Report of the Payment Limit Commission Keith Collins
description
Transcript of Report of the Payment Limit Commission Keith Collins
![Page 1: Report of the Payment Limit Commission Keith Collins](https://reader036.fdocuments.us/reader036/viewer/2022070423/568167bd550346895ddd0fdb/html5/thumbnails/1.jpg)
Report of the Payment Limit Commission
Keith Collins
![Page 2: Report of the Payment Limit Commission Keith Collins](https://reader036.fdocuments.us/reader036/viewer/2022070423/568167bd550346895ddd0fdb/html5/thumbnails/2.jpg)
Commission’s Statutory Charge
• Assess effects of further limitations for direct, counter-cyclical payments and marketing loan benefits on:– Farm income– Farm land values– Rural communities and agribusiness infrastructure– Planted area of covered commodities and supply and
prices of all commodities• Recommendations as Commission determines
appropriate
![Page 3: Report of the Payment Limit Commission Keith Collins](https://reader036.fdocuments.us/reader036/viewer/2022070423/568167bd550346895ddd0fdb/html5/thumbnails/3.jpg)
Commission’s Other Charge
Report language:
“Examine the feasibility of improving the application and effectiveness of payment limitation requirements, including the use of commodity certificates and the unlimited forfeiture of loan collateral.”
![Page 4: Report of the Payment Limit Commission Keith Collins](https://reader036.fdocuments.us/reader036/viewer/2022070423/568167bd550346895ddd0fdb/html5/thumbnails/4.jpg)
Commission Members
• 3 Members Appointed by House Agriculture Committee --Gary Black (Georgia); Gary Dyer (Arizona);
Richard Newman (Texas)• 3 Members Appointed by the Senate Agriculture Committee --Terry Ferguson (Illinois); Ellen Linderman (North Dakota); Neil Harl (Iowa)• 3 Members Appointed by the Secretary --Alice Devine (Kansas); William Spight (Mississippi); Ed Smith (Texas)• Keith Collins (Chairman)
![Page 5: Report of the Payment Limit Commission Keith Collins](https://reader036.fdocuments.us/reader036/viewer/2022070423/568167bd550346895ddd0fdb/html5/thumbnails/5.jpg)
Commission Timeline
• Late January 2003: first meeting • March 2003: Commission solicited public comments
--375 comments received• June 17, 2003: public workshop held on --9 invited speakers and several members of the public provided comments• August 2003: final meeting held --From January-August, 9 meetings held in which several
experts were invited to provide information• September 2003: report released
![Page 6: Report of the Payment Limit Commission Keith Collins](https://reader036.fdocuments.us/reader036/viewer/2022070423/568167bd550346895ddd0fdb/html5/thumbnails/6.jpg)
Current Payment Limitations
• $40,000 per “person” for direct payments
• $65,000 per person for countercyclical payments
• $75,000 per person for loan deficiency payments and marketing loan gains
![Page 7: Report of the Payment Limit Commission Keith Collins](https://reader036.fdocuments.us/reader036/viewer/2022070423/568167bd550346895ddd0fdb/html5/thumbnails/7.jpg)
Background: A Person
• A person is the unit to which payment limits apply—it may be an individual, an individual in a joint operation, or other entity: trust, limited partnership, corporation
• Under the 3-entity rule, an individual who receives payments may also receive payments from up to 2 other entities in which the individual has up to a 50% interest
![Page 8: Report of the Payment Limit Commission Keith Collins](https://reader036.fdocuments.us/reader036/viewer/2022070423/568167bd550346895ddd0fdb/html5/thumbnails/8.jpg)
Background: An example of maximum payments an individual may receive
Producer has own operation, 50% interest in trust A and 50% interest in corporation BDirectCC MLG/LDPDollars
Own farm 40,000 65,000 75,000A 20,000 32,500 37,500B 20,000 32,500 37,500
Total 80,000 130,000 150,000Grand total $360,000
![Page 9: Report of the Payment Limit Commission Keith Collins](https://reader036.fdocuments.us/reader036/viewer/2022070423/568167bd550346895ddd0fdb/html5/thumbnails/9.jpg)
Background: To be Eligible a Producer Must be Actively Engaged in Farming
• Must provide: Land, equipment or operating capital
andActive personal labor or active personal
management• Contributions must be commensurate with
shares and must be at risk
![Page 10: Report of the Payment Limit Commission Keith Collins](https://reader036.fdocuments.us/reader036/viewer/2022070423/568167bd550346895ddd0fdb/html5/thumbnails/10.jpg)
Distribution of PFC Payments, 2001$4.1 bil. Paid to 1.2 mil. Payees
Payment size % of payees
% of payments
$10,000 or less 91 43
$10-30,000 8 39
$30,000 or more 1 18
