4304 Federal Register / Vol. 65, No. 17 / Wednesday, January 26, 2000 / Rules and Regulations

DEPARTMENT OF THE INTERIOR

Bureau of Reclamation

43 CFR Part 428

RIN 1006–AA38

Information Requirements for Certain

Farm Operations in Excess of 960

Acres and the Eligibility of Certain

Formerly Excess Land

AGENCY: Bureau of Reclamation,

Interior.

ACTION: Final rule.

SUMMARY: This final rule adds a new

part to the Bureau of Reclamation’s

(Reclamation) regulations. This part

supplements the Acreage Limitation

Rules and Regulations, which

implement the Reclamation Reform Act

of 1982 (RRA). The final rule requires

certain farm operators to submit RRA

forms that describe the services they

perform and the land they service. The

rule also addresses the eligibility of

certain formerly excess land held in

trusts or by legal entities to receive

nonfull-cost Reclamation irrigation

water.

DATES: Effective date: This rule is

effective October 1, 2000, except that

§§ 428.9 and 428.10 are effective

January 1, 2001.

APPLICABILITY DATES: For the

applicability dates of this rule, see

§ 428.11.

ADDRESSES: A copy of all comments

received on the proposed rule are

available for review. To make

arrangements to review those

comments, please write to:

Commissioner’s Office, Bureau of

Reclamation, 1849 C Street NW.,

Washington, DC 20240, Attn: Erica

Petacchi, or e-mail epetacchi@usbr.gov.

FOR FURTHER INFORMATION CONTACT:

Steve Richardson, Chief of Staff, Bureau

of Reclamation, 1849 C Street NW.,

Washington, DC 20240, telephone (202)

208–4291.

SUPPLEMENTARY INFORMATION: This

section provides the following

information:

I. Background

II. Summary of the Final Rule as Adopted

III. Public Involvement

IV. Procedural Matters

I. Background

This final rule supplements the

Acreage Limitation Rules and

Regulations, 43 CFR part 426, that

govern implementation and

administration of the RRA. The rule

creates a separate Code of Federal

Regulations part, 43 CFR part 428,

addressing information requirements for

certain farm operators and the eligibility

of certain formerly excess land held in

a trust or by a legal entity or any

combination of trusts and legal entities

to receive nonfull-cost Reclamation

irrigation water.

This final rule was preceded by a

proposed rule, which we published in

the Federal Register (63 FR 64154, Nov.

18, 1998), and an Advance Notice of

Proposed Rulemaking (ANPR), that we

also published in the Federal Register

(61 FR 66827, Dec. 18, 1996). When we

finalized the Acreage Limitation Rules

and Regulations (43 CFR part 426), we

published the ANPR to address certain

issues not dealt with in 43 CFR part 426.

Please see the preambles to the ANPR

and the proposed rule for a more

complete history of this regulation.

II. Summary of the Final Rule as

Adopted

The final rule will extend RRA

certification and reporting forms

requirements to farm operators who:

(1) Provide services to more than 960

acres held (directly or indirectly owned

or leased) by one trust or legal entity, or

(2) Provide services to the holdings of

any combination of trusts and legal

entities that exceed 960 acres.

In addition, this part prevents former

owners of excess land who sold or

transferred the excess land at an

approved price from receiving nonfullcost water on that land if they are now

farming it as farm operators. This

provision only applies to formerly

excess land held in trusts or by legal

entities.

The provisions of 43 CFR part 426 not

specifically addressed in this rule are

unchanged.

Summary of Changes We Made Since

the Proposed Rule

In response to comments, we renamed

the term ‘‘custom operator’’ to ‘‘custom

service provider’’ in the definitions

section (43 CFR 428.3). In addition, we

made it clear that a custom service

provider is an individual or legal entity

that provides one specialized, farm

related service to the land in question.

In the section that establishes the RRA

forms submittal requirement for farm

operators (43 CFR 428.4), we narrowed

the requirement for part owners of legal

entities that are farm operators and must

submit forms. The final rule now

provides that indirect owners of legal

entities that are farm operators meeting

the criteria of section 428.4(a) must

submit forms to us annually only if any

of the land to which services are being

provided by that legal entity is land that

the part owner formerly owned as

excess land and sold or transferred at an

approved price. We have also clarified

in this section that farm operators

cannot use verification forms and that

they are not subject to the landholding

change requirements of 43 CFR 426.18.

We made a minor change in

428.9(a)(2) to add the words ‘‘or

transferred’’ after ‘‘sold’’, so that these

regulations are consistent with part 426.

Finally, we altered § 428.11 to provide

for a later effective date than provided

in the proposed rule; specifically the

effective date will be January 1, 2001,

rather than 2000. However, our intent is

to make the rule effective for the 2001

water year in all districts. In § 428.11 we

have included an October 1, 2000,

effective date for those few districts

whose water year commences before

January 1, to accomplish that objective.

III. Public Involvement

We invited comments for a total of

120 days, and received comments from

33 sources: 16 from water/irrigation/

drainage districts; 3 from public interest

groups (including environmental and

water users groups); 4 from members of

the Congress; 4 from farms (or farm

operators or custom service providers);

1 from a Federal government agency; 1

from a county government agency; 1

from a law firm; 2 from trusts (one

trustee and one trust beneficiary); and 1

from a joint power authority. The

commenters’ letters came from the

following States: 26 from California; 2

from Arizona; 2 from Colorado; 1 from

Washington; 1 from Utah; and 1 from

Virginia. We note that some of the

letters had more than one signature, to

reflect that more than one person or

entity endorsed those comments.

The following section presents our

responses to these public comments. We

sorted these comments into subjects

such as authority, trusts, the ANPR,

environmental concerns, impacts and

need for the rule. Then, we sorted

comments that referred to specific

sections of the proposed rule.

Public Comments and Responses on

General Issues

The following section presents public

comments on the proposed rules that

are general in nature. This section

includes comments on the ANPR, the

Paperwork Reduction Act of 1995,

trusts, impacts of the rule, authority,

need for the rule, and National

Environmental Policy Act (NEPA)

issues.

