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AFPC
Initial COVID-19 Response for Agricultural Producers
Agricultural and Food Policy CenterTexas A&M University
April 16, 2020
Department of Agricultural EconomicsTexas A&M AgriLife ResearchTexas A&M AgriLife Extension ServiceTexas A&M University
College Station, Texas 77843-2124Telephone: (979) 845-5913
Fax: (979) 845-3140http://www.afpc.tamu.edu | @AFPCTAMU
© 2020 by the Agricultural and Food Policy Center
Briefing Paper 20-03
Cover photo © jcsullivan24 used under Creative Commons license Attribution-NonCommercial 4.0 International. Photo available from https://www.flickr.com/photos/jcsullivan24/
Department of Agricultural Economics2124 TAMUCollege Station, TX 77843-2124Web site: www.afpc.tamu.eduTwitter: @AFPCTAMU
Initial COVID-19 Response for Agricultural Producers 1
Bart L. FischerJoe L. Outlaw
Agricultural & Food Policy CenterDepartment of Agricultural Economics
Texas A&M AgriLife ResearchTexas A&M AgriLife Extension Service
Texas A&M University
Briefing Paper 20-03
April 16, 2020
College Station, Texas 77843-2124Telephone: 979.845.5913
Fax: 979.845.3140Web site: http://www.afpc.tamu.edu/
Twitter: @AFPCTAMU
Initial COVID-19 Response for Agricultural Producers
AFPCAgricultural and Food Policy Center
The Texas A&M University System
Initial COVID-19 Response for Agricultural Producers2
General Overview
OnJanuary20,2020,theCentersforDiseaseControlandPrevention(CDC)confirmedthefirstcaseofnovelcoronavirus(COVID-19)intheUnitedStates.AsofApril15,2020,thenumberofcasesintheUnitedStateshasballoonedtomorethan605,000,andmorethan24,500peoplehavelosttheirlives.Inresponse,Congresshaspassedthreeseparateaidpackageswhicharebrieflysummarizedbelow.Thepurposeofthisbriefingpaperistoidentifytheprovisionsinthosebillsthataremostdirectlyapplicabletoagriculturalproduc-ers.
- Phase 1.OnMarch4,2020,CongresspassedH.R.6074,theCoronavirus Preparedness and Response Supplemental Appropriations Act of 2020.Theact“provided$8.3billioninemergencyfundingforfederalagenciestorespondtothecoronavirusoutbreakrelatedtodevelopingavaccine,medicalsupplies,grantsforpublichealthagencies,smallbusinessloans,andassistanceforhealthsystemsinothercoun-tries.TheactallowedfortemporarilywaivingMedicarerestrictionsandrequirementsregardingtele-health services.”
- Phase 2.TwoweekslateronMarch18,2020,CongresspassedH.R.6201,theFamilies First Coronavirus Response Act which“guaranteedfreecoronavirustesting,establishedpaidleave,enhancedunemploy-mentinsurance,expandedfoodsecurityinitiatives,andincreasedfederalMedicaidfunding.”
- Phase3.AlittleoveraweeklateronMarch27,2020,CongresspassedH.R.748,theCoronavirus Aid, Relief, and Economic Security Act (CARES Act),a“$2trillioncoronavirusreliefbill,whichwillsend$1,200toeachAmericanmaking$75,000ayearorless,adds$600/weektounemploymentbenefitsforfourmonths,gives$100billiontohospitalsandhealthproviders,makes$500billionofloansorinvestmentstobusinesses,statesandmunicipalities,and$32billioningrantstotheairlineindustry,andmore.”1
Funding for Agricultural Producers
WhiletheCARESActinfusedanestimated$2trillionintotheU.S.economy,theapproachforagriculturewasverytargeted.Theactprovided$9.5billion“toprevent,preparefor,andrespondtocoronavirusbyprovid-ingsupportforagriculturalproducersimpactedbycoronavirus,includingproducersofspecialtycrops,produc-ersthatsupplylocalfoodsystems,includingfarmersmarkets,restaurants,andschools,andlivestockproducers,includingdairyproducers.”ThisfundingwasprovidedindependentoftheCommodityCreditCorporation(CCC),thetraditionalfundingarmoftheU.S.DepartmentofAgriculture(USDA).Whiletheauthorityappliesbroadlyto“agriculturalproducers,”mostexpectthefundingtobeusedprimarilyforbeef,pork,dairy,andspe-cialty crop producers.
