FSA Publishes Final Rule on Payment Limitation and Payment Eligibility: Key Takeaways for Producers

In a rather atypical fashion, the USDA published a Final Rule for Payment Limitation and Payment Eligibility on August 24, 2020.  The rule states that it was published to implement mandatory changes required by the Agriculture Improvement Act of 2018 (2018 Farm Bill).  Why atypical?  While the Farm Service Agency (FSA) rules are typically published as “proposed rules” to allow for a comment period from producers and the industry, this rule skipped the proposal phase and was published as final.  The publishing of this rule in this manner and lacking clarifications in many areas, has induced some controversy within the industry.

Producers Should Treat this Rule as Effective and Final

While there are ongoing conversations about the appropriateness of the rule and future actions taken against it, until anything new is released the new rule is effective immediately (upon its publish date) and specifically claims there will be no congressional review or delay in the effective date. There will also be no retroactive affect for the new rule.

K·Coe’s Farm Program Services team is still performing a comprehensive review of this rule and the potential affects for producers, but wanted to provide a high-level summary (below) of what has been evaluated to date.  Additionally, we are awaiting the release of a new Payment Limitation handbook from the FSA for more guidance on the interpretation of the rule.

Summary of High-level Rule Changes:

• Changed the definition of ‘significant contribution of management’:  The ‘all persons’ in an operation who are active through management alone will need to meet the definition of a significant contribution regardless of ownership percentage or ownership level. The significant contribution of management was changed to be the lessor of:
  • 25% of total management for the operation
  • 500 hours
• Changes to two payment limits for Noninsured Crop Disaster Assistance Program (NAP):
  • $125,000 limit for basic 50/55 coverage
  • $300,000 limit for buy-up coverages
• Change to Emergency Conservation Program (ECP): $500,000 per program per disaster event
• Removed payment limits for:
  • Marketing Loan Gains (MFG)
  • Loan Deficiency Payments (LDP)
  • Emergency Assistance for Livestock
• Waived the $900,000 AGI test for “certain conservation contracts…”when the Secretary determines that environmentally sensitive land of special significance will be protected.”
  • Environmentally Sensitive Land of Special Significance is defined as:
    • Land offered for enrollment or adjacent to the land offered for enrollment that contains, or through enrollment will address, critical resources (including but not limited to):
      • Habitat for threatened, endangered, or at-risk species;
      • Historical or cultural resources;
      • Native grassland;
      • Unique wetlands;
      • Rare, unique or related soils; and
      • Critical groundwater recharge areas.
• Restated the definition of ‘family’ – it now includes, cousins, nieces, nephews, aunts, and uncles.
• Removed legal entity language for operations making changes that would increase payment limits or add members.  Instead, focus is placed on the actual person being brought in (whether as a direct or indirect new payment) to meet substantive change rules.
• Changed the substantive change rule that allows to increase payment limits if there is added land. The change removed the designation of base acres for use in the amount of added land and replaced it with “land used for agricultural production.”
• Added ownership sale or gift of livestock as a substantive change for increasing payment limits.
• Removed language that limits the members of a legal entity or joint operation from acquiring land, capital, and/or equipment as a result of a loan made to, guaranteed by, cosigned by, or secured by one of the members.
  • *other rules around capital, land, and equipment contributions resulting from loans will still apply and should be analyzed closely.
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K·Coe advisors will continue to provide information as needed following the release of the Payment Limitation handbook, and should additional updates become available.