General Issues

Comment: We believe that the

adoption of westwide regulations to

Federal Register / Vol. 65, No. 17 / Wednesday, January 26, 2000 / Rules and Regulations 4305

address a limited problem is

unwarranted.

Response: We believe that this issue

has the potential to emerge westwide,

and a regulation of general applicability

is necessary to ensure consistent

implementation and enforcement of the

RRA.

Comment: The RRA did not create

any farm size limitations, but continued

to provide ‘‘ownership’’ limitation and

extend the new concept of full-cost

pricing to certain ‘‘leased’’ lands.

Response: While the RRA did not

create farm size limits, it did tie

eligibility of land for nonfull-cost

irrigation water to acreage owned or

leased. Congress also reaffirmed its

policies that the benefits of irrigation

water should be distributed widely and

that excess landholdings should be

broken up into family size farms. The

regulations we finalize today will

continue to implement the ownership

and leasing limitations of the RRA by

helping us identify farm operators of

relatively large tracts of land. Once we

identify them, we will require those

farm operators to submit documentation

concerning their farm operating

arrangements to us for review, so we can

determine if they are leases for acreage

limitation purposes. If we determine a

farm operating arrangement is a lease,

we would apply retroactively the

applicable nonfull-cost entitlement (the

maximum acreage a landholder may

irrigate with Reclamation irrigation

water at the nonfull-cost rate; 43 CFR

426.2) to the landholding of that lessee

(the farm operator). If the farm operator

had been providing services to more

acreage than the applicable nonfull-cost

entitlement under his/her/its farm

operating arrangements that are

determined to be leases, the full-cost

rate would apply.

Comment: The proposed rules would

use a different standard of how to

identify a lessee and who makes the

most decisions regarding the farm. Any

divergence from the economic-interest

test causes uncertainty and poses a

major risk to your ability to enforce

reclamation law consistently.

Response: With the final rule, we are

not diverging from the economicinterest test found in the Acreage

Limitation Rules and Regulations, 43

CFR part 426. We are collecting

information that will enable us to apply

the economic-interest test more

effectively.

Comment: The apparent intent of the

regulation is to assist you in

determining whether a lease exists.

Your current enforcement capabilities

enable the collection of information

necessary to make this determination.

Response: As we explained in the

proposed rule preamble, we currently

do not have enough information to

determine which farm operators should

be reviewed to determine if their farm

operating arrangements are leases for

acreage limitation purposes. We have

tried to collect this information from

landholders in the past, but this

approach is not effective. Requiring

certain farm operators to submit RRA

forms is the most effective means of

obtaining the necessary information.

Comment: Why not just ask the

landholders if you need information to

determine (1) Who has use or

possession of the land being farmed

under a farm operating arrangement, (2)

Who is responsible for payment of

operating expenses, and (3) Who is

entitled to receive the profits from the

farming operation. You could get the

information about who receives the

economic benefit from the land and who

has use and possession of the land from

the current forms. Then, if that

information shows that a party other

than the owner, lessee, or sublessee

qualifies as a lessee, you could require

the named party to provide

supplemental information.

Response: We have asked landholders

to provide information concerning their

operators and found that this approach

is not effective in identifying farm

operators providing services to more

than 960 acres westwide. If we were to

rely entirely on information provided by

landholders, we would have to review

many more farm operating arrangements

than necessary, because we would not

know until we actually contacted the

farm operator and reviewed his/her/its

farm operating arrangement if that farm

operator was providing services to more

than 960 acres. This would mean that

districts would be required to contact all

farm operators included on RRA forms

to obtain their farm operating

arrangements, most of which we would

later determine were unnecessary to

obtain due to the overall number of

acres the farm operator was farming.

The only alternatives are to either (1)

Have certain farm operators submit RRA

forms or (2) Collect information

concerning farm operators identified on

landholder forms westwide and collate

the data to determine which farm

operators are providing services to more

than 960 acres. We have already tried

the latter alternative and found it to be

inefficient and ineffective. Rather than

requiring districts to collect and submit

to Reclamation information from all

farm operators identified on RRA forms

submitted by landholders, and then

having to review all of that data, we

believe it is in the best interest of all

parties if we first narrow the field of

farm operators that need to be reviewed.

In order to effectively narrow the scope

of the audit effort, we will require

certain farm operators to submit RRA

forms.

Comment: The proposed rule is

flawed because it attempts to create an

‘‘entity’’ for purposes of reclamation law

where none currently exists. There is no

logical reason or purpose to create this

new ‘‘entity.’’ There are plenty of

established, recognized, and accepted

legal forms of business ‘‘entities’’

already, such as sole proprietorships,

partnerships, trusts, corporations, etc.

Response: In implementing these final

rules, we will not be creating a new

‘‘entity.’’ We defined farm operators so

that those affected by the regulations

would know who must submit RRA

farm operator forms.

Comment: The potential for evasion

and abuse of the law remain, despite the

good intentions in the proposed rule.

You could make clear that any ‘‘scheme

or device’’ employed to evade a

requirement or limitation in the

regulations will be punished in some

way. The record of abuses of

reclamation law in California is now so

well documented that no one could

fault you for taking steps to protect the

taxpayers and clean up enforcement.

Response: We can only respond to

what we actually find and can

reasonably anticipate in the regulated

community. We believe we have crafted

a regulation to ensure that the acreage

limitation provisions of the RRA are

enforced properly. As a result we do not

believe this suggested change is

necessary.

Comment: We believe that the call for

additional administrative discretion to

address ‘‘scheme or device’’ violations

would cause problems for water

districts and water users who are in

good faith trying to comply with the

law.

Response: We believe we have crafted

a regulation to ensure that the acreage

limitation provisions of the RRA are

enforced properly.

Comment: If you publish a final rule

like the proposed one, please include a

way for people to request formal,

written rulings on their farm service

contracts, similar to the ones you

provide for trusts.

Response: Landholders and farm

operators have always been welcome to

submit farm operating agreements to us

for review and a determination of

whether the arrangement is a lease for

acreage limitation purposes. This

practice will continue; however, we

have not included it in the regulation.