1 https://www.govtrack.us/covid-19
Initial COVID-19 Response for Agricultural Producers 3
Authorities available to the Secretary under Section 5 of the CCC Charter Act: (a)supportingthepricesofagriculturalcommodities(otherthantobacco)throughloans,purchases,pay-
ments,andotheroperations;(b)makingavailablematerialsandfacilitiesrequiredinconnectionwiththeproductionandmarketingof
agriculturalcommodities(otherthantobacco);(c)procuringagriculturalcommodities(otherthantobacco)forsaletootherGovernmentagencies,for-
eigngovernments,anddomestic,foreign,orinternationalrelieforrehabilitationagencies,andtomeetdomesticrequirements;
(d)removinganddisposeoforaidintheremovalordispositionofsurplusagriculturalcommodities(otherthantobacco);
(e)increasingthedomesticconsumptionofagriculturalcommodities(otherthantobacco)byexpandingoraidingintheexpansionofdomesticmarketsorbydevelopingoraidinginthedevelopmentofnewand
additionalmarkets,marketingfacilities,andusesforsuchcommodities;(f)exportingorcausingtobeexported,oraidinthedevelopmentofforeignmarketsfor,agriculturalcom-
modities(otherthantobacco)(includingfishandfishproducts,withoutregardtowhethersuchfishareharvestedinaquaculturaloperations);
(g)carryingoutconservationorenvironmentalprogramsauthorizedbylaw;and(h)carryingoutsuchotheroperationsastheCongressmayspecificallyauthorizeorprovidefor.
Commodity Credit Corporation (CCC) Funding
TheactalsoprovidedadditionalfundingfortheCCC.DespiteeffortstoincreaseborrowingauthorityfortheCCCto$50billion(fromthecurrentlevelof$30billion),theactsimplyreplenishedtheexistingborrow-ingauthorityby$14billionrelativetotheJune2020auditreport.2 Under the CCC, the Secretary can draw on anumberofauthoritiesunderSection5oftheCCCCharterAct(highlightedabove)toprovideassistancetoagriculturalproducers.Forexample,theSecretaryinvokedSection5(e)incraftingboththeCottonGinningCostShare(CGCS)programandtheMarketFacilitationProgram(MFP).
Section 32
WhiletheCARESActdidnotaddressSection32,itisneverthelessapopulartoolwhenrespondingtoun-expectedevents.Section32(specifically,Section32oftheAgriculturalAdjustmentActof1935(PublicLaw74-320,7U.S.C.612c,asamended))isapermanentappropriationthatsetsaside30%ofannualcustomsreceiptstosupportthefarmsectorthrough(1)encouragingtheexportoffarmproductsthroughproducerpayments2TheCCCisthefundingmechanismformostfarm-relatedprogramsatUSDA,includingUSDAloansandfarmprogramassistancethatdoesnotrequirerepayment.TheborrowinglimitforCCChasbeensetat$30billionsince1987.TheCCCwillperiodicallyestimatenetrealizedlosses(outlaysminusinlays)andtheappropriatorswill“replenish”theCCCuptoitsstatutoryborrowinglimit.Thisistypicallydoneasaroutinematter,althoughevenreplenishmenthasbecomelessroutineasevidencedbythedebateoverthecontinuing resolution in Fall 2019.
