org/newsroom/statewide/2012/$136_million_design-build_contract58408.asp

Bacon's Rebellion has done some of the best coverage of this project: http://www.baconsrebellion.com/tag/charlottesville-bypass

TCS has long opposed this project, most recently in our proposal as to how to avoid sequestration: http://www.taxpayer.net/library/article/sliding-past-sequestration-2-trillion-in-common-sense-cuts-to-avoid-the-fis

Yet barely 24 hours later, a report from the government’s own watchdog released a highly-anticipated report confirming that the Defense Department remains riddled with waste and inefficiency. The report released by the Government Accountability Office (GAO) is the latest edition of its High Risk series produced for the 113^th Congress. The GAO started releasing its High Risk list in 1990 to identify government functions with “greater vulnerabilities to fraud, waste, abuse and mismanagement,” and DOD has always played a starring role. Here’s just a sampling of the most recent report’s findings:

• While DOD made some progress in reforming its business management approach, GAO found that “many of same fundamental weaknesses that cause these areas to be at high risk for fraud, waste, abuse, and mismanagement still remain.” For example, DOD’s efforts to modernize business systems “have yet to yield significant results in materially improving the cost, schedule, and performance” of these systems.
• Despite many efforts at reform, DOD “has yet to demonstrate sustained improvements in cost and schedule outcomes on major defense acquisitions programs” and “does not provide any information on what is causing the cost growth for DOD’s major defense acquisition programs.”
• DOD has a plan for how to finally pass an audit as required by law, but has “not made significant progress in addressing some of the key weaknesses,” such as arresting constant delays in fielding new resource planning systems.
• Though DOD admits it needs two additional rounds of the Defense Base Realignment and Closure Commission (BRAC) process to reduce excess infrastructure, it will have a hard time identifying which facilities to close because it “does not maintain complete and accurate data concerning the utilization of facilities.”

As TCS President Ryan Alexander testified earlier this month at a hearing on the report before the House Committee on Government Oversight and Reform, it should be no surprise that the world’s largest bureaucracy is vulnerable to this kind of waste and duplication. DOD has (allegedly) battled the problems described in the report for years: Imagine the resources our military would have on tap if the Pentagon could win the struggle with its own inefficiency.

February 14, 2013

Dear Representative,

On behalf of the millions of Americans represented by the undersigned organizations, we write urging you to take common sense steps to reform federal supports for agriculture and save taxpayers at least $100 billion over the next decade. This may sound like an ambitious goal, but it is achievable with modest reforms that would still provide for a robust farm safety net.

The 113^th Congress has a prime opportunity to reduce the federal government’s meddling in the agricultural sector while helping to pay down our $16 trillion national debt. A number of common sense steps can be taken to create a more accountable, responsive, and cost-effective agricultural policy.

• Despite the 2012 drought being one of the most severe in history, the agriculture industry “suffered” with near-record profits. Given today’s extraordinarily high commodity prices and farm profits and our monumental fiscal crisis, agriculture subsidies should be reduced by at least $100 billion over the next decade. Enacting simple and long-overdue reforms like eliminating outdated direct payments, trimming the skyrocketing cost of federal crop insurance subsidies, and not replacing direct payments with market distorting “shallow loss” entitlement programs would realize at least this level of savings.

• Federal supports for agriculture must be evaluated on their own merits. Though explosive growth in nutrition programs, particularly the Supplemental Nutrition Assistance Program (SNAP), must be addressed, that discussion must not be used to sidetrack necessary reforms to federal subsidies to agricultural businesses. Any serious effort to strengthen our nation’s agricultural and nutrition safety nets will put these two disparate programs in separate debates.

• Congress must consider changing the law under which America operates in the absence of a new farm bill. The current fallback, the horribly outdated Agricultural Act of 1949, forces taxpayers to decide between Farm Bills with inadequate reforms or reverting to even more detrimental World War II-era law. This cynical ploy must be eliminated if we are ever going to have a real debate about the merits of federal programs.

It’s time for Congress to craft a limited, effective, and efficient safety net for American agriculture instead of lavish, poorly directed subsidies. That goal can be achieved while saving overburdened taxpayers at least $100 billion on farm payouts.

Sincerely,

American Commitment
Americans for Prosperity
Americans for Tax Reform
Center for Individual Freedom
Competitive Enterprise Institute
Cost of Government Center
Council for Citizens Against Government Waste
FreedomWorks
Heritage Action
National Taxpayers Union
R Street Institute
Taxpayers for Common Sense
Taxpayers Protection Alliance

February 6, 2013

Dear Member of Congress,

On behalf of the undersigned organizations and our combined memberships, we urge you to help protect our nation’s economic security by pursuing a minimum of $50 to $100 billion in annual Pentagon budget savings over the next decade—savings taxpayers were promised in the Budget Control Act of 2011.

As Congress continues to grapple with the nation’s fiscal challenges and strengthening the economy, it must examine every part of government, particularly the one that consumes nearly 60 percent of discretionary spending. The New Year’s budget deal addressed revenue, but with the March 1 sequestration deadline, Congress now has an opportunity to improve our fiscal health by bringing our national security budget in line with 21st century needs.

Every serious budgetary reform proposal of the last few years – whether from Democrats or Republicans – concludes that the Pentagon can safely accommodate at least half of discretionary spending reductions. The wars in Afghanistan and Iraq are ending, and our defense leaders admit the spending boom that more than doubled the Pentagon budget since the wars’ launch a decade ago must end. The full impact of sequestration would still result in a smaller post-war drawdown in constant dollars than those following the Vietnam War, Korean War or Cold War – in fact, it would only bring DOD’s budgetary top line back to its 2007 levels, still higher than the Cold War peak.

Though Defense Secretary Leon Panetta has warned of sequestration’s impact on the Pentagon, his concern lies more with the implementation of sequestration—the “meat axe” approach—than sequestration’s level of cuts. Consensus exists among civilian and military experts that DOD can absorb at least sequestration levels of spending cuts while retaining a robust force to meet the nation’s security needs. The bottom line is that sequestration will not weaken our military and should only be the first step in realigning the Pentagon’s priorities.

We believe renewed attempts in Congress to derail discussions about meaningful changes to Pentagon spending will harm both the development of a coherent defense strategy and the sustainability of the federal balance sheet. Reforms such as eliminating outdated, Cold War-era weapons, cutting programs the military doesn’t even want, reforming military health care programs, and closing unneeded bases will not only save taxpayers billions, they will also make our nation stronger by helping safeguard our financial security.

For more information, contact Laura Peterson at Taxpayers for Common Sense at (202) 546-8500 x114 or Laura@taxpayer.net.

Sincerely,

Americans for Tax Reform

Cost of Government Center

Downsize DC

National Taxpayers Union

R Street Institute

Republican Liberty Caucus

Taxpayers for Common Sense

Taxpayers Protection Alliance

Below is a brief description of the 2012 4^th quarter/annual results for these companies. Table 1 lays out this information as well.

• ExxonMobil hauled in $10 billion in the fourth quarter, driving their annual profits to nearly $45 billion—an increase of 9% from 2011. This takes Exxon’s five-year profits to $181 billion.
• Shell made $6.7 billion in the fourth quarter, pushing their annual profits to more than $26 billion.
• Chevron earned in $7.2 billion in the fourth quarter, taking their annual profits to more than $26 billion.
• BP made $2.1 billion in the fourth quarter, taking their 2012 annual profits to $12 billion.
• ConocoPhillips raked in $1.4 billion in the fourth quarter, taking their 2012 annual profits to more than $8 billion.

In the last decade, the top five oil and gas companies have now hauled in more than $1 trillion in profits (See Table 2). With oil prices more than $100/barrel for much of last year, it’s no surprise. Lest we forget what occurred in 2008 when oil prices spiked: ExxonMobil posted the largest annual corporate profit in U.S. history ($45.2B). With oil prices expected to hover around $100/barrel in 2013,[1] substantial profits by Big Oil can be expected.

Yesterday, professors from Ohio State University, University of Illinois, and Kansas State University offered up a list of ways to cut costs from the most expensive taxpayer support for agriculture – the highly subsidized crop insurance program. Carl Zulauf, Gary Schnitkey, and Art Barnaby – the author of several modern-day crop insurance policies – offered nine reforms that could save taxpayers billions over the next decade.

One would think that a $16.5 trillion national debt, near record farm profits, and a record $14 billion crop insurance cost last year would be enough incentive for House and Senate Agriculture Committees to reduce the federal taxpayer’s burden for subsidizing crop insurance. But that’s not how they operate. Instead of finding ways to reduce costs for crop insurance, the agriculture committees are actually trying to spend even more by mandating crop insurance be expanded for special interests, including producers of catfish, popcorn, peanuts, and poultry producers who lose business because of such things as contaminated food recalls, amongst others. And they’re trying to create brand new entitlement programs, so-called “shallow loss” programs, because taxpayers covering almost 2/3 the premiums in crop insurance that guarantees revenue for profitable agribusinesses, just isn’t enough.

We agree with these professors that crop insurance costs can be trimmed by:

• Reducing premium subsidies, 
• Reducing subsidies for risk management options already offered by the private sector,
• Ensuring premium rates are actuarially sound,
• Applying reasonable limits to the amount of subsidies any one agribusiness can receive,
• Reducing subsidies for agricultural production in risky areas, and
• Ensuring that farm businesses are accountable to taxpayers by implementing conservation best management practices in exchange for crop insurance subsidies.

We have also pointed out that billions more can be saved if:

• Generous administrative subsidies to profitable crop insurance companies were reined in,
• Policies crowding out the private sector were ended, and
• Measures to reduce waste, fraud, and abuse were better utilized.

Since the program is expected to cost at least $90 billion over the next decade, Congress must take steps toward reining in crop insurance costs. The agriculture committees need to wake up to budgetary reality and stop opposing these common sense recommendations.

Though called “insurance,” crop insurance does not operate like any form of insurance most Americans purchase. Instead  of  insuring  agricultural  businesses  against  a  potential  loss  of  crops, nearly 80 percent of all insured acres are covered by revenue policies, that allow businesses to lock in an expected amount of revenue (crops X expected price). Thus even in a year with no crop losses, a business could receive an insurance payout if prices dip below expectations. Taxpayers also pay an average of 60 percent of the premium cost for individual crop insurance policies. So for every $1 of insurance premiums, farmers contribute 40 cents while taxpayers pay 60 cents to the tune of $7 billion per year.

For more background on the federal crop insurance program, click here.

