On Enforcing Payment Limitation

GAO looked at how FSA is enforcing payment limitation rules.  The summary conclusion seems to be "improving, but with a ways to go".  I ran across this paragraph, which reminded me how Mike Campbell in the Sherman county FSA office in 1992/3 wanted us to make the process so simple it would put consultants out of business.  We failed to do it, and so have the people now in FSA (and Congress, especially Congress):

 Several FSA officials said that large farming operations receive assistance from consulting firms to help them comply with active personal management criteria. For example, a state office official said the documentation that consulting firms prepare for farming operations is consistently sufficient to support a determination of active personal management.

https://www.gao.gov/assets/720/710470.pdf

FSA Flip-Flops on Actively Engaged?

 Rural Blog has a post linking to a Progressive Farmer article on a change in payment limitation regulations published here. The article interprets it as a flip-flop, easing the requirements for payment limitation determinations.  I'm not sure that's right but  I'm 23+ years out of date on these technicalities, if not more, so I'll just quote the meat of the explanation:

After publication of the rule, stakeholders notified FSA of concerns regarding potential non-intended, adverse effects to farming operations comprised solely of family members. In streamlining the definitions for consistency, these revised definitions were inadvertently made applicable to farming operations solely owned by family members. This was not the intent of this rule change, and as revised, the definitions were more restrictive than they needed to be in order to provide intended consistency in the rule. Those more restrictive definitions were not intended to apply to farm operations comprised or owned solely of family members. Therefore, this document restores § 400.601 and the previous the definitions of “active personal management” and “significant contribution” in § 1400.3 that were applicable prior to publication of the final rule on August 24, 2020. The more restrictive definitions described in § 1400.601 apply only to farming operations comprised of non-family members that are subject to a limit in the number of farm managers seeking to qualify for actively engaged in farming based on a contribution of active personal management alone.

 There's a reference to a GAO study as well, which seems to be this.

Definitions of Farming: US Versus EU

Defining who is a "farmer" is complicated.  It's been 35 years since our legislation first tried to define "actively engaged in farming".

Yesterday I came across this piece, discussing EU's efforts first to define "active farmer" and now to define "genuine farmer".  The Irish are holding listening sessions with various farm groups (which are interesting in themselves, as different than US groups) which come up with various standards.

More on the Disaster Aid Bill and Payment Limitation

From the text of the bill:

"Sec. 103. (a) (1) Except as provided in paragraph (2), a person or legal entity is not eligible to receive a payment under the Market Facilitation Program established pursuant to the Commodity Credit Corporation Charter Act (15 U.S.C. 714 et seq.) if the average adjusted gross income of such person or legal entity is greater than $900,000.

(2) Paragraph (1) shall not apply to a person or legal entity if at least 75 percent of the adjusted gross income of such person or legal entity is derived from farming, ranching, or forestry related activities.

(b) In this section, the term “average adjusted gross income” has the meaning given the term defined in section 760.1502 of title 7 Code of Federal Regulations (as in effect July 18, 2018)."

So someone whose gross income combines farm and nonfarm sources has an additional hoop to jump through.  My impression is that FSA enforces the basic AGI limit by passing the appropriate ID to IRS and gets back data (likely just a flag) on whether the $900,000 limit is exceeded or not.  Now they'll have another determination to make, after that.  I'm sure FSA welcomes the additional work (NOT).

Payment Limitations in the News Again

Been a busy day so I didn't get a chance to follow up on this piece.

What strikes me is the idea that the payments were on a US Treasury database.  I assume it's a result of the more general law requiring transparency on US payments  Wonder how EWG and the farm community will react.

Beneficial Ownership for All, Not Just Farms

If I correctly understand current payment limitation rules (dubious, at my age it's questionable what I correctly understand) farmers are required to identify the beneficial owners of the legal entities which receive farm program payments.  "Beneficial owner" meaning the live body, as we used to say, who actually gets the money in the end.

That seems to me to be right and proper, so right and proper I come to agree with AEI, not something a good Dem often does, that this should be required for all legal entities.  Without such a requirement the rich and powerful can hide behind a paper veil of dummy corporations, fake partnerships, and trusts.

The Farm Bill and Payment Limitation

The Post editorial page says that Rep. Conaway got his nieces/nephews provision (see my previous post under this label) included in the farm bill, which will be included in the final appropriations bill, assuming Congress and the President can come to some agreement on it.