Initial COVID-19 Response for Agricultural Producers4
orothermeans;(2)encouragingthedomesticconsumptionoffarmproductsbydivertingsurplusesfromnor-malchannelsorincreasingtheirusebylow-incomegroups;and(3)reestablishingfarmers’purchasingpowerbymakingpaymentsinconnectionwiththenormalproductionofanyagriculturalcommodityfordomesticcon-sumption.ThevastmajorityoftheappropriationgoestoUSDA’schildnutritionprogramsandtheDepartmentofCommerce’sfisheriesactivities,withtheremainingamounttobeusedatthediscretionoftheSecretaryforthepurposesoutlinedabove.The2008FarmBillpermanentlycappedtheamountUSDAispermittedtospendfordiscretionaryactivitiesat$1.33billioninFY2017(thereafterindexedtoinflation).Inaddition,theFY2020FurtherConsolidatedAppropriationsAct(P.L.116-94)prohibitedtheSecretaryfromusingclause(3)above—withtheexceptionofusingupto$350millionincarryoverbalances.Forallpracticalpurposes,discretionaryuseofSection32primarilyhasbeenlimitedtocommoditypurchases.
Other Authority
BeyondCCCandSection32,Section1101(g)ofPhaseII(H.R.6201)stipulatesthat“duringfiscalyear2020,theSecretaryofAgriculturemaypurchasecommoditiesforemergencydistributioninanyareaoftheUnitedStatesduringapublichealthemergencydesignation.”Theactgoesontoprovide“suchsumsasarenecessary”tocarryabouttheprovision.WhileSection32istraditionallyusedfordiscretionarycommoditypurchases,itappearsasthoughthisprovisionprovidesanopen-endedauthorizationforcommoditypurchasesinresponseto COVID-19.
USDAisintheprocessofassemblinganaidpackageusingalloftheauthoritiesattheirdisposal.Wewillprovideanoverviewofthedetailsoncetheyarepubliclyavailable.
Other Changes to Agricultural Programs
Marketing Loans
TheCARESActalsonotablyextendedthematuritydateformarketingloans.Toourknowledge,thisistheonlyfarmbill-relatedagriculturalprovisionamendedbytheCARESAct.AsnotedbySecretaryPerdueonApril9,2020,“Producersofeligiblecommoditiesnowhaveupto12months[ratherthanthetraditional9months]torepaytheircommodityloans.Thematurityextensionappliestononrecourseloansforcropyears2018,2019and2020.EligibleopenloansmustbeingoodstandingwithamaturitydateofMarch31,2020,orlaterornewcropyear(2019or2020)loansrequestedbySeptember30,2020.AllnewloansrequestedbySeptem-ber30,2020,willhaveamaturitydate12monthsfollowingthedateofapproval.Eligiblecommoditiesincludebarley,chickpeas(smallandlarge),corn,cotton(uplandandextra-longstaple),drypeas,grainsorghum,honey,lentils,mohair,oats,peanuts,rice(longandmediumgrain),soybeans,unshornpelts,wheat,wool(gradedand
Initial COVID-19 Response for Agricultural Producers 5
nongraded);andotheroilseeds,includingcanola,crambe,flaxseed,mustardseed,rapeseed,safflower,sunflowerseed,andsesameseed.”3
Lending Provisions for Agricultural Producers
WhileproducerseagerlyawaitdetailsfromUSDAabouttheupcomingaidpackage,theCARESActinclud-edotherauthoritiesforwhichfarmersandranchersmaynowbeeligible,primarilySmallBusinessAdministra-tion(SBA)lendingprograms.
Paycheck Protection Program (PPP)
Section1102oftheCARESActtemporarilyaddedanewproduct—thePaycheckProtectionProgram(PPP)—toSBA’s7(a)LoanProgram.ThePPP’smainaimistokeepworkerspaidandemployed.Theactpro-vided$349billionfortheprogramwhichoperatesonafirst-come-first-servedbasis.SBAbegantakingapplica-tionsonApril3,2020(April10,2020,forsoleproprietorsandindependentcontractors).AsofApril13,2020,SBAhadguaranteedover1millionloansunderPPPtotaling$247.5billion,with$2.97billionfor“agriculture,forestry,fishing,andhunting.”Importantly,despitealotofconfusiontothecontrary,farmersandranchersare eligibleforPPP.