President, Taxpayers for Common Sense

House Oversight and Government Reform Committee hearing on

“Government Spending: How Can We Best Address the Billions of Dollars Wasted Every Year”

 February 5, 2013

Good afternoon, Chairman Issa, Ranking Member Cummings, members of the committee. Thank you for inviting me here to testify at this hearing about government spending, waste, and what can be done about it. I am Ryan Alexander, president of Taxpayers for Common Sense, a national non-partisan budget watchdog.

 I sat before you almost exactly two years ago testifying on the Government Accountability Office’s (GAO) high risk and duplicative programs reports talking about ways to save tax dollars,  enhance revenue, and reduce our deficit and debt. Sadly, there hasn’t been a lot of progress, but this Committee’s ability to highlight these issues is one of the best ways to bring about change. The transportation bill came and went and did little to deal with the problems funding our roads and rails. Congress slightly altered the byzantine tax code in the fiscal cliff deal at the end of last year, including resurrecting the mostly expired tax extenders package of breaks.

 But, I do want to recognize one positive change since I last testified:  Congress let the duplicative and wasteful ethanol subsidy – VEETC – end in 2011.

 Beyond today, I want to assure each and every one of you that Taxpayers for Common Sense is ready, willing, and able to work with you to eliminate waste and inefficiency and give taxpayers a government that works.

 Defense

 Considering Pentagon spending takes up more than half of the discretionary budget, it seems appropriate to begin there. The Department of Defense (DOD) is the world’s largest bureaucracy, employs more people than the world’s largest corporation, and is centered at the world’s largest office building - the Pentagon. So it should be no surprise DOD is extremely vulnerable to waste and duplication. This is particularly true for the process of purchasing more than $400 billion of goods and services it buys every year. DOD released last November the 2.0 version of its “Better Buying Power” contracting reforms, which took on many valuable targets such as lack of competition, requirements creep, and weak enforcement of cost constraints. However, the 2.0 reforms turned away from the emphasis on fixed-price contracts that the previous reforms adopted in reaction to contract cost overruns. The Pentagon is the federal government’s largest buyer, and most of its largest contractors are reliant on the government for the vast majority of their business. Yes, contracts are not one-size-fits-all, but is anyone really worried that billions of taxpayer dollars aren’t sufficient incentive for a company to control costs? A much tougher line must be taken in order to rein in the department’s chronic spending problems.

 The same holds true for DOD’s glacial progress toward auditability. Though two lawmakers introduced bills in an attempt to impart real consequences for failing to reach the fiscal accountability standards required by law, the only news produced by DOD on the matter was the cancellation of the Expeditionary Combat Support System (ECSS), a modified off-the-shelf computer program that was supposed to consolidate the Air Force’s accounting and logistics systems in order to meet the 2017 audit requirements. Instead, after seven years and more than $1 billion, the Air Force pulled the plug because it was going to cost another $1 billion to get a product that delivered only a quarter of what it was supposed to do originally. The ECSS had a laudable goal - DOD still runs on too many redundant, out-of-date accounting systems that only obscure how taxpayers’ dollars are spent – but terrible execution.

 Any budget watcher knows the defense budget has more than doubled since the Sept. 11, 2001 attacks. Aside from rampant waste, fraud, and abuse in our overseas military operations, a result of this spending explosion was the migration of functions from other parts of government into DOD. At the policy level, this “mission creep” means important functions such as diplomacy and foreign aid are increasingly being carried out by the military. Duplication – or worse competition – between defense and state departments in stabilization, reconstruction, and humanitarian assistance, flagged in the last GAO report, continues to be a problem. A major contributor is the lack of transparency in DOD foreign assistance accounts. Unfortunately, a recent bill that enjoyed wide bipartisan support (the Foreign Aid Transparency and Accountability Act) was recently obstructed in the Senate by one lawmaker. Passage of this bill by the current Congress would make major strides toward rectifying this problem. 

DOD also has numerous programs and accounts that are almost wholly duplicative of activities in other agencies.

Ironically, several of DOD’s attempts to rein in costs and reduce duplication have been stymied by Congress. Exhibit A is TRICARE, DOD’s health care system. The cost of TRICARE has more than doubled in the last decade and in FY12 will exceed more than $50 billion. Because premiums haven’t increased since the program’s inception almost two decades ago, many working age military retirees who are fully employed and have employer-provided health insurance available still opt for TRICARE, which amounts to a government subsidy for employers. There are ways to modernize the program while keeping faith with the promise of health care coverage for the men and women and their families who have served this country so well. Unfortunately, Congress has prevented attempts to halt the soaring spending trajectory. The FY13 Defense Authorization bill did include what conferees called a “modest” increase in pharmacy co-pays capped by cost-of-living allowances (COLAs), as well as incentives for some members to buy drugs through mail order. But these are only small initial steps toward reform. The subsidies still induce too many people to rely on TRICARE when other options are open to them.

 There is also the issue of unneeded weapons, some of which would be retired, but for intervention by Congress, including C-17 and C-130J cargo planes stationed at Air National Guard bases across the country and the M-1 Abrams tank. The National Nuclear Security Administration (NNSA) has been on the GAO’s High Risk list for years, yet change never seems anywhere in sight. The Department of Energy (DOE) is the largest federal contracting client outside of the Defense Department: Nearly 90 percent of its $26 billion annual budget goes to contractors. NNSA accounts for nearly 40 percent of DOE’s budget, and the laboratories and production plants that comprise the national nuclear weapons “complex” are actually operated and managed by private corporations. The arrangements these corporations work under, known as “Government-Owned, Contractor Operated” contracts or “GOCOs,” have done nothing to lessen NNSA’s persistent problems of inflated overhead costs, security breaches, and construction cost overruns, and in some cases actually increased them.

 On the positive side, we are gratified that lawmakers appear ready to uphold the funding freeze on the Chemistry and Metallurgy Research Replacement project (CMRR), a plutonium processing facility at Los Alamos National Laboratory in New Mexico that has racked up substantial cost and schedule overruns while failing to justify its size and expense. Another project that should meet a similar fate is the Mixed-Oxide Fuel Program (MOX). Based at the Savannah River Site in South Carolina, MOX has been troubled since its inception in the early 2000’s. Yet despite a continuously ballooning price tag, incessant construction delays, and a total absence of demand for its future product, MOX’s every failure has been rewarded with increased funding.

 Along with the Project on Government Oversight, Taxpayers for Common Sense has outlined nearly $800 billion in Pentagon savings in our report, Spending Even Less, Spending Even Smarter. I would like to submit that for the record.

 General Government

 As detailed with DOD and DOE, acquisition is a major challenge for federal agencies. In the last decade there has been a litany of high profile acquisition failures, including: Future Combat System, SBInet, US-VISIT, Deepwater, and others. A common thread of these acquisitions was the use of LSIs or Lead System Integrators, where the government doesn’t know exactly how to meet their needs and relies on the contractor for that instead. When shutting down Deepwater last year (though not the recapitalization), Admiral Korn who is in charge of Coast Guard acquisition observed, “In the end, the general consensus is that we ceded too much responsibility to the contractor, including some functions that should have been reserved for government employees.” While we admire his candor, the sad truth is that has often been the case, whether through spiral contracting or LSIs or other acquisition model euphemisms. The only people who are going to look out for the government- and by extension the taxpayer- interests are going to be government employees. As then-Senator Truman observed while leading his famous committee that rooted out waste in WWII contracting, "I have never yet found a contractor who, if not watched, would not leave the government holding the bag. We are doing him a favor if we do not watch him."

 Natural Resource Management

 Natural resources derived from federal lands and waters can and do provide great benefit to the entire country. Public lands are taxpayer assets and should be managed in a way that preserves their value, ensures a fair return from private interests using them for profit, and avoids future taxpayer liabilities. To this end, federal lands and waters must be mined, drilled, or otherwise developed in a manner that protects taxpayers’ interest. Appropriate fees, rents, and royalties must be applied and collected and long-term liabilities such as potential clean-up or mitigation costs must be shouldered by the industries.

 Oil and Gas Royalty Relief

As we all know oil companies continue their decade long trend of raking in billions in profits. Even at the height of the recession, profits for the top five oil and gas companies continued to soar. And while the profits flowed in, the federal government continued to provide generous subsidies, many of which have been on the books for nearly a century, to the oil and gas industry. One of the largest giveaways to the oil and gas industry is the mismanagement and under collection of royalties which has been highlighted by the GAO in several reports and recently added to their high risk list in 2011.

 It is the federal government’s responsibility to protect taxpayers’ resources and ensure they are adequately compensated for their sale. Unfortunately mismanagement and cozy relationships led to the oil and gas industry shortchanging taxpayers for decades by either underpaying or even not paying royalties at all. I know you’ve been a leader on this issue, Mr. Chairman, but in the Gulf of Mexico, the federal government provided royalty “relief” to oil and gas companies for offshore drilling in the mid 1990s. The 1995 Deep Water Royalty Relief Act (DWRRA) awarded royalty “relief” for leases sold from 1996-2000. At the time the law was passed, oil and gas prices were only $18/barrel and royalty “relief” might have seemed like a small incentive for drilling, but DWRRA has since become one of the biggest subsidies the oil and gas industries receive— the total cost to taxpayers could total up to $53 billion in the next 25 years.

 Fair Market Value for Renewable Development on Federal Lands

Although wind and solar development do not extract finite resources from federal lands, this commercial development does take benefit from public resources, and taxpayers should be appropriately compensated. The Department of Interior (DOI) has received hundreds of applications to construct wind and solar projects on federal land. In the Energy Policy Act of 2005, Congress set a goal of developing 10,000 megawatts of non-hydropower renewable energy on public lands by 2015. Securing a fair return for taxpayers from this new commercial development is vitally important, especially in these times of fiscal constraints. Revenues should be collected accurately and diligently from resource development on public lands – including renewable resources.

 Fair Market Value for Coal Leases

Recent attention has been drawn to coal companies underpaying royalties because coal’s value is much lower domestically than at its final export destination. An analysis by Reuters found in some cases companies were receiving ten times more for coal sold to China than they would receive for the same coal in the United States, but they were paying royalties on the domestic price, not what they got overseas. With numbers like this, coal exports are sure to increase in the next decade. Congress should work with the Department of Interior to ensure coal companies pay a fair royalty based on the actual price they receive for their coal. Previous court rulings have upheld this interpretation. While private interests that develop on public lands may expect to profit, they should not do so at the expense of the public. Coal extraction from taxpayer lands should benefit the public – either in the form of increased domestic energy production or increased public revenues.

 1872 Mining Law Reform

For nearly two decades, TCS has advocated for reform of the General Mining Law of 1872 for one simple reason: this anachronistic law is a clear taxpayer giveaway.

