Environmental Quality Incentives Program (EQIP): Status and Issues
Released: 2011-05-09T00:00:00

Summary:
The Environmental Quality Incentives Program (EQIP) is a voluntary program that provides farmers with financial and technical assistance to plan and implement soil and water conservation practices. EQIP is the largest agriculture conservation financial assistance program for working lands. EQIP was first authorized in 1996 and was most recently revised by Section 2501 of the Food, Conservation, and Energy Act of 2008 (P.L. 110-246, the 2008 farm bill). It is a mandatory spending program (i.e., not subject to annual appropriations) and is administered by the U.S. Department of Agriculture's (USDA's) Natural Resources Conservation Service (NRCS). Funding is currently authorized to grow to $1.75 billion in FY2012. Eligible land includes cropland, rangeland, pasture, non-industrial private forestland, and other land on which resource concerns related to agricultural production could be addressed through an EQIP contract.
With the 112th Congress's emphasis on reducing federal spending, EQIP could face tighter budget constraints with a potential reduction in mandatory funding levels and a continuing backlog of unfunded applications. Congress will also likely consider reauthorization of the 2008 farm bill because much of the current law, including EQIP, expires in 2012.

subsections: section_title: Program Overview
paragraphs: The Environmental Quality Incentives Program (EQIP) is a voluntary program that provides technical and financial assistance to eligible agricultural producers who wish to implement soil and water conservation practices. The purpose of EQIP is to promote agriculture production, forestry management, and environmental quality as compatible goals, and to optimize environmental benefits. EQIP was originally authorized in the 1996 farm bill as an amendment to the 1985 farm bill. EQIP replaced four conservation programs repealed in the same law. These were the Great Plains Conservation Program, the Agricultural Conservation Program, the Water Quality Incentives Program, and the Colorado River Basin Salinity Control Program.
EQIP is the largest agriculture conservation program for working lands. The program encourages farmers and ranchers to participate in conservation efforts by paying a portion of the cost of installing or constructing approved conservation practices. Eligible producers enter into EQIP contracts to receive payment for implementing conservation practices. Approved activities are carried out according to an EQIP plan developed in conjunction with the producer that identifies the appropriate conservation practice or practices to address resource concerns on the land. 
EQIP was amended and reauthorized in both the 2002 and 2008 farm bills. The U.S. Department of Agriculture's (USDA's) Natural Resources Conservation Service (NRCS) administers EQIP under an interim final rule. NRCS implemented EQIP by establishing national priorities to reflect the most pressing natural resource needs and emphasize offsite benefits to the environment. The current national priorities set by NRCS are as follows:
reductions of nonpoint source pollution, such as nutrients, sediment, pesticides, or excess salinity in impaired watersheds consistent with Total Maximum Daily Loads (TMDLs), where available; the reduction of surface and groundwater contamination; reduction of contamination from agricultural point sources, such as concentrated animal feeding operations (CAFOs); conservation of ground and surface water resources; reduction of emissions, such as particulate matter, nitrogen oxides (NOX), volatile organic compounds, and ozone precursors and depleters that contribute to air quality impairment violations of National Ambient Air Quality Standards; reduction of soil erosion and sedimentation from unacceptable levels on agricultural land; and promotion of at-risk species habitat conservation. 
subsections: section_title: Eligibility and Program Requirements
paragraphs: Producers with eligible land can submit an EQIP plan that describes the conservation and environmental purposes that will be achieved using one or more USDA-approved conservation practices. USDA-approved conservation practices may involve structures, vegetation, or land management. Structural practices include the establishment, construction, or installation of measures designed for specific sites, such as animal waste management facilities, livestock water developments, and capping abandoned wells. Vegetative practices involve introduction or modification of plantings, such as filter strips or trees. Land management practices require site-specific management techniques and methods, such as nutrient management, irrigation water management, or grazing management. 