The review procedure for trusts is also

4306 Federal Register / Vol. 65, No. 17 / Wednesday, January 26, 2000 / Rules and Regulations

not established in the Acreage

Limitation Rules and Regulations.

Comment: The proposed rule does not

work and should be withdrawn.

Response: We disagree. We have

made several modifications to the final

rule at the suggestion of commenters,

and we believe that the rule will help

us administer reclamation law more

effectively.

Comment: Repeated tinkering with

the reclamation law regulations causes

destabilization for water districts. It

makes no difference to us that you

propose to add a new ‘‘supplemental’’

section instead of reopening the existing

regulations.

Response: The law and regulatory

programs are rarely static; adjustments

are necessary from time to time to

ensure the program is working as it

should.

Comment: If you do anything, you

should strengthen the regulations. Any

weakening of these already limited

regulations will perpetuate abuses of

reclamation law.

Response: While we have made

modifications to the final rule as a result

of public comments, we do not believe

the final rule is weakened by those

changes.

Comment: It appears that the reforms

the Congress mandated in 1982 may

finally be implemented westwide.

However, I remain concerned that,

without further refinement, these

regulations will remain open to abuse.

Response: We have made several

adjustments to the final rule and believe

the regulations will allow us to enforce

the RRA westwide.

Comment: You admit there are no

actual abuses of the existing regulations

concerning trusts, but you are worried

about ‘‘potential future abuses.’’ If there

are no violations by the 75 trusts with

more than 960 acres, then adopting

these regulations would be an abuse of

discretion.

Response: The large trusts we have

reviewed have been found either (1) To

lease out the land held in trust or (2) To

have a farm operating arrangement that

is not a lease for acreage limitation

purposes. This does not in any way

mean we have found all farm operators

providing services to more than 960

acres and reviewed the associated farm

operating arrangements. Because we do

not currently collect forms from farm

operators, we do not have the

information we need to identify all farm

operators providing services to

relatively large amounts of acreage.

Comment: We believe the Natural

Resources Defense Council lawsuit was

intended to punish a very small segment

of the farming community for perceived

abuses of reclamation law, but the

proposed regulations sweep into the

same bucket the great majority of large

and small farmers who follow the law.

Response: We contend that the

regulation is narrowly tailored and will

not affect the majority of farmers

westwide.

Comment: If your real motive is to

punish those who have manipulated the

regulations so as to qualify for Federal

water, then why not merely use the

remedies you already have and simply

turn off the water to those few? We

suspect an ulterior motive, perhaps to

make more irrigators ineligible to

qualify for Reclamation water.

Response: As discussed above and in

the proposed rule preamble, we do have

remedies for violations of the law.

However, we do not have enough

information in all cases to determine if

a violation has occurred so that we may

apply those remedies. The final rule

will help us collect that information.

Comment: The current regulations

carry out the intent of the RRA.

Response: The final rule will

supplement the current regulations and

enable us to more effectively carry out

the intent of the RRA.

Comment: We request that you start a

stakeholder process, that includes both

field hearings and workshops, to

explain the intent and application of the

rule before you adopt any final rule.

Public participation is crucial before

you make any final decisions.

Response: We do not believe that field

hearings or workshops are necessary,

because the scope of the final rule is so

narrow. We have collected public

comments from the ANPR and the

proposed rule and have carefully

explained the intent and application of

the rule in these rulemaking documents.

However, we do anticipate holding

workshops after we publish the rule to

explain their effects.

ANPR

Comment: Your responses to

comments on the ANPR acknowledge

that the only issue requiring further

review is how those trusts holding more

than 960 acres westwide are farming

their land. Yet under the logic that large

trusts might be replaced with some

other arrangement that reclamation law

critics would regard as violating the

intent of the law, the proposed rule

contains such vague, sweeping

requirements that it is likely to impact

even the smallest landowners.

Response: We believe that the final

rule is narrow in scope and will not

affect the majority of water users.

Comment: The custom farmer

reporting provisions exceed the scope of

the ANPR. In public statements, you

had limited the discussion to large

trusts.

Response: We explained in the ANPR

that we were collecting comments in

order to formulate a proposed rule to

address concerns about compliance

with Federal reclamation law by large

trusts and other as yet unregulated

forms of landholdings in excess of 960

acres. When we analyzed comments

submitted by the public, we found that

we needed to make changes in order to

address problems associated with large

farming operations.

Comment: We thought the reason for

proposing new regulations was to limit

certain large trusts, but it appears the

regulations far exceed this objective. We

relied on your assurances that changes

in the regulations would only deal with

trusts. At several meetings and

conference calls after you published the

ANPR, you confirmed that you did not

intend to reopen issues from the

regulations that had been recently

adopted (43 CFR 426). We believe that

this proposed rule does not comply with

the ANPR nor with the record produced

at your workshop held in Sacramento

on March 14, 1997. You have misled the

public about the purpose of the

proposed rulemaking, since the only

relationship between the proposed rule

and the ANPR is that you are attempting

to deal with farm operators of ‘‘large

trusts.’’

Response: The purpose of an ANPR is

to gather information and public

comment in order to form issues to

address in a proposed rule. In the ANPR

published on December 18, 1996, we

asked for input on how we can ensure

compliance with the acreage limitation

provisions by large trusts and other

forms of landholdings in excess of 960

acres. Our intent has remained the same

as it was at the time we published the

ANPR, and that is to ensure that

everyone that receives Reclamation

irrigation water complies with Federal

reclamation law, including the acreage

limitation provisions.

Information Collection and Forms

(Paperwork Reduction Act of 1995)

Comment: You should develop

separate forms for farm operators. A true

farm operator has no interest in the land

it operates, so that land cannot be

considered to be part of the farm

operator’s landholding. It is therefore

inappropriate for a farm operator to

submit landholder reporting or

certification forms.

Response: We have reviewed this

issue and concur. A separate form

named the ‘‘Declaration of Farm

Operator Information’’ (Form 7–

Federal Register / Vol. 65, No. 17 / Wednesday, January 26, 2000 / Rules and Regulations 4307

21FARMOP) has been developed. Farm

operators who provide services to more

than 960 acres held in trusts or by legal

entities will complete this form. In

addition, we have prepared a tabulation

sheet (Tabulation G of ‘‘Declaration of

Farm Operator Information’’ Forms) that

districts will complete as part of their

summary form packages.