 In 1872, the goal was to entice individuals to settle the west. Unfortunately, what was an enticement 140 years ago is now a massive subsidy that has allowed companies to remove billions of dollars of gold, uranium, silver, and copper from public lands each year without a dime going to taxpayers.

 Unlike other extractive industries, companies that mine for these precious metals do not have to pay a fee when operating on federal land, essentially allowing these valuable minerals to be given away for free. Hardrock mining must pay a royalty on taxpayer lands just as they do when extracting resources from any other landowner in the world.

 In addition to allowing royalty-free extraction, the law also allows the “patenting” or sale of federal lands at 19^th century prices. While a temporary moratorium on patenting has been in place since 1994, under the law, federal lands are sold for no more than $5 an acre - considerably below today’s market value. This should be permanently fixed. 

 Finally, in part because of inadequate bonding requirements, the General Mining Law of 1872 has allowed for the abandonment of contaminated lands.  Any meaningful reform effort will address the three primary ongoing injuries to taxpayers under the 1872 law: the giveaway of federal lands; the extraction of federal mineral assets without taxpayer compensation; and the creation of taxpayer liability by allowing the abandonment of contaminated mine lands.

 The United States’ commitment to participate in the extractive industries’ transparency initiative (EITI) also highlights the need to reform the governance of hard rock mining reform on public lands. Currently, the government does not track the volume of hard rock minerals from public lands because we collect no royalty. If we proceed with the EITI process, we must ensure that we track and make public the volume and value of hard rock minerals rather than memorializing this absence of transparency in the name of meeting international standards.   

 Energy

 Department of Energy Loan Guarantees

Initially intended to fund the construction of nuclear reactors, the Title XVII Loan Guarantee program grew to include coal, biofuels, transmission, energy efficiency and renewable projects to ensure its passage through Congress in 2005. After getting beefed up in several appropriations bills and finally the 2009 stimulus, it now provides loan guarantees for “emerging” energy technologies, and for a short time, commercially deployed renewable technologies (expired September 30, 2011).

 The program carries extremely high taxpayer risk, potentially jeopardizing billions of taxpayer dollars if energy project loans default. Over the course of the program’s six year life, the few taxpayer protections originally provided have not increased but been slowly eaten away. In October 2007, DOE issued a final rule detailing the processes and parameters of the program. Originally DOE proposed guarantees covering 90 percent of the value of the loan but at the behest of industry and lawmaker pressure DOE increased the coverage to 100 percent of the value of the loan.

 Then in August 2009, DOE proposed changing the final rule to help industry again. The terms for taxpayers’ recoupment of assets in the event of project default were altered to benefit industry. The rule change stripped taxpayers their right of first lien and allowed other lesser creditors to recoup repayment of their debt before or on equal footing with the federal government, even when DOE is the majority debt holder of the project. This change was squarely against the original law, which required taxpayers’ right of first lien.

 Through most of its life the program has stayed below the radar. But the high profile default on Solyndra’s $535 million loan guarantee brought the program and its potential losses under increased scrutiny, and we hope this Congress can stop the entire flawed program from issuing any more loan guarantees. Two loan guarantees sit in waiting that carry a much heftier price tag than Solyndra. One is a $2 billion loan guarantee for the near bankrupt United States Enrichment Corporation, and the other is $8.3 billion for Southern Company and its partners for a nuclear reactor project in Georgia. Southern Company has had a conditional commitment for more than 2 years, and the lack of transparency surrounding the application and its terms suggests to us that taxpayers are being short-changed in this never-ending negotiation. DOE continues to offer extensions to Southern Co., rather than pulling the plug on this bad deal. Considering the overarching Title 17 program falls dramatically short of protecting taxpayers, entering into the $8 billion deal is just plain fiscally reckless.

 Renewable Fuel Standard (RFS) and Other Subsidies for Corn Ethanol

As if a lucrative tax credit wasn’t enough, the government mandated the purchase of corn ethanol in 2007. Under the Renewable Fuel Standard (RFS) passed in the 2007 energy bill, the U.S. is required to blend 36 billion gallons of biofuels with gasoline by 2022, up to 15 billion gallons of which can come from conventional corn ethanol. The ethanol industry has already received federal subsidies of one form or another over thirty years, including the Volumetric Ethanol Excise Tax Credit (VEETC) and a tariff on ethanol imports into the U.S. While VEETC and the ethanol tariff ended in 2011, the industry still benefits from a myriad of other subsidies, grants, loan guarantees, and other supports in the federal tax code and farm bill. Just a few examples of duplicative supports for corn ethanol include the Alternative Fuel Vehicle Refueling Property Credit and Rural Energy for America Program which both cover the cost of corn ethanol infrastructure projects, like installing blender pumps. Subsidies for corn ethanol must stop. And since the Renewable Fuel Standard has failed to meet its objectives and has caused major unintended consequences, it must be reformed.

 Energy Liabilities

Federal programs also protect energy producers against paying the full costs of their own actions leaving the liability to taxpayers.

 The oil and gas industry passes liabilities to taxpayers through the Oil Pollution Act of 1990, which ironically reacted to the Exxon Valdez spill by placing a $75 million cap on private damages that can be collected from energy producers that cause oil spills. To date, large oil companies that cause spills have ended up paying much more than the nominal cap for the largest and most public spills, but the existence of the statutory cap gives oil companies significant leverage when negotiating how much they will pay. The oil liability cap is a type of free insurance for oil companies funded by taxpayers. The fund also currently exempts synthetic crudes like tar sands from the eight cents per barrel tax despite paying for their costly clean-ups.

 For the nuclear industry, the Price-Anderson Act makes the federal government responsible in the case of a nuclear accident that does more than $2 billion in damage at any nuclear reactor. Damages from any serious nuclear accident are likely to be well above $2 billion—some estimates for the costs of the nuclear tragedy in Fukushima, Japan, already top $200 billion. While it is hard to know the exact value of Price-Anderson to the nuclear industry, it clearly could be worth billions of dollars.

 Agriculture

 Outdated, ineffective, and duplicative agricultural policies waste billions of dollars each year to the detriment of taxpayers, consumers, and agriculture as a sector by making it less competitive, resilient, and accountable for its impacts. Perhaps no subsidy is more absurd than direct payments—which send more than $5 billion a year to owners of farm land simply because that land used to produce subsidized crops. While the House and Senate Agriculture Committees have finally acknowledged the need to end this egregious entitlement, they propose squandering most of the savings creating other unnecessary subsidies, namely expanded crop insurance and duplicative “shallow loss” programs that are designed to crowd out private sector risk management options and shift even more risk onto taxpayers.

 The highly subsidized crop insurance program, which cost taxpayers a record $14 billion in FY12, should be reined in, not expanded. And unnecessary and risky shallow loss programs should be rejected. Billions more in savings can be achieved and future liabilities limited by eliminating other outdated subsidies like government-set counter-cyclical payments, permanent and ad hoc disaster assistance, and other special-interest carve-outs. A more cost-effective, accountable, transparent, and responsive agricultural safety net should be implemented to better align our nation’s policies with today’s modern agricultural practices and ensure subsidies are not unnecessarily shifting routine business risks onto taxpayers.

 Transportation

 In just five years, Congress has transferred more than $50 billion from the Treasury to backfill the nation’s Highway Trust Fund. The federal gasoline tax – used to pay for our roads, bridges, and transit systems – falls far short of raising adequate revenue to meet the nation’s transportation demands. One of the primary reasons for this is that the gasoline user fee has remained static for two decades decreasing its purchasing power. There is little public support, however, for an increase in the gas tax, in part because of the perception that the program lacks direction and accountability. Congress attempted to resolve some of these issues in the most recent transportation bill – MAP-21 – by consolidating programs and including performance measurement to increase efficiency. We still believe, however, that too much funding is directed to new construction instead of repair.

 The Essential Air Service (EAS) program is a relic of the 1970s and airline deregulation. EAS provides subsidies to air carriers to maintain scheduled flights between rural communities and regional hub airports. These trips cost taxpayers as much as $1,000 per flight, and often the small planes that service the routes run empty or nearly empty. In addition, there are many instances where the subsidized airport is close enough to a hub airport that driving is not unreasonable. Finally, TCS has uncovered numerous examples of communities that could maintain transportation links to nearby hubs with intercity-bus service that could be run with little or no subsidy at all. I would like to submit for the record the report we conducted with the American Bus Association, Reason Foundation, and Natural Resources Defense Council on the issue. The simple fact is that this policy relic needs to be reformed, and in most if not all cases could be eliminated in all states but Alaska, saving taxpayers more than $1 billion over the next decade. Though Congress made changes to the program in last year’s Federal Aviation Administration reauthorization bill, this program still costs taxpayers nearly $200 million. A further restructuring of the program could eliminate most of this spending with minimal impact on small communities.

 Medicare/Medicaid

Tens of billions of dollars are lost to waste and fraud in Medicare and Medicaid. Last Congress, along with 35 of their colleagues, Sens. Carper (D-DE) and Coburn (R-OK) introduced the Medicare and Medicaid Fighting Fraud and Abuse to Save Taxpayers Dollars Act (FAST Act). Rep. Roskam (R-IL) introduced a companion in the House.

 TCS and other organizations endorsed this because the FAST Act includes stronger penalties for Medicare fraud and attempts to curb improper payments. It also includes provisions to tackle the issue of theft of physician identities to exploit for fraud; help states identify and prevent Medicaid overpayments; improve the sharing of fraud data across agencies and programs; and deploy cutting-edge technology to better identify and prevent fraud.

 Clearly more needs to be done, but this represents a good start.

 Tax Expenditures and Loopholes

 More than $1 trillion in federal revenue is forgone each year due to tax expenditures – which are analogous to spending channeled through the tax system. The nearly 200 tax expenditures are similar to spending programs and can be the same magnitude or larger than related federal spending for some mission areas, except without the oversight. In their last report on the issue GAO stated that tax expenditures:

• can contribute to mission fragmentation and program overlap, creating the potential for duplication;
• may be ineffective at achieving their social or economic purposes;
• are effectively funded before discretionary spending is considered;
• may or may not be subject to congressional reauthorization.

 Virtually every major recent analysis of the nation’s tax system has recommended eliminating virtually all income tax expenditures and using the revenue to lower tax rates and reduce deficits. Simpson-Bowles called for the elimination of more than 75 special subsidies for different industries in order to “create an even playing field for all businesses instead of artificially picking winners and losers.” Ways and Means Committee Chairman Camp and Budget Committee Chairman Ryan have made similar suggestions. In its previous report, GAO says, “reductions in revenue losses from eliminating ineffective or redundant tax expenditures could be substantial ... GAO believes that tax expenditure performance is an area that would benefit from enhanced congressional scrutiny as Congress considers ways to address the nation’s long-term fiscal imbalance.”

