Many farmers are reorganizing their large farm operations into smaller units to qualify for extra federal subsidies, according to U.S. Department of Agriculture officials, who acknowledge that this year's program costs will soar beyond earlier estimates.
The reorganizations, all apparently legal under USDA regulations, allow farmers to skirt the $50,000 limit on individual payments and collect additional tens of thousands of dollars, or more, in crop program benefits.
But these unanticipated outlays are only one factor in the rocketing cost of the new farm program's direct payments, which USDA calculates could reach $13 billion this year. The previous high, about $9 billion, was in 1983. Payments last year were $7.8 billion.
Robert L. Thompson, assistant secretary for economics, said yesterday that the programs fashioned by Congress last year "opened more loopholes" in the $50,000 payment limitation and will allow many farmers to receive $1 million or more in direct subsidies.
"Million-dollar-plus cotton and rice payments will be significant. There will be a small handful of wheat and feed-grain producers in the $1 million range, but payments of $150,000 to $200,000 will not be uncommon in wheat and feed grains," Thompson said. "It will get obscene."
Thompson and other administration officials argued during last year's farm bill debate that the $50,000 limit should be lowered and said that provisions exempting certain payments from the limitation would inflate program costs. "Congress certainly was duly warned," he said.
Reports that many farmers are reorganizing to get more federal benefits have led Reps. Dan Glickman (D-Kan.), Byron L. Dorgan (D-N.D.) and Leon E. Panetta (D-Calif.) to ask the General Accounting Office to investigate.
Glickman said he believed that the extra budget costs added by the reorganizations will force Congress to review farm policy next year.
"The cost numbers on this new farm program will get so gigantic that after the 1986 elections we will probably have to look at the issue of targeting federal benefits to the farmers who can demonstrate need," Glickman said.
Thomas Von Garlem, a USDA official who randomly reviews farmers' proposals for reorganization, which are approved at the county level, said he has encountered cases in which farmers have become entitled to payments of upwards of $1 million by splitting their farms into smaller pieces.
Von Garlem said the reorganization issue has become "hotter than a firecracker . . . . More farmers are bumping the $50,000 limit, and as they do, they feel they are obligated to look for ways to avoid the limit."
Officials here could provide no numbers, but they said that the reorganizations are occurring on a large scale and that they are adding to the cost of the federal programs in a major way.
In a recent spot check in four counties, the GAO found that reorganizations had increased at least 50 percent in two Arkansas rice-growing counties, by about the same amount in one major Kansas wheat county and by about 20 percent in a smaller Kansas wheat county.
Von Garlem said he has seen cases in which an individual farmer has split a large farm into "15 or 20" new operations, which would qualify for direct subsidies of $750,000 to $1 million.
"There's definitely an increase in the reorganizations because more farmers are finding themselves subject to the $50,000 limit," he said. "The rules for defining eligibility are very complicated, but it all gets down to a definition of who is a 'person.' "
While the law limits the subsidy on an individual basis, Von Garlem noted that it also allows the same person to qualify repeatedly for benefits by entering more than one farming unit in the program. Other variations allow payments up to the limit to members of partnerships.
Farmer A and Farmer B, for example, could each qualify for a $50,000 subsidy on his farm. Then, by forming a corporation and participating in it as partners, each could collect another $50,000 on another farm. And so on.
Milton Hertz, chief of the Agricultural Stabilization and Conservation Service, which oversees the federal crop support programs and subsidy payments, said the reorganizations appear to be most prevalent among rice and cotton farmers, who quickly reach the $50,000 limit because of generous provisions of the farm legislation adopted last year.
Under the new program, Congress directed that price support loan rates be pushed down to make U.S. commodities more competitive. But to maintain farmers' incomes, the legislators decreed that the direct subsidies known as deficiency payments remain frozen at 1985 levels.
The deficiency payments are the difference between the loan rate and a target price level set by Congress for each of the major commodities. Since loan rates are being driven down, the farmer's per-bushel or per-bale subsidy payment increases proportionately.
Hertz and Von Garlem said that because the subsidies are larger, farmers reach the congressionally imposed $50,000 limit that much quicker. And as a result, they look for ways to get payments beyond the limit by creating "new" farming entities that also are eligible for federal benefits.
Von Garlem said the issue of farmers attempting to avoid the limits is not new. "We started to tighten up on the payment rules in the 1970s on the basis of what we thought Congress intended when it set limits," he said. "Then Congress passed a law saying we had to follow the 1971 rules that we were trying to tighten. On this issue the legislative history is pretty clear."