Producers can receive technical assistance to develop an EQIP plan and, after approval, to implement the plan. Decisions about which plans to fund are made by USDA at the state level, with local input. Applications are accepted and ranked throughout the year within each state. Applications are grouped with similar crop, forestry, and livestock operation applications and evaluated within the groups. Additional funding groups may be created to rank applications based on similar resource objectives, geographic area, or type of agricultural operation. After an application is selected and approved, USDA provides payments to help the producer offset the cost of each practice, as well as income forgone relating to that practice implementation. Participants are eligible to receive payments for both constructing structures and implementing land management practices. Of the total annual EQIP spending, 60% is allocated to livestock practices.
Under an EQIP contract, USDA pays up to 75% of the projected costs associated with planning, design, materials, equipment, installation, labor, management, maintenance, or training, or up to 100% of the estimated income forgone to implement certain conservation practices. This payment rate can be higher for limited-resource, socially disadvantaged, or beginning farmers and ranchers, provided this increase does not exceed 90% of practice costs. Initial payments are made in the year in which the contract is signed, but most payments are made after the practices are completed. 
Contracts have a term of one to ten years and payments are limited by direct attribution to individuals or entities. Total payments a person or entity can receive over any six-year period are limited to $300,000, except for projects having special environmental significance, which are limited to $450,000 over any six-year period. Individuals or entities with an average annual non-farm adjusted gross income (AGI) of $1 million or more for the three years prior to the contract period are ineligible unless they received at least two-thirds of their AGI from farming, ranching, or forestry. The 2008 farm bill created a case-by-case waiver to the AGI limitation if it is determined that environmentally sensitive land of special significance would be protected through a conservation program. The number and frequency of AGI waivers granted is not limited, is at USDA's sole discretion, and remains to be determined.
section_title: Program Funding
paragraphs: The 1996 farm bill authorized EQIP funding of $130 million in FY1996 and $200 million annually from FY1997 through FY2002. The 2002 farm bill significantly increased the annual authorized funding level incrementally from $400 million in FY2002 to $1.3 billion in FY2007. EQIP funding levels were revised in Section 1203 of the Deficit Reduction Act of 2005 ( P.L. 109-171 ) to limit funding to $1.27 billion in FY2007, while extending the authorization through FY2010 and providing $1.27 billion in each of FY2008 and FY2009, and $1.3 billion in FY2010. 
The 2008 farm bill further increased the annual authorized funding levels incrementally from $1.34 billion in FY2009 to $1.75 billion in FY2012. Funding under EQIP is mandatory (not subject to annual appropriations), and the program receives authorized amounts each year under the borrowing authority of USDA's Commodity Credit Corporation (CCC). Congress, however, has limited EQIP funding below authorized levels in every year since FY2005, through annual appropriations bills. Figure 1 identifies the authorized and actual funding levels for EQIP. The FY2011 full-year continuing resolution (Department of Defense and Full-Year Continuing Appropriations Act of 2011, P.L. 112-10 ) limited EQIP to $1.238 billion for FY2011—a reduction of $350 million from the authorized level of $1.558 billion in the 2008 farm bill. For FY2012, the Administration has proposed a limit of $1.408 billion—a reduction of $342 million from the authorized level of $1.75 billion.
Annual funding received for EQIP is allocated to the states by NRCS using a formula based on national priorities, natural resource need, efficiency and performance measures, and regional equity. The EQIP allocation formula uses 20 weighted factors based on the characteristics of agriculture and land use and resource considerations. Factors with the largest weights within the formula include irrigated cropland, non-irrigated cropland, non-federal grazing land, livestock animal units, cropland eroding above the tolerance level, and impaired rivers and streams. States that receive the largest EQIP allocations have remained consistent from year to year, with Texas, California, and Colorado receiving the highest levels of funding annually between FY2004 and FY2008 (most recent information available). States who obligate the most EQIP funding annually are similar to those who receive the largest allocations each year (see Table 1 ).
section_title: Subprograms
subsections: section_title: Agricultural Water Enhancement Program
paragraphs: One of two subprograms under EQIP is the Agricultural Water Enhancement Program (AWEP). The 2008 farm bill (Sec. 2510, P.L. 110-246 ) created AWEP to promote ground and surface water conservation and to improve water quality on agricultural lands. The program replaces two previous water conservation programs: the Ground and Surface Water Conservation Program and the Klamath Basin Program. 