TobeeligibleforPPP,borrowersmusthave500orfeweremployees(whoseprincipalplaceofresidenceisintheUnitedStates)ormeetcertainsize-basedrestrictionsforthatparticularindustry.Borrowersmustcertifythatcurrenteconomicuncertaintymakestheloannecessarytosupportongoingoperations.
Generally,PPPloansarebasedon2.5timesmonthlypayrollcostsoverthepast12months.SBAhasout-linedalistofcoststhatqualifyas“payrollcosts,”includingcompensationpaidtoemployeesintheformofsal-
ary,wages,andcommissionsand,inthecaseofsoleproprietors,wages,commissions,income,ornetearningsfromself-employmentorsimilarcompensation.Importantly,incalculatingpayrollcosts,anycompensationpaidtoanemployeeoranyamountspaidtoasoleproprietorinexcessof$100,000areexcluded.PPPloansmustbeusedforveryspecificpurposesdefinedbySBA(e.g.payrollcosts,mortgageinterestpayments,rentpay-ments,utilitypayments,etc).
Interestaccruesatarateof1%,andtheloanmaturesintwoyears.Paymentsontheloanwillnothavetobemadeforsixmonthsfollowingthedisbursementdateoftheloan,butinterestwillcontinuetoaccrue.ThemostcompellingfeatureofPPPloansisthefactthattheentireprincipalandinterestareforgivableaslongascertainconditionsaremet.AccordingtotheinterimfinalruleissuedbySBAonApril3,2020,“theactualamountofloanforgivenesswilldepend,inpart:
3 https://www.fsa.usda.gov/news-room/news-releases/2020/usda-announces-loan-maturity-for-marketing-assistance-loans-now-extended-to-12-months
Initial COVID-19 Response for Agricultural Producers6
- onthetotalamountofpayrollcosts,- paymentsofinterestonmortgageobligationsincurredbeforeFebruary15,2020,- rentpaymentsonleasesdatedbeforeFebruary15,2020,- andutilitypaymentsunderserviceagreementsdatedbeforeFebruary15,2020,
over the eight-week period following the date of the loan.”Inaddition,therulerequiresthat“notmorethan25%oftheloanforgivenessamountmaybeattributabletonon-payrollcosts,”anditrequiresborrowerstocertifythat“fundswillbeusedtoretainworkersandmaintainpayroll.”Inotherwords,aslongasyouspendtheentireloanamountonauthorizedexpensesovertheeightweeksfollowingloandisbursementandatleast75%isspentonpayroll,theentireloan(includinginterest)willbeforgiven.
InasecondinterimfinalruleissuedonApril14,2020,SBAprovidedadditionaldetailsforsoleproprietorsandpartnerships(includingLLCsfilingtaxesaspartnerships).Forsoleproprietors,payrollcostsincludenetprofitfrom2019IRSForm1040ScheduleCLine31(inadditiontocompensationpaidtoemployeesnotedabove).SBAfurtherclarifiedthatpartnersinapartnership“maynotsubmitaseparatePPPloanapplicationforyourselfasaself-employedindividual”andlimited“apartnershipanditspartners(andanLLCfilingtaxesasapartnership)toonePPPloan.”Regardingloanforgivenessforself-employedindividuals,SBAclarifiedthat“ownercompensationreplacement”wasanauthorizedexpense,withforgivenessofthatparticularexpenselimitedtoeightweeks(8/52)of2019netprofit.
Example:Whatifyouareasoleproprietorwithnoemployees?
- Assumeyourfarmhasnoemployeesandthatyournetprofitin2019was$60,000.Yournetprofitwaslessthan$100,000,sotheentire$60,000qualifies.
- Yourqualifyingmonthlypayrollis$5,000($60,000/12).
