City Slickers

How farm subsidy checks end up in big cities

March 1, 1995

City Slickers: Chapter 2. How Do Farm Subsidy Checks End Up in Big Cities?

There is a long answer and a short answer to the question posed by this chapter.

For the long answer, the reader is referred to A Lawyer's Guide To Payment Limitations, a 189-page publication in the "Practice Guide Series for Federal Farm Programs," which is published by the American Bar Association and the National Center for Agricultural Law Research and Information at the University of Arkansas. Developed with funds provided by the government itself (USDA), the guide is aimed at the hundreds of attorneys nationwide who practice the art of ensuring that clients who want Federal farm subsidies can comply with USDA payment rules pertaining to eligibility and payment limitations.

The short answer is, it's easy to qualify for farm subsidies if you live in a big city. And it's perfectly legal.

Almost anyone who owns qualifying farmland, or who has a stake in a corporation, partnership or trust involved in farming can be eligible for Federal farm subsidy payments. USDA's byzantine rules require substantial paperwork, particularly for larger farms with complex business structures that bring in big subsidy payments. But beneath all the forms, procedures and bureaucratese is an underlying set of requirements that are not very tough to meet. You don't have to farm to get farm payments. You don't have to live on the farm, near the farm, in the county or in the state in which the farm is located. You don't even have to live in the United States to qualify for subsidies.

You do however have to be a "person" in the eyes of USDA in order to be eligible. But as it happens, "A 'person' may be many things," according to USDA. A "person" may be:

" individual farmer, an individual who is a member of a joint operation, a corporation (including Subchapter S corporations), a joint stock company, an association, a limited partnership, a trust, an estate, or a charitable organization."

Even a "State and all of its political subdivisions and agencies" can be considered a "person" and therefore eligible. A public school can be a "person," and receive payments, and so apparently can other Federal agencies. A husband and wife can be considered a "person" together, or if it benefits them they can figure out how each of them can be a "separate person" for purposes of qualifying. Even a minor child can qualify in combination with the parent or parents who have custody of the child.

"...unless the minor child has a farming operation in which the parent(s) has no interest and the minor child has established and maintained a separate household from the minor's parent(s), as well as personally conducting farming activities, including a separate accounting of such activities and operation...."

If you, your spouse, your corporation, your trust, your partnership, your state, your city, your school, or your minor child happen to be a "person" in USDA's expansive sense, you must then meet another test that is just as "rigorous." You must be "actively engaged" in farming.


"Actively Engaged in Farming"

According to USDA, "for programs where a 'person' is required to be 'actively engaged in farming' before any payments may be issued, producers applying for payments must provide information to their local County ASC committee [now CFSA committees] to substantiate their active engagement in farming. The County [CFSA] committee will use this information to determine the producer's contribution to the farming operation and confirm eligibility for payment."

The committees referenced here are composed of local farmers, elected by local farmers, who serve on a part-time basis for 3-year terms. In fact, only local farmers can serve on the committees, and only farms can elect the farmers who serve. Locally based USDA officials also have a formal role on the committees. Several potential problems arise with this system. First, farmers who themselves often receive farm program payments play a key and often uncomfortable role in determining if their neighbors are eligible for payments, and for how much. Second, and perhaps more important, the committees have very limited resources with which to investigate the quality and validity of information a program applicant provides to substantiate active engagement in farming. The committee's initial determination must be made within 60 days of when the applicant provides the information--and the information required is anything but straightforward.

According to USDA: "Generally, in order to be determined 'actively engaged in farming' a 'person' has to make a significant contribution of capital, land, and/or equipment to their farming operation, as well as a significant contribution of active personal labor and/or active personal management. Capital also includes the rental value of livestock." [Emphasis in original]

The term "significant contribution" is further defined by USDA as follows:

"If a 'person' provides only capital, or only land, or only equipment, a significant contribution of capital, land, or equipment is defined as 50% of the 'person's' commensurate share of the total capital, land, or equipment necessary in the farming operation.

"If a 'person' provides a combination of capital, land, or equipment, a significant contribution is defined as 30% of the 'person's' commensurate share of all of the capital, land, and equipment necessary in the farming operation.

"A significant contribution of active personal labor is when a 'person' personally provides the smaller of 1000 hours of personal labor or 50% of the 'person's' commensurate share of the total labor necessary in the farming operation.

"Local County ASC committees will be making determinations on whether a 'person' has made a significant contribution of management by looking at the type of management input a 'person' is personally providing in a farming operation and deciding whether or not the inputs provided are critical to the profitability of the farming operation." [All emphasis in original.]

Verifying such information with any confidence would be exceedingly difficult for the simplest farming arrangements. The true complexity--impossibility may be a better word--of the farmer committee's watchdog duties, as they "look at the type of management input," becomes evident when one recalls that, to USDA, "a 'person' may be a many things."

As it happens, these complex determinations are rendered unnecessary in many cases by "exceptions" in the regulations that often are the rule for determining who can receive Federal farm subsidies. For example, if a 'person' (i.e., corporation, partnership, etc.) is simply a landowner, the 'person' need not provide contributions of active personal labor or active personal management to the farming operation to be determined 'actively engaged' in the farming operation. This exception alone provides enormous latitude for absentee interests to collect farm subsidies, wherever they may live. In another "exception," if an "adult family member" somehow meets the "active personal labor" or (even less tangible) "active personal management" criteria in a joint operation comprised mainly of family members, that "adult family member" is considered "actively engaged in farming."

From even this brief summary of the rules of the game, it can hardly be surprising that hundreds of thousands of 'persons' in cities and suburbs can qualify for government farm subsidies--persons who in common sense terms have little to do with the farms that bring them the payments. The rules and regulations that USDA has developed to determine who is eligible for Federal farm subsidies may seem absurd or extraordinarily permissive to outsiders, particularly when the concepts embodied in those rules are applied to circumstances of other occupations or businesses, including farming enterprises for which no direct Federal subsidies are provided. But USDA's rules make perfect sense in the context of policies and laws that by purpose, design and function, link agricultural income transfers first and foremost to land and land ownership.

How do big city residents get farm subsidies? It is as if, in 1933, American taxpayers agreed to place a pile of money on any and all qualifying farmland and to perpetually replenish it. And then we allowed anyone who came to own that land thereafter the full right to those dollars, too. Farm subsidies are distinctly like the water rights that convey with land ownership in many parts of the western United States, except of course that taxpayers--not mother nature--are the source behind the steady stream of income subsidies. If you own eligible farmland you're entitled to draw all or part of whatever farm subsidy payments U.S. taxpayers are obligated by law to provide. And the more land you own, the more subsidy you can get, whether or not you ever set foot on the farm itself.