The U.S. agricultural sector benefits our economy and the health of our nation. However, if not properly managed, agricultural activities can impair the nation’s water, air, and soil; disrupt habitat for endangered species; and constrain groundwater resources. For example, sediment produced during routine agricultural activities may run off the land and reach surface waters, including rivers and lakes. Sediment can destroy or degrade aquatic habitat and can further impair water quality by transporting into area waters both the pesticides applied to cropland and the nutrients found in fertilizers and animal waste. These and other water quality issues are of concern in a number of U.S. agriculture-producing regions, including the Midwest and along the Mississippi River. Agriculture is also a major user of groundwater and surface water, which has led to water resource concerns across the country, particularly in the West. In 2000, irrigation accounted for 65 percent of the nation’s consumption of fresh water. Agricultural production can also impair air quality, when wind carries eroded soil, odors, and smoke, and may lead to the loss of wetlands, which provide wildlife habitat, filter pollutants, retain sediment, and moderate hydrologic extremes. EQIP is one of a number of USDA conservation programs designed to mitigate agriculture’s potentially negative environmental effects. EQIP provides cost-share funds and incentive payments for land used for agricultural production and supports around 190 conservation practices, including constructing facilities to temporarily store animal waste; planting rows of trees or shrubs to reduce wind erosion and provide food for wildlife; and planning the amount, form, placement, and timing of the application of plant nutrients. EQIP is designed to fund conservation practices in a manner that helps the program achieve the following national priorities identified by NRCS: reducing nonpoint source pollution (nutrients, sediment, pesticides, or excess salinity), groundwater contamination, and pollution from point sources (such as concentrated animal feeding operations); conserving groundwater and surface water resources; reducing emissions that contribute to air quality impairment; reducing soil erosion from unacceptable levels on agricultural land; and promoting at-risk species habitat conservation. The Federal Agriculture Improvement and Reform Act of 1996 created EQIP by combining four existing conservation programs into a single program. The Farm Security and Rural Investment Act of 2002, the farm bill, reauthorized EQIP and increased its authorized funding from about $200 million in 1997 to current levels of over $1 billion. The 2002 act required that at least 60 percent of EQIP funds be made available for conservation practices relating to livestock production. In addition, it authorized EQIP funds for specific conservation purposes—(1) funds for producers to install water conservation practices to improve groundwater and surface water conservation (the Ground and Surface Water Conservation component of EQIP) and (2) funds for water conservation practices in the Klamath Basin located on the California/Oregon border (the Klamath Basin component of EQIP). Annually, NRCS headquarters officials determine the amount of funding each state receives, while state and local NRCS officials decide what conservation practices to fund in their state and local communities. The total amount of EQIP funding a state receives can be derived by adding together that state’s funding for all categories. Table 1 describes the different categories of funding that states received for fiscal year 2006 and NRCS’s process for allocating that funding. As the table shows, each category of EQIP funding is allocated to the states using a different process. For the general financial assistance formula, the availability of natural resources accounts for approximately half of the funds allocated, and the presence of environmental concerns or problems accounts for the remainder. Table 2 shows the factors and weights used in the financial assistance formula for fiscal year 2006. In fiscal year 2006, approximately $652 million was divided among the states through the general financial assistance formula. For example, according to the formula, EQIP funding for nonirrigated cropland (accounting for 3.2 percent of financial assistance) totaled $20.9 million. The state with the most acres of nonirrigated cropland received $1.7 million of the funds associated with this factor, and the state with the fewest acres of nonirrigated cropland received approximately $1,100. A state’s total allocation is composed of the funds it receives for each of the 31 factors. Although about 65 percent of EQIP funds are provided through the general financial assistance formula, other categories of funding can have a significant effect on the total amount of funds an individual state receives. For example, 35 percent of Utah’s fiscal year 2006 allocation was from general financial assistance. The largest category of EQIP funds Utah received—38 percent—was Colorado Salinity funds. Appendix II provides additional information on the 2006 funding allocation formulas for general financial assistance, Ground and Surface Water Conservation, performance incentive bonuses and Klamath Basin funding categories. Figure 1 shows the initial distribution of NRCS’s fiscal year 2006 EQIP allocations to the states in November 2005. States had to return any unused