Farm Reorganizations and Their Impact on USDA Payments

GAO discussed the scope and cost of farm reorganizations and problems with the $50,000-per-person payment limitation. GAO found that: (1) between 1984 and 1986, there was an increasing trend in reorganizations that may have been related to the payment limit; (2) reorganizations added almost 9,000 new persons to Department of Agriculture (USDA) payment rolls, at a cost of $2.3 billion; (3) as more persons neared or met the payment limit, the number of new persons created in the following years increased; and (4) evidence from state and local officials, farmers who reorganized, and other sources supports the conclusion that the intent of some reorganizations was to avoid the payment limit. GAO believes that the trend in reorganizations will continue because: (1) there is a significant economic benefit for each person added to a farming operation; (2) in the future, additional persons on existing operations may continue to reach the payment limit because of high program payments and increased crop yields; and (3) in 1986, about 38,000 persons at the limit could realize an economic benefit by reorganizing. GAO also believes that: (1) USDA proposals to tighten payment limitations could discourage many reorganizations specifically designed to avoid the limit because they would remove the incentive to incorporate or add investors not actually engaged in farming; and (2) if Congress changes the existing law to implement these proposals, USDA will need to improve its guidance, training, and internal controls for person determinations.