 We believe this is a unique opportunity for this committee to make a tremendous contribution to deficit reduction efforts by taking on the long-standing problem of tax expenditures. We hope for a tax reform process that will result in a simpler, fairer tax code by eliminating the maze of breaks and loopholes currently in the code. Rather than nibbling around the edges like the approach the Senate Finance Committee took to the so-called tax extenders package last fall, eliminate them all with a goal of simplicity and reduced rates and force advocates to justify their inclusion by quantifying the public return on investment for each expenditure with hard facts. We recommend, at a minimum, a review of all tax expenditures, and preferably, the elimination of many individual and corporate tax expenditures coupled with an effort to lower overall tax rates and broaden the tax base. We would go so far that just like zero based budgeting, we should have a zero based approach to tax expenditures.

 In particular, we have advocated for elimination of tax expenditures and other tax loopholes that are not only redundant, but that also benefit some of the most profitable companies in the world for making investments they would make anyway. For example, the GAO has recommended that Congress “modify the Research Tax Credit to reduce windfalls to taxpayers for research spending they would have done anyway.” There are other policies where it isn’t clear if they actually stimulate activity, or subsidize actions that would have otherwise occurred, like in the case of the New Markets tax credit, and tax exempt status of government bonds.

 Other tax expenditures Congress should look at closely include:

• Deduction of State and Local General Sales Taxes, which will cost roughly $23.4 billion over the next ten years. This was recently reinstated after being eliminated in the 1986 tax reform. The principal beneficiaries are the residents of states that don’t pay state income tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming.
• Last‐in, first‐out (LIFO) accounting enables companies to move the most expensive inventory off of their balance sheets, and thereby reduce their taxable income, even though the actual movement of inventory occurs on a first‐in, first‐out (FIFO) basis in many industries. LIFO is already prohibited by International Financial Reporting Standards. The repeal of LIFO, if applied to all industries, would save $66.9 billion over the next ten years. Oil and gas companies account for roughly half of the cost of LIFO.
• Mortgage Interest Deduction could be modified to only apply to one home mortgage totaling $500,000 and be converted to a tax credit, which would achieve the purported goals of making homeownership more affordable while benefitting far more homeowners. This policy change would still save $645 billion over ten years.
• Ending tax deferral on foreign earnings, which simply encourages corporations and individuals to use tax avoidance as a business strategy. This policy change could save $600 billion over ten years.

 U.S. Army Corps of Engineers

 The Corps of Engineers Civil Works program suffers from a lack of prioritization for its funding. Up until the earmark moratorium the prioritization and guidance came from the project-by-project funding in the annual appropriations. Earmarks of course were a political prioritization process rather than a merit-based one. Taxpayers for Common Sense strongly supports the earmark moratorium and urges Congress to substitute merit or competitive or formula processes for allocating federal funds that have transparent and accountable metrics and criteria. This will reduce the justification and perceived need for earmarks to prevent future backsliding.

 The Corps of Engineers in particular needs a prioritization system with explicit criteria from Congress. The Sandy supplemental and regular Energy and Water appropriations have pots of funding without enough direction. Congress needs to increase the strings and direction without resorting to earmarks.

 In FY10 (the last year for earmarks) the Corps civil works budget included 1,738 different projects worth roughly $4.6 billion. That represented a slight increase from the President’s budget request of $4.5 billion, but a major growth in earmarks. Congress stuffed in 629 earmarked projects worth more than $500 million, by cutting and shaving budgeted projects, while increasing the total tab by $100 million. The problem with this is that they diluted priorities and spread the money further and thinner which increases project cost and delays completion.

 Fast forward to the earmark moratorium. Congress can't add 629 earmarks. So in the FY12 spending bills they created 26 different “slush-y” funds worth $500 million in various areas of the Corps’ budget. The Corps would decide what projects to fund, but some of these funds were micro-targeted to ensure certain types of projects would fare well. Congress provided some squishy criteria, but it was little more than pabulum. When all was said and done, 168 new projects received funding. We think for many of the projects, the fix was in. We know that some lawmakers were lobbying the Corps for their pet projects (we have a Freedom of Information Act request in to find out just how many). In fact, the Corps released their weak document describing how they selected projects days after they released the list of projects. Nothing like working the equation backwards.

 For FY13, the House took a different approach. In fact, they chewed out the Corps for their “completely unacceptable” documentation of the process, demanding “considerable improvement in the quality and detail of information… regarding the allocation of …funds.” In their FY13 bill, the House directs the Corps to develop a ratings system with full explanations that would evaluate all projects that have received funding during the last three years. The Corps has discretion over what to fund, but if they select a “loser” over a “winner,” it will be obvious. They also whittled down the number of the general funding categories to five worth $324 million. Unfortunately the Senate followed the FY12 model. Obviously we don’t know which way it will go since we are still under a Continuing Resolution, but this is an area that needs resolution.

 There are many wasteful Corps of Engineers projects and policies that I would happy to detail for you in writing. We always like to point out that Corps’ motto should be: we may take twice as long, but we cost twice as much.

 FEMA and Disasters

 Recent concerns of Superstorm Sandy related emergency spending brought into bright relief the issues around the nation’s approach to disasters. The desire to provide robust funding after a major event is understandable, but the ad hoc, scattershot approach creates an opportunity for waste, fraud, and abuse. Worse, in too many cases the money doesn’t actually alleviate the risk of future disaster spending, but actually puts people and infrastructure back in harm’s way. We have seen an increase in the number and cost of major disaster declarations in recent decades. This is both due to an increase of major weather events, but also because our nation’s programs are more generous responding to disasters than pre-sponding to them. In addition, the generous federal funding and political attractiveness of a major disaster declaration encourages governors to ask for them and the federal government to comply.

 The Stafford Act, which guides much of the nation’s disaster programs, needs to be reformed to provide incentives for communities and states to plan for the inevitable disasters and to adopt building codes and programs that lessen their impact. Right now, disaster assistance is provided with a 75 percent federal cost-share. We would propose that in order to get the maximum level of assistance, states should be required to plan and mitigate before the disasters or at a minimum make those commitments as a condition of assistance.

 Through both the National Flood Insurance Program (NFIP) and the U.S. Army Corps of Engineers flood and storm damage reduction programs we encourage development in an unsustainable manner. The policy orientation of NFIP (no mandatory purchase requirement in areas with less than one percent chance of flooding in a given year) encourages low and medium level flood protection from the Corps of Engineers. This induces more and more intense development in areas which exposes people, property, and infrastructure to greater losses when large events occur. Some reforms were included in the Flood Insurance Reform Act last summer, but more should be done to charge more actuarially sound rates so people are both aware of the risks and not dependent on taxpayers to bear the brunt of those risks.

 Furthermore, research indicates that every dollar spent on mitigation saves four or more dollars in recovery. We should be helping people, communities, and states prepare for disaster and respond to disaster in a way that protects taxpayers, but also reduces future risks and costs.

 Conclusion

 I appreciate the opportunity to testify before you. We have detailed more than $1.2 trillion in deficit reduction in our Sliding Past Sequestration report that I would like to submit for the record. Today I just wanted to highlight several areas that I would encourage the committee to explore as we work together to ensure that our precious tax dollars are being spent wisely and effectively. Thank you.

[1]Wilson, Theodore. The Truman Committee: 1941, Congress Investigates: A Documented History 1792-1974, pp 3115-3135.

I wanted you to know you’re getting your money’s worth.

Earlier today I testified before the House Committee on Oversight and Government Reform on how to eliminate waste and save billions of dollars. I was invited as a Majority (that is, GOP) witness. As evidence of our nonpartisan street cred, I was actually up here two years ago for a similar hearing at the invitation of the Democrats on the Committee.

Link to the Hearing | Link to my testimony

I was not the only one on the Hill today making government work. My staff organized, and Vice President Steve Ellis moderated, a briefing for House staffers on the renewal fuels policy early this morning. Then immediately booked it over to the Senate to do it again.

This is what we do. We get in front of Congress and give them solutions. And your support makes this all possible.

As an independent, unbiased, nonpartisan voice for common sense reforms, we’re the ones Congress and journalists come to when they need someone to tell it to them straight. Whether it’s that the Farm Bill is full of fake “savings,” the Sandy Supplemental spending is not all going to help recovery, or that there are money savings in the defense budget that won’t make us less safe, we don’t pull punches. And we don’t have an axe to grind.

Staffers on the Hill can complain we’re not seeing their side—which they do. Congressmen can call to convince us we’re wrong—which they’ve tried. And Opinion editors can call us names—yes that’s happened.

But they keep calling us back. Asking our help to find real cuts. Pointing to our work to back up their own statements. And seeking our endorsement for their efforts. 

Thank you for helping us do what we do by contributing today.

Sincerely,

Ryan Alexander
President

Please donate to Taxpayers for Common Sense today!

Remember, contributions to TCS are tax deductible.

February 5, 2013

CONTACTS:
Steve Ellis, 202-546-8500 ext 126

Remarks of Steve Ellis, Vice President, Taxpayers for Common Sense moderating the Reform the Renewable Fuel Standard Briefing

WASHINGTON, DC -- For more than a decade, biofuels have been sold as a way to help achieve American energy independence, reduce greenhouse gas emissions, and spur rural economic development. However, the industry has fallen short of achieving these goals while spurring numerous unintended consequences and long-term liabilities that have resulted in more harm than good. Taxpayers have also paid out billions of dollars in subsidies, special interest tax breaks, and a variety of other supports over the years. Adding insult to taxpayer injury, biofuels enjoy a guaranteed market since production is mandated by the government through the renewable fuel standard – the subject of today’s briefing. All of the organizations represented on the call have different missions and interests, but we can all agree that the RFS is not working and needs reform. From Taxpayers for Common Sense’s perspective, you don’t have to look any further than the corn ethanol portion of the mandate to see this. Corn ethanol is well-established fuel and does not require a mandate. But there’s a lot more to this. To hear more about it, we have a great panel to discuss the issues. After everyone is finished talking, we will have time for questions. Thank you for your interest.

# # #

Taxpayers for Common Sense is an independent and nonpartisan voice for taxpayers, working to increase transparency and expose and eliminate wasteful and corrupt subsidies, earmarks, and corporate welfare. For more information, visit: www.taxpayer.net 

Other organizations participating in the Congressional briefings included ActionAid, American Fuel and Petrochemical Manufacturers, Environmental Working Group, FarmEcon LLC, and National Marine Manufacturers Association.

For the House briefing invitation, click here.

For the Senate briefing Invitation, click here.

