Policy Analysis: Support the Senate Ag Committee Pay Limits Reform

November 16, 2007

WASHINGTON (Nov. 16, 2007)—Oppose the Grassley-Dorgan Amendment

Senate Agriculture Committee Bill Reforms…

  • Saves Nearly $500 Million. Pay limits in the Senate Agriculture Committee farm bill save nearly half a billion dollars, according to the Congressional Budget Office. And those savings would increase if crop prices fall.
  • Provides 100% Benefit Transparency. The Senate Agriculture Committee bill provides for 100% transparency in farm payments, requiring direct attribution of benefits to each person by Social Security Number.
  • Eliminates Three Entity Rule. The Senate Agriculture Committee bill eliminates the three-entity rule that has allowed producers to increase benefits when they are part of numerous farm entities. Combined with the direct attribution requirements, no person would receive any more than the prescribed limits, period.
  • Direct Payments. For those who now use the three-entity rule to increase benefits, direct payments would be cut in half. Farmers not using the three-entity rule would retain the current $40,000 limit—$20,000 less than the House provided in its farm bill.
  • Countercyclical Payments. For those who now use the three-entity rule, countercyclical payments would be cut in half. Farmers not using the three-entity rule would see a $5,000 cut in these benefits each year. The $60,000 limit on countercyclical payments is $5,000 less than the House limit.
  • Marketing Assistance Loans. As in the House farm bill, the marketing assistance loan program would continue the fundamental principle of U.S. farm policy that the government may only seize the crop pledged as collateral on a loan when a farm family is unable to repay that loan. The government may not go beyond the collateral pledged by foreclosing on a farm or seizing equipment or other real or personal property of a farm family. This is absolutely critical to farm families and commercial lenders, especially in times of depressed prices.
  • Adjusted Gross Income Means Test. Over the first three years of the farm bill, the Adjusted Gross Income means test limit would be lowered from $2.5 million per year to $750,000—a 70% cut. This ensures that millionaire non-farmers would not receive farm payments, while ensuring that farm families receive the safety net they need, subject to the pay limits above. The House farm bill set a $1 million cap.

Grassley-Dorgan Amendment Takes a Different Approach…

  • Not Transparent. Rather than creating transparency in the system, the amendment to be proposed by Senators Charles Grassley (R-Iowa) and Byron Dorgan (D-N.D.) would continue to allow producers to take actions to increase their total payments.
  • Direct Payments. Producers who take action to increase their benefits through the Grassley-Dorgan loophole would be limited to $40,000 in direct payments, the same as the bill passed by the Senate Agriculture Committee. Producers that do not use the loophole would see their limit cut in half, to $20,000.
  • Countercyclical Payments. Producers who double their benefits through the Grassley-Dorgan loophole would be limited to $60,000 in countercyclical payments, the same as the bill passed by the Senate Agriculture Committee. Producers that do not use the loophole would see their limit cut in half, to $30,000.
  • Marketing Assistance Loans. Provides unprecedented authority to allow the government to not only take the crop pledged as collateral on a loan in a case where a farm family cannot repay the loan, but to foreclose on the farm or seize equipment or other real and personal property as well. Because crop prices fluctuate between the origination date of the loan and the maturity date, neither the farm family nor the lender can know at what point of production the farm could be subject to legal action, including foreclosure.
  • Adjusted Gross Income Means Test. While not contained in S. 1486, the Grassley-Dorgan bill, there has been discussion among the proponents of draconian pay limits of a desire to cut the Adjusted Gross Income test by 90%, from $2.5 million to $250,000, disqualifying thousands of real farm families from receiving a safety net. Put in perspective, this AGI limit is half the amount that an average full-time Midwest corn and soybean farm can borrow in a single year to plant and harvest a crop and pay equipment expenses—not including land rents or loans.

Conclusion…

  • The Senate Agriculture Committee Bill Makes Real Reforms While the Grassley-Dorgan Amendment Simply Goes Too Far. The Senate Agriculture Committee bill makes historic reforms in payment limitations. But it does this in a way that acknowledges the reality of farming and ranching today—$26,000 insurance bills; $28,000 diesel bills; $73,000 fertilizer bills; $66,000 feed bills; operating and equipment loans of $540,000. All this in just one year for one average sized Midwest corn, bean, and hog farm. The Grassley-Dorgan amendment, while no doubt very well-intentioned, simply goes too far and ultimately hurts the same farm families they intend to help.
  • Nutrition, Conservation, and Rural Development Are Benefiting From Large, and Even Record-Setting, Funding Increases, While the Farm Safety Net Faces Big Cuts. All of us support nutrition, conservation, and rural development. Conservation receives a $4.424 billion increase in funding in the Senate Agriculture Committee bill, a third straight record funding increase in a row for conservation. Nutrition receives a $5.271 billion increase in the Senate Agriculture Committee bill. Rural Development also receives a $355 million increase. The conservation and rural development increases are in addition to that provided by the Senate Finance Committee package. Meanwhile, the Commodity Title, including crop insurance, receives a $7.501 billion cut in the Senate Agriculture Committee bill. Cutting the farm safety net further to pay for other needs disrupts the delicate balance struck by the Senate Agriculture Committee.