Next Up in Our Budget Review: Local Foods

Next Up in Our Budget Review: Local Foods

by Elanor Starmer, Senior Fellow, GW Food Institute

The release of a President’s budget proposal triggers a lengthy sausage-making process. As we continue examining the 2018 skinny budget proposal released by the Trump White House earlier this spring, it’s important to keep that in mind: the final 2018 budget will probably not look a lot like the President’s proposal, if history is any guide.

That said, a President’s budget is an important philosophical document. It tells us something about an administration’s priorities and worldview. Even if the final budget passed by Congress does not mirror the President’s budget in the details, the philosophy will undoubtedly shape the administration’s approach to the issues.

For those keeping track at home, a quick recap of this year’s rather convoluted budget process. In March, the White House released what analysts called a “skinny”  budget proposal for 2018 – a broad overview of certain budgetary priorities that the President hopes Congress will look to as it crafts the 2018 budget this summer (the 2018 fiscal year begins October 1). A much more detailed 2018 budget proposal is expected from the White House later this month. But, you might be saying, didn’t Congress just pass a budget this week? They did – but for 2017. Not atypically, Congress was delayed in getting the budget passed this year, so the two processes are overlapping. We’ll talk a bit about both the 2017 budget just passed by Congress and the President’s 2018 proposal here.

There is much in the President’s skinny budget proposal that should be of interest to the food, agriculture and sustainability communities. We will know a lot more when the White House releases its full 2018 budget proposal, particularly since it will provide an opportunity, we hope, for newly confirmed Secretary of Agriculture Sonny Perdue to weigh in.

In this second in a series of blog posts on the Federal budget, we examine what the President’s budget proposal might mean for efforts to build local food systems. Propelled by consumer demand for local food that some estimate could hit $20 billion in the next few years, small businesses and others are working to connect farms with new markets in ways that keep more wealth in farmers’ pockets and increase consumers’ access to local products. It’s exciting, innovative work – and federal support has been an important part of what’s made it possible.

The President’s 2018 Skinny Budget Proposal: What does it mean for local food?

 A variety of federal programs support the farmers, food businesses and community groups working to build strong local and regional food systems. Overall, the President’s skinny budget reduces federal support for these programs, sometimes significantly. Consider a few examples:

 

  • The budget proposes the elimination of HUD Community Development Block Grants, which are consistently identified by municipal governments around the country as the top federal program used to develop their local food systems, according to a survey conducted by Michigan State University and the International City/County Management Association (summary here).

 

  • The budget proposes the elimination of discretionary programs within the Rural Business and Cooperative Service, part of USDA’s Rural Development arm. These programs support rural small businesses, including local food businesses, and help communities create economic development strategies.

    Shenandoah Valley Organic, a company sourcing organic and humanely-raised chicken from 29 family farms in Virginia and marketing products along the eastern seaboard, was launched with the help of USDA-supported Virginia FAIRS. At the heart of SVO’s philosophy is a model that treats farmers fairly and gives them ownership over their products. Credit: SVO

    Among these discretionary programs is the Business and Industry Guaranteed Loan program, which has a congressionally-mandated 5 percent set-aside to finance local food projects – around $45 million a year for the last few years. Another discretionary program, Value-Added Producer Grants, helps farmers and ranchers develop high-value products that can bring them a greater share of customers’ food dollar; about 20 percent of projects funded last year had a local food focus. Rural Cooperative Development Grants fund regional centers that assist small rural businesses and coops, many of them doing local or other high-value product development that builds wealth in rural communities (one of my favorites is Virginia FAIRS – check out all of the local food businesses they’ve helped get off the ground!). And there are a number of other programs that fall within the discretionary category and are slated for elimination in the President’s proposal.

 

Fifth Season Cooperative is one of the 16 businesses now operating out of the Food Enterprise Center in Viroqua, WI (population 4,300). Fifth Season works with 25 producers and 6 processors to bring products to urban markets within 150 miles of the Center. This image captures the connections they develop between farms, supply chain businesses and buyers. Credit: Fifth Season Cooperative

  • The budget also proposes the elimination of the Economic Development Administration, part of the Department of Commerce, which has served as a key financing partner on major local food infrastructure projects around the country, including the Food Enterprise Center in Viroqua, Wisconsin and the Baltimore Food Hub. EDA is the only source of large-dollar grant funds for these types of projects, which can help bring private financiers to the table.

 

  • The budget proposes the elimination of the Appalachian Regional Commission (ARC), which works in partnership with state and local governments across Appalachia to revitalize local economies. Local food system development is a major component of their work.

 

  • The budget proposes the elimination of the Community Development Financial Institutions (CDFI) Fund at Treasury. The CDFI fund certifies, finances and trains CDFIs, institutions that offer financial services and build financial capacity in disinvested places. A 2013 report commissioned by ARC found that Appalachian businesses have a much harder time accessing capital than their national counterparts, and that traditional banks tend to gravitate to well-off counties. CDFIs, on the other hand, have a mission of targeting underserved markets and are more effective at doing so. To the extent Appalachia is representative of other rural areas, the elimination of federal support for CDFIs could spell trouble for rural businesses, including those doing value-added food work.

