Cash Leasing Increasing?

Extension reports an increase in cash leasing as opposed to shares, suggesting an increase in the use of crop insurance to handle risk means farmers are more able to accept the increased risk of cash leasing.  There's another possible contributory cause: the declining impact of farm program payments. Relatively speaking, such payments are less important these days; payments have gone down and prices have gone up.  When payment limitation is a problem, there's an advantage to share leasing. But with the lesser importance of farm programs, there's also less incentive to worry about payment limitation in managing your affairs.

The NRA Is More Powerful Than the Farm Bureau

Why do I say that?  The Post has been running articles on guns, and yesterday's piece describes how, when the ATF revokes a gun dealer's license, games can be played so a relative gets a license and the gun shop goes on as before. Apparently these games  over who is the entity receiving the license are permitted by the terms of the relevant law(s) and the way Congress has directed the ATF to administer the law.

While the supporters of farm program payments such as the Farm Bureau have exerted influence over the payment limitation provisions of the law, including issues of who is considered the entity receiving payments, they don't seem to have been quite as successful as the NRA.  The last I knew, FSA was still looking for paper entities.  It may not be a great distinction, but when the issue is payment limitation, FSAers will take anything they can find.

IRS, FSA, and Adjusted Gross III

A followup to this post

FSA notice PL-216 has been issued with a set of questions and answers ( which demonstrate some of the complexities of synchronizing FSA and IRS data). I should have anticipated FSA and IRS would have such problems--for example, the issue of whether a power of attorney is acceptable by IRS. Also turns out my previous posts on the subject should have referred to notice PL-213, which told counties the letters to producers based on IRS info were being mailed from Kansas City.  I'm getting old.

IRS, FSA , and Adjusted Gross II

Still dealing with PC problems, but I need to get back to this subject. Here's the Iowa State's pdf paper
and a paragraph from it:

In the fall of 2010, FSA offices received a list of people who the IRS claimed did not send in their CCC 927 forms to Fresno. Those farmers then began receiving official notices of the delinquency in the mail. It is believed that the problem involves the unfamiliarity of the IRS with the CCC forms. The IRS has been notified of the issue and is being further advised as to the nature of Form CCC 927 and how it is to be processed.

In my hurried reading earlier, I was confused by this.   Rereading and reading between the lines here's what I understand:

• some farmers participating in the program sent their CCC-927 forms, authorizing IRS to tell FSA whether their AGI was above the limit, to IRS in Fresno
• since this was the first time for the process, some IRS people in Fresno didn't know what the forms were and what to do with them (probably particularly in the case of misaddressed forms)
• some farmers who were supposed to send in their forms didn't
• FSA presumably gave IRS a list of tax ID's of program participants who should have supplied CCC-927's.
• IRS matched the list from FSA against their list of CCC-927's received.  They gave FSA a list of ID's for which they hadn't recorded a CCC-927, either because it got lost, was misprocessed, or was never sent.
• FSA broke the list down by county and sent it out.  (Maybe I missed it, but I would have expected a PL notice to have gone out as well. So for this and the next steps, I'm relying on Iowa State.)
• The FSA county offices notified their program participants that no CCC-927 was recorded, meaning eligibility for payments was in question.

That's as far as I'd go without seeing FSA procedure.  These sorts of matching efforts between bureaucracies are difficult to work through. If the producer knows she mailed the form, she's going to be mad, and scared about maybe losing her payments, or at least going through a lot of hassle.  If he didn't mail the form, he's maybe going to lie and say he did, because who's to know.  Either way the poor person at the counter in the county office is going to take some heat.  Eventually, after some time, the systems will get worked out and expectations established, but not this fall.

IRS, FSA, and Adjusted Gross Income

Some problems in the process, apparently.

[Updated: Rereading the post at the link, I'm confused, and I'm losing faith in the underlying article. Will try to return to the subject soon.]

Humongous Farms?