Comment: You should tailor forms for

farm operators and submit drafts for

public comment.

Response: Both the Form 7–

21FARMOP and Tabulation G were

included in the package of RRA forms

for the year 2000 submitted to the Office

of Management and Budget for review

and approval. The public was provided

two comment periods on the RRA

forms. The first 60-day comment period

was provided in the Federal Register

(64 FR 174, Jan. 4, 1999). The second

required comment period of 30 days

was also announced in the Federal

Register (64 FR 28009, May 24, 1999).

As part of our continuing effort to

provide information on acreage

limitation activities to those affected,

the draft RRA forms, including the Form

7–21FARMOP and Tabulation G, were

sent to all districts that are subject to the

acreage limitation provisions on January

8, 1999, along with a copy of the

Federal Register notice. It should be

noted that our current approval of the

RRA forms, including the Form 7–

21FARMOP and Tabulation G is for

both the 2000 and 2001 water years.

Thus, no further action will be taken

with respect to these forms before they

are first required to be completed for the

2001 water year.

Comment: You should remove the

information requirement imposed on

indirect owners of farm operators.

Response: We have partially

incorporated this comment in the final

rule. We do not need to know about part

owners of entities who are farm

operators unless a part owner formerly

owned all or a portion of the land in

question as excess and sold or

transferred it at an approved price. We

need information from those part

owners in order to fully implement the

excess land provision found in § 428.9

of the final rule. Accordingly, we have

narrowed the scope of the information

requirements for part owners of farm

operators.

Comment: We do not believe the

proposed collection of information is

necessary for the performance of your

functions.

Response: We are required to ensure

that farm operating arrangements are not

leases for acreage limitation purposes.

The Congress reinforced its desire for us

to take such action when it specifically

required the auditing of operations as

part of the Omnibus Budget

Reconciliation Act of 1987 (43 USC

390ww; Section 224[g]). The most

effective way to accomplish this

requirement is to obtain information

from farm operators. The proposed

collection of information is intended to

be a more effective and efficient method

than those used to date to identify those

farm operators who we are most

interested in auditing.

Comment: Your estimated burden for

the proposed collection of information

appears accurate, except that the total

number of respondents affected could

increase if the potential loopholes are

corrected and the RRA is actually fully

enforced.

Response: We have reviewed the

requirement of who would be required

to submit the new Form 7–21FARMOP

and decided not to expand it beyond the

criteria identified in the proposed rules.

Accordingly, we stand by the estimated

burden reported in the proposed rules.

Comment: The proposed rule changes

would improve enforcement of the

acreage limitations, but you must

modify the language to close all

loopholes to ensure that nobody is

exempt due to unintended wording,

omissions or oversights. For instance,

the rules need to expand collection

requirements to include all ‘‘farm

operators,’’ including ‘‘custom

operators.’’ We suggest that you require

all operators to fill out the forms.

Response: We believe that it would be

an inefficient use of resources for

landholders, farm operators, districts,

and us, if the final rule required

‘‘custom operators’’ (custom service

providers) to complete the Form 7–

21FARMOP. By the way the term

‘‘custom service provider’’ is defined,

we would not find them to be a lessee

under any circumstance. Accordingly,

there is no value added in requiring

custom service providers to complete

RRA forms.

Comment: You should extend the

regulations to include reporting on the

direct and indirect ownership of excess

acreage lands. Shell games regarding

indirect ownership devices should be

clearly discouraged.

Response: We have required the

reporting of direct and indirect

ownership of excess land since the 1997

water year. We recommend the

commenter examine the ‘‘Designation of

Excess Land’’ (Form 7–21XS) and

associated instructions for further

information.

Comment: We agree with the goals

stated in the proposed rule, but we

believe you should collect information

through audits instead of the proposed

information gathering system. This

would be more effective and less

burdensome.

Response: In order to be able to run

an effective audit program, we first have

to be able to identify the individuals,

entities, and organizations that need to

be audited. We have found that the RRA

forms submitted by landholders have

the additional benefit of being an

effective means to identify those

landholders who should be audited or

otherwise reviewed. The RRA form for

farm operators simply extends this

concept to farm operators. Once the

farm operators are identified, their

operations will still have to be audited

before we can determine if they are

leases for acreage limitation purposes.

Comment: What will be the incentive

for ‘‘operators’’ that are not landowners

to file certification forms?

Response: There are various

incentives for farm operators to submit

the required RRA forms. The first is to

ensure the land to which they are

providing services does not lose its

eligibility to receive Reclamation

irrigation water. The second incentive is

to not owe the district(s) in question

$260 when we issue an administrative

fee bill to recover the additional costs

we incur as a result of the farm operator

not submitting the required form. An

additional incentive may be to maintain

an effective business relationship with

landholders by ensuring compliance

with all statutory and regulatory

provisions, which will impact the

landholders if compliance is not

achieved.

Comment: Who would audit and

determine accuracy of the reports

submitted by farm operators?

Response: It is our responsibility to

audit the RRA forms submitted by farm

operators. The responsibility of the

districts is to collect such forms and to

complete the Tabulation G annually

based on the information provided on

the Form 7–21FARMOP. Nevertheless,

it must be remembered that the primary

purposes of the forms requirement for

certain farm operators is to identify farm

operators and provide us with

information to determine an audit

priority of their associated farm

operating arrangements, not to audit the

Form 7–21FARMOP.

Comment: How will the government

verify the data submitted by farm

operators? 

Response: We will use the

documentation associated with the farm

operating arrangement that we review

during an audit to verify the data. We

will also review information submitted

by landholders who have hired the farm

4308 Federal Register / Vol. 65, No. 17 / Wednesday, January 26, 2000 / Rules and Regulations

operator in question to verify

information provided by the farm

operator on the Form 7–21FARMOP.

