The Reagan administration is considering asking Congress to scale back the farm price and income supports that are the safety net for American agriculture but have become one of the runaway items in the federal budget.
The farm cuts are among several major steps under study to cut the deficit in the fiscal 1986 budget that President Reagan is to submit early next year.
It was also learned yesterday that a White House task force has ordered the Veterans Administration to determine how much the government would save if it limited free care in VA hospitals to veterans with service-connected ailments. Thousands of veterans who now get free care would be forced to pay under such a plan; about one-third of those now treated in VA hospitals are there for service-related problems.
In a third budget development, it was learned that state and local officials are challenging a Treasury Department study expected to show that such jurisdictions will have surpluses of $65 billion a year by 1989. State and local officials, including Pennsylvania Gov. Richard L. Thornburgh (R), fear that the surplus estimate will be used to justify further cuts in state and local aid. Details, Page A4.
The agricultural budget and legislative proposals, still in the drafting stage, reportedly seek to lower farm subsidy levels and make U.S. farm products more competitive overseas through "market-oriented" policies.
Office of Management and Budget Director David A. Stockman has said several times that farm spending will be one of his targets during the second Reagan term. But any proposed cuts are likely to meet stiff resistance in the agriculture committees of Congress.
Some of the farm policy shifts would be reflected in the 1986 agriculture budget pending at the OMB. Others will be offered as part of a farm proposal the administration is expected to send to Capitol Hill early next year to replace current legislation.
"We would continue to provide supports for farmers and, yes, the safety net would be lowered somewhat if you want to say that, but hopefully we also would provide for a 'transition' period of three or five years or whatever to support farmers while we go toward market orientation," one farm-policy planner said yesterday.
The intense administration discussions on farm policy occur before a backdrop of congressional and White House concern over seemingly uncontrollable farm-support costs and the erosion of export markets, which consume about 40 percent of U.S. farm production.
Agriculture Secretary John R. Block has described U.S. farming and farm policy at "a crossroads," saying the United States can structure its farm programs so that this country competes more forcefully in world markets or withdraw from the world scene and design programs to prop up domestic farming.
Under the "market-oriented" approach promoted by Block, USDA planners are considering changes in the basic farm legislation to reduce the level of price-support loans on major crops, reduce the target price (direct subsidy) payments to farmers and more strongly tie farm-program participation to soil conservation.
At the White House level, officials are floating other ideas for changes in farm programs -- some said to be drastic moves to reduce federal spending on agriculture. Other outside groups, both conservative and liberal, also are promoting approaches to a 1985 farm bill that range from cutting programs to expanding them.
While only about 40 percent of the nation's farmers participate in the programs, the rising costs of the loan and support mechanisms have embarrassed the administration. Current-year programs are projected to cost about $11 billion, compared with a record high of about $20 billion two years ago when the government was stuck with millions of tons of grain for which there were no markets. Impetus for changing farm programs comes from three key sources. One is the cost. Another is that the bulk of the federal farm payments go to a relative handful of farmers, a fact that has drawn increasing criticism. A third is that, under the New Deal-initiated programs that underpin present policy, the U.S. farming population has dropped to about 2.3 million from 6 million in the 1930s.
Administration agricultural planners say they are convinced that because many farmers are assured of federal loans and direct subsidies for what they grow, they continue to overproduce and bring erodible lands into production, adding to federal soil-conservation costs.
The price-support loans, in effect, set price floors under major commodities. If a farmer cannot sell his crop at the price he wants, he can turn it over to the USDA and get a loan in return. The loan is redeemed or the government sells or gives away the commodity.
The target-price payments, direct subsidies to farmers, are calculated on the basis of farm-production costs and are intended to supplement farmers' income. Today, for example, the price-support loan rate for rice is $8 per hundredweight. The target price is $11.90, meaning that the farmer can collect $3.90 for each 100 pounds, regardless of the sale price.
With these incentives, administration policy planners argue, many farmers continue to produce at high levels, forcing the USDA to invoke acreage-control programs to regulate supplies and allowing foreign competitors with lower costs to displace U.S. farmers from traditional markets.
Veterans Administration officials had no quick answers to the White House request for information on limiting medical care. But, according to the agency, about 32 percent of the patients being treated in the VA's 172 medical centers are there for service-connected problems.
With about 2.2 million veterans suffering "service-connected" ailments, top officials and veterans' groups warned that there would not be enough patients left in VA hospitals to support the $9 billion per year VA system.
"It would simply be the end of the VA hospital system as we know it," one top VA official said yesterday. "There would be a lot of hospitals going up for sale cheap."
"The next logical step would be simply reimbursing the small number of veterans eligible for health care in the private sector," said a Senate Veterans' Affairs Committee staffer. VA critics and the Grace Commission on government costs have recommended that the VA increase the use of private contractors for medical care.
The nation's four largest veterans' groups, the American Legion, Veterans of Foreign Wars, Disabled American Veterans and Paralyzed Veterans of America, held an emergency meeting last week when news of the White House letter leaked. The groups, which represent 5 million veterans, have arranged to meet next week with VA Administrator Harry N. Walters to oppose any change in eligibility.
"We are not running up the panic flag yet, but if the administration really is considering a change in the eligibility guidelines, well, this will become a major confrontation," a spokesman for one veterans' group said.
Once they reach age 65, veterans are entitled to free hospital care on a bed-available basis, regardless of their ability to pay. Congress approved that law in 1971 on the theory that it was cheaper for the government to provide health care to veterans through the VA than through Medicare, for which almost all veterans are eligible. One recent study comparing VA and private hospital care costs showed that VA care was 10 to 15 percent cheaper.