Environmental Quality Incentives
Program (EQIP):
Status and Issues

Jeffrey Zinn and Geoffrey S. Becker

Senior Analysts
Environment and Natural Resources Policy Division

November 1, 1996

96-881 ENR

Background and Legislative History

Support for the EQIP concept was a response to at least three separate trends. Each trend attracted support from a somewhat different constituency, and it is not clear whether any of these responses alone would have attracted sufficient support to enact EQIP. One trend is that efforts to address the federal debt have resulted in repeated reductions in funding for resource conservation cost sharing programs that are considered in the annual appropriations process. The pressure for still more reductions has been extremely high. Funding for these cost sharing programs averaged a little more than $200 million for many years through the early 1990s. In response to growing pressure to reduce federal appropriations, especially after FY1994, funding for these programs was reduced, declining to about $70 million in FY1996. Environmental and conservation interests sought legislation to provide more certainty to conservation funding in the future.

A second trend was that the traditional federal approach to supporting farmer income and commodity prices was under increasing pressure for reform, so many Members of Congress with strong agriculture constituencies were looking for alternative approaches. The 1996 farm law reduces and may possibly end commodity-based support payments. Conservation programs offered an alternative vehicle for offsetting financial losses to farmers due to commodity program changes, thereby garnering support for these changes from agricultural groups. Environmental and conservation interests also support programs like EQIP because of the potential benefits to the environment and concern about changes in farm support payments that might break the link between these payments and environmentally sound farming.

A third trend was the increasing pressure to target conservation efforts on areas identified as having the most severe environmental problems. Targeting had long been rejected by policy makers who preferred to provide conservation funds and programs more evenly to crop producers across the country. EQIP addressed this concern, in part, by allocating half the funds to livestock producers. It is the first time that significant conservation funds are dedicated to their needs, such as the disposal of manure. EQIP also targets the program to priority areas to be designated in each state. These areas can be designated not only to address on-farm problems, but also to reduce off-farm problems generated by farm activities--especially water quality problems. In short, EQIP could address the concerns of both livestock producers and environmental groups.

The EQIP concept first appeared in an omnibus conservation proposal (S. 854) introduced by Senators Leahy and Lugar in May 1995. At about the same time, the USDA, in its "guidance" statement on the pending farm bill, endorsed the consolidation of cost-sharing and technical assistance programs, although it did not specify the EQIP concept. In October 1995, Representative Allard introduced H.R. 2542, which included provisions for cost-sharing assistance to livestock producers. Separate Senate Republican conservation proposals, contained in S. 1373 and introduced in fall 1995, also included the EQIP concept.

Representative Allard's livestock proposal was incorporated into the omnibus reconciliation package (H.R. 2491) passed in late 1995. After President Clinton vetoed that legislation, the broader EQIP concept became an integral part of the conservation title, first in the Senate and then in the House, in the free-standing farm bill that was enacted early in the second session. While numerous minor changes were made as the farm bill evolved, the basic concept, as enacted, is nearly identical to the proposal in S. 854.

EQIP Provisions

EQIP replaces four terminated cost-sharing programs: the Great Plains Conservation Program, the Agricultural Conservation Program (ACP), the Water Quality Incentives Program, and the Colorado River Basin Salinity Control Program.(***1) EQIP supports structural and land management practices through technical and educational assistance, and cost-sharing and incentive payments to producers. It is a voluntary program.

Participants must develop and implement an approved conservation plan that addresses relevant conservation needs and objectives. Applications will be accepted on a continuous basis, although the ranking and selection of contracts will occur only during designated periods. Payments generally are limited to $10,000 per person annually, and $50,000 over the 5 to 10 year life of the contract. The act permits case-by-case exceptions to the annual (but not multi-year) limitation. CCC 's share cannot exceed 75 percent of the projected cost of structural and vegetative practices, taking into consideration payments participants receive from state or local government. Participants are eligible to receive incentive payments to encourage the application of land management practices.

Because EQIP is an entitlement program, funding is mandatory and paid for through CCC revenues. Annual funding through 2002 is $200 million (Funding in FY1996 was $130 million, as the terminated programs had received appropriations totaling more than $70 million). Half the funding each year is to be spent in addressing problems associated with livestock production (including poultry).