Eligible partners or groups submit project proposals to conserve ground and surface water or improve water quality in a specified area. NRCS selects projects based on requirements established in a Federal Register notice and enters into agreements with selected partners. In FY2009, NRCS approved approximately $58 million for 63 projects in 21 states. In FY2010, NRCS approved approximately $19.8 million for 28 new projects in 10 states. An additional $40.4 million was made available in FY2010 for projects approved in FY2009. To date, only $5 million has been made available for new projects in FY2011. Once proposals for specific areas are selected, there are two methods for producers to sign up for an AWEP contract. Producers may either (1) apply directly to NRCS for approved agricultural water enhancement activities or (2) apply through the partner or group who submits applications on the producer's behalf. Funding is authorized as a separate amount from the general EQIP, at $73 million for each of FY2009 and FY2010, $74 million in FY2011, and $60 million in FY2012 and each fiscal year thereafter.
section_title: Conservation Innovation Grants
paragraphs: The second subprogram under EQIP is the Conservation Innovation Grants (CIG) program, created in the 2002 farm bill. The program, implemented through EQIP, is intended to leverage federal investment, stimulate innovative approaches to conservation, and accelerate technology transfer in environmental protection, agricultural production, and forest management. Examples of CIG projects include developing market-based approaches in conservation, demonstrating precision agriculture, capturing nutrients through a community anaerobic digester, and establishing a tribal partnership for regional habitat conservation. The program was reauthorized in the 2008 farm bill through FY2012 at an unspecified funding level of general EQIP dollars. NRCS uses its discretion to determine the level of general EQIP funds for CIG and annually allocates approximately $15 million for a national competition and up to $5 million for a watershed competition, such as the Chesapeake Bay or the Mississippi River basin ( Table 2 ). For FY2011, NRCS announced two funding competitions: a national competition to include the Chesapeake Bay and Mississippi River basin (up to $25 million available), and a separate competition for practices that reduce greenhouse gases and sequester carbon on agricultural lands (up to $5 million available). In addition, 32 states conduct, or have conducted, a state-level CIG competition, which has awarded over $17 million since FY2005. In FY2011, Louisiana, Missouri, New Hampshire, New York, Pacific Islands, and Washington are holding state-level competitions.
The 2008 farm bill made some modifications to the CIG program. Previously, grants could not exceed 50% of the project cost, with nonfederal matching funds provided by the grantee. The 2008 farm bill removed this requirement, though USDA still requires a 50% match of nonfederal funds. Also, the farm bill added an air quality component requiring that payments be made through CIG to producers to implement practices to address air quality concerns from agricultural operations and to meet federal, state, and local regulatory requirements. This air quality component is authorized at $37.5 million annually.
section_title: Selected Issues
paragraphs: EQIP continues to receive widespread support in the farm community and in Congress, as it remains the major source of financial and technical assistance to help producers implement conservation practices that address specific resource and environmental problems. During the 112 th Congress, several issues may attract congressional interest, including budgetary pressures, a continuing backlog of unfunded applications, program reauthorization, and measuring program accomplishments.
subsections: section_title: Mandatory Funding Levels
paragraphs: The 2008 farm bill reauthorized EQIP through September 30, 2012, with annual authorized funding levels of $1.2 billion in FY2008, $1.34 billion in FY2009, $1.45 billion in FY2010, $1.59 billion in FY2011, and $1.75 billion in FY2012. As shown in Figure 1 , the authorized funding level has continued to increase since the 2002 farm bill; however, annual appropriations acts have reduced the actual funding levels by a total of nearly $1.8 billion from FY2005 through FY2011. With the 112 th Congress's emphasis on reducing federal spending, similar reductions to EQIP could be considered either in the appropriations process or through possible reconciliation.
