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Senators Prod USDA on 'Actively Engaged'

Published on: 07:33AM Jul 09, 2008
By Jim Wiesemeyer

 

via a special arrangement with Informa Economics, Inc.

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Sens. Grassley & Dorgan push USDA on farm program payment issue. Sens. Chuck Grassley (R-Iowa) and Byron Dorgan (D-N.D.) -- two lawmakers who have been at the center of the pay-cap issue during the course of the last two farm bills  -- are continuing in that role as USDA is in the process of implementing the 2008 Farm Bill.

In a letter to USDA Secretary Ed Schafer, Dorgan and Grassley called for the Ag Department to adopt stronger rules for eligibility under the 2008 Farm Bill, especially the issue of what constitutes being "actively engaged" in farming for the purposes of obtaining farm program benefits.

"The time to make changes in payment limits is now, during implementation of the new farm bill," the two lawmakers stated in their letter to USDA. Their focus on this issue to to help "restore integrity to our payment limit system."

"A significant contribution of labor and management" should be a key requirement in a farming operation for obtaining farm program payments, Grassley and Dorgan said.

It has been years since USDA addressed the issue of what constitutes being "actively engaged" in farming relative to farm program payments, and clearly Grassley and Dorgan think now is the time for USDA to update the rules in this area.

Following is the text of the letter from the two lawmakers to USDA's Schafer:

Dear Secretary Schafer,

As you begin the rulemaking process for the Food, Conservation, and Energy Act of 2008, we wanted to bring to your attention specific language in the bill.

Section 1603 of the Food, Conservation, and Energy Act of 2008 addresses changes in commodity program payment limits. In addition to the statutory changes, the Statement of the Managers directs USDA to produce rule changes, subject to public notice and comment, pertaining to actively engaged in farming rules and schemes and devices (Report 110-627, page 695). As the authors of bills and amendments to sharpen rules related to “actively engaged” and “schemes and devices,” we are requesting that USDA take immediate action to produce interim rules on these two issues that restore integrity to our payment limit system.

The time to make changes to payment limitations is now, during implementation of the new farm bill. The farm bill conference report calls on you to draft new regulations and implement new payment limitation changes for the 2009 crop or program year. As you rightfully indicated during the farm bill debate, “It is vitally important, however, that rules and regulations are drafted in such a way that they maintain the integrity of congressional intent and provide fair and equitable distribution of benefits.”

We urge you to specifically ensure that the USDA rulemaking process implements recommendations from the 2003 Report of the USDA Commission on the Application of Payment Limitations for Agriculture and the 2004 Government Accountability Office (GAO) report entitled Farm Program Payments: USDA Should Correct Weaknesses in Regulations and Oversight to Better Ensure Recipients Do Not Circumvent Payment Limitations. These reports recommend stricter enforcements and oversight to ensure that individuals who receive farm payments are actually “actively engaged in farming” and that the primary control requirement is met through proper oversight of schemes and devices that have historically been used to evade payment limitations.

Regarding actively engaged rules, we support the USDA Commission on the Application of Payment Limitations for Agriculture’s recommendation that the active personal labor and management requirements be combined into a single criterion for active labor and management. We also support the Commission’s recommendation that USDA “define active personal labor and management through rulemaking to ensure individuals’ contribution to the operation is meaningful and measurable.”

The GAO also identified the lack of a measurable standard for active management as a key cause of payment limitation abuse. According to the GAO, by not specifying such a measurable standard, USDA allows individuals who may have limited involvement with the farming operation to qualify for payments.

In addition, the GAO highlighted schemes and devices used to channel payments through “paper” farms and affiliated family-held non-farming entities back through to the same person or entity exercising primary control. The GAO found large farming operations that were structured as one or more partnerships, each consisting of multiple corporations that increased farm program payments in a questionable manner.

The amendment we offered during Senate consideration of the farm bill addressed both of these issues head on. While our amendment received majority support in the senate, it was not accepted. Portions relating to actively engaged and schemes and devices can be helpful to use as a starting point as you begin the rulemaking process.

The amendment specified that:

  • the total contribution of personal labor and active management should be at least equal to the lesser of 1,000 hours or a fifty percent commensurate share of the total number of hours required to conduct farming operations;
  • stockholders or members of an entity that collectively own at least 51 percent of the combined beneficial interest in the entity shall each make a significant contribution of labor and management to the operation;
  • no stockholder or member may provide labor or management to meet the requirements for individuals or entities that collectively receive, directly or indirectly, an amount greater than the payment limit;
  • crop share landowners claiming the special exemption to the actively engaged rules must rent land at usual and customary rates, with the share of the landowner commensurate with the share of the crop or income received as rent; and
  • USDA write rules regarding “primary control” to crack down on the types of schemes and devices uncovered by the GAO.

For your convenience, we are attaching the relevant language from the amendment to this letter and urge you to use it to the maximum extent possible in the drafting of the interim rule on these two critical subjects.

We request that you provide a briefing for us as soon as possible this summer to report about progress USDA has made with the interim rulemaking for payment limits and AGI in general, and on “actively engaged” and “schemes and devices,” in particular.

Thank you for your serious consideration of our request and your leadership on this important issue. We firmly believe that while the Administration did not get all of the reform it wanted in the new farm bill, the opportunity created by the Managers language on actively engaged and schemes and devices provides a second chance for a lasting legacy to ensure our farm program payments are justifiable and equitable for the next five years and beyond.


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