USDA Implementation

The Department first issued a concept paper in June 1996 that described the roles and responsibilities of the NRCS, the Farm Service Agency (FSA), and other partners in implementing the program. This paper addressed cooperation at the federal, state, and local levels. It then published, in the October 11, 1996, Federal Register, proposed rules for administering the program for FY1997 and beyond. Major topics discussed in this proposal include the identification and designation of priority areas, development of conservation plans and administration of EQIP contracts, the definition of large confined livestock operations, education and technical assistance activities, and payment limits.

The $130 million in FY1996 funding has been spent largely to meet unfunded requests under the four terminated programs; approximately $100 million for activities supported by ACP (and the Water Quality Incentive Program), and the remainder for activities under the Great Plains and Colorado River programs.

Selected Policy Questions

Determining Priority Areas

EQIP dollars will be directed mainly to so-called priority areas, which the proposed regulations define as "a watershed, area, or region that is designated under this part because of specific environmental sensitivities or significant soil, water, or related natural resource concerns." Not all counties will be targeted for EQIP funding. That makes the process and criteria for designating such areas a critical issue for producers and other interests.(***2)

The Department has initiated a process whereby local work groups composed of various USDA agency officials, representatives of local conservation and FSA committees, and other local entities will conduct a conservation needs assessment, identify local priorities, and finally forward their priority area recommendations to the state level. Working with the state technical committees, and following NRCS national guidelines, the state conservationists in turn will select priority areas from among those submitted by the local work groups. Decisions about where program funds will be available are made at NRCS headquarters, with Farm Service Agency concurrence.

The national guidelines are based on such considerations as: an area's environmental sensitivity or degradation, and how the program would address it; expected federal costs, plus the extent of state, local, and other non-federal financial and technical assistance; the ability of the program to satisfy other national and state environmental laws; projected participation and support of local producers; and use of performance measurements.

A number of concerns have been raised regarding the process for determining priority areas. Among them:

· Because FY1997--the first full year for the program--started without the regulations and local planning process in place, priority areas were designated by NRCS's state conservationists (with input from state technical committees). USDA has promised that it will continue to refine priority area information this year, and modify priority areas in FY1998 and beyond, based on additional input and recommendations from the local work groups. Despite such reassurances, critics are worried that it will be difficult for the local groups to have much influence in future years, or to alter priority areas to meet changing needs.

· Some agricultural and environmental interests are concerned that USDA has not spelled out a role for individual farmers and other members of the public in the local planning process. Formal membership in the local work groups appears to be limited to agency and established committee representatives. Failure to encourage more outside participation, and to fully consider their views, could undermine the goals and effectiveness of the program, it is argued.

· Some agricultural interests contend that the priority planning process, as well as the rules that individual applicants must follow to gain funding, are so complicated and potentially time-consuming that many may decide not to participate. As evidence, they note that USDA has estimated the annual cost of local work group activities at $4.2 million, and of conservation plan development and verification at $1.4 million. USDA should make the final rules more "farmer-friendly," these interests maintain, particularly if the program, which is voluntary, is to attract the types of producers who have the biggest environmental problems.

Funding Issues

USDA has considerable discretion to determine how funding will be divided, both among types of program activities and among potential recipients. Funding questions include:

· Exactly how much money will be devoted to designated priority areas? USDA officials tentatively plan to earmark up to 75% of each year's funding to priority areas that are designated through the state and local planning process, as well as any additional national conservation priority areas selected by the NRCS chief. Allocation of funds for non priority areas reportedly will be controlled at headquarters.

· Will producers in every county have access to EQIP funding? Not all counties are expected to be in designated priority areas. "However, in every county producers who have significant natural resource needs will be eligible for the program," a USDA fact sheet states. Even though it is too early to predict who is likely to receive funding and who is not, farm groups are urging members to make their conservation needs known to county offices and local conservation districts as soon as possible in order to enhance their chances to receive assistance.

· Will EQIP result in major funding shifts between states, relative to what they received under the old cost-share programs? USDA officials tentatively have predicted that implementation of EQIP will not result in a major redistribution of conservation cost sharing funds across state lines--although it is more likely that funding could shift to new areas and different conservation priorities within states.