Marcia Taylor at  DTN has a post on really big (where's Ed Sullivan when you need him) farms:

Giant farming companies--those with 250,000 acre scale and up--may be a new phenomenon to us, but they already are changing the competitiveness of global agriculture. Whether such scale can succeed here is still a big question, but it's becoming the norm in the former Soviet Union, Brazil and Argentina.

The current setup of the farm programs is something of a handicap to such large farms in the US, but as a commenter notes, changing over to crop insurance with no payment limitations would change the parameters. If such farms do come to the U.S., there won't be many towns left west of the Mississippi, at least not farming towns.

Peterson on Payment Limitation

Today's FArm Policy led with this:

The Washington Insider section of DTN noted yesterday (link requires subscription) that, “Shifting away from direct payments [related graph] would go a long way toward resolving the problem of farm payment limits, which Ag panel Chairman Peterson sees as the main reason for opposition to federal farm program. ‘A lot of the huge payment issues would go away if you don’t have direct payments,’ Peterson said. Direct payments, he says, are what generates ‘all the opposition because we make payments to people who aren’t farming [such as] people who own land [but] who live in New York City.’

I'm not sure I follow his logic.  Yes, there's a difference between saying Bigshot farmer got $X in taxpayer money and saying he got $X in taxpayer subsidized insurance indemnities, but it's not that big a one. Certainly it won't fool the smart people in the food movement, and I doubt their friends in the mass media.  Maybe I'm wrong--twill be interesting to see. 

I believe I'm correct in saying, as a general rule, the people who get indemnity payments and the people who get direct payments should be the same people: i.e., those who have an interest in the crop.  There may be minor differences in how the rules work and there may be major differences in the administration of the rules, but again we'll see.

Payment LImitation and Crop Insurance

Some random thoughts triggered by EWG's publication of crop insurance data and the various testimonies before the House Ag committee on the trade-offs between FSA farm programs and insurance.

One thing not yet mentioned: payments under most FSA programs are subject to limitation, crop insurance is not.  So it would be logical for big farmers to push for putting more benefits under the crop insurance umbrella rather than FSA.  (What does that mean--raising benefits, cutting the loss needed to trigger payments.)  Cutting against that logic is the fact that cotton and rice producers seem to be the biggest fans of the traditional FSA programs, and not of crop insurance.

It might be possible to apply a payment limitation, or indemnity limit, to crop insurance--continue to subsidize the administrative costs and indemnities up to a given figure.  After all, FDIC insures savings accounts only up to $200,000 ($100,000 permanent); car insurance limits the liability amounts; homeowners insurance limits liability.

EWG Subsidy Database and the Farm Bill

The Environmental Working Group is knocking USDA for failing to provide farm program payment data tied to individuals when the checks were written to entities.  Seems USDA is estimating it would cost a bunch of money ($6.7 million) and Congress changed the law so they don't have to.  I'm not a real fan of EWG, I didn't like it back in the last century when they won their court case to get the payment data, but seems to me they're in the right here. Given Obama's emphasis on transparency, it's going to be difficult for the ag committees to hold the line on this one.

Actively Engaged Definition

Via Farmgate, an Iowa State interpretation of FSA notices.

Reducing Payment and AGI Limits

That's in the Presidents budget(page 71):

The Administration proposes to limit farm subsidies to wealthy farmers by reducing the cap on Direct Payments by 25 percent, and reducing each of the Adjusted Gross Income (AGI) commodity payment eligibility limits for farm and non-farm income by $250,000 over three years. This proposal will allow the Department of Agriculture (USDA) to target payments to those who need and can benefit from them most, while at the same time preserving the safety net that protects farmers against low prices and natural disasters.

Chris Clayton on Actively Engaged

Chris Clayton summarizes the debate on the FSA final rule on "actively engaged". Unfortunately he's a victim of the stupid GPO system, which doesn't give you a permanent URL for the document, so his link doesn't work.  And, it turns out, regulations.gov is no help, because, as of 4:30 pm, it hadn't been updated with today's issue of the Federal Register.

Fortunately, the expert bureaucrats at FSA have already updated their website with the link to the regs.
Way to go, JK and JB.

Payment Limitation Rules Proposed by Christmas?