- YourPPPloanamountis$12,500($5,000x2.5).- Becausethefarmhadnoemployees,thepayrollcostseligibleforforgivenessarelimitedto“owner
compensationreplacement”of$9,230.77($60,000x8/52).Whileanadditionalamountcouldbefor-givenbasedonotherauthorizedexpenses,75%oftheamountforgivenmustbeattributabletopayrollcosts.Asaresult,inthisexample,$12,307.69($9,230.77/75%)isthemostthatcouldbeforgiven.
Example:Whatifyouareasoleproprietorwithfewemployees?
- Assumeyourfarmhasoneemployeewithanannualsalaryof$45,000.Furtherassumethatyournetprofitin2019was$51,000.Yourtotal“payrollcosts”are$96,000($45,000+$51,000).Youremployeeclearlymakeslessthan$100,000,andyournetprofitwaslessthan$100,000,sotheentire$96,000qualifies.
- Yourqualifyingmonthlypayrollis$8,000($96,000/12).
Initial COVID-19 Response for Agricultural Producers 7
- YourPPPloanamountis$20,000($8,000x2.5).- Aslongasyouspend$15,000($20,000x75%)onpayrollcostsovertheeightweeksfollowingdis-
bursementoftheloan(withtheremainingamountspentonotherauthorizedexpenses),theentire$15,000loanbalance(andanyaccruedinterest)wouldbeeligibleforforgivenessaslongasallotherconditionsaremet.Inthisexample,forgivenessfor“ownercompensationreplacement”—asacompo-nentofpayrollcosts—wouldbelimitedto$7,846.15($51,000x8/52).
Example:Whatifyouhavealargeoperationwithmanyemployees?
- Assumeyourfarmhas20employeeswithanannualpayrollof$1,100,000;noneoftheemployeesmakemorethan$100,000,sotheentire$1,100,000qualifies.Further,assumeyouhad$200,000innetprofitin2019;youarelimitedto$100,000inqualifyingnetprofit.Asaresult,your“payrollcosts”are$1,200,000($1,100,000+$100,000).
- Yourqualifyingmonthlypayrollis$100,000($1,200,000/12).- YourPPPloanamountis$250,000($100,000x2.5).- Aslongasyouspend$187,500($250,000x75%)onpayrollcostsovertheeightweeksfollowing
disbursementoftheloan(withtheremainingamountspentonotherauthorizedexpenses),theentire$250,000loanbalance(andanyaccruedinterest)wouldbeeligibleforforgivenessaslongasallotherconditionsaremet.Inthisexample,forgivenessfor“ownercompensationreplacement”—asacompo-nentofpayrollcosts—wouldbelimitedto$15,384.62($100,000x8/52).
ThereareavarietyofoutstandingissueswhereSBAisexpectedtoofferadditionalguidance.Forexample,wagespaidtoH-2Aworkerscurrentlydonotcountaseligible“payrollcosts.”ThisnaturallyplacesaburdenonthosesegmentsofagriculturewhorelyheavilyonH-2Aemployees.OnApril9,2020,RepublicanMembersoftheHouseAgricultureCommitteesentalettertoSBAAdministratorCarranzaarguingthat“[m]anyU.S.
producersarefullyreliantonH-2Aworkers,andthusemployersoughttobeabletoincludetheirwageswhencalculatingemployereligiblepayrollcostsunderthePPP.”Congressisalsocurrentlydebatingaddingadditionalfunding to PPP.
We’vereceivedalitanyofquestionsfromfarmersandranchersandagriculturallenders,andwe’veattempt-edtoaddressafewoftheminAppendixA.And,whiletherearealotofresourcesavailableonline,nothingsubstitutesforsimplycontactingaPPP-approvedlenderanddiscussingyourspecificcircumstanceswiththem.