· How much of the $200 million will be used for administrative purposes, and for technical assistance and education? It is unlikely that USDA will be able to tap other federal accounts to pay for these activities. Yet many farmers could view such spending as "overhead" that decreases funding available to them for cost-sharing contracts and incentive payments, and potentially undermines their support for the program.

Payment Limitation

In applying the limitations on payments to individuals (see page 2), USDA proposes to define "person" in a manner consistent with the rules that now apply to participants in the CRP and Agriculture Market Transition Act (covering most commodity support programs). There are, however some notable exceptions. For example, beneficiaries would not have to show that they are actively engaged in farming, ensuring that they are making a significant contribution to the farm operation. The exceptions trouble some small farm advocates, who argue that the rules could provide loopholes for absentee landowners to receive financial aid that, they believe, would be more appropriately targeted to full-time farmers.

Among other options discussed by USDA, but not included in the proposed rule, were limiting the number of EQIP contracts each person may have, and limiting the number of entities in which he or she may be involved and still receive assistance. "These options were not chosen because they provided little value or savings to the program but would have complicated...administration," USDA stated, inviting additional comments on how to address these matters.

Limits on Large Confined Livestock Operations

Under the 1996 act, large confined livestock operations cannot receive EQIP cost-share payments to construct animal waste management facilities, but they can receive them for all other conservation practices. The farm bill directs the Secretary of Agriculture to define such operations. House-Senate conferees on this bill deleted a Senate provision that would have defined a large operation as one with more than 700 mature dairy cattle, 1,000 beef cattle, 100,000 chickens, 55,000 turkeys, 2,500 swine, or 10,000 sheep. These numbers are essentially the ones that the Environmental Protection Agency (EPA) uses to define large operations that are subject to pollution control regulations under the Clean Water Act.

The House-Senate conference report on the act states that the Secretary should consider "various resource and environmental factors, including regulations promulgated pursuant to the Clean Water Act..." and expects him "to take into account needs for maximizing environmental benefits in targeted watersheds affected by animal agriculture, the ability of operations to pay for the cost of animal waste management facilities, the obligations of operations under other environmental authorities, and the particular characteristics of modern livestock operations." The proposed rules include a definition of a large confined livestock operation but give state conservationists the discretion to set their own size definitions.

Small farm and sustainable agriculture advocates had expected that the Secretary would specify national numerical limitations which, they contend, could target limited funds on smaller farms that might not be able to afford needed pollution controls, and away from larger-scale, presumably wealthier farms that already are obligated to meet Clean Water Act standards.

USDA said that it considered setting a national maximum limit, but decided against it because "cost-share eligibility would not be based on environmental need and would only be indirectly related to the likelihood the landowner would not otherwise construct a waste management system" and "may allow some major problems to be neglected by producers." USDA concluded that the intent of the 1996 act could best be met by giving states and localities "maximum flexibility" to consider all environmental requirements; to account for the wide geographical and economic variations in modern livestock operations; and to incorporate consideration of a person's ability to pay for pollution controls, regardless of size.

One farm association analyst has suggested that the size issue has been overemphasized, given the small amount of money likely to be spent on animal waste management facilities (e.g., lagoons). She noted that the size limitation applies only to these particular facilities but that the $100 million earmarked for animal agriculture will be spread across a much wider variety of conservation practices, such as installation of vegetative filter strips along streams or composting systems for animal waste, for which the law recognizes no size limitations. Others have argued that the size issue is relevant, because decisions now will provide precedents for later years, when more funding may be available for such activities.

Footnotes

1 The ACP was the largest and oldest of these programs, drawing on an annual appropriation averaging close to $200 million until recently to provide producers up to $3,500 per year in assistance; the Water Quality Incentives Program was operated as an earmarked subset. The Colorado River Program was small, both in funding and in area served, while the Great Plains Program was an older program available in 556 high plains counties that averaged about $25 million in appropriations annually in recent years.

2 The head of NRCS may also designate national conservation priority areas where some EQIP and other conservation funds may be targeted. Additionally, at a state conservationist's request, EQIP funding could be used to address significant natural resource concerns that are widespread in the state but not necessarily concentrated within priority areas. Thus, some--although not the majority of--funds theoretically may be available to producers outside of designated areas.