From the Delta Farm Press:

“I expect — and I don’t want to create any more anxiety out there than already exists — but I expect we will be announcing our proposals for rules governing payment limits and actively engaged as well as a memorandum of agreement with the IRS,” said James W. Miller, undersecretary of agriculture for farm and foreign agricultural services.
Miller, the keynote speaker at the USA Rice Federation’s Rice Outlook Conference in New Orleans on Thursday, said he anticipates the regulations for the new payment limit rules and the implementation of the new crop disaster program known as SURE, could be published by the end of the year.

I might even rouse myself to read the darn thing (I assume an interim final rule) but I'm sure it will be fun and games for FSA and farmers to figure out.

FSA and Payment Limitation

This Agweek report should, but won't, cause the greens and foodies to have a second thought about tightening payment limitation rules. Why? It shows, at least to someone who's familiar with the process, the complexities of enforcing the existing rules. I'd guess this case has probably taken several years worth of USDA employee time. Bottom line: if someone lies, how the hell does a government bureaucrat find the lie? More important, how do you get enough proof to convince a Federal prosecutor he or she can convince a jury of the farmer's peers to convict? And finally, how do you get the money back? Those difficulties can be daunting. I suspect, but don't know, the psychology is often similar to dealing with a problem employee, or a problem person; it's easier to close one's eyes, to let the possible problem pass, to let the cup pass from one.

That's why we need a certain number of classic bureaucrats, those who self-righteously want everyone to obey the rules, to the letter.

Capping Marketing Assistance--Corrected

From Obama's budget:

This proposal would limit farm commodity payments to $250,000 per person to direct payments to those farmers who most need them. This would be accomplished by maintaining the 2008 Farm Bill payment limits for Direct and Counter-Cyclical Payments ($40,000 and $65,000 respectively), but capping marketing assistance loan gains (price support payments) at $145,000 per person. The 2008 Farm Bill eliminated all caps on marketing loan gains, which were previously capped at $75,000 per person ($150,000 if you had multiple farms). According to the Department of Agriculture's 2007 Agricultural Resource ManagementSurvey, roughly 16 percent of farms had sales of greater than $250,000, yet they collected about 57 percent of all commodity payments.1

I may be missing something elsewhere in the fine print, but I think this is different than Obama's proposal earlier (limiting payments to farmers who have gross income over $500K). [Updated--removed last sentence--I don't think the newspapers were the ones who said Obama was holding to his original proposal--sometimes it's hard to remember what you read where.]

[5-8-09 Correction--I've found the basis for reports that Obama's budget persists in the elimination of payments to farmers getting over $500K--page 86 of the terminations and reductions. So I was wrong, stopping too fast in my research. Apologies for misleading anyone.]

Payment Limitation Twists

John Phipps seems to report a reaction to the FSA forms.

Dan McGlynn Makes the Headlines, or Foodies Don't Read

Obama Foodorama tears USDA up, mentioning poor Dan by name (disclosure: a former co-worker). Seems Monday was the last day for comments on the interim payment limitation regulations, Dan's name was on the document to receive comments (he's acting division chief until the Dems get their people in place), he was on vacation Thursday and Friday, and his mailbox got full.

The anger was understandable (at least, if one assumes the comments would be important in any decisions. That's not an assumption I would make, however.)

The Foodorama outburst is interesting as just another instance of the old IT rule: "When in doubt, read the [manual] instructions." The regulations.gov posting of the interim rule says: "You may submit comments by any of the following methods: E-mail: Dan.McGlynn@wdc.usda.gov. Fax: (202) 690-2130. Mail: Dan McGlynn, Acting Director, Production, Emergencies and Compliance Division, FSA, U.S. Department of Agriculture (USDA), Stop 0517, Room 4754, 1400 Independence Ave., SW., Washington, DC 20250-0517. Hand Delivery or Courier: Deliver comments to the above address. Federal eRulemaking Portal: Go to http:// www.regulations.gov. Follow the online instructions for submitting comments [emphasis added].