This seems to fit a long lasting pattern where public attention is limited in both time and scope.  So when people pay attention to how the farm bill is being put together in House and Senate payment limitation will get attention.  Attention means that the power of the lobbyists and "special interests" is somewhat diminished as the more fringe players have more of a place at the table.

But when public attention moves away from the subject the lobbyists/special interests then have more power.  Typically they exercise their power by adding provisions to appropriations bills or omnibus "must pass" legislation where the voices which oppose the provision, like the Post editorial writers, are drowned in concerns over the bigger picture--as now, whether or not part of the government will be shut down, mostly over a dispute over the President's "Wall".

Nieces and Nephews in Farming?

AEI notes the House Ag chair is pushing to allow nieces and nephews to be "persons' for payment limitation purposes:

"In the midst of this week’s negotiations over the farm bill, House Committee on Agriculture Chairman Mike Conaway (R-TX) is pushing to remove any limits on subsidy payments to farms through what has become known as his “nieces and nephews” provision. This provision would increase the number of people eligible to receive up to $125,000 in subsidy payments under one of two major income transfer programs, whether the people in question really participate in the farm business or not.* * *Currently, only two people per each farm business can be eligible for these programs — called Price Loss Coverage and Agricultural Risk Coverage — capping total payments to a farm business to $250,000. However, the “nephews and nieces” provision proposed by the current chair of the House Committee on Agriculture would substantially increase the number of people eligible for a payment. For example, an agribusiness owner with four “nieces and nephews” described as “actively engaged in farming,” because they participate in an annual earning’s conference call, would be allowed to classify those four people as “actively engaged” because of that call. The owners would then be able to increase the subsidy paid to the farm business up to a limit of $1.5 million a year.

Congressional Research Service on Payment Limitation

A new website has lots of Congressional Research Service reports (which are usually not made public, unless the member of Congress who requested the report releases it), including this one on payment limitation issues.

Defining "Engaged": Farming Versus Selling Guns

For several days we've known that Obama was going to announce actions on gun regulation which he could take on his authority, without relying on Congress to pass new laws.  I've been curious to see what they would be.  Remember that his actions on immigration are currently tied up in court because, it is claimed, he needed to follow the rule-making process in the Administrative Procedure Act (APA) and didn't   So my question was: would he try the same sort of thing on guns, or could he find some other ways to affect the sale and possession of guns.

It seems that he mostly has, and partially by definition of "engaged", which I find to be a parallel with the "actively engaged in farming" issue in payment limitation regulations. (Search for "actively engaged" to see prior posts on this.)

From this Post piece (currently with 1430+ comments):

That distinction centers on the phrase "engaged in the business." Those who are engaged in the business of selling firearms, such as firearm dealers, need to conduct background checks. Those who aren't, such as individuals selling guns, don't.

 The Post piece includes an interview with a law professor, whose discussion could equally apply to the "actively engaged" issue.  To recall: as Sen. Grassley can testify, some in Congress want the USDA to interpret "actively engaged" very strictly,  others want a very loose interpretation.  Typically because the farm state legislators are more continuously involved, USDA tends to follow the loose interpretation.  This favors the farm interest: everyone actively engaged can receive payments up to the limit.  For gun control, the politics reverse themselves: everyone actively engaged in gun dealing faces the regulations on sales.

The open question at the moment is a comparison of how Obama is promulgating his interpretation of "engaged" (i.e., proposed rule under APA or simply instructions to the bureaucrats) versus FSA's use of the regulatory procedure.  More to follow.

No End to Payment Limitation Fights

From Agri-pulse on the omnibus bill:

Cotton growers win relief from payment limit
Here are some key provisions for food and agriculture in the omnibus:
Cotton assistance - The bill would reinstate the use of commodity certificates, which provide a way around the $125,000-per-person limit on marketing loan gains and other forms of subsidies. The provision would help producers “sell their cotton on a more orderly basis, and it keeps us from having to take ownership of the cotton,” said Conaway.
The use of certificates ended in 2009 when Congress eliminated a limit on marketing loan gains. The 2014 farm bill restored a limit on marketing loan gains by including them in the $125,000 limit and didn't restore certificates. But the cotton industry argues that the $125,000 limit ($250,000 per married couple) has created challenges for individual growers while threatening to disrupt cotton marketing.

