US: Kentucky Tobacco Farmers Stand to Lose About $12 Million from Budget Cuts

Source from:  Courier Journal  11/20/2013

The federal sequester is claiming another casualty — Kentucky's tobacco farmers.

The automatic spending reductions are cutting into the price support payments that tobacco farmers are expecting to receive in a couple of months — reducing them by about 7.2 percent.

Statewide, that will cost tobacco farmers about $12 million out of what would have been a $250 million payment to about 100,000 farmers and quota holders who chose yearly installments.

The tobacco buyout payments have been caught up in the automatic federal spending cuts that took effect earlier this year after Congress failed to come to terms on a new spending plan. Federal lawmakers including U.S. Sen. Mitch McConnell — an ardent supporter of the buyout 10 years ago — are trying to persuade the U.S. Department of Agriculture that the payments are exempt from the mandated cuts.

About 30 percent of farmers and quota holders sold their buyout payments to banks in return for a lump sum and won't be affected. But their banks will get about $5.4 million less than they expected.

The impact on individual farmers will vary widely based on how much tobacco they grew and what share of their overall revenues resulted from tobacco.

"I'm really disappointed that they've decided to seize this money," said Coxs Creek farmer Steve Franklin. "I just don't see how they can claim a right to that."

Franklin only raises a small amount of tobacco in his Nelson and Bullitt county operations, said he's just now beginning to consider how to trim his spending next year. When he first heard of the payment cut earlier this month, it seemed to be such an obvious "mistake" that it would be reversed. Now, he's not so sure.

"Something will have to be cut back on, somewhere, to make all the money go around," Franklin said. "That's just not extra money. It's money that has been kind of budgeted in for my yearly income."

Franklin, the Nelson County Farm Bureau president, said he couldn't quickly specify the impact to his revenue, but said the payments have been "a pretty big part" of it because he had a large tobacco operation before the buyout. "In my case it adds up to be quite a bit of money," he said.

Central Kentucky farmer David DeMarcus said the buyout check would have covered a tractor payment due in January.

"It's not going to break me," said DeMarcus, who farms row crops and cattle in Bourbon and Fayette counties, but "it's the principle of it. That's what gets me."

Kentucky Farm Bureau is one of a number of agricultural groups calling on the Obama administration to reconsider whether the Budget Control Act of 2011 — which includes the mandatory cuts better known as the sequester — covers the buyout payments.

"No one, certainly, expected a haircut coming at the last payment," Kentucky Farm Bureau President Mark Haney told a meeting of the Kentucky legislature's joint agriculture committee last week.

Farm Bureau and other opponents of the cut argue that the buyout dollars are not from tax revenue, but a trust funded by tobacco companies to finance the buyout. They argue the payments are a contract with farmers and shouldn't be included in the sequester cuts.

"I think there's no doubt that lawsuits will evolve from this" if the decision isn't reversed, said University of Kentucky agriculture economist Will Snell. And in a letter to Agriculture Secretary Tom Vilsack earlier this month, Haney said that such a radical change in the terms of the buyout "would certainly be open to legal challenge."

Congress passed the buyout in 2004 to pay $10 billion a year over 10 years to compensate tobacco farmers for repeal of a quota system that limited supply of leaf to support prices.

The sequester — included in the 2011 Budget Control Act — calls for $1.2 trillion in cuts over 10 years to a variety of federal programs. The mandated cuts were to begin taking effect in January, but were delayed until March because of a New Year's agreement reached between Vice President Joe Biden and McConnell.

The USDA's Farm Service Agency recently released a list of programs that would be subject to the sequester, with the buyout payment program included.

The notice said that "with the continuing budget uncertainty, Congress still may adjust the exact percentage reduction."

McConnell spokesman Robert Steurer said in a statement that the Senate minority leader "has been in frequent contact with the USDA about this matter of utmost importance to Kentucky agriculture," including contacting Vilsack and Office of Management and Budget Director Sylvia Mathews Burwell.

McConnell argues that there is "a provision within the Budget Control Act that allows quota holders to receive the full amount of their final tobacco payment," Steurer said in the statement.

FSA Administrator Juan M. Garcia said in a Nov. 15 statement that the agency has no discretion and that the cuts actually began with the current year payment that already has been paid — but USDA was able to cover the difference with funding from the Farm Bill.

"Due to the expiration of the Farm Bill on September 30, FSA does not have the flexibility to cover these payment reductions," Garcia's statement said. Enditem