    Tohono O’odham Community Action received funding through the Healthy Food Financing Initiative to launch Desert Rain Food Services, a school food program serving children on the Tohono O’odham Nation traditional foods sourced from local farmers at least once a week. Here, students enjoy brown tepary bean quesadillas in a whole wheat tortilla. Credit: TOCA

    Notably, the CDFI Fund also oversees the Healthy Food Financing Initiative, which facilitates CDFI financing of healthy food access projects (including things like farmers markets and urban farms) in underserved urban and rural places.

 

  • The proposal shrinks the size of the workforce at USDA service centers, the state and county offices that act as a first point of contact between USDA and stakeholders. (The budget also shrinks the federal workforce overall). The Trump Administration is not the first to propose downsizing USDA’s field staff; the Obama Administration closed a significant number of FSA county offices.

These are only some of the relevant provisions in the President’s skinny budget proposal. A few things stand out for us.

First, a non-surgical approach to shrinking the size of the federal workforce may result in federal programs being less responsive to changing and diverse needs, including the needs of “non-traditional” stakeholders like those involved in local food work. During our time in government, we have seen that when resources are stretched, the priority must be to get the money out the door – and taking time to figure out, for example, how to assess an unusual business model for financing becomes much more challenging. Consider the conundrum of a Farm Service Agency loan officer, who acts as a “lender of first opportunity” for farms and ranches that cannot access commercial credit. If the FSA employee is balancing an unsustainable workload, it is much more efficient to provide one $300,000 loan than to process 12 $25,000 loans, or to lend to a corn and bean operation with a clear futures market than to figure out how to loan to a Community Supported Agriculture (CSA) farm. Under the Obama Administration, FSA piloted a microloan program to further incentivize smaller loans; over 20,000 farms, many of them small, run by beginning farmers, and/or doing local food production, received microloans under the program. What will be the fate of this effort if the agency is forced to triage?

Second, the elimination of regional agencies like ARC (and its sister agencies, the Delta Regional Authority and the Northern Border Regional Authority), CDFI support, and USDA field offices could open a chasm between federal resources and local conditions and needs. Those in the local food community know how important it is for programs to be able to adapt to meet the unique needs of a particular place. CDFIs, including credit unions and community development banks, are able to support local businesses well because they are rooted in their communities. Likewise, regional or local representatives from federal agencies can act as a bridge between federal resources and the local context, helping to identify appropriate programs and offering technical assistance. If that connection is eroded, federal resources may become blunt instruments that are increasingly difficult for communities to access, or that don’t work well for them.

Finally, the administration maintains a philosophy throughout the budget proposal that the private sector should be able to fill many of the roles currently filled by federal programs. While we have seen many examples of effective public-private partnerships, the assumption that the private sector would provide services if the federal government got out of the way ignores the history behind the development of many federal programs and the critical role that these programs play in underserved communities or sectors. To return to the CDFI example, the ARC report notes that “The [CDFI] industry emerged over decades as public and private sector players responded to the difficulties that many distressed markets, such as minority, lower-income and rural communities, experienced in accessing mainstream financial services.” Traditional commercial lenders were not working for these communities.

The local foods sector knows this challenge well. New, non-traditional business models with “values” as part of their value proposition, business incubators, cooperatives… these are entities that a traditional lender might not have the capacity or desire to take on. Federal loans or grants can help bring private sector partners to the table. And federal programs that provide technical assistance or help communities test their ideas can set a community up for greater success in accessing public or private resources in the future, and managing them well.

What could 2017 mean for 2018?

It is interesting to look at the broad principles laid out in the President’s skinny budget in light of the 2017 budget bill finalized this week by Congress. Congress chose to maintain or increase funding in 2017 for many of the programs the President proposes to cut in 2018. Community Development Block Grants are maintained at 2016 levels, while some discretionary Rural Development programs, including Value-Added Producer Grants, see an increase. The Economic Development Administration sees an increase above last year, while the CDFI fund (including the Healthy Food Financing Initiative) is maintained at last year’s levels. The 2017 budget passed by Congress also refrains from closing USDA field offices and increases funding for the Appalachian Regional Commission above previous years.

The disconnect between the President’s 2018 budget proposal and Congress’s decisions for 2017 suggests that we have interesting times ahead. As a reminder, we should expect a more detailed version of the President’s 2018 budget later this month, followed by congressional deliberations throughout the summer and early fall (the 2017 fiscal year ends September 30th, so theoretically, Congress will pass a 2018 budget bill by then… though in practice, that rarely happens).

But if the 2017 bill is any indication, there appears, at least for now, to be bipartisan support in Congress for programs that help communities build wealth through revitalized local food systems. It will be up to the local food community to demonstrate the value of continued federal support.