Comment: Regarding the forms you

submitted for comment on January 8,

1999, we believe there will be problems

for irrigation districts trying to get

people to turn in the forms. A district

would send the new form to all farm

operators identified on the landowners’

forms. However, consider a situation

where a farm operator who operates on

more than 960 acres in more than one

district fails to file forms. While one

district may not find this to be a

problem, because the farm operator

works less than 960 acres in that

district, the combined acreage requires

that the farm operator file forms. How

would either district know that they

should not deliver water until the forms

are filed? It seems that each district

would have to require farm operators to

file forms regardless of whether the

proposed rules require them to do so.

Response: We have not extended the

RRA forms requirements to all farm

operators. If a district determines that it

would be best to require all farm

operators to submit Form 7–

21FARMOP, that is the district’s

prerogative. An alternative would be to

send Form 7–21FARMOP to all farm

operators identified on landholder

forms and let the farm operator decide

if he/she/it is required to complete it

and return it to the district. Moreover,

districts often have knowledge of large

farm operators doing business in the

region and could send these operators

forms. We anticipate holding workshops

after we publish the rule to ensure that

districts, landowners, and farm

operators have notice of the final rule.

Comment: Is a farm operator who is

required to report the landholdings on

which he provides services eligible to

apply class 1 equivalency under 43 CFR

426.11? If so, can equivalency be

applied to all land attributed to a

particular farm operator, if it is

otherwise eligible nonexcess land?

Response: Farm operators are not

eligible to use class 1 equivalency

factors. Class 1 equivalency factors are

not to be used in determining if an

individual, legal entity, or organization

is required to submit RRA forms. This

prohibition is clearly stated in 43 CFR

426.18(g)(3)(i). If, upon review of the

farm operating arrangement, a farm

operator is determined to be a lessee,

then and only then will that lessee be

eligible to utilize available class 1

equivalency factors in determining how

much land can be selected as nonfullcost when the lessee completes the

‘‘Selection of Full-Cost Land’’ (Form 7–

21FC).

Trusts

Comment: We object to the proposed

rules and urge Interior to refrain from

further rulemakings that target trusts.

Response: The purpose of the final

rule is to identify certain farm operators

whose farm operating arrangements will

then be audited to determine if they are

leases for acreage limitation purposes.

Determining if a farm operating

arrangement is a lease for acreage

limitation purposes is not a new

compliance activity, nor does it

specifically ‘‘target’’ trusts. The rule will

also ensure the intent of the excess land

provisions is being met.

Comment: We object to any change in

the law or regulations that deprives us

of our ability to do what we believe is

in the best interest of the trust’s

beneficiaries. We object to any change

in the regulations which would

preclude us from selecting the best

possible farm manager for the trust.

Response: The regulation would not

prevent you from selecting the best farm

manager for your trust as long as the

farming arrangement you agree to is not

a lease for acreage limitation purposes

(this does not represent any change from

the current regulatory environment).

The regulation would, however, require

you to pay the full-cost rate for the

water received on the land if you

employ a farm operator who once held

that land as excess land and sold or

transferred it at an approved price.

Comment: Trusts that you already

approved should not be subject to any

additional regulations.

Response: As with most regulatory

programs, in recognition of changing

conditions from time to time, we need

to adjust regulations to ensure that we

continue to properly implement the law.

Nevertheless, there are no new

additional regulatory requirements

being imposed on trusts by this

rulemaking, unless the trust holds

formerly excess land and the trustee

contracts with a farm operator who was

the former owner of that land who sold

or transferred it at an approved price. In

such cases the trustee has three options:

(1) Before January 1, 2001, hire a

different individual or legal entity to

provide services to the land; (2) Pay the

full-cost rate for Reclamation irrigation

water delivered to such land; or (3) Do

not irrigate the land in question with

Reclamation irrigation water.

Comment: The 960-acre limitation on

trusts is reasonable, but trusts in

existence before January 1, 2000 should

be exempt from this regulation.

Response: We have not placed a 960-

acre limitation on trusts. Rather, the rule

requires farm operators to submit RRA

forms if they provide services to more

than 960 acres held in trusts or by legal

entities. We therefore have not

accommodated this suggestion in the

final rule.

Comment: Our entire farming

arrangement, including the initial

engagement of the former landholder as

farm manager, was approved by the

Department of the Interior at the time

the trust was created. Any change in

that situation appears to be targeted in

a punitive way to this trust and its

beneficiaries.

Response: The Secretary approves

trusts under Section 214 of the RRA

and, on occasion, has determined that

certain farm operating arrangements are

not in fact leases. The Secretary does

not approve ‘‘entire farming

arrangements,’’ nor would doing so

preclude the exercise of rulemaking

authority under Section 224(c) of the

RRA. Moreover, this rule is not targeted

at any particular arrangement. This

rulemaking addresses the practice of

landholders selling excess land at an

approved price and then being hired by

the new landholder to continue to farm

the former land as a farm operator. This

practice has been used by existing large

trusts in the Central Valley Project.

Without the finalization of the proposed

rule, this practice may spread to other

areas, thereby allowing excess

landholders to fashion arrangements

that permit them to continue

substantially the same enterprise using

subsidized water. By eliminating any

incentive for the excess landowner to

maintain any interest, either property or

contractual, in its formerly excess lands,

we believe we will have furthered the

policies set forth in Section 209 of the

RRA and the excess land provisions of

Federal reclamation law. Further,

Reclamation has decided not to make

this provision effective until January 1,

2001, to provide time for trustees and

others who may have hired the former

excess landowner to determine how best

to continue to farm the land.

Comment: We disagree that excess

landowners deed land to trusts in order

to abuse the congressional intent of

reclamation law. As farmers get older,

they use the trusts to preserve their

heritage for future generations. This

allows small family farms to remain

intact after the death of the head of the

household.

Response: The Congress was clear

with regard to excess land. The

landowner is to divest all interest in that

land if such land is to become eligible

to receive Reclamation irrigation water.

No exceptions were made for estate

planning purposes.

