by Howard Leathers
Other papers in this series on commodity programs and the dairy program discuss how the 2018 farm bill may affect the vast majority of farmers. Other provisions, however, may have a significant impact on farmers at both ends of the extremes: huge and wealthy farmers may be affected by payment limitations, while small, beginning, and minority farmers may find specific provisions have potential benefit for them. In this paper, we review these provisions as they exist in the August 2018 House and Senate versions of the 2018 farm bill.
Wealthy farmers and large farmers may bump up against payment limitations affecting large farms and/or income limits affecting wealthier farmers. The 2018 House and Senate versions of the proposed farm bill have different approaches to the issue of payment limitations. To understand those differences, we need to review payment limitations in the 2014 farm bill.
The 2014 farm bill put a payment limitation of $125,000 on farm program payments a farm could receive. There was an additional $125,000 limit, however, for a farmer’s spouse, or for “immediate family” -- parents or children -- if they were directly involved in operating the farm. But what if the farmer’s extended family, nieces or nephews or cousins or even unrelated individuals, helped in the direct operation of the farm? The business organization structure the farm used dictated granting of additional limits in the 2014 bill. For example, if the farm organized as a limited partnership or a joint venture, then additional limits were allowed permitting up to three “farm managers” as partners, even if those farm managers were not working on the farm. Farms organized as an S-corporation or limited liability corporation received no additional limits.
The proposed 2018 House bill changes the 2014 bill to allow additional limits for S-corporations and limited liability corporations. It also treats nieces, nephews, and first cousins as “immediate family.” The result is that the House version would relax the payment limits, compared with the 2014 bill.
The proposed 2018 Senate bill is concerned that some farmers seemed to take advantage of the “limited partnership” loophole described above, naming individuals as farm managers who actually contributed little to the farm except to create an additional $125,000 subsidy allowance. Under the language in the Senate version, “farm manager” partners (eligible for the $125,000 payment cap even though they do not provide active labor for the farm) would be limited to one, rather than three under the 2014 law. Thus the Senate version makes the payment limitation rules stricter than under the 2014 bill.
The second rule affecting large or in this case, rich, farmers’ eligibility, is the income limitation rules. Just as with payment limitations, the House version makes the income limitation looser, so fewer farms would be made ineligible, and the Senate version makes the income limitation stricter, so more farms would be made ineligible).
The 2014 bill used adjusted gross income (AGI) from a farm’s tax forms, averaged over the most recent three years, and made any individual with AGI greater than $900,000 ineligible to receive farm subsidy payments. According to a USDA study, less than 1% of farms were made ineligible by this 2014 farm bill limitation. The House version of the 2018 farm bill relaxes this limitation by exempting “pass through businesses,” which include financial arrangements such as partnerships and Subchapter S-corporations, from the AGI restriction. The Senate bill maintains the language of the 2014 bill, but reduces the limit from $900,000 to $700,000.
At the other end of the economic spectrum, both the House and Senate versions of the 2018 farm bill contain numerous provisions intended to help beginning farmers and socially disadvantaged farmers. In general, both versions are slightly more generous in these programs than the 2014 farm bill, with the Senate version slightly more generous than the House version.
The most important government program for beginning and socially disadvantaged farmers is the Farm Service Agency (FSA) loan guarantee program. Under this program, a farmer denied a loan by a commercial lender can apply to FSA for a letter which guarantees the lender will receive 95% of the loan amount in the event the farmer is unable to make required payments. Armed with such a letter, farmers can return to the commercial lending market and receive more favorable consideration. Under the 2014 farm bill, the limit on loans which could receive an FSA guarantee was $1.39 million. Under both the House and Senate versions, that limit will increase to $1.75 million.
The “2501 program,” which provides outreach, education, and technical assistance to socially disadvantaged farmers and farmers who are military veterans, received $10 million annually under the 2014 farm bill. A related program, the Beginning Farmer and Rancher Development Program (BFRDP), provided grants to groups and public-private partners who would develop programs designed to assist beginning farmers. The 2014 bill provided $20 million for this program. The House version retains both programs and their funding levels, but makes some changes in BFRDP which may improve operational efficiency. The Senate version combines the two programs into a single program, and raises funding to $50 million annually.
Other proposed farm bill programs contain provisions which provide advantages to small and beginning farmers, relative to large established farms. The dairy program described elsewhere in this series, for example, provides relatively high benefits for lower levels of production. Likewise, the crop insurance program provides exemptions for farmer payments for beginning and socially disadvantaged farmers in specific instances. Finally, conservation programs have special provisions for these farmers which provide expanded benefits.