Bottom line.  Despite the actively engaged change I discussed yesterday, a well-organized interest group has ways to advance their interests which don't involve the farm bill.

Actively Engaged Regulations Finalized--Is the 30-Year Struggle Over?

FSA published the final rule on "actively engaged" in farming determinations here.

"No major changes are being made in response to comments, because FSA has determined that the comments support the definitions and requirements for ‘‘actively engaged in farming’’ specified in the proposed rule and support limiting eligibility for farm payments. Also, there was no consensus amongst the comments for any alternative payment eligibility provisions that would address the 2014 Farm Bill requirements. FSA has made minor changes from the proposed rule in this final rule to respond to commenters’requests for clarifications of certain provisions"

 With age I've diminished interest and ability in parsing FSA regulations, so I'll leave that to others.

My reference in the title of this post is to the 1985 farm bill, which I believe IIRC added the actively engaged provision to the payment limitation regulations There's been a long political fight over how to define the term.  Perhaps the fight is now ended, given the declining importance of FSA programs, and the focus will shift more to the rules on the crop insurance side?  We'll see. 

Comments on Actively Engaged

Chris Clayton at DTN has a summary of the comments on the proposed rule for actively engaged determinations. Here's Grassley's statement at the original publication.

Comment on "Actively Engaged"

The Blog for Rural America criticizes the draft rule on "actively engaged". He may be picking up comments from the Coalition for Rural America, which I commented on here.The opportunity for the public to offer comments expired yesterday.

Illinois on "Actively Engaged" Proposals

Illinois Ext. has posted an analysis of FSA's proposed rule on "actively engaged" in farming.

After summarizing the background and some of the egregious cases in the past, their own analysis includess:

"By limiting the use of farm managers to multiply payments, the proposed changes appear to address many of the concerns with the current rules. A few notable issues remain and are briefly discussed here for the reader's consideration. As an initial matter, the differential treatment of entity types when it comes to payments is not addressed here because it is provided for in the statute and may need Congressional action to change it. [by definition--my comment] The proposed changes create differential treatment for farm managers without much explanation or justification. USDA could provide more clarity on how the changes apply to the first farm manager. USDA may also want to explain or justify exempting the first farm manager from the new definitions applied only to the additional managers.

A similar issue arises with the recordkeeping requirement. Again, the proposed rule provides different treatment for the first farm manager than for additional managers. In addition to reconsidering treating all farm managers the same, USDA might also want to consider whether this recordkeeping should also come with a reporting requirement. The long-standing concerns about this issue would seem to counsel verification of compliance with the regulation."

Sen. Charles Schumer and Payment LImitation

The good senator from New York was precocious, winning election to the State Assembly and then to the US House in his twenties.  He's notorious as a publicity hound, and I strongly suspect in his early days aggravated his elders and betters.  That, I speculate, is why an early committee assignment was to House Agriculture Committee--why else would one stick someone so obviously and completely a city slicker on that committee if not to embarrass him?

I don't remember all the ins and outs, but I do remember that Schumer was active in pushing payment limitation provisions.  And here's a GAO report back to Schumer and Conte on their proposal to change the provisions in the 1985 farm, to tighten them up.   In considering the 1990 farm bill he proposed an adjusted gross income limitation, which was defeated then, but which finally passed.

A lesson for farm state legislators: never agree to put ambitious urbanites on your committee.  As Shakespeare warned:

Let me have men about me that are fat,
Sleek-headed men and such as sleep a-nights.
Yond Cassius has a lean and hungry look,
He thinks too much; such men are dangerous.

Rice and "Actively Engaged"--the First Shot Fired

From the chairman of the House subcommittee on farm programs:

Chairman Crawford cited the need for action by the Department to address the collapse in cotton prices due to actions taken by the Chinese government, stating, “USDA has the authority to address an issue that is making the marketing of cotton extremely difficult for cooperatives and marketing pools at a time when the markets are already beating them down.”  The Chairman called newly proposed “actively engaged” regulations "arbitrary and capricious," noting that the regulation "ignores the remarkable diversity and complexity in agriculture today."[emphasis added]  And, the Chairman called on RMA Administrator Willis to ensure that margin coverage being developed works for rice growers.