So it was possible for people to submit their comments, even though FSA's IT people didn't anticipate the volume of comments coming to Dan's inbox. I retain my dark suspicions of the regulations.gov website and process--I suspect it was a Bush admin add-on which never got integrated into the regulations process in the agencies, as in FSA. (Just as the Obama admin will have some ideas which get added on and not integrated into the bureaucratic process.)

An Administration Failure on Pay Limits

The NYTimes has a front page story on the failure of the Obama administration to get support for its ill-conceived changes to payment limitation. It shows the problems in hitting the ground running for a new administration. To the city slickers, even including OMB director Orzag, it sounded good. But I'm sure they didn't check with the remaining division directors and branch chiefs in FSA for a reality check. And apparently, John Berge, who's supposed to be the White House liaison to USDA and a former FSA state director, wasn't consulted. I doubt the White House checked with any of the "reformers" in agriculture, those who want to reduce payments. If they did, I'm not confident people like EWG would have spotted the problem. That's why you need bureaucrats, to give a reasonably objective appraisal of the pluses and minuses of a policy proposal.

The problem is that reputation is almost all you have in DC--if you're known as someone who knows her business and keeps her promises, you have clout. Screw up, and that becomes your reputation and your clout dwindles.

In Defense of Checking With IRS

Republican members of House Ag have written to USDA objecting to the requirement that producers sign IRS forms granting FSA access to their data (see this post). From the letter:

We did offer a choice to producers. Congress allowed for a verification of income statement, prepared by a certified public accountant or another third party acceptable to you, to be submitted every three years that confirms the producer’s adjusted gross income which makes he or she eligible to receive payment.

By forcing every producer to give USDA the power to verify with the IRS information submitted by the farmer or rancher takes away this choice, unnecessarily invades privacy and contravenes the intent of Congress. We, of course, do not want ineligible producers receiving payments, but Congress provided an explicit mechanism to address the problem without involving the IRS

So why would FSA bureaucrats do differently? Basically because it's easier, more accurate, less expensive and less revealing of private data. Other than that, the Republicans' suggestion would create jobs, increasing the employment of CPA's, so no doubt FSA should scrap its plan and go with the Republican one.

Shall I explain? (Note, I don't really know what FSA is planning, but I know the sort of proposal I would take to USDA management and IRS, if I were still there.)

Very simply put:

• FSA would create a file of the tax ID's of the producers subject to the AGI limit.
• FSA would give the file to IRS.
  
• IRS would, from their data, create a file of tax ID's whose tax return shows an AGI amounts over $500,000 (or whatever is the appropriate figure). Note the actual amount wouldn't be on the file, just the fact the AGI level was exceeded.
  
• IRS would match the data on the two files, and create a return file showing the tax ID's of the matches.
• FSA would take the return file and sit down with the producers to resolve the discrepancy between their statement that their AGI was below the limit and IRS indication it was above.

That solution appeals to a DC bureaucrat--it treats everyone the same, all the work of handling people who are complying with the rules (i.e. 99 percent) is done by computers, and you only have to disturb people when there's a good possibility of a problem of fraud.

I'm not sure what appeals to a county office bureaucrat--is it easier to explain to a producer why he or she needs to sign the IRS form or why they need to get a CPA? My guess is the latter.

Far be it from me to suggest that any farmer would ever have a CPA lie, but as a taxpayer I'd sooner trust IRS's report.

It would be an interesting question to see if Pell Grants are checked with IRS. See this for required documents

Little Known Fact About Farming and Taxes

Trying to track down a cryptic bit on payment limitation and ACRE, I ran across this from a footnote in the Congressional Research Service report on the 2008 farm bill:

Farms overwhelmingly report losses for tax purposes (because of cash accounting, depreciation, and other practices), even though USDA farm income numbers are positive. For example, in 2004, two-thirds of all Schedule F tax returns showed a loss, resulting in a sector-wide net farm loss of $13 billion for all Schedule F returns. By comparison, USDA farm income data showed an $80 billion profit. Even for “large” farms with sales over $250,000, about one-third report a loss for tax
purposes.