*From right to left: Kristin Sundell (ActionAid), Kristin Wilcox (American Frozen Food Institute), Geoff Moody (American Fuel and Petrochemical Manufacturers), Steve Ellis (Taxpayers for Common Sense), Scott Faber (Environmental Working Group), Tom Elam (FarmEcon LLC), and Jim Currie (National Marine Manufacturers Assocation).

Initially proposed by DOE in 2003, FutureGen was intended to be a large-scale, multi-billion dollar initiative aimed at demonstrating the commercial viability of ‘clean coal’ technology. In August 2010, the project was awarded $1 billion in federal stimulus money as part of the American Recovery and Reinvestment Act (ARRA). Yet, a decade after its conception, the project has undergone several major revisions (at one point even cancellation), major cost overruns, and the CEO of the FutureGen Alliance Kenneth Humphrey recently said the project is at least six months behind schedule. Now the question exists whether the project will be able to use the $1 billion in stimulus funds before it expires with all other ARRA funds in 2015.

The FutureGen project has been awarded more than $1 billion to demonstrate ‘clean coal’ technology in the United States; yet after a decade of research and development, it continues to experience cost overruns and delays. If FutureGen is to continue moving forward, the mature and profitable members of the FutureGen Industrial Alliance and industry partners should bear the risk and cost of the projects, not federal taxpayers.

ExxonMobil (the world’s most valuable company and largest energy company) hauled in more than $9 billion in the fourth quarter, increasing 2012 profits to nearly $45 billion—a 9% increase from 2011. Chevron raked in more than $7 billion in the fourth quarter, resulting in a 2012 profit of $26 billion. Shell recorded a fourth quarter profit of nearly $7 billion, resulting in a more than $26 billion profit for 2012. And finally ConocoPhillips earned a fourth quarter profit of $1.4 billion. BP is expected to post its 2012 fourth quarter earnings later this month.

With a national debt of more than $16.4 trillion and $1 trillion deficits, Congress should stop handing out wasteful, unnecessary, and market distorting subsidies to massively profitable oil and gas companies and ensure the industry pays its fair share. Look for our updated analysis on Big Oil, Big Profits in the coming weeks.

See the full written testimony here.

Oversight and Government Reform Committee Chairman Rep. Darrell Issa (R CA-49) states that the Committee's mission is, "To secure two fundamental principles. First, Americans have a right to know that the money Washington takes from them is well spent. And second, Americans deserve an efficient, effective government that works for them." Discussing the purpose for the upcoming hearing Rep. Issa wrote on the Committee website that, "Time is running out for the countless Americans who will lose access to important government services if a real solution is not reached. We need resolve from both parties and the president to do what is right on an issue that transcends ideological differences or political parties. I do not care where you fall on the political spectrum: if you have an idea to reform government so it is more efficient and more effective, this Committee needs to hear it. What we have here today is a diverse panel of witnesses who are approaching this question from a broad range of perspectives. We may not all agree, but this is exactly the kind of discussion we need to be having if we are going to get serious about fixing this problem."

The panel at the hearing includes Ryan Alexander, President, Taxpayers for Common Sense, Thomas A. Schatz, President, Citizens Against Government Waste, The Honorable Dan G. Blair,  President, National Academy of Public Administration, and Jonathan M. Kamensky, Senior Fellow, IBM Center for the Business of Government.

Ryan’s testimony will touch on a wide array of federal spending, including:

• General Budget: Acquisition is a major challenge for federal agencies. In the last decade there has been a litany of high profile acquisition failures. A common thread of these acquisitions was the government did not know how to meet project needs and had rely on contractors to identify them. Admiral Korn, who is in charge of acquisition for the U.S. Coast Guard has observed, “In the end, the general consensus is that we ceded too much responsibility to the contractor, including some functions that should have been reserved for government employees.”
   
• Defense: Considering Pentagon spending takes up more than half of the discretionary budget, it seems appropriate to begin there. The Department of Defense (DOD) purchases more than $400 billion of goods and services it buys every year. DOD released last November the 2.0 version of its 'Better Buying Power' contracting reforms, which took on many valuable targets such as lack of competition, but fell short by focusing on fixed-price contracts that previous reforms adopted. A much tougher line must be taken in order to rein in the department’s chronic spending problems.
   
• Natural Resources: Oil companies continue their decade long trend of raking in billions in profits, but the federal government continues to provide generous subsidies, many of which have been on the books for nearly a century, to the industry. One of the largest giveaways to the oil and gas industry is the mismanagement and under collection of royalties which has been highlighted by the GAO in several reports and recently added to their high risk list in 2011.
   
• Energy: The Title XVII Loan Guarantee program has grown to include coal, biofuels, transmission, energy efficiency and renewable projects. The program carries extremely high taxpayer risk, potentially jeopardizing billions of taxpayer dollars if energy project loans default. Over the course of the program’s six year life, the few taxpayer protections originally provided have not increased but been slowly eaten away.
   
• Agriculture: Outdated, ineffective, and duplicative agricultural policies waste billions of dollars each year to the detriment of taxpayers, consumers, and agriculture as a sector by making it less competitive, resilient, and accountable for its impacts. Perhaps no subsidy is more absurd than direct payments—which send more than $5 billion a year to owners of farm land simply because that land used to produce subsidized crops. While the House and Senate Agriculture Committees have finally acknowledged the need to end this egregious entitlement, they propose squandering most of the savings creating other unnecessary subsidies, namely expanded crop insurance and duplicative “shallow loss” programs that are designed to crowd out private sector risk management options and shift even more risk onto taxpayers.
   
• Infrastructure: The Corps of Engineers Civil Works program suffers from a lack of prioritization for its funding. Up until the earmark moratorium, the prioritization and guidance came from the project-by-project funding in annual appropriations. Congress needs to substitute merit or competitive or formula processes for allocating federal funds that have transparent and accountable metrics and criteria. This will reduce the justification and perceived need for earmarks to prevent future backsliding.
   
• Transportation: In just five years, Congress has transferred more than $50 billion from the Treasury to backfill the nation’s Highway Trust Fund. The federal gasoline tax – used to pay for our roads, bridges, and transit systems – falls far short of raising adequate revenue to meet the nation’s transportation demands. One of the primary reasons for this is that the gasoline user fee has remained static for two decades decreasing its purchasing power.
   
• Taxes: Virtually every major analysis in recent memory of the nation’s tax system has recommended eliminating virtually all income tax expenditures and using the revenue to lower tax rates and reduce deficits. Simpson-Bowles called for the elimination of more than 75 special subsidies for different industries in order to “create an even playing field for all businesses instead of artificially picking winners and losers.” Ways and Means Committee Chairman Camp and Budget Committee Chairman Ryan have made similar suggestions.
   
• Emergency spending: Recent concerns of Superstorm Sandy-related emergency spending brought into bright relief the issues around the nation’s approach to disasters. The desire to provide robust funding after a major event is understandable, but the ad hoc, scattershot approach creates an opportunity for waste, fraud, and abuse. Worse, in too many cases the money doesn’t actually alleviate the risk of future disaster spending, but actually puts people and infrastructure back in harm’s way.

In 2011, Ryan testified before the same committee, detailing opportunities to save tax dollars, enhance revenue, and reduce our deficit and debt. View Ryan Alexander's 2011 Testimony here, and check back later today for a link to video and testimony from today's hearing.

See the full written testimony here.

Much of the funds were obligated in large pots of cash. The Army Corps of Engineers will have $5 billion to plan, rebuild, and maintain storm damage reduction projects, states will be given $2 billion to rebuild roads, and $16 billion will be allocated for the Community Development Fund under Housing and Urban Development. While we can assume that legislators intend these funds to be spent to benefit residents affected by Sandy, there is no guarantee that will happen. The highway and community development funds could go practically nationwide, and there’s nearly half a billion dollars in Corps construction funds that could be applied to any project across the country.

With few oversight mechanisms or clear direction how the Sandy funds should be allocated within these large pools of cash, Congress must demand accountability for this $60 billion in emergency spending.

This is the largest single disaster relief spending bill in recent decades, larger than any responding to the 2005 storm, and there could be unintended wasteful consequences. Through this bill the National Flood Insurance Program was allowed to borrow nearly another $10 billion from the Treasury to pay off claims, bringing the total possible indebtedness of that program to roughly $30 billion. (To put that into context, the program took in only $3.5 billion in premiums annually before Sandy.) Out of the $5 billion the Corps of Engineers got in this bill, there is nearly $3 billion for rebuilding beaches and dunes, far outstripping what has been spent on these projects for decades and well more than the Corps of Engineers gets annually for construction of water projects nationwide.

This aid package has rightfully been given scrutiny over the last two months. With a concerned nation watching over agencies’ shoulders and a $16.5 trillion debt and annual deficits of $1 trillion, we cannot afford to waste a dime in implementation. You can be sure we’ll be following the implementation closely.

Both Congress and USDA exercise authority over various components of the highly subsidized federal crop insurance program. Congress primarily sets premium subsidy rates and authorizes program outlays. USDA’s Risk Management Agency (RMA) and a government-owned corporation overseen by RMA - the Federal Crop Insurance Corporation (FCIC) - administer program regulations, approve new policy applications, authorize changes to existing policies, and establish premium rates. Since 1998, RMA has also entered into Standard Reinsurance Agreements (SRAs) with private crop insurance companies that sell federal crop insurance to establish subsidy rates for administering insurance policies. Finally, USDA is charged with reducing fraud, waste, and abuse in the program. Over time, USDA’s administration of the program has affected crop insurance enrollment rates and planting decisions.

Administrative Policy Changes Affecting Enrollment

As crop insurance participation rates increased over time, so too have total taxpayer costs, market distortions, and unintended consequences. Participation rates are affected by two primary factors – the level of subsidies available and administrative policy changes that have been implemented over time to make the program more attractive to producers. As the average individual premium subsidy rate doubled from approximately 30 percent in 1980 to 62 percent today, producers responded by enrolling three times as many acres in the federal program. Today, 282 million acres are insured, representing about 80 percent of eligible farm acreage.  But higher subsidies are not solely responsible for this jump since generally, new policies are not approved without USDA’s rubber stamp. The types of policy changes highlighted above will be addressed in turn.

Approval of New Policy Applications

The FCIC approves new policy applications, effectively determining which policies graduate from temporary to permanent programs and thus become eligible for unlimited taxpayer subsidies. To avoid government crowding out of existing private market insurance, Congress forbids approval of pilot programs that provide protection already “generally available from private companies.”[1] Pilot programs can be put forward by colleges, universities, or cooperatives, but more often than not, they are offered by private insurance companies or commodity trade associations.[2] The FCIC then determines whether these 3- to 4-year programs should be terminated, extended, or authorized as permanent policies, as long as a third party has been consulted.[3] If approved, the pilot program developers can also receive taxpayer subsidies for research, policy development, and ongoing costs of policy maintenance.