Do I have to say that cotton and rice growers are the most affected by potential changes to payment limitation rules?

Hat Tip to Farm Policy, which is shutting down next week.

After 29 Years, "Actively Engaged" in Farming

FSA published a proposed rule defining "actively engaged" in farming--from their press release:

Under the proposed rule, non-family joint ventures and general partnerships must document that their managers are making significant contributions to the farming operation, defined as 500 hours of substantial management work per year, or 25 percent of the critical management time necessary for the success of the farming operation. Many operations will be limited to only one manager who can receive a safety-net payment. Operators that can demonstrate they are large and complex could be allowed payments for up to three managers only if they can show all three are actively and substantially engaged in farm operations. The changes specified in the rule would apply to payment eligibility for 2016 and subsequent crop years for Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC) Programs, loan deficiency payments and marketing loan gains realized via the Marketing Assistance Loan program.

It's been a while since the 1985 farm bill, which I think may have been the first time "actively engaged" was used in payment limitation language.  As I've blogged before, I remember the DC bureaucrats trying to comprehend the statutory language and come up with regulations and handbook instructions. Was that when the "left hand" and "right hand" first entered the picture (a farmer had to contribute labor, management, capital, equipment, etc. to the operation, but not all of them so we tried to clarify which combinations would qualify by using the two categories).  Anyhow, after long effort ASCS got the rules out and the training prepared only to have enough big shots exert enough influence on their Congressional representatives to force ASCS to reverse directions.  Again, if memory serves, and it's less reliable these days, the biggest loophole was managerial contribution: in effect, if John Goldbrick Doe, living as a beach bum in Key West, but one of the heirs to Sam Hardworking Farmer Doe, participated in a conference call with the other heirs and agreed to a share lease of the inherited land to Joe Dirty Hands Farmer, JGDoe could get a share of the payments.  (I may be exaggerating.)

The bottom line is "actively engaged" is a judgment call, and there's a Heisenberg principle at work: issue a regulation and the lawyers will change the reality, at least the legal reality, so the regulation won't work as it was originally intended.

Sen. Grassley has said the FSA proposal isn't as tough as he proposed.  We'll see if it survives the comment period.

PS: this issue shows the irrelevance of the President to much bureaucratic work.

Actively Engaged

Another chapter in the saga of "actively engaged"--from Farm Policy's report on the Senate Ag hearings:

Sen. Stabenow: “And finally, Mr. Chairman, one of the things I’m concerned about is that we’re hearing that the USDA feels constrained when defining actively engaged on the farm. I know this is a very challenging issue going forward. But I just want to clarify that the lead negotiators, those of us in the House and the Senate, understood the existing authority and discretion of the department, and want to work with you on this.
“When we look at the fact that CBO is estimating that the PLC and marketing loan programs could pay out as much as 16 billion more than we anticipated, it’s very important we have accountability, and [those go] actually to those who are farming. And so it is very important.
“I would just urge you that in our bill, nothing in the farm bill is preventing the USDA from exercising existing authorities or discretion to make the definition as clear and strong as possible. And I think for the effectiveness and the integrity of the programs it’s really important that the department move forward on this, and look forward to working with you on that.”
Sec. Vilsack: “The way in which the farm bill was crafted strongly suggests that whatever we do does not specifically apply directly to family farming operations. Also, with reference to family farm corporations, the limitation of one management exemption applies. So what we are focusing on are the general partnerships and limited partnerships that have often been the source of concerns.
“And that is where our jurisdiction, I think, is relative to actively engaged, and that’s what we’re focused on. And we will definitely come up with hopefully a more concrete and more specific definition so that folks understand precisely what applies and what doesn’t apply. But I think it is important to point out that it’s primarily focused on partnerships, limited and general partnerships.

Actively Engaged

Politico anticipates the proposed rule defining "actively engaged" in farming, as the lead bit in an interview with Secretary Vilsack. 

The Agriculture Department is getting ready to tell a lot of people who’ve been getting farm subsidy checks without lifting a hay bale, swinging a pitch fork or driving a tractor that they’re cut off

Read more: http://www.politico.com/story/2015/02/usda-city-farm-subsidies-114955.html#ixzz3QyJyf6vf

It will be interesting to see what's proposed and how it fares.  My own bet--nothing will be finalized in this administration.