Environmental Quality Incentives Program (EQIP): Status and Issues

Jeffrey Zinn
Senior Analyst
Environment and Natural Resources Policy Division

Updated March 2, 1998

97-616 ENR

Summary

The Federal Agriculture Improvement an.d Reform Act of 1996 (P.L. 104-127) authorized the Environmental Quality Incentives Program (EQIP) to provide farmers with financial, technical and educational assistance EQW replaces four terminated costsharing programs that had been funded through annual appropriations. EQIP, a mandatory spending program, is guaranteed $200 million annually through FY2002 and is financed by the U.S Department of' Agriculture's (USDA's) revolving fund administered by the Commodity Credit Corporation (CCC). The CCC, on May 22, 1997, issued final rules to implement this program. The Natural Resources Conservation Service (NRCS) operates the program. During the implementation process, several issues were raised, including determining priority areas, funding, and the definition of large confined livestock Operations. This program is in its second year of full funding, and little information has been made available about program. activities and accomplishments.

Background and Legislative History

Support for the EQIP concept in 1995 and 1996 was a response to at least three separate concerns. Each concern attracted support from a somewhat different constituency. One concern was that efforts to address the federal debt had meant repeated reductions in funding for resource conservation cost sharing programs that are considered in the annual appropriations process, with pressure for further reductions. Funding for these cost sharing programs averaged a little more than $200 million for many years through the early I 990s, but then funding was repeatedly reduced, dropping to less than $80 million in FYI 996. During consideration of the 1995-1996 farm bill, environmental and conservation interests sought legislation to provide more certainty and more money for conservation funding.

A second concern was that the traditional federal approach to supporting farmer income and commodity prices was under increasing pressure for reform, and many members of Congress with strong agriculture constituencies sought alternative approaches. The 1996 farm law gradually reduces commodity-based support payments. Enhanced conservation programs offered an alternative income source that could partially offset this reduction. This change helped gain support for the EQIP concept from agricultural groups. Environmental and conservation interests also supported programs like EQIP because of the potential benefits to the environment and fears that changes in farm support payments might break the link between these payments and environmentally sound farming.

A third concern was the increasing pressure to target conservation efforts at areas identified as having the most severe environmental problems. Targeting had long been rejected by policy makers under pressure to evenly distribute conservation funds and programs across the country. EQIP targets funds to areas with higher concentrations of problems, called priority areas, which are designated by each state and nationally. These areas can be designated to address on-farm problems or to reduce off-farm problems generated by farm activities - especially water quality problems. Half the funds go to livestock producers, making this the first conservation program dedicating significant funds to their needs. In short, EQIP uses targeting to address the needs of livestock producers and the concerns of environmental groups.

The EQIP concept first appeared in an omnibus conservation proposal (S. S54) 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, chair of the Rouse Agriculture Committee's subcommittee responsible for conservation issues, introduced H.R. 2542, which included provisions for cost-sharing assistance to livestock producers. Separate Senate Republican conservation proposals, contained in S.1373 sponsored by Senator Grassley and introduced in fall 1995, also included the EQIP concept.

Representative Allard's livestock proposal was incorporated into the omnibus reconciliation package (H.R. 249 1) passed in late 1995. After President Clinton vetoed this legislation, the broader EQIP concept was inserted in the farm bill conservation title (P.L. 104-127) that was enacted early in the second session. While numerous changes were made as the farm bill evolved, the basic concept, as enacted, is very similar 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, vegetative, and land management practices through technical and educational assistance, and cost-sharing and incentive payments to producers. Annual funding through FY2002 is $200 million, considerably more than the less than $80 million that the four terminated programs had received in FY1996. (But EQIP was funded at $130 million in FY1996 to raise total funding to over $200 million.2 ) Half the funding each year is to be spent in addressing problems associated with livestock production (including poultry). The program is directed to maximize the environmental benefits per dollar expended.

Participants must develop and implement an approved conservation plan that addresses relevant conservation needs and objectives. Acceptable structural and vegetative practices range from grassed waterways to manure management facilities, and land management practices such as nutrient management can also be in the plan. Payments generally are limited to $10,000 per person annually, and $50,000 total 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. The initial payments are made the year after the contract is signed. The government's share can not exceed 75% 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.

USDA Implementation

The Department issued a concept paper in June 1996 that described the roles and responsibilities of all participants in implementing the program, emphasizing cooperation at the federal, state, and local levels. The CCC, using staff from NRCS, then published proposed rules for administering the program on October 11, 1996, and final rules on May 22, 1997, in the Federal Register. 3 The proposed rules attracted more than 800 responses containing more than 2,500 comments. Responses centered on the identification and designation of priority areas, development of conservation plans and administration of EQIP contracts, the definition of large confined livestock operations, and payment limits. The program was not fully implemented until after final rules were issued.

A Department analysis of this program estimates that more than 35 million acres will be treated. Almost 27 million of these acres will be in designated priority areas. Funds will be used to address problems on more than 10,000 small to medium livestock operations, and 65% of these operations will be located in priority areas. A Department official reported in the fall of 1997 that NRCS was moving toward these estimates, having entered into 22,000 contracts with a total funding of $175 million by September 30, 1997. Farmer interest was so great that over 58,000 applications were submitted and $550 million could have been obligated in FY1997.