As RMA approved more policies and subsidies became more lucrative over time, crop insurance participation rates increased. Prior to the 1994 Federal Crop Insurance Reform Act, producers relied significantly on ad-hoc disaster aid bills as only about 100 million acres were covered by federal crop insurance.[4] After the bill’s passage, participation rates increased since Congress mandated that producers carry insurance in exchange for farm payments (although this requirement was lifted in 1996). In addition the bill  allowed producers free catastrophic coverage for yield losses of 50 percent or greater and subsidized the premium costs for producers who increased coverage beyond the basic catastrophic level.[5] In 1996, these premium subsidies cost taxpayers about $1 billion annually – seven times less than they cost today. RMA also gained substantial influence over enrollment rates in the late 1990s when it began approving revenue-based policies in addition to traditional yield-based offerings. Revenue policies are a more dynamic—and costly—insurance product because they insure against decreases in yield and price. By 1998, over 180 million acres were enrolled.[6] And for the first time, in 2000, acreage in revenue policies surpassed acreage enrolled in yield policies, increasing total costs since guaranteeing business income is far more expensive than simply insuring crops.[7]

Producers can currently choose from about 15 different RMA-approved crop and livestock insurance policies, as long as they are locally available.[8] With various add-ons, endorsements, and other options, producers select from hundreds of taxpayer-subsidized options, without counting private insurance and other risk management options. A growing number of agricultural lobbyists are encouraging RMA to approve even more policies by expanding pilot programs and loosening enrollment requirements. Until 2008, only a few organizations lobbied RMA on crop insurance issues, but this number has grown to at least 14 today.[9] But not all policy applications are granted the green light. The FCIC rejected at least one costly proposal in 2003. Given concern from outside reviewers and RMA officials, the FCIC Board disapproved a “cost of production” policy that would have covered all input costs and guaranteed that cotton, almond, peach, and other producers at least break even each year.[10] This policy would have altered planting decisions by guaranteeing business profits for a handful of crops at taxpayer expense. Unfortunately, lobbyists found an end-around to the administrative and peer-review process by going straight to Congress to get a margin insurance policy introduced into legislation. If passed, taxpayers would be on the hook for guaranteeing even higher levels of farm business income.

Changes and Additions to Existing Policies

Taxpayer costs not only increase as USDA authorizes new policies, but also as new crops and additional acres become eligible for coverage. If a policy is unavailable in a region, producers can request extended coverage through local RMA offices.[11] When considering expansion of existing programs, RMA evaluates economic significance of crops and risk inherent in insuring them.[12] The crop insurance industry estimates that coverage was extended to 50 additional crops since 2000; in total, over 100 crops are now covered by the federal crop insurance program.[13]

USDA also controls how farmers may divide up land for insurance purposes. Producers can choose to enroll land in the following unit(s):[14]

• Optional (most costly to taxpayers):  splits irrigated and non-irrigated land into separate plots for insurance purposes; land in different townships can also be insured separately
• Basic:  insures producer’s acres in one unit unless the farm is in a crop share lease
• Enterprise:  combines “all acres of a single crop within a county in which a policyholder has an interest into a single unit,” regardless of ownership[15]
• Whole farm:  insures all of a producer’s crops as one unit regardless of location

As producers enroll more land in optional and basic units, total taxpayer costs skyrocket as the likelihood of indemnity payouts increases. Alternatively, with enterprise or whole farm units, lower indemnities are expected since high yields on one field could cancel low yields on another. USDA also chose to allow separate units for marginal land, so taxpayers pick up not only the direct costs of higher premium subsidies but also the indirect, downstream costs of water pollution, soil erosion, loss of wetlands, and other unintended consequences.

Establishment of Premium Rates

The final administrative, and arguably the most important, authority that USDA exerts over individual policies is setting premium rates, or prices that taxpayers and producers pay to insure crops and livestock. USDA establishes complicated price and yield guarantees for all yield- and revenue-based policies sold by private crop insurance companies. In late 2011, RMA announced a new “methodology to set crop insurance premiums,” intended to lower corn and soybean premiums.[16] This year, RMA plans to extend this discount to wheat, cotton, rice, sorghum, potatoes, and apples.[17] With lower premium costs, farmers may increase coverage levels (trading a policy guaranteeing 65 percent of revenue for one guaranteeing 75 percent, for example) as policies become relatively cheaper, potentially eliminating any overall taxpayer savings.[18] While improvements in actuarial soundness have been addressed over time, some discrepancies and problems with moral hazard and adverse selection still exist.[19]

To set the price guarantee for revenue-based policies, in the spring, RMA locks in the harvest futures price, or the price that farmers expect to receive for their crop several months later. This price multiplied by expected yield equals the revenue guarantee. When the crop is harvested, RMA calculates the “actual” revenue farmers received based on the current crop price at harvest times the expected yield. If the “actual” revenue falls below the spring guarantee, an indemnity is paid. RMA also authorizes various add-ons that allow farm businesses to lock in the greater of the two prices, thus increasing overall indemnity payouts and taxpayer costs.

To set yield guarantees, RMA can alter the way producers’ historic yields are calculated, potentially overestimating expected yields for insurance premium calculations. RMA can “plug” producers’ yield histories with higher values if past records are unavailable. A pilot program in North Dakota would allow new land to be insured based off historic county yields if the field lacked production records.[20] RMA already sets yield floors and restricts producers’ yield guarantees from declining by more than 10 percent annually. Together, these policies increase indemnities and encourage farmers to plant in risky, disaster-prone areas at taxpayer expense.[21]

Reducing Subsidies to Private Crop Insurance Companies

By signing SRAs at least once every five years, USDA negotiates the level of subsidies flowing to crop insurance companies for administrative and operating (A&O) expenses.[22] About seven years ago, USDA attempted to reduce A&O subsidies by $75 million but was met with fierce resistance from Sens. Roberts (R-KS), Grassley (R-IA), and Conrad (D-ND) who called for the RMA Administrator to resign.[23] In the 2010 SRA, subsidies for A&O expenses were limited to $1.3 billion annually, resulting in companies and their profitable insurance agents receiving a $1,140 check for each policy written - about three times the actual cost of administering policies as estimated by the crop insurance industry itself.[24] Companies and agents railed against this slim cut of $600 million per year, wrongly claiming the changes would handicap the industry even though it continues to turn a hefty profit.

In addition, SRAs establish the share of underwriting gains (or losses) retained by either taxpayers or the crop insurance industry. Underwriting gains are the net premium dollars left over after all indemnities are paid while underwriting losses are instead realized when indemnities exceed premiums (usually after widespread drought or flooding).[25] From 2002-2011, private companies experienced an underwriting loss in only one year and benefited from large gains in later years, like a $2.3 billion surplus in 2009 and $1.9 billion surplus in 2010.[26] On average, companies retain about three-fourths of all gains while taxpayers pick up even greater losses in poor growing years. For instance, the floods and drought of 2011 resulted in $500 million of underwriting losses for taxpayers, while insurance companies profited $1.7 billion. From 2005-2007, private companies reaped $6.5 billion from A&O subsidies and underwriting gains, an amount the Government Accountability Office (GAO) labeled “a kind of windfall.”

Reduction of Waste, Fraud, and Abuse

Without an act of Congress, USDA can reduce waste, fraud, and abuse in the crop insurance program. Working alongside the Farm Service Agency (FSA) and private companies, RMA employs data mining, field visits, and satellite imagery to reduce illegitimate payments flowing to farmers, insurance agents, bankers, and others. However, GAO recently recommended that USDA better utilize auditing and other tools to ensure taxpayer funds are spent wisely.[27] For example, GAO found that in selected states, FSA only completed 56 percent of required inspections on-time. GAO recommended that USDA require FSA state officials to monitor farmers with anomalous claims, ensure that insurance companies verify that farmers submit truthful claims before they are paid, direct insurance companies to focus attention on agents and adjusters with a history of anomalous claims, and better utilize data mining.

Effects on Crop Plantings

As RMA made changes to crop insurance policies, producers responded to these incentives by increasing the number of planted acres, altering the types of land converted to production, and switching crop rotations. Because policies and subsidies are tied to planted acreage, studies have found more acres planted to field crops due to increased enrollment in heavily subsidized crop insurance and availability of revenue insurance options.[28]^,[29] With the choice to split fields into different insurance units, farm businesses can maximize payouts since indemnities are calculated separately.[30] Producers can also pass risk onto taxpayers by enrolling marginal and high-risk land, as opposed to low-risk acreage, in independent units. Some of the highest crop insurance participation rates for major commodity crops are found in states prone to drought and flooding, such as Texas, South Dakota, and North Dakota.[31] RMA has promoted this behavior by approving a new policy that will allow corn, soybean, wheat, and grain sorghum producers to receive even more subsidies for separating high- and low-risk land.[32] Finally, research indicates that producers are more likely to grow certain crops over others and raise livestock over field crops due to the availability of federal crop insurance, again shifting risk onto taxpayers as less diverse crops are planted year after year.[33] These findings demonstrate how policy changes affect planting decisions as producers respond to incentives and attempt to maximize expected income.

Recommendations

Several administrative changes could be implemented to reduce taxpayer costs and limit the unintended consequences of federal crop insurance. As discussed, USDA has authority to deny applications for new risky crop insurance policies and those trying to crowd out the private sector, limit the number of crops eligible for subsidies, and ensure that premium rates are actuarially sound. RMA can also save taxpayer dollars through future SRAs by limiting A&O subsidies and the share of underwriting gains retained by companies. Finally, USDA can implement better transparency measures and combat fraud, waste, and abuse. If these common sense measures are taken, taxpayers will save money while still retaining an adequate safety net for farm businesses.

January 2013

For more information, contact Joshua Sewell, josh <at> taxpayer.net.

Download this fact sheet: Crop Insurance Administrative Policy Changes

Other highlights from USDA’s update include:

• 90 percent of indemnity payments went to just four crops: corn (63 percent), soybeans (13 percent), cotton (8 percent), and wheat (6 percent).
• Five states with the highest loss ratios (ratio over 1.0 indicates that loss payments exceeded the total premium dollars paid by farmers and taxpayers—who cover almost two-third the cost of premiums): IL (2.1), MO (2.07), KY (2.06), NE (1.71), and IA (1.52). 
• Prior to 2012, IA and IL were the only states where agribusinesses had not gotten at least one dollar in insurance payments back for each dollar in premiums they’d paid over the last 15 years. With the 2012 drought, this is no longer true since huge loss payments pushed these states over the edge. Ag businesses in these states can no longer complain that they don’t “get back what they paid in” even though you don’t pay car insurance every year hoping to get back every dollar you paid in premiums.
• Since producers can receive unlimited subsidies for either yield- or revenue-based policies, insurance payouts can be made even after a bountiful harvest. In fact, last year, 88 percent of all loss payments were paid on revenue policies (which can be triggered due to a loss or crops or price dips) while only 11 percent were paid solely due to yield losses. Producers wouldn’t choose revenue policies if it wasn’t for unlimited taxpayer subsidies.