Federal Register / Vol. 65, No. 17 / Wednesday, January 26, 2000 / Rules and Regulations 4309

Impacts of the Rule

Comment: The impacts of the rule on

farmers and districts would be

outrageous with no resulting benefits;

we request that you rescind the

proposed rule.

Response: The final rule does provide

a benefit to landholders and districts

because it will help minimize the

likelihood that districts and landholders

will face cost prohibitive retroactive

charges. Under the Acreage Limitation

Rules and Regulations, if we determine

a farm operating arrangement is a lease,

the applicable nonfull-cost entitlement

is applied retroactively to the

landholding of that lessee (the farm

operator). If the farm operator had been

providing services to more acreage than

the applicable nonfull-cost entitlement

under his/her/its farm operating

arrangements, the full-cost rate would

be applicable. If the farm operating

arrangements have been in place for a

number of years, the resulting bill to the

district could be in the tens of

thousands of dollars. It is likely that

districts will ultimately hold the

landowner and lessee responsible for

payment of such a bill.

The final rule provides us with an

effective means to identify farm

operators who are providing services to

land totals that exceed the maximum

acreage limitation entitlement (the

ownership and nonfull-cost

entitlements; 43 CFR 426.2). As a result,

we will be able to request that the

associated farm operating arrangement

be submitted for review early in the

process and, hopefully, minimize the

likelihood of districts facing full-cost

bills long after the lessee (farm operator)

provided the services.

Comment: You have grossly

understated the impacts of the proposed

rules, particularly on small farmers.

Many small farmers have their land

planted to permanent crops. These

farmers, unlike large farming operations,

cannot afford all of the equipment

necessary to farm the land, and rely

heavily on contractors. These

contractors provide services to many

farmers to spread their investment in

the equipment across the requisite

number of acres. Although you say the

effect of the proposed rules should be

limited to approximately 100 farming

operations westwide, this is simply not

the case.

Response: The regulation itself is

limited to those farm operators

providing services to trusts and legal

entities and to their formerly excess

land. The primary way a small farmer

will be impacted is if that landholder is

a trust or legal entity and its farm

operator is required to submit an RRA

form because he/she/it is providing

services to more than 960 acres held in

trusts and by legal entities, but does not.

The trust or legal entity can remedy this

problem by encouraging its farm

operator to submit the required form. Of

course, if it turns out that the farm

operator is a lessee for acreage

limitation purposes, then the nonfullcost entitlement would be applied,

which would happen even without this

regulation. The other way a small farmer

would be impacted is if the landholder

(1) Is a trust or legal entity, (2) Holds

formerly excess land, and (3) Hires a

farm operator who was the former

owner of that land when it was excess

and who sold or transferred it at an

approved price. We do not believe there

are many ‘‘small farmers’’ who face this

situation.

Comment: The proposed rule would

have significant impacts on many

growers who receive Reclamation water.

Many farms could suffer if you force the

vendors to file forms just to justify doing

business in our district. This could

mean loss of jobs in those companies

and loss of profits.

Response: We fail to see how

requiring a farm operator to file an RRA

form could result in a loss of jobs or

profits to companies who provide farm

operating services.

Comment: The regulation could

negatively affect individuals who are

not part of any ‘‘large trust’’ and who are

in full compliance with reclamation

law.

Response: The regulation could

negatively affect individuals who are

not part of any ‘‘large trust’’ only if such

individuals are not currently in full

compliance with Federal reclamation

law, e.g., if their farm operating

arrangement is really a lease for acreage

limitation purposes. A primary purpose

of this regulation is to collect

information to ensure certain farm

operating arrangements are in full

compliance.

Comment: By its vague and

overgeneralized approach, the proposed

rule is sweeping in its information

requirements and puts districts at risk of

violating the prohibition on water

deliveries to non-reporting service

providers they do not even know exist.

Response: In order to help implement

this new RRA forms requirement and

provide district staff time to familiarize

themselves with farm operators

providing services in their districts, we

have provided for a later effective date

than we included in the proposed rule;

specifically the effective date will be

January 1, 2001, rather than 2000.

Comment: RRA forms and regulations

require an exceptional time

commitment, both to comment on new

regulations/forms and to monitor

acreage limitation and eligibility status.

RRA regulations are becoming more

complicated and more difficult to

administer.

Response: Unfortunately, the

enforcement and administration of the

RRA is somewhat complicated because

of the nature of the provisions included

in the Act. Reclamation has tried to

simplify the forms requirements where

possible.

Comment: The regulation places an

unreasonable burden on irrigation

districts. Each district will have to send

out forms, collect and store them, be

subject to audits, all of which will

increase costs. There will be increased

time and expense for district personnel

to receive, review, reissue forms, and

track the receipt of the new forms for a

farm operator. You should make a

finding and determination of the impact

that the regulations would have on

irrigation districts who are responsible

for implementing the regulations.

Response: We believe such impacts

would be minimal westwide. We have

no evidence that currently there is

widespread use of farm operators

providing services to more than 960

acres held in trusts or by legal entities.

We prepared an Environmental

Assessment (EA) on this rulemaking,

and we refer the commenter to that EA

for further information concerning

impacts.

Comment: The information

requirements are burdensome because

no time limit is placed on determining

prior ownership of formerly excess land

and it requires information to be

submitted by parcel.

Response: All RRA forms require

information to be submitted by land

parcel. As a result, we anticipate that

the information requirement for certain

farm operators will be no more

burdensome than the information

requirements imposed on landholders.

Comment: It is inappropriate to

require information from parties not

directly benefitting, when the

consequences fall on the actual

beneficiaries, not those parties.

Response: We do not believe it is

inappropriate to require certain farm

operators to submit RRA forms. Farm

operators directly benefit from

providing services to land by receiving

payment for those services.

Comment: We are concerned about

this regulation causing an adverse

impact of the future eligibility of

irrigation land. For example, we are

concerned that when a deed covenant

4310 Federal Register / Vol. 65, No. 17 / Wednesday, January 26, 2000 / Rules and Regulations

on acquired excess land expires, the

proposed rules could keep the buyer’s

land ineligible for project water

indefinitely, if the farm operator was the

former owner of the land when it was

excess.