funds by June 2006 for redistribution to states with a need for additional funds. Appendix IV describes the amount of funding each state initially received in fiscal year 2006. NRCS’s process for providing EQIP funds to the states is not clearly linked to the program’s purpose of optimizing environmental benefits. In particular, NRCS’s general financial assistance formula, which accounts for approximately two-thirds of funding provided to the states, does not have a specific, documented rationale for each of the formula’s factors and weights. In addition, the financial assistance formula relies on some questionable and outdated data. As a result, NRCS may not be directing EQIP funds to states with the most significant environmental concerns arising from agricultural production. Although the 31 factors and weights used in the general financial assistance formula give it an appearance of precision, NRCS does not have a clearly documented rationale for including each factor in the formula and assigning or modifying each weight. The original EQIP formula was created in 1997 by an interagency task force that modified the formula created for a different conservation program—the Conservation Technical Assistance Program. The task force added and deleted factors and adjusted factor weights so that the EQIP formula better corresponded to the Federal Agriculture Improvement and Reform Act of 1996’s requirement that 50 percent of funds be targeted at funding livestock-related practices. Since the creation of the financial assistance formula, NRCS has periodically modified factors and weights to emphasize different program elements and national priorities, most recently in fiscal year 2004 following the passage of the 2002 Farm Security and Rural Investment Act. Furthermore, NRCS officials stated that they meet annually to review the allocation of funds to states. However, throughout this process, NRCS has not documented the basis for its decisions to modify factors and weights or documented how changes to its formula achieve the program’s purpose of optimizing environmental benefits. Thus, it is not always clear whether the formula factors and weights guide funds to the states as effectively as possible. For example, it is unclear why NRCS includes a factor in the formula that addresses the waste management costs of small animal feeding operations but not a factor that addresses such costs for large operations—large operations can also damage the environment and are eligible for EQIP funding. By not including the costs of the larger operations in its financial assistance formula, some states may not be receiving funds to address their specific environmental concerns. In addition, NRCS has not demonstrated that it has the most appropriate water quality factors in its formula. For example, the formula includes a factor addressing river and stream impairment but no factor for impaired lakes and other bodies of water. Moreover, it is not certain whether the impaired rivers and streams factor results in funds being awarded on the basis of general water quality concerns or water pollution specifically caused by agricultural production. As a result, it was not certain whether the formula allocates funds as effectively as possible to states with water quality concerns arising from agricultural production. While the factors in the EQIP general financial assistance formula determine what resource and environmental characteristics are considered when allocating funds, the weights associated with these factors directly affect how much total funding is provided for each factor and, thus, the amount of money each state receives. Factors and weights are key to ensuring states with the greatest environmental problems receive funding to address these problems. Small differences in the weights of the factors can shift the amount of financial assistance directed at a particular resource concern and, ultimately, the amount of money provided to a state. In 2006, if the weight of any of the 31 factors had increased by 1 percent, $6.5 million would have been allocated on the basis of that factor at the expense of one or more other factors. Such a shift could impact the amount of financial assistance received by each state. For example, a 1 percent increase in the weight of the specialty cropland factor with a corresponding decrease of 1 percent in the American Indian tribal land factor could result in large changes to the distribution of EQIP general financial assistance. According to our analysis, the state benefiting the most from such a change would receive $2.6 million more (a 7.2 percent increase in that state’s level of general financial assistance) and the state benefiting least from such a change would lose $2.7 million (a 13.5 percent decrease in that state’s level of general financial assistance). The potential for the weights to significantly affect the amount of funding a state receives underscores the importance of having a well-founded rationale for assigning them. To date, NRCS has not documented its rationale for choosing the weights. Some stakeholders we spoke with questioned NRCS’s assignment of weights to certain factors in the financial assistance formula because they did not believe NRCS’s formula adequately reflected the states’ environmental priorities. For example, NRCS’s general financial assistance formula allocates 6.3 percent of EQIP funds to the states based on factors specifically associated with animal feeding operations.