Farm & Food File: ‘Why would federal policy favor legal fictional entities over individual family farms?’

“Why would federal policy favor legal fictional entities over individual family farms?”

That’s a great question, and it was asked — and answered — by Jonathan Coppess, an associate professor of law and policy at the University of Illinois, in a “dismaying” July 17 farmdocDAILY analysis of a key element of the just-passed budget reconciliation bill.

The element, that goes by the “boring and benign” name of Section 10306, amends the “payment limit provisions” of the 1985 farm bill.

Boring and benign it is not. The working part of Section 10306 — the part “expanding the exemption, or loophole, that applied to joint ventures and general partnerships” — does the heavy lifting.

It “is not,” however, “about farming crops and land, but rather it is about farming the federal programs and public till.”

The reason, explains Coppess, who served as chief counsel of the Senate Ag Committee from 2011 through 2013 and at the U.S Department of Agriculture for two years prior to that, is that the law’s new “loophole” allows “additional payments to legal fictional entities that operate as farms.”

Coppess offers two, entirely legal examples to show just how gaping these new, purposely designed loopholes are.

In the first, he notes, a farm with “three layers of legal entities … would easily permit a farm operation to achieve an overall payment limit of $1.24 million each year.”

Even worse, if “each of the individual persons” in the above instance sought “a modicum of creative legal and accounting help” they then “could expand their payment limitation to $2.5 million or more.”

“In total,” the ag policy expert adds, “the changes permit some farm operations to effectively avoid any limit on the amount of federal funds they can collect.”

And, of course, that means “taking advantage of the loopholes will, in turn, permit those farms to grow larger and more consolidated at taxpayer expense.”

And keep in mind, he adds, “federal farm payments are free to the farmers with base acres, there are no requirements that the farmer suffers an actual or commensurate loss in the crop year, nor that the crop for which the payment is attributed was planted.”

And, he adds cheekily, “in the parlance of other (federal) policies” — like the newly passed Medicaid rules and many federal and state food assistance programs — “there are no work requirements for farm program payments.”

Indeed, farmers can “use the funds for whatever ends” they choose, “most likely to include bidding up cash rents and land prices against neighboring farmers” that don’t create these new, payment-dripping legal fictions.

This is a “stunning change to federal law,” Coppess offers, “especially considering that it was paired with nearly $200 billion in cuts to food assistance for low-income households.”

In short, these “qualified pass-through entities get an easy button for more federal payments (while) low-income individuals get more paperwork burdens and requirements or lose assistance.”

To that end, Coppess opines, “reconciliation will add trillions to the national debt, failing to accomplish budgetary discipline, but delivering unnecessarily bad policy to the people who pay for it.”

In short, “in the realm of program crops, this new reality likely spells the end of whatever is left of the traditional family farm.”

Coppess then conjures a hypothetical to illustrate his point: “In some small town, a mother fights her way through a mound of paperwork hoping to get assistance to put food on the table for her kids.

“Meanwhile, on the street outside a farm entity manager drives by in his shiny new pickup truck. He is on his way to the lawyer to revise the qualified pass-through entity so that it can increase federal payments.”

And, Coppess concludes, “it may be that, at some point, it is the former family farmer who is next in line to sort through paperwork for food assistance.”