Another possible reduction to EQIP funding could come during farm bill reauthorization, as the authorizing committee seeks to offset funding for other farm bill programs. Most policy observers expect the next farm bill will be budget-neutral and written using only the current budget "baseline." No additional money is expected for new programs without corresponding offsets. Congress faces difficult choices about how much total support to provide agricultural conservation, and how to allocate it among competing programs.
section_title: Unfunded Application Backlog
paragraphs: A main justification for the large funding increase in the 2002 farm bill was to respond to a large backlog of producer demand that had been documented during the farm bill debate. Despite this increase in funding, the number of pending applications continues to exceed the amount of available funding (see Table 3 ). Although this gap now constitutes a smaller portion of applications, it is still an issue for many producers who seek environmental assistance and are continuously denied funding due to budgetary constraints. Many conservation groups worry that this could deter producers from applying and enrolling in the program. This issue will likely intensify if annual appropriations continue to reduce actual funding or if funding is reduced to offset additional funding for other programs.
One reason why higher funding has not resulted in the elimination of the backlog is that the average contract size has grown since the 2002 farm bill. The average cost of an EQIP contract has more than doubled from almost $7,800 per contract prior to 2002 to over $16,000 per contract since 2002. One reason for this increase could be the higher funding cap established in the 2002 farm bill that allowed large-scale livestock operations to fund waste management facilities and allowed the installation of more expensive conservation practices. According to NRCS, between 1997 and 2007, the top practice by cumulative cost-share dollars was waste storage facilities, which totaled $486 million over the ten-year period. Though the 2008 farm bill lowered the payment limitation to $300,000 over any six-year period, the average contract is still considerably less ($16,000) than the limit. This will continue to be an issue as it is widely believed that the lower payment limitation will not greatly reduce the number of unfunded applications.
section_title: Conservation Activity Plans
paragraphs: Section 2502 of the 2008 farm bill made certain conservation activities involving the development of plans eligible for financial assistance under EQIP. Traditionally, technical assistance provides the planning, design, and technical consultation functions, while financial assistance offers monetary support for implementation capacity. NRCS refers to these plans as conservation activity plans (CAPs). While the 2008 farm bill amendment specifically includes comprehensive nutrient management planning (CNMP), NRCS has expanded the list of eligible CAPs to include forestry management, energy management, and pollinator habitat, among others. 
CAPs are performed by third-party technical assistance providers, referred to as technical service providers (TSP), and must meet NRCS standards and requirements. EQIP payments are made to the EQIP participant, who then reimburses the TSP for the CAP. NRCS continues to provide the majority of technical assistance for EQIP, including development of plans eligible under CAPs; however, EQIP continues to serve as the primary program for funding third-party technical assistance activities. The use of CAPs and other third-party services could be a way to free up NRCS staff time for other EQIP activities. On the other hand, the additional administrative measures required to write CAP contracts could offset time savings devoted to technical assistance. This issue could be debated in the next farm bill as CAPs and their implementation are reviewed.
section_title: Measuring EQIP Accomplishments
paragraphs: From available records, NRCS can provide considerable information about EQIP contracts, including which conservation practices are being installed, and their design and maintenance standards. However, until recently, relatively little was known about what is actually being accomplished through EQIP contracts. To begin filling this void, NRCS has compiled information about various resource concerns that EQIP addresses. These data show that in 2007, the primary resource concerns addressed through EQIP spending included water quality (20%), plant condition (17%), soil erosion (16%), water quantity (13%), domestic animals (12%), soil condition (10%), wildlife and fish (7%), and air quality (5%). Little is known, however, about how enduring those conservation practices might be after the contract ends. Among the questions that NRCS is trying to address for all of its conservation activities, including EQIP, are how to (1) evaluate performance, (2) measure environmental changes, (3) evaluate cost-effectiveness, (4) determine which methods to use to identify environmental effects, and (5) determine which types of data should be collected to measure output. 
NRCS initiated a national review in 2003, called the Conservation Effects Assessment Project (CEAP), in an attempt to develop better answers to all these questions. CEAP was originally intended to account for the benefits from the 2002 farm bill's substantial increase in conservation program funding through the scientific understanding of the effects of conservation practices at the watershed scale. Only a few initial results are currently available based on cropland in the upper Mississippi River basin and the Chesapeake Bay watershed. Initial findings show beneficial effects from conservation practices as well as additional application needs. EQIP offers financial assistance to producers to implement many of the conservation practices analyzed in the CEAP assessment; however, the assessment does not correlate the effects and benefits of conservation practice to any one federal program.