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Farm Program Pays $1.3 Billion to People Who Don't Farm

"When a property owner receives a federal payment, the land is considered agricultural use and is assessed at that lower rate," explained Tylene Gamble, the chief appraiser for Wharton County, where El Campo is located. The discount can be dramatic. For example, she said, a parcel might be assessed at $55 an acre for agricultural use but $3,000 for regular use. "It's big," Gamble said.

Gamble is trying to enforce local rules that require landowners to actually farm to qualify for the lower tax rate. But she is hampered by the federal government's definition of farming, "which does not require you to actually farm. There is a conflict there between the federal definition and our definition," she said.

Gary Underwood, director of agricultural appraisals for sprawling Harris County, which includes Houston, said owners are building $500,000 houses on old rice fields and qualifying for tax breaks.

He singled out one tract where the owner built a 4,000-square-foot single-story house on five acres in Katy, a booming suburb. The house sits on one acre. The other four acres get a tax break and a farm payment. "I can't touch him," Underwood said.

The Big Landowners

The large landowners who control vast sections of the once-sprawling rice fields outside Houston have been some of the biggest beneficiaries of the 1996 law, USDA records show.

Diana Morton Hudson is a corporate securities lawyer whose 87-year-old mother, Mary Anna Hudson, owns an interest in two tracts of land in nearby Matagorda County. USDA records show that Mary Anna Hudson has received $191,000 since 1997 on land she doesn't farm. "We just pay someone to mow it, and it just sits there," Diana Hudson said.

Later, she added: "I'm a corporate securities lawyer. I couldn't even locate these two parcels in Matagorda."

Houston heart surgeon Jimmy Frank Howell has received $490,709 since 1996 in payments tied to old rice tracts on a vast ranch near Raywood in Liberty County where he now raises cattle, USDA records show. The last rice produced on the 10,000-acre property was "probably over 10 years ago," according to Susan Cotton, Howell's business manager. "We're not rice producers anymore."

For Guy F. Stovall III, an El Campo banker who helps oversee thousands of acres of family lands in Wharton, Matagorda and Jackson counties, the 1996 farm law was a chance to get out of rice farming and convert properties inherited from his grandparents to other uses.

But 10 years later, taxpayers are still paying for the transition. Records show the land owned by Stovall and two trusts set up by his grandparents have generated $1.8 million in rice subsidies since 1996.

Stovall stopped growing rice and began renting the land for grazing cattle. The family continues to grow some crops, such as sorghum and soybeans.

Stovall said that is exactly the kind of transition Congress intended with Freedom to Farm. He estimates that 50 to 60 percent of his government payments go to soil, water and other improvements, such as filling in irrigation ditches and putting up fences.

"There are bullfrogs where there were none, and we're starting to see quail," he said. "There are less chemicals flowing into our bays, and it reminds me of the environment when I was a kid."

'Hell of a Deal'

Among the most fervent critics of the annual payments are hundreds of Texas farmers who rent land on which they grow rice. Under the rules, tenants receive the money if they operate the farms. But landlords can simply increase rents to capture those payments.

Other landlords have evicted the tenants from land they had farmed for years. Then the landowners can collect the checks themselves, even if they do not farm.

Congress "made slaves out of every farmer who was a tenant," said Stephen J. Zapalac, a former Matagorda County rice farmer who now runs a farm credit office in Bay City.

In 1998, Zapalac was leasing 2,500 acres, most of it for rice farming. One landlord canceled a lease for 1,400 acres in 1998, he said, and a second cancellation followed for the rest in 2004.

"As soon as they figured they could take the payments, they said, 'I don't need you anymore,' " he said. "They were renting me land for $40 an acre, but they could get $125 an acre from the government."

Some of the rice land he lost has been turned into pasture for cattle, while the landlord continues to receive the rice money.

"You can sell the calves and still stick the rice payment in your pocket," Zapalac said. "It's a hell of a deal."

For years, Rex Bailey III, a rugged 6-foot-5 rice farmer, sharecropped near Angleton, Tex., an arrangement in which he and his landlord divided the costs and shared in profits and government payments.

"It was all based on what was produced," he said. "We shared the risk."

That changed in 2002, when the owners of one tract changed their arrangement with Bailey, 55, from sharecropping to a fixed annual rent, pegged to capture the $90 an acre that the government was paying him on 214 acres.

"A lot of landlords increased their rental rates to equal or exceed the direct payments," Bailey said. "They know what the payment is, so that's what the rent is. Even though the payment is in my name, I turn around and give it to" the owner.

In 2004, the property was sold to Shin Shan Chu, an elderly investor who lives in Vancouver, Canada. Once a year, Bailey, who still grows rice on part of the 4,000 acres, cuts a $25,000 check and sends it to Chu, whom he has never met.

Reached by telephone, Chu said he hoped to eventually "develop some residential buildings there. It's very nice land, very flat, very close to the city."

Chu, who also owns and leases 17,000 acres of farmland in west Texas, grew up in mainland China and Taiwan, worked in electronics and moved to Vancouver 36 years ago. He described himself as nearly 80.

"It's just an investment," he said of his farm holdings. "I'm waiting for the money."

Researchers Alice Crites and Don Pohlman contributed to this report.

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