Obama Keeps Subsidy Loopholes

For Immediate Release
January 6, 2010

Contact: Ferd Hoefner

Obama Betrays Campaign Pledge, Keeps Subsidy Loopholes for Mega Farms

Washington, D.C. January 6, 2010 – In a complete reversal of his number one agriculture campaign platform pledge, President Obama has issued his verdict on farm subsidy loopholes – the loopholes for mega farms win and family farmers and federal taxpayers are the big losers.

Speaking of farm subsidy payment limits, candidate Obama said this in the very first issue addressed in his campaign platform: “Most importantly, Obama will close the loopholes that allow mega farms to get around the limits by subdividing their operations into multiple paper corporations. Obama will take immediate action to close the loophole by proposing regulations to limit payments to active farmers who work the land, plus landlords who rent to active farmers.”

In tomorrow’s Federal Register, USDA will publish final regulations to implement payment limitations and the “actively engaged in farming” rules that determine who is eligible for subsidies. The rule is available today on the Federal Register’s Public Inspection List.

In direct contradiction of the campaign pledge as well as the recommendations of the U.S. Government Accountability Office and the USDA Payment Limitation Commission, the new regulation keeps the current gaping “active management” loophole in place, ensuring a continuation of annual taxpayer checks of hundreds of thousands and even millions of dollars to single farming operations.

“The best chance for real reform in a generation has been punted away,” according to Ferd Hoefner, policy director for the National Sustainable Agriculture Coalition. “Like other Administrations before, when push comes to shove, something is always more important to the White House politically than the fate of family farming, and they trade away subsidy reform in a heart beat. Once again, principle and sound public policy have been sacrificed on the altar of political expediency.”

Hoefner continued: “In his farm and rural campaign platform, candidate Obama noted that ‘Every president since Ronald Reagan has had the authority to close this loophole without additional action by Congress, but has failed to act.’ Sadly, we can now add one more President’s name to that wall of shame.”

The preamble to the rule to be published tomorrow notes that 73 percent of the over 5,000 public comments received specifically recommended that the active personal management loophole be closed, in keeping with the Obama campaign pledge.

The final regulation does retain some micro-reforms included by the Bush Administration in the interim rule issued last December 29. These require that contributions to “active management” be “regular and substantial” and “documented” but do not include an objective, quantifiable standard against which to measure those terms, and hence are of little practical usefulness, or as Senator Chuck Grassley (R-IA) noted at the time are “much about nothing.”

The final rule also fixes one significant problem with the Bush interim rule. Under the interim rule, all members of a corporation must be actively engaged in farming even if it is a small farm family corporation in which one generation is turning over control to the succeeding generation and the total payments are just a fraction of the payment limitation in any event.

The new final rule corrects for this overreach by allowing the family stockholders with majority interest to provide the labor and management provided that the total payments received by all stockholders in the family corporation equal less than one payment limitation worth of payments. (In the arcane world of payment limit law, one payment limitation worth of payments is one-half of the otherwise allowable total limit.)

“Fixing the unintended consequence of the interim rule with respect to family corporations operating relatively small farms is important, and the one good thing that can be said about the final rule,” said Hoefner. “However, the main story is that the big loopholes have been left intact and as a result the taxpayer will be forced to subsidize the destruction of family farming. This is nothing less than government sanctioned graft and fraud, with devastating social consequences for family farming and rural communities.”

Both the U.S Government Accountability Office (GAO) and the USDA Commission on the Application of Payment Limitations for Agriculture named the “actively engaged in farming” rules and more specifically the “active management” loophole as a key feature of current policy that leads to frequent abuse and weakens the integrity of the programs. In addition, GAO identified and illustrated associated schemes and devices used by unscrupulous subsidy beneficiaries to channel government payments through non-farming entities back to themselves. All of this is left intact by the new final rule.

In negotiating the 2008 Farm Bill, the principal antagonists on this issue struck a compromise outlined in the Statement of the Managers accompanying the bill that mandated USDA to rewrite the rules related to actively engaged farming definitions and to schemes and devices, and issue those new rules for public notice and comment. The compromise was completely neutral — it requires USDA to rewrite the rules, but does not say whether the Department should loosen or tighten the rules.

Though the final rule does not close the active management loophole, the preamble to the rule does say this in response to the outpouring of public comments asking for the loophole to be closed: “However, we are currently exploring whether the current definition could be amended in a manner that would be fair, equitable, and enhance program integrity. At this time, no changes were made as the result of this comment and other related comments.” It is unclear what that means, especially in light of the twelve months in which the interim rule has been under review in preparation for tomorrow’s publication of the final rule.

“Family farmers and taxpayers can only hope that this new exploration into a fair and equitable result that enhances program integrity will yield better results than this first weak-kneed effort,” said Hoefner.