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New payment limit rules increase actively engaged contributions

USDA is publishing an interim final regulation that will require individuals and entities to make significant contributions of (1) capital, equipment, land or a combination of those and (2) personal labor or active personal management to be considered “actively engaged in farming.”

The new definition of actively engaged is part of a long-awaited announcement of the rules for implementing the payment limitation provisions of the 2008 farm bill. The rules were unveiled by Agriculture Secretary Ed Schafer late Friday (Dec. 19) and are scheduled to be published in the Federal Register the week of Dec. 22.

Besides the new rules for actively engaged, direct attribution and reconstitution of farming operations, the interim final rule also sets out how USDA intends to enforce the new adjusted gross income or AGI limitations in the Food, Conservation and Energy Act of 2008.

Schafer said the interim final rule will help address criticism by some in Congress and interest groups that farm program payments have too often gone to wealthy, corporate farmers, an issue that has been fiercely debated in the last two farm bills.

“Changes to program participation rules and qualifying income requirements will make farm program payments more defendable to America's taxpayers,” Schafer said. “This is a step in the right direction to ensuring that program benefits are targeted to active qualifying farmers and ranchers.”

Under the payment limit rules in effect since 1988, not every member of an entity had to contribute active personal labor or management. USDA said the interim final rule requires each partner, stockholder or member with an ownership interest to make a contribution of active personal labor or active personal management.

“The contribution must be regular and substantial and documented as well as separate and distinct from any other members' contribution,” USDA staff members said in a press release issued with the announcement. “The rule limits the ability of passive stockholders to continue to realize benefits from the entity.”

The staffers said program payments will be limited by direct attribution to individuals or entities. A legal entity is defined as an entity created under federal or state law that owns land or an agricultural commodity, product or livestock. Through direct attribution, payment limitation is based on the total payments received by the individual, both directly and indirectly.

Under the new farm bill, qualifying spouses are eligible to be considered separate persons for payment limitation purposes, rather than being automatically combined under one limitation with their spouse as they have been in previous farm bills.

State and local governments were eligible for payments prior to enactment of the 2008 farm bill. The 2008 act and this rule make such jurisdictions ineligible for payments unless such payments are earned on state-owned land and are used to support public schools. Payments under this exception are limited to $500,000 annually; the limitation is waived for states with a population of less than 1.5 million.

Under the interim final rule, the addition of individuals or entities to an existing operation to qualify for additional payments is more restrictive than under previous regulations. The prior rule in effect since 1988 said the acquisition of new cropland to the farming operation of at least 20 percent qualifies for the increase of an unlimited number of new persons and/or legal entities as eligible for payment.

“The rule changes the 20-percent increase requirement from cropland to base acres and only allows for the addition of one new person to the operation,” USDA said. “However, based on the magnitude and complexity of the change in the farming operation, the state Farm Service Agency office may approve additional persons or legal entities for payment in the farming operation.”

It said the change eliminates the loophole that previously allowed an unlimited increase in the number of limitations that could accompany a 20 percent increase in eligible land area that meets the definition of cropland.

For commodity and disaster programs, the new farm bill reduced the adjusted gross income or AGI limitation from $2.5 million AGI from all sources to a three-year average non-farm AGI of $500,000. Also, under the new regulations, an individual or entity must have a three-year average AGI less than or equal to $750,000 per year from farm income in order to qualify for direct payments issued under the Direct and Counter-cyclical Payment program.

The definition of income derived from farming, ranching and forestry operations was expanded to include, among other items, such items as the packing, storing and transporting of agricultural commodities; production of livestock products; farm-based production of renewable bio-energy; and in some instances, the providing of operational inputs to farmers, ranchers and foresters.

For conservation programs, the average nonfarm AGI limitation is $1 million or less for eligibility. However, an individual or entity who has non-farm AGI in excess of $1 million remains eligible for conservation programs only if 66.66 percent or more of the total AGI is derived from farming, ranching and forestry operations.

“In addition, the AGI limitation for conservation programs may be waived on a case-by-case basis if it is determined that environmentally sensitive land of special significance would be protected,” the USDA press release said.

The new farm bill required USDA to issue implementing regulations for the new farm bill within 90 days of enactment, which occurred in June. It also said the Agriculture Department was to offer a 22 percent advance direct payment to eligible producers by Dec. 1.

USDA has announced some implementing regulations, but had been unable to announce a sign up for the Direct and Counter-cyclical Payment program — and the availability of the 22 percent advance direct payment — until Dec. 19. The signup for the DCP program began Dec. 22.

Schafer told reporters attending an Oct. 14 press briefing at the World Food Prize Symposium in Des Moines, Iowa, he had submitted the rules for actively engaged to the White House for review. Apparently, the Office of Management and Budget required more than two months to approve the controversial payment limit rules.

Normally, USDA is required to set a 60- to 90-day period for public comment on such a rule, but the department can also issue an interim final regulation and schedule a 30-day comment simultaneously to expedite the rulemaking process.

USDA said comments on the regulation must be submitted to the Agriculture Department within 30 days of the date of publication in the Federal Register.

TAGS: Legislative
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