Response: This rulemaking will not

prohibit the delivery of irrigation water

to formerly excess lands being operated

by the former owner. Rather, the fullcost rate will be charged for water

delivered to formerly excess lands

operated by the former owner of such

lands. This rule creates a strong

disincentive to the disposition of excess

lands to trusts or other legal entities that

the former owner of excess lands itself

created or with which the former owner

has a continuing relationship or interest,

and creates an incentive to dispose of

excess land in parcels of 960 acres or

less to independent parties.

Comment: Your field offices have

been downsized. How will you find

money in the budget for compliance

specialists to enforce these regulations?

If operators fail to file forms, how will

anyone ever know?

Response: We already are required to

audit farm operators. The requirement

for farm operators to submit RRA forms

should simplify the process used to

determine what farm operators are

providing services to more than 960

acres. We expect to find instances of

farm operators not filing RRA forms

through our normal water district

review process and audits of large

landholders.

Authority

Comment: You do not have statutory

authority to issue § 428.9 of the

proposed rule. The proposed rule

contains no reference to its statutory

authority, and in the preamble, there is

only one attempt to explain that RRA

Section 209 authorizes the proposed

rule. We assert that Section 209 does not

authorize the proposed rule, because

nothing in that Section authorizes

Interior to impose eligibility or pricing

restrictions on owners or farm managers

once lands have been disposed of in

compliance with Federal reclamation

law to nonexcess owners.

Response: We believe that we have

such authority based on the excess land

provisions of Federal reclamation law,

specifically Section 209 of the RRA, and

our general rulemaking authority to

carry out the provisions of the RRA, as

set forth in Section 224.

Under the Supreme Court’s decision

in Chevron USA, Inc. v. Natural

Resources Defense Council, Inc., 467

U.S. 837 (1984), an agency may issue

regulations to the extent that its

statutory interpretations reasonably

relate to the purposes of the enabling act

and are within the agency’s grant of

authority. Section 209 of the RRA

requires landholders to dispose of their

interest in excess lands in order for such

land to be eligible to receive

Reclamation irrigation water. By

eliminating the capacity of an excess

landowner to retain or obtain an interest

in its formerly excess lands, the

Congress created a strong incentive for

excess landowners to dispose of their

excess lands and sever their relationship

with such lands.

In practice, we have found that the

capacity of an excess landowner either

to retain or obtain a contractual interest

in formerly held excess lands creates an

incentive in the excess landowner,

contrary to that created by the Congress

in Section 209, to dispose of the excess

lands to a trust or other legal entity that

the former owner of excess lands itself

created or with which the former owner

has a continuing relationship or interest.

Rather than disposing of the excess

lands through independent sales in

tracts of 960 acres or less, a former

excess owner could dispose of its excess

lands to a large trust or other legal entity

that the former owner itself created or

with which the former owner has a

continuing relationship or interest,

which would allow the former owner,

by contract, to continue to farm its

formerly excess lands as a single unit.

We would view such practices as an

abuse of the excess lands laws because

through these dispositions, a situation is

created where substantially the same

enterprise—using the same employees,

same equipment, and same water at the

nonfull-cost rate on the same undivided

tract of land—continues to farm the

same large acreage.

We believe allowing such practices is

contrary to policies enunciated by the

Congress in enacting Section 209 of the

RRA. Under Federal reclamation law,

the Congress sought to provide

irrigation water to small family-owned

farms in its effort to develop the West

and increase agricultural production,

but in a manner that did not fuel land

speculation or contribute in any way to

the monopolization of lands in the

hands of a few private individuals.

Peterson v. U.S. Dept. of the Interior,

899 F. 2d 799, 802–03 (9th Cir.), cert.

denied, 498 U.S. 1003 (1990). The

policy was and still is to make the

benefits from the program ‘‘available to

the largest number of people, consistent

with the public good.’’ Ivanhoe

Irrigation Dist. v. McCracken, 357 U.S.

275, 292 (1958). In 1982, the Congress

amended Federal reclamation law with

the RRA to curb known abuses like

leasing and to limit the water subsidy

being provided. The Congress did not

see any public purpose or rationale for

providing taxpayer subsidies to largescale farming interests that could well

afford to pay for the public benefits they

receive. Full-cost pricing for farms in

excess of the acreage limitations was a

compromise between the economics of

current farming enterprises and the

policy of broad distribution of water

benefits to small farmers.

We have already developed and

enacted regulations found in 43 CFR

426 to carry out the Congress’s intent in

the excess lands provisions. However,

the development of current practices

that impede the fulfillment of

congressional intent requiring the total

divestiture of a former owner’s interest

in its excess lands in independent

transactions of 960 acres or less requires

the supplementation of the rules dealing

with the disposition of excess lands. To

reduce the incentive to create and

engage in practices contrary to

congressional intent in enacting Section

209, we are exercising our rulemaking

authority under Section 224(c) of the

RRA. By requiring full-cost pricing of

water delivered to lands operated by a

former owner of excess lands, the final

rule creates a strong disincentive to the

disposition of excess lands to trusts or

other legal entities that the former

owner of excess lands itself created or

with which the former owner has a

continuing relationship or interest, and

creates an incentive to dispose of excess

lands in parcels of 960 acres or less to

independent parties, as intended by the

Congress.

Comment: Section 428.9 is clearly

beyond the scope of your authority

under the RRA, and you should delete

it in its entirety. A true operating

arrangement is not an interest in the

land or a lease. Your assertion that the

contractual relationship between the

former excess landowner as farm

operator and the current landholder

represents a continuing financial

interest in the land is not true. The RRA

does not attempt to limit the former

excess owner’s relationship with the

new landholder, and you have no

authority to do so.

Response: As discussed in the above

response, our reading of Section 209

and congressional intent in enacting the

excess land provisions provides the

authority for this rulemaking. Moreover,

we are not limiting the relationship

between the new landholder and the

former owner. We are monitoring the

relationship between the former owner

and its formerly excess land to ensure

that the excess land is eligible to receive

Reclamation irrigation water in

accordance with the RRA. If excess land

Federal Register / Vol. 65, No. 17 / Wednesday, January 26, 2000 / Rules and Regulations 4311

is truly being sold or transferred in a

manner that results in the intent of the

excess land provisions being fulfilled,

then this rulemaking should have no

impact on those new landowners.