The cost of the crop insurance program has quadrupled over the past decade – from $3.6 billion in FY03 to $14 billion today. It also continually comes in over-budget. After passage of the 2008 farm bill, the Congressional Budget Office (CBO) projected that crop insurance would cost taxpayers $47 billion over ten years, but the actual cost is on pace to be at least twice as much. This should be sobering news to anyone clamoring for Congress to pass a trillion-dollar farm bill so we can see “savings” of  $23 billion. In fact, just the last two years of crop insurance costs will exceed the total ten-year projected savings from the House and Senate Agriculture Committees’ trillion-dollar farm bills. This is a sad plan for deficit reduction.

Federal crop insurance masquerades as a free market program—private crop insurance companies sell and administer policies purchased by farmers and ranchers—but closer inspection reveals a government program. The government approves both the companies that sell crop insurance and the policies that they can sell. Taxpayers also pay private companies for administrative expenses, cover the majority of losses in poor growing years, and subsidize nearly two-thirds of every dollar of insurance coverage to the tune of $7 billion last year. 

The explosion in costs of the crop insurance program over the last two years is something taxpayers cannot afford. If we’re going to rein in our trillion-dollar deficits, Congress must start with these kinds of out-of-control programs.

For more background on the federal crop insurance program, click here.

All told there is more than $70 billion worth of these tax breaks in the broader bill. The real problem with these provisions is that there is never much of a debate to determine if they are the best way to spur the economy or meet other goals.

The following are seven provisions that relate to transportation:

1. Parity for exclusion for employer-provided mass transit and parking benefits

This is a long way of saying that employers may now offer workers $240 per month in a pretax deduction for both parking and transit. Such parity was first achieved in 2009 as part of the stimulus legislation; prior to that, transit benefits maxed out at a level far below parking (most recently $125 per month). The argument in support of this provision is that federal law should not favor one mode of travel over another. To achieve parity, the better solution would be to decrease the benefit (ie. subsidy) for parking instead of raising it for transit. That would have actually saved taxpayer dollars and reduced the deficit. Instead, this provision will cost taxpayers $220 million over the next two years. The additional transit deduction will sunset at the end of 2013.

2. 50% tax credit for certain expenditures for maintaining railroad tracks

This provision is a subsidy for smaller, regional railroads, providing a tax credit for as much as half the cost of qualifying maintenance activities. First enacted in 2004, the purpose of this tax credit is to encourage the rehabilitation – and discourage the abandonment – of these rail lines. This provision will cost taxpayers $331 million in the next two years. The benefit is currently set to expire at the end of 2013.

3. Credit for qualified plug-in electric drive motor vehicles to include electric motorcycles

This credit goes to electric plug-in motorcycles and 3-wheeled vehicles that can be used on a highway (ie. at 45 mph or higher). This credit allows for a tax benefit of 10% of the purchase price, to a maximum of $2,500. Unlike previous iterations of this credit, this version no longer includes non-highway, low speed vehicles (such as golf carts). This credit was actually in an earlier Senate Finance Committee package only to be resurrected in this more narrow form. This provision will cost taxpayers $7 million through 2015, and will sunset at the end of 2013.

In addition, there are a number of fuels-related energy provisions that have a transportation connection as well:

4. Alternative fuel vehicle refueling property

Facilities dispensing certain alternative fuels receive a refueling property credit. This provides a 30% tax break for gasoline stations or other facilities installing biodiesel or 85% ethanol (E85) blender pumps or repowering sites for electric vehicles. Stations dispensing natural gas, liquefied natural gas (LNG), and liquefied petroleum gas (LPG) are also eligible. The credit was first passed in the 2005 energy bill. This provision will cost taxpayers $44 million between now and the end of 2015. The tax credit will sunset at the end of 2013.

5. Incentives for alternative fuel and alternative fuel mixtures

Both the alternative fuel credit and the alternative fuels mixture credit were enacted by the 2005 Highway Bill to provide a tax credit for alternative fuels, which includes high carbon fuels produced from coal, oil shale, and tar sands. Companies that produce unconventional fuels receive a production tax break of 50 cents per gallon; companies that blend traditional fossil fuels with small amounts of high carbon fuels receive the same tax benefit. This credit will cost taxpayers $360 million in the next two years; it will sunset at the end of 2013.

6. Credit for production of cellulosic biofuel

Since passage of the 2008 farm bill, cellulosic ethanol facilities have been able to receive a tax credit of $1.01 for each gallon of biofuel produced before the end of 2012. However, since few facilities are producing this biofuel at commercial scale, the tax credit been largely irrelevant. With various technological and economic challenges facing the industry, analysts predict that production will unlikely meet Renewable Fuel Standard (RFS) volumes set forth in the 2007 energy bill. Cellulosic biofuels are produced from biomass materials like agricultural residues, wood chips, perennial grasses, and municipal solid waste. The fiscal cliff deal will extend the cellulosic biofuel production credit for one year through the end of 2013 at a cost to taxpayers of $59 million.

7. Cellulosic bonus depreciation and inclusion of algae-based fuel plant property

Cellulosic biofuel producers not only benefit from a generous production tax credit, but they also receive special tax treatment through special depreciation rules. Eligible facilities can “expense 50 percent of their eligible capital costs in the first year,” meaning that their tax liability is reduced for the first year of operation. This special depreciation provision was created in the Tax Relief and Health Care Act of 2006. The fiscal cliff package extended this special treatment for cellulosic producers and algae-based biofuels producers through the end of 2013. The total cost of this provision is $500,000, but $1 million in 2013.

For more information, please contact Erich Zimmermann at (202) 546-8500 x132 or erich[at]taxpayer.net.

Most of the included tax provisions had expired in December 2011 and lapsed in 2012 when Congress failed to pass an extension. The add-on package retroactively extended them through 2012, and set their expiration for December 31, 2013.

Below is a list and short description of energy provisions included in the final deal. All came from a Senate tax extenders package that was not under consideration in the House. Also note that each year listed represents a fiscal year (which ends in September and begins on October 1).

Energy Tax Provisions

Alternative Fuel and Alternative Fuel Mixtures Tax Credits (other than liquefied hydrogen)
Both the alternative fuel credit and the alternative fuels mixture credit were enacted by the 2005 Highway Bill to provide a tax credit for alternative fuels, which includes high carbon fuels produced from coal, oil shale, and tar sands. Companies that produce unconventional fuels receive a production tax break of 50 cents per gallon; companies that blend traditional fossil fuels with small amounts of high carbon fuels receive the same tax benefit.

Estimated cost to taxpayers: $360 million over ten years (through 2014). Cost in 2013: $305 million.

Alternative Fuel Vehicle Refueling Property Facilities
This tax credit enables refueling properties dispensing certain alternative fuels to receive a refueling property credit. This provides a 30% tax break for gasoline stations or other facilities installing biodiesel or 85% ethanol (E85) blender pumps, or repowering sites for electric vehicles. Stations dispensing natural gas, liquefied natural gas (LNG), and liquefied petroleum gas (LPG) are also eligible. The credit was first passed in the 2005 energy bill.

Estimated cost to taxpayers: $44 million over ten years (through 2015). Cost in 2013: $34 million.

Plug-in electric motorcycles and highway vehicles.
This credit goes to electric plug-in motorcycles and 3-wheeled vehicles that can be used on a highway. Unlike its previous counterpart, this most recent iteration of this credit no longer includes non-highway low speed vehicles, like golf carts. The credit is extended for two years and expires December 31, 2013.

Estimated cost to taxpayers: $7 million over ten years (over 3 years). Cost in 2013: $1 million.

Biodiesel and renewable diesel tax credits
The biodiesel tax credit of $1 per gallon was created in the 2004 American Jobs Creation Act while the credit for renewable diesel was created in the 2005 energy bill. Eligible biodiesel feedstocks include virgin oils, including esters derived from corn, soybeans, sunflower seeds, cottonseeds, canola, crambe, rapeseeds, safflowers, flaxseeds, rice bran, mustard seeds, and camelina, and from animal fats.” The fiscal cliff deal extended the credits for two years through 2013.

Estimated cost to taxpayers: $2.18 billion over ten years (through 2014). Cost in 2013: $1.8 billion.

Credit for Production of Cellulosic Biofuel
Since passage of the 2008 farm bill, cellulosic ethanol facilities have been able to receive a tax credit of $1.01 for each gallon of biofuel produced before the end of 2012. However, since few facilities are producing this biofuel at commercial scale, the tax credit been largely irrelevant. With various technological and economic challenges facing the industry, analysts predict that production will unlikely meet Renewable Fuel Standard (RFS) volumes set forth in the 2007 energy bill. Cellulosic biofuels are produced from biomass materials like agricultural residues, wood chips, perennial grasses, and municipal solid waste. The fiscal cliff deal will extend the cellulosic biofuel production credit for one year through the end of 2013.

Estimated cost to taxpayers: $59 million over ten years (through 2014). Cost in 2013: $43 million.

Cellulosic Bonus Depreciation and inclusion of algae-based fuel plant property
Cellulosic biofuel producers not only benefit from a generous production tax credit, but they also receive special tax treatment through special depreciation rules. Eligible facilities can “expense 50 percent of their eligible capital costs in the first year,” meaning that their tax liability is reduced for the first year of operation. This special depreciation provision was created in the Tax Relief and Health Care Act of 2006.  The fiscal cliff package extended this special treatment for cellulosic producers and algae-based biofuels producers through the end of 2013.

Estimated cost to taxpayers: $500,000 over ten years. Cost in 2013: $1 million.

Wind and Modifications to Renewable Energy Production Tax Credits
The wind production tax credit provides 2.2 cents per kilowatt hour tax credit for a ten-year period for facilities placed in service before 2012. Under the fiscal cliff deal, this provision is extended through 2013. The provision also allows wind facilities that begin construction before the end of 2013 to claim the credit. Further, it amends section 45 to exclude recycled paper from claiming the renewable energy tax credit.

Estimated cost to taxpayers: $12.18 billion over ten years. Cost in 2013: $116 million.