![Page 11: Report of the Payment Limit Commission Keith Collins](https://reader036.fdocuments.us/reader036/viewer/2022070423/568167bd550346895ddd0fdb/html5/thumbnails/11.jpg)
Certificate Exchange Gains by State, 2001
State Gains (Mil. $)Arkansas 203
California 189
Georgia 146
Louisiana 113
Mississippi 256
Texas 300
Subtotal 1,207
U.S. total 1,700
![Page 12: Report of the Payment Limit Commission Keith Collins](https://reader036.fdocuments.us/reader036/viewer/2022070423/568167bd550346895ddd0fdb/html5/thumbnails/12.jpg)
Distribution of Certificate Exchange Gains, 2001
Payment size % of payees
% of payments
$50,000 or less 61 12
$50-150,000 25 30
$150,000 or more 14 58
![Page 13: Report of the Payment Limit Commission Keith Collins](https://reader036.fdocuments.us/reader036/viewer/2022070423/568167bd550346895ddd0fdb/html5/thumbnails/13.jpg)
Farms Receiving Government Payments34% of all Farms in 2001
Of farms receiving payments:
Rural residence
farms (273,000)
Intermediate farms(330,000)
Commercial farms(123,000)
Avg. net cash income
2,256 17,961 124,220
Avg. gov. payments
4,827 13,865 60,532
Share of:Farms 38 45 17Payments 10 34 56Production 7 27 66
![Page 14: Report of the Payment Limit Commission Keith Collins](https://reader036.fdocuments.us/reader036/viewer/2022070423/568167bd550346895ddd0fdb/html5/thumbnails/14.jpg)
Average Payments by Farm Type, 2001
Farm type Payments per farm*Cash grain $31,900Oilseeds $15,800Rice $116,600Cotton $55,500Other crops $12,100Livestock $9,300
*For farms receiving government payments. About 20% of other crop and 40% of livestock farms received government payments in 2001.
![Page 15: Report of the Payment Limit Commission Keith Collins](https://reader036.fdocuments.us/reader036/viewer/2022070423/568167bd550346895ddd0fdb/html5/thumbnails/15.jpg)
Current Limits Do Not Reduce Payments Appreciably
Why?• Most farms are not large enough to trigger
limits, although farms in 43 states hit limits in 2001
• Large farms have multiple persons (payment limits) per farm
• No limit on marketing loan benefits
![Page 16: Report of the Payment Limit Commission Keith Collins](https://reader036.fdocuments.us/reader036/viewer/2022070423/568167bd550346895ddd0fdb/html5/thumbnails/16.jpg)
Effect of Current Limits on Payments
02468
101214161820
2001 2001
Bill
ion
Dol
lars
Amount not paid out due to limits
PFC
Mktloss
Loan benefits
![Page 17: Report of the Payment Limit Commission Keith Collins](https://reader036.fdocuments.us/reader036/viewer/2022070423/568167bd550346895ddd0fdb/html5/thumbnails/17.jpg)
Payment Reductions due to Current Limits in 2001, by Crop
Crop % ReductionCorn 0.6Wheat 0.6Cotton 2.5Rice 1.1
![Page 18: Report of the Payment Limit Commission Keith Collins](https://reader036.fdocuments.us/reader036/viewer/2022070423/568167bd550346895ddd0fdb/html5/thumbnails/18.jpg)
Base Acres Needed to Reach $40K in Direct Payments
Crop Base acres Comment
Corn 1,636 1.5% farms harvest>1,000 ac.
Wheat 2,623 5.2% farms harvest>1,000 ac.
Soybeans 3,565 1.9% farms harvest>1,000 ac.
Upland cotton 1,176 10.1% farms harvest>1,000 ac.
Rice 416 19.9% farms harvest>500 ac.
![Page 19: Report of the Payment Limit Commission Keith Collins](https://reader036.fdocuments.us/reader036/viewer/2022070423/568167bd550346895ddd0fdb/html5/thumbnails/19.jpg)
Number of Persons per FSA Farm
Persons 1-2 3-5 6-10 11-20 21+
FSA Farms 1.6 mil. 198,890 19,222 2,289 325
![Page 20: Report of the Payment Limit Commission Keith Collins](https://reader036.fdocuments.us/reader036/viewer/2022070423/568167bd550346895ddd0fdb/html5/thumbnails/20.jpg)
Marketing Assistance Loan Benefits
0123456789
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Bil.
$
LDPsMLGsCEGsTotal
![Page 21: Report of the Payment Limit Commission Keith Collins](https://reader036.fdocuments.us/reader036/viewer/2022070423/568167bd550346895ddd0fdb/html5/thumbnails/21.jpg)
Certificates
• Used to facilitate marketing loan administration
• Used to avoid loan forfeitures, gain not s.t. limits
• Nonrecourse loan makes LDP/MLG limit ineffective
• Use of certificates with nonrecourse loan has little consequence for taxpayers, slight increase in farm income, and avoids market disruption of forfeitures
![Page 22: Report of the Payment Limit Commission Keith Collins](https://reader036.fdocuments.us/reader036/viewer/2022070423/568167bd550346895ddd0fdb/html5/thumbnails/22.jpg)
Effects of Further Limitations on:1--Farm Income
• Reducing direct limit to $30K, CC to $50K and loan benefit to $75K:
Direct payments fall $255-275 mil.CC payments fall $400-425 mil.Loan benefits fall $400-500 mil.
