Section 32: Shedding Light on the So-Called; "Slush Fund" - Farm Bill 02 Choices - government spending - Illustration - Statistical Data Included

Choices: The Magazine of Food, Farm and Resource Issues, Fall, 2001 by Geoffrey Becker

In the constant search for money to solve constituent problems and pay for new projects, some policy makers have cast covetous eyes upon the so-called "secret slush fund" controlled by the Secretary of Agriculture. Such is the perception some have of USDA's Section 32 program.

Although it is not well-known, the 65-year-old program certainly is no secret; neither is it a "slush fund." Congress had some definite purposes in mind when it authorized the program. As a result, the Secretary remains somewhat constrained in how he or she can spend the several hundred million dollars that Section 32 makes available to him or her at the start of each fiscal year. These dollars mainly serve as a contingency reserve to alleviate "emergency" economic problems in the U.S. farm sector that crop up during the course of the year.

What Exactly Is Section 32?

Section 32 of the Agricultural Adjustment Act of August 24, 1935, authorizes a permanent appropriation, equal to 30 percent of annual U.S. Customs receipts. This money was first made available during the Great Depression to assist farmers suffering from price-depressing surpluses. Use of Section 32 funds, along with up to $300 million in unused funds from the previous year, are limited to three purposes: (1) encouraging the export of farm products through producer payments or other means; (2) encouraging domestic consumption of farm products by diverting surpluses from normal channels and expanding their use by low-income groups; and (3) rebuilding farmers' purchasing power.

These are broad objectives that appear to give the Secretary lots of latitude in spending what appears, at first glance, to be quite a bit of money. Customs revenues have risen, along with Americans' voracious appetite for foreign goods. The rise in customs revenues means that Section 32's 30 percent share has amounted to $5.6 billion to $5.7 billion annually in recent years. In reality, most of this money is diverted to other uses before it ever lands in the Secretary's discretionary fund.

How Are Section 32 Funds Used?

Today, most of the Section 32 appropriation is simply transferred to the nutrition programs, but the best-known use of Section 32 remains USDA'S direct purchases of U.S.-produced food products, an activity that began in 1938.

The Department has always sought uses for these purchases that do nor disrupt private markets. Early in the program, USDA began donating the foods to low-income families and schools on the premise that such donations would supplement, and not displace, normal food purchases by these recipients. Section 32 commodities helped stimulate early growth of school lunch programs.

School lunch and other domestic nutrition programs have since evolved into the major users of Section 32 funds, which helps them in two distinct ways. First, as noted, most of the Section 32 permanent appropriation simply gets transferred directly into USDA's Food and Nutrition Service (FNS) child nutrition account, where it is supplemented by a separate direct appropriation under the annual USDA appropriation law. These funds are then used to reimburse schools, child care centers, and other eligible institutions for meals served to children. These cash reimbursements are separately authorized and required by the National School Lunch Act of 1946.

Second, a smaller amount of Section 32 money is set aside each year to purchase U.S. food products and provide them to schools and other venues. USDA's Agricultural Marketing Service (AMS) makes these purchases. Again, the School Lunch Act specifies the value of these commodities (at per-meal rates). Some Section 32 money currently funds a number of additional programs.

Fiscal Year 2000 Spending

Following is a breakdown of the Section 32 budget for FY 2000:

The permanent appropriation entitled the program to an estimated $5.735 billion, representing 30 percent of prior calendar-year customs receipts.

The uncommitted balance of $113 million from FY1999, along with about $50 million in funds recovered from prior year obligations, brought FY2000 funding to a total of $5.898 billion.

About $4.935 billion was transferred to the child nutrition programs cash account. This money helped pay for federal program obligations estimated at $9.554 billion in FY2000. The difference, about $4.619 billion, was funded directly through the annual child nutrition appropriation.

Another $70 million (30 percent of the revenue earned from fish product imports) was allocated to the Commerce Department for fisheries research and related purposes, as required by Congress.

That left $893 million available for fiscal year 2000. From this total, $21 million went to cover AMS administrative expenses for its direct food purchasing services and for oversight of federal marketing orders. The Secretary earmarked an additional $400 million for planned direct commodity purchases by AMS, in order to partially fulfill required commodity assistance mandated by Section 6(e) of the National School Lunch Act. (Total required commodity assistance costs for the year came to about $772 million; the other $325 million was budgeted from the annual child nutrition appropriation made by Congress.)