Investment tax credit in lieu of production tax credit
This modification to an existing tax credit, benefits renewable energy producers that are still in the investment stage, such as offshore wind production.

Estimated cost to taxpayers: $135 million over ten years.

Credit for Energy Efficient Appliances
This credit is for energy-efficient washing machines, refrigerators, and dishwashers. It expired in December 2011 and is extended through December 2013.

Estimated cost to taxpayers: $650 million over ten years. Cost in 2013: $155 million.

Indian Coal production tax credit
This $2 per ton tax credit is directed towards coal produced on Indian-owned land. The fiscal cliff extenders package includes a two-year extension of the credit, which retroactively reinstates it for 2012. It expires on December 31, 2013.

Estimated cost to taxpayers: $1 million (through 2019). Cost in 2013: $1 million.

For more information, please contact Autumn Hanna at (202) 546-8500 x112 or autumn[at]taxpayer.net.

All the talk about the “dairy cliff” wouldn’t even be an issue if lawmakers simply repealed outdated permanent farm laws dating back to the Depression. Cynically trotting out the specter that the permanent law could come back to life is nothing more than a sad excuse for the farm lobby to pass new unnecessary subsidies that have nothing to do with modern agriculture. Rep. Peterson (D-MN), Ranking Member of the House Agriculture Committee, is already “freaking out” – in his own words - about the thought of another dairy cliff a year from now. If these outdated laws were simply repealed, he could sleep peacefully for the next 363 nights.

Equally as important as repealing permanent law is repealing direct payments, another outdated policy that’s been lining large agribusinesses’ pockets for decades with little to no public benefit. In the recent extension, direct payments were continued for another year even though virtually everyone – including farmers - agrees that they do more harm than good.

The new Congress has been gifted a lengthy to do-list. We need lawmakers to take time to digest record crop insurance subsidies and payouts before passing new, costlier subsidies that bow to special interests and shift unnecessary risks onto taxpayers’ backs. We hope the public will yet again see that instead of being “crippled”, agriculture will once again reap one of its best in a generation. And last but not least, we need Congress stops using budgetary gimmicks to pass provisions like this nine-month farm bill extension, and instead take into account all likely spending so we can get our nation’s finances under control. Shifting obligatory spending accounts to optional ones and masking the cost of agricultural entitlement programs only hides the realities of government spending from taxpayers’ sight.
 

But the day late, many dollars short fiscal cliff deal that passed the House last night is anything but inspiring. Instead of resolving a self-inflicted budget wound, Congress and the President went bungee jumping off the cliff and are going to be in the same position in a couple months. That’s when the machinations to avoid the debt ceiling will be exhausted and the delayed sequestration rears its ugly head.

The package did raise new revenues, which is good, and it installed a more realistic tax baseline.  But that baseline would perpetuate massive deficits, and it also complicated the code by adding in new brackets. It eliminated the need for an Alternative Minimum Tax patch each year by making it permanent and indexing for inflation, but it didn’t permanently fix the Medicare Doctor Payment issue. Congress did refrain from including a five-year farm bill, going with a one year extension instead. But it added a whole passel of tax extenders dealing with everything from NASCAR tracks to rum taxes that didn’t belong in the bill and go the opposite direction of tax reform.

It’s pretty clear that Congress can’t do grand bargains. A series of policymakers have routinely gone behind closed doors to hammer out a deal and come out empty handed. Instead, lawmakers should tackle spending, entitlement reform, and tax reform separately through regular order. The public needs to see what Congress says it wants to pay for, what we can’t afford, and what we need. It seems that each time they shoot for the moon, they end up shooting themselves in the foot.

Pathetic. But at least by tomorrow, we can say good riddance 112th Congress, don’t let the door hit you on the way out.

Added together, these narrow provisions result in more than $70 billion worth of tax breaks without any real debate to determine if they are the best way to spur the economy or meet other goals. 

The bill President Obama signed extends these tax cuts for two years. However, all of the following tax breaks actually expired at the end of 2011, so Congress granted one year of extension retroactively (for 2012) and one year going forward (2013). They are all reset, and will now expire on December 31, 2013.

It is also important to note that the price tag for each of these will be much higher, as Congress continues to extend them into the future. In fact, to mask the total cost, some of these breaks actually turn revenue positive in later years. We have excluded that revenue from the 10-year total.
 

1. Deduction of State and Local General Sales Taxes

This provision gives taxpayers the option to deduct itemized state and local sales taxes from their federal income tax, but only if they do not deduct their state income tax. This was eliminated from the federal tax code in the 1986 reforms, but was brought back to life in recent years. Major beneficiaries are the residents of states that don’t have state income tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming. 

Estimated cost to taxpayers: $5.538 billion over ten years (through 2015). Cost in 2013:$2.86 billion
 

2. Research & Development Tax Credit

Companies doing research and experimentation in the United States receive a lucrative tax credit. This tax credit generally goes to larger corporations, and companies that have benefited from this provision in the past include Microsoft Corp., Boeing Co., United Technologies Corp., Electronic Data Systems Corp. and Harley-Davidson.

Estimated cost to taxpayers: $14.324 billion over ten years. Cost in 2013: $6.232 billion
 

3. Seven Year Straight Line Cost Recovery Period for Motorsports Entertainment Complexes

Staving off IRS rules to the contrary, owners of motorsports entertainment complexes (aka NASCAR tracks) can write off the cost of their facilities over seven years—instead of the standard 39 years for nonresidential property and 15 years for “improvements” (such as fences and roads)—as long as the venue hosts an event within three years of its completion. Such an accelerated depreciation schedule increases the value of the yearly deduction for owners. Track owners have also received plenty of other tax breaks over the years from states and localities eager to attract speedways. The provision encompasses all facilities including grandstands, parking lots, and concession stands.

Estimated cost to taxpayers: $78 million over ten years. Cost in 2013: $46 million
 

4. Enhanced Charitable Deduction for Contributions of Food Inventory

Congress has routinely extended an enhanced deduction for the charitable contribution of food inventory. Under this provision, the food must be “apparently wholesome food.” However, “wholesome” food isn’t necessarily healthful or even edible and is defined as “food intended for human consumption that meets all quality and labeling standards imposed by Federal, State, and local laws and regulations even though the food may not be readily marketable due to appearance, age, freshness, grade, size, surplus, or other conditions.”

Estimated cost to taxpayers: $314 million over ten years (through 2014). Cost in 2013: $218 million.
 

5. Special Expensing Rules for U.S. Film and Television Productions

In an effort to keep film and television production in the United States, filmmakers can immediately deduct significant costs for most film and television productions. Producers can elect to expense in the current year the first $15 million of production costs incurred in the U.S. ($20 million if the costs are incurred in economically depressed areas in the U.S.). This can be used if at least 75 percent of the costs are for services performed in the U.S., and is available for both blockbusters and those that go “directly to video cassette or any other format.”

Estimated cost to taxpayers: $248 million over ten years. Cost in 2013: $266 million.
 

6. Temporary Increase in Limit on Cover Over of Rum Excise Tax Revenues to Puerto Rico and the Virgin Islands

The bill extends the provision increasing the excise tax cover over payment to $13.25 per proof gallon for rum distilled in Puerto Rico and U.S. Virgin Islands.

For many years, rum imported to the U.S. was subject to a $10.50 excise tax per proof gallon. For deficit reduction purposes, the excise tax was increased in 1985 and again later to its current level of $13.50. Under long-standing U.S. law, Puerto Rico and U.S. Virgin Islands are entitled to a $10.50 "cover over," or rebate on the excise taxes. The U.S. has routinely extended a "temporary" additional cover over of $2.75 (total $13.25), leaving only 25 cents going into the U.S. Treasury.  Major beneficiaries of this provision are the liquor companies Diageo and Bacardi. In fact, the USVI is using their future cover over payments to back bonds used to build Diageo (the Britain based world’s largest liquor conglomerate) a new distillery to induce it to shift Captain Morgan production from another U.S. territory, Puerto Rico.

Estimated cost to taxpayers: $222 million over ten years (through 2014). Cost for 2013: $199 million.
 

7. Extension of American Samoa Economic Development Credit

In general, this credit allows certain corporations operating in American Samoa to offset a portion of their U.S. tax liability on income earned in American Samoa from active business operations, sales of assets used in a business, or certain investments in American Samoa.

Estimated cost to taxpayers: $62 million over ten years (through 2014). Cost in 2013: $38 million.
 

8. Incentives for Alternative Fuel and Alternative Fuel Mixtures (other than liquefied hydrogen)

Both the alternative fuel credit and the alternative fuels mixture credit were enacted by the 2005 Highway Bill to provide a tax credit for alternative fuels, which includes high carbon fuels produced from coal, oil shale, and tar sands. Companies that produce unconventional fuels receive a production tax break of 50 cents per gallon; companies that blend traditional fossil fuels with small amounts of high carbon fuels receive the same tax benefit.

Estimated cost to taxpayers: $360 million over ten years (through 2014). Cost in 2013: $305 million.
 

9. Alternative Fuel Vehicle Refueling Property (non-hydrogen refueling property)

Facilities dispensing certain alternative fuels receive a refueling property credit. This provides a 30% tax break for gasoline stations or other facilities installing biodiesel or 85% ethanol (E85) blender pumps or repowering sites for electric vehicles. Stations dispensing natural gas, liquefied natural gas (LNG), and liquefied petroleum gas (LPG) are also eligible. The credit was first passed in the 2005 energy bill.

Estimated cost to taxpayers: $44 million over ten years (through 2015). Cost in 2013: $34 million.
 

10. Plug-in Electric Motorcycles and Highway Vehicles

This credit goes to electric plug-in motorcycles and 3-wheeled vehicles that can be used on a highway. Unlike previous iterations of this credit, this version no longer includes non-highway, low speed vehicles (such as golf carts). This credit was actually in an earlier Senate Finance Committee package only to be resurrected in a tighter provision.

Estimated cost to taxpayers: $7 million over ten years (through 2015). Cost in 2013: $1 million.

"We are exploring all options to prevent the 1949 farm bill from taking effect, especially as it relates to dairy policy," Lucas said. "In any event, implementation of permanent law will take a considerable amount of time, and to that end, I call on (Agriculture Secretary Tom Vilsack) to carefully consider all relevant factors and to take public comment through a rulemaking process before proceeding."

If Treasury Secretary Geithner has a bag of tricks to avoid the debt ceiling for a couple months, surely Secretary Vilsack can slow walk to the “dairy cliff.”  Passing a trillion dollar, five year farm bill to avoid the so-called dairy cliff would be letting the dairy subsidy tail wag the farm bill cow. This can easily be dealt with in a short-term extension in the new year.