• Reductions: 4-5% of payments• Producers affected: rises to 35K from 12K• States most affected: CA, AZ, AR, MS
![Page 23: Report of the Payment Limit Commission Keith Collins](https://reader036.fdocuments.us/reader036/viewer/2022070423/568167bd550346895ddd0fdb/html5/thumbnails/23.jpg)
Regional Effects of Further LimitationsPercent of Producers Having Payments Reduced Under
$30,000 Limit on 2000-Crop PFC Payments
Zero
0.1-3 Percent
3 -10 Percent
10-20 Percent
More than 20 Percent
Percent Reduction in Payments Under $30,000 Limit on2000-Crop PFC Payments
Zero
0.1-3 Percent3-6 Percent
6-10 Percent
More than 10 Percent
![Page 24: Report of the Payment Limit Commission Keith Collins](https://reader036.fdocuments.us/reader036/viewer/2022070423/568167bd550346895ddd0fdb/html5/thumbnails/24.jpg)
Effects of Further Limitations on: 2--Farmland Values
• 15-25% of land values due to gov. payments, but many factors determine land values
• Non-operator landlords rent out 41% of farmland• Reducing limits to $30/50/75K would reduce rental
rate and land values. Modest national effect; possibly large regional effects
Ariz. & Calif: 25% or more of producers would reach limit
• Effects greatest in Delta, So. Plains, followed by Southeast and rural areas of Far West
![Page 25: Report of the Payment Limit Commission Keith Collins](https://reader036.fdocuments.us/reader036/viewer/2022070423/568167bd550346895ddd0fdb/html5/thumbnails/25.jpg)
Effects of Further Limitations on:3--Rural Communities & Infrastructure
• 316 out of ~2,300 rural counties are farm dependent
• Vulnerable areas: county income dependent on farm income, farm income dependent on payments, high proportion of producers affected
• Short-run effects greatest in Delta, West Tex. , rural Ariz. & Calif., Western Kan., Eastern Neb. & So. Dak., Western Iowa– Lower acres, farm income & spending, but
higher crop prices & lower rents. Effects diminish over time
• Long-run effects largely unknown: farm structure less important than technology, economic diversity, natural amenities
![Page 26: Report of the Payment Limit Commission Keith Collins](https://reader036.fdocuments.us/reader036/viewer/2022070423/568167bd550346895ddd0fdb/html5/thumbnails/26.jpg)
Effects of Further Limitations on:4--Commodity Supply and Prices
• Limits on decoupled payments expected to have minimal effect; main effect is limits on loan benefits
• Planted acres decline: modest national effect but larger effect for cotton and rice– E.g., cotton: 0.5 to 1.2 to 2.5 mil ac.
• Limited effect on F&V due to climate, lack of market outlets, need for contracts, investment, negative effects of shifts. Shifting to hay a likelihood
• Effects diminish over time
![Page 27: Report of the Payment Limit Commission Keith Collins](https://reader036.fdocuments.us/reader036/viewer/2022070423/568167bd550346895ddd0fdb/html5/thumbnails/27.jpg)
Commission Recommendations--1• General:--Delay change until next farm bill or allow adequate phase-in
time--Increase compliance resources at FSA/OIG--Avoid incentives to create business organizations for
payment purposes--Avoid changes that force risk shifting from landlord to tenant--Changes should be meaningful, transparent and simple and
sensitive to commodities, regions, existing infrastructure--Information and analysis
![Page 28: Report of the Payment Limit Commission Keith Collins](https://reader036.fdocuments.us/reader036/viewer/2022070423/568167bd550346895ddd0fdb/html5/thumbnails/28.jpg)
Commission Recommendations--2
• “Actively engaged” should be strengthened by combining active labor and management and making it meaningful and measurable
• Direct attribution would improve transparency, administration, efficiency– Attribute payments through entities to individuals – Entities still qualify for payments but interests must be
actively engaged in agriculture– Landowner/share rent exemption would continue
![Page 29: Report of the Payment Limit Commission Keith Collins](https://reader036.fdocuments.us/reader036/viewer/2022070423/568167bd550346895ddd0fdb/html5/thumbnails/29.jpg)
Commission Recommendations--3
• Commission divided on imposing payment limits on forfeiture and certificate gains
• Key issue is whether to limit nonrecourse loans– Some see loans as fundamental to income stability and risk
management and any limitation would reduce production, efficiency, and rural infrastructure
– Others believe loan benefits should limited to production on family-size operations. They argue such a limit would reduce the income derived from economies of scale, lowering land values and slowing farm consolidation with associated benefits to rural communities