Selected Policy Issues

Determining Priority Areas

EQIP dollars will be directed mainly to so-called priority areas, which the 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 are in priority areas, making the process and criteria for designating them a critical issue for producers and other interests.4 To identify these areas, the Department initiated a process that starts at the county level where "local work groups" composed of various USDA agency officials, representatives of local conservation and Farm Service Agency (FSA) committees, and other local public entities conduct a conservation needs assessment and forward their recommended priorities to the state conservationist.

The state conservationist, working with the state technical committee, and following NRCS national guidelines, selects priority areas from these submissions. The national guidelines are based on such considerations as: how the program would address an area's environmental sensitivity or degradation; expected federal costs, plus the extent of non-federal financial and technical assistance; the ability of the program to satisfy other environmental laws; projected participation and local producer support; and use of performance measurements. Priority areas have no maximum or minimum size.

Concerns have been raised regarding the process for designating priority areas. First, because FY1997 - the first year for full funding of the program - started without the regulations and local planning process in place, priority areas were designated by NRC S's state conservationists (with input from state technical committees). NRCS labeled FY1997 as a transition year, and has continued to refine priority area information in FY1998, based on additional input from the local work groups. Despite such reassurances, critics worry that the recommendations of local work groups will not be adopted at the state level, and that priority area designations will not be altered to meet changing needs. A Department official estimates that about 80% of the FY1997 priority areas retained that designation in FY1998.

Second, 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. Membership in the local work groups is limited to agency and government representatives because of federal meeting rules when there is broader representation. However, many of these interests are represented on state technical committees. Failure to encourage more outside participation, and a broader array of views could undermine the goals and effectiveness of the program, it has been argued.

Third, 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 operate the program in a more "farmer-friendly" manner, these interests maintain, to attract the producers who have the biggest environmental problems.

Funding Issues

USDA has considerable discretion to determine how funding will be divided among types of program activities, potential recipients, and states. Funding will also receive "additional emphasis" where state or local government offer technical or financial assistance, and where agricultural improvements will help meet environmental objectives, such as water quality. Decisions about where program funds will be available are made at NRCS headquarters, with FSA concurrence. in FY1997, over 70% of the funding went to priority areas, with the remainder going to areas with state wide concerns. It anticipates that the portion earmarked for priority areas will increase to 75%. Not all counties are in priority areas. "However, in every county producers who have significant natural resource needs will be eligible for the program," a USDA fact sheet states.

EQIP eventually may result in major funding shifts between states, relative to what they received under the four terminated cost-share programs. Initially, however, no state lost more than 5% or gained more than 30% from its average under the 4 terminated programs in FY1994 and FY1995. USDA officials predicted that there will not be a major redistribution of conservation cost sharing funds across state lines-although shifts are likely to new areas and to different conservation priorities within states.

Not all the $200 million will be available to producers. A portion will be allocated to technical assistance and education. 0MB has argued that technical assistance be limited to 10% or $20 million while NRCS has sought 190/o. If this money is not provided through EQIP, the general NRCS program, Conservation Operations, will have to absorb the additional cost, according to NRCS. In FY1997, $20 million was obligated for technical assistance and just over $5 million for education assistance. Farmers who view such spending as "overhead" that decreases funding available to them for cost-sharing contracts and incentive payments, may not be sympathetic to the NRCS position.

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. Rouse-Senate conferees on this bill deleted a Senate provision that would have defined a large operation as one with more than 1,000 animal units, which is interpreted to mean 700 mature dairy cattle, 1,000 beef cattle, 100,000 chickens, 55,000 turkeys, 2,500 swine, or 10,000 sheep. This level of 1,000 animal units is used by the Environmental Protection Agency (EPA) to define large operations that are subject to pollution control regulations under the Clean Water Act. The final rule states that the USDA will use this definition, and give state conservationists the discretion to set it higher. The increase can take effect only alter consultation with the state technical committee and approval in Washington.

This was probably the most contentious aspect of rule making, and is likely to remain controversial. 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."

In the proposed rule, USDA had stated that it decided against setting a nationally-uniform limit because "cost-share eligibility would not be based on environmental need and would be only 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.

Small farm and sustainable agriculture advocates had hoped that the Secretary would specify national numerical limits 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.

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. The Department estimated that half the livestock funding, $50 million per year, will be spent on waste management facilities. Others have argued that the size issue is important now because decisions now will provide precedents for later years, when more funding may be available for such activities.

Endnotes

1 The ACP was the largest of these programs and more than a half century old. It was 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, enacted in the 1950s, provided assistance in 556 high plains counties and averaged about $25 million in appropriations annually in recent years.

2 The $130 million was spent largely to meet unfunded requests; approximately $100 million for activities that had been supported by ACP (and the Water Quality Incentive Program), and the remainder for activities under the Great Plains and Colorado River Programs.

3 The CCC is administered by a Board of Directors from agencies of the Department of Agriculture. It has no staff and all work done on its behalf is performed by staff of agencies within USDA. For EQIP, NRCS provides the staff.

4 The Chief of NRCS may also designate national priority areas where some EQIP and other conservation hinds may be targeted; four are currently designated. Also state conservationists can request that EQIP funding be used to address significant natural resource concerns that are widespread in the state but not necessarily concentrated within priority areas. The division between funding for priority areas and other areas is discussed in the funding section.