Economic Injury Disaster Loan (EIDL) Program
TheCARESActalsoprovided$10billionfortheEconomicInjuryDisasterLoan(EIDL)program.AnEIDLcanbeupto$2millionandmustbeusedforworkingcapitalneeds(e.g.payroll).Historically,farmshavebeenineligiblefortheEIDLprogram,andasofthedateofpublication,SBAstilldoesnotallowfarmstoqualify(ex-
Initial COVID-19 Response for Agricultural Producers8
ceptforaquacultureenterprises,agriculturalcooperatives,andnurseries).AnumberofleadersonCapitolHillarechallengingSBA’sdecision.Forexample,onApril3,2020,SenatorsPatRobertsandDebbieStabenowsentalettertoSBAAdministratorCarranzaarguingtheCARESAct“createsnewrequirementsforan[EIDL]pro-gramforCOVID-19foralimitedtime”and“Congressintendedfarmerstoqualifyprovidedtheyfitwithinoneofthespecificcriteriaforeligibility.”Intheletternotedabove,RepublicanMembersoftheHouseAgricultureCommitteesimilarlyurgedAdministratorCarranzato“clarifythismattersofarmersandranchersmayapplyforthisassistanceinatimelyfashion.”
Conclusion
CongresshassteppedinonthreeoccasionstorespondtotheCOVID-19outbreak.TheCARESActinparticularprovidedsignificantresourcesforUSDAtorespondtocurrentneedsduetoCOVID-19.USDAisintheprocessofdetermininghowtodeploythoseresources.Theactalsoprovidedadditionalflexibilityformarketingloans,extendingthematuritydatebythreemonthsforloancommodities.Perhapsmostnotably,theactprovided$349billionforthePaycheckProtectionProgram(PPP),anewlendingprogramunderSBA’s7(a)programforwhichfarmersandranchersareeligible.Despitebeingeligible,therehavebeenanumberofgrowingpainsthroughwhichSBAcontinuestowork.Wewillprovideadditionaldetailsastheybecomeavail-able.
Initial COVID-19 Response for Agricultural Producers 9
Appendix A: Paycheck Protection Program (PPP) Frequently Asked Questions
1. Are farms and ranches eligible for SBA’s PPP?
Yes.Thereareavarietyofcriteriathathavetobemet(e.g.500orfeweremployees,etc)butfarm-ersandranchersareeligible.
2. Doesn’t USDA already do this?
USDAoffersavarietyofloans,includingemergencyloans,butPPPloansareforgivableaslongascertainconditionsaremet.
3. What will farmers/rancher qualify for? What is the maximum amount of the loan?
Generallyspeaking,applicantsareeligiblefor2.5timestheaveragemonthlypayrolloverthepast12months.Thetotalamountoftheloancannotexceed$10million.
4. Do I go to SBA, Commercial bank, or Farm Credit?
Borrowersapplythroughaparticipatinglender.AllSBA7(a)lendersareautomaticallyapprovedandtheCARESActmadeotherseligible,includingFarmCreditinstitutions.
5. Will the loans be forgiven? What are the qualifications?
Yes,thePPPloanswillbeforgivenaslongascertaincriteriaaremet.Mostimportantly,non-payrollcostsarelimitedto25percentoftheforgivenamount.
6. Are sole proprietors eligible for PPP? If so, does your salary (income) count in a sole pro-prietorship? If so, what documentation is needed?
Yes,soleproprietorsareeligibleiftheywereinoperationasofFebruary15,2020(andSBAisexpectedtoprovideadditionaldetailsforthosewhowerenotinoperationin2019butwhowerebyFebruary15,2020,andwhowillfileaForm1040ScheduleCfor2020).SBAbegantakingapplicationsforsoleproprietorsandindependentcontractorsonApril10,2020.Accordingtothesecondinterimfinalrule,“ownercompensationreplacement”isaforgivableexpenseandwillbelimitedtoeightweeks(8/52)of2019netprofit(from2019IRSForm1040ScheduleCLine31).
Initial COVID-19 Response for Agricultural Producers10
7. How is contract labor counted (other than machine hire) counted? For example, day la-bor?
Itdepends.IndependentcontractorshavetheabilitytoapplyforaPPPloanontheirown,sotheydonotcountforpurposesofaborrower’sPPPloanforgiveness.
Additionalquestionsandanswersareavailableat:https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Frequently-Asked-Questions.pdf
Initial COVID-19 Response for Agricultural Producers 11
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