Comment: There is no authority that

provides that the farm manager, under

a farm management agreement, owns an

‘‘interest’’ in the farmed land. In fact,

authorities conflict with this

proposition. (In the case of Von Goerlitz

v. Turner, 65 Cal. App. 2d 425, 429

(1944) it was held that an operating

agreement does not create an ‘‘interest’’

in real property.) Interior itself has

never interpreted the entry into a farm

management agreement as creating an

‘‘interest’’ in property. Interior has

always recognized that the reclamation

laws relate only to ‘‘ownership’’ and

‘‘leasing’’ of lands, not to farm size, and

not to operation under a management

agreement.

Response: By requiring full-cost

pricing of water delivered to lands

operated by a former owner of excess

lands, the final rule creates a strong

disincentive to the disposition of excess

lands to trusts or other legal entities that

the former owner of excess lands itself

created or with which the former owner

has a continuing relationship or interest,

and creates an incentive to dispose of

excess lands in parcels of 960 acres or

less to independent parties, as intended

by the Congress. This causes no harm to

the former owner of that land. If the

former owner wants to continue to be

involved in the land in question either

as a lessee or a farm operator providing

services, the former owner may do so,

and the land will be eligible to receive

Reclamation irrigation water. However,

where the former owner contracts to

farm formerly excess land, such

deliveries will be at the full-cost rate.

Comment: With regard to farm

operators who provide services to land

sold or transferred out of excess status,

there does not appear to be any legal

basis to preclude delivery of water to

such land, because it has been brought

into compliance with the acreage

limitation provisions by the sale.

Response: See our response to the first

comment in this section. The final rule

does not preclude water delivery to

formerly excess lands. It is up to the

new landowner how the land is to be

farmed, factoring in the costs for

Reclamation irrigation water, and this

final rule provides options regarding the

use of Reclamation irrigation water.

Comment: The RRA does not give you

a basis to impose the full-cost rate on a

qualified recipient, except as

determined by the recipient’s

landholding, which according to

Section 202 of the RRA, must be owned

or operated under a lease.

Response: See response to first

comment in this subsection. Section 209

clearly expresses the Congress’s intent

that a former owner of excess land must

totally divest its interest in his/her/its

formerly excess lands. Using full-cost

pricing to discourage the former owner

of excess lands from providing services

to formerly excess land as a farm

operator serves as a strong disincentive

to the disposition of excess lands to

trusts or other legal entities that the

former owner of excess lands itself

created or with which the former owner

has a continuing relationship or interest,

and creates an incentive to dispose of

excess lands in parcels of 960 acres or

less to independent parties, as intended

by the Congress. In fulfilling

congressional intent regarding

disposition of excess lands, we

determined that we could allow the

delivery of irrigation water to such

lands if the full-cost rate was paid

because full-cost pricing serves as a

sufficient disincentive against the

former owner transferring the land to an

entity that the former owner of excess

lands itself created or with which the

former owner has a continuing

relationship or interest without

foreclosing all farming options available

to the current owner.

Comment: You lack authority for this

rulemaking because the Secretary of the

Interior has approved the large trust

arrangements, and the Congress

exempted trusts from the acreage

limitation provisions.

Response: See response to first

comment in this subsection. The RRA

does not exempt trusts from application

of the acreage limitation provisions. It

exempts trustees acting in a fiduciary

capacity from application of the acreage

limitation provisions if the trusts meet

certain criteria. In approving trusts, the

Secretary determined whether these

criteria have been met. Moreover, the

rulemaking does not impose additional

requirements on trusts per se. It

addresses practices of excess

landowners that have developed since

the enactment of the RRA to avoid

Section 209 and the Congress’s intent

that former owners of excess lands

totally divest themselves of interests in

excess lands by disposing of excess

lands in parcels of 960 acres or less to

independent parties.

Comment: You do not have the

authority to adopt regulations that

would apply ownership or full pricing

limitations to lands held in trust. The

Congress explicitly addressed the

applicability of these limitations in

Section 214 of the RRA, which is clear

and unambiguous. You must give effect

to this explicit congressional intent, and

not try to finalize these regulations.

Response: The provisions of Section

214 apply solely to a trustee acting in a

fiduciary capacity and only if the trust

in question meets certain criteria. The

RRA does not provide that land held in

trust is totally exempt from the

application of the acreage limitation

provisions. All land held in trust is

attributed to either the beneficiaries,

grantors, or trustees, depending on the

type of trust and if the criteria found in

43 CFR 426.7 have been met. The

acreage limitation entitlements and

other landholdings of the parties to

whom the land held in trust is

attributed will determine if that land is

eligible to receive Reclamation irrigation

water and at what price.

Comment: Interior faces substantial

legal barriers when it seeks to change

RRA regulations, including breach of

contract, regulatory takings, and

administrative res judicata (see United

States v. Utah Construction & Mining

Co., 384 U.S. at 394, 421–422.)

Response: These regulations

supplement the 1996 RRA regulations to

address some current practices engaged

in by former owners of excess lands that

are contrary to the policies set forth by

the Congress in the RRA. We do not

believe that any claims based on breach

of contract, regulatory takings,

administrative res judicata, or statutory

violations have merit. While it is

unclear what contract is alleged to be

breached or what vested property right

will be taken, these regulations should

not affect any contracts between

Reclamation and the districts. Moreover,

landowners have no vested right to the

delivery of nonfull-cost water to excess

lands regardless of who owns, leases, or

operates the lands. We believe that this

rulemaking is rationally related to the

provisions of the RRA and the

Congress’s concerns to promote small

farming operations and equitable

distribution of water under modern

farming conditions.

Comment: The proposed rule would

impose significant information

requirements on non-water using parties

identified in the rule as ‘‘farm

operators.’’ Neither the RRA nor other

Federal reclamation law contemplates

placing information requirements on

parties other than landowners and water

users. It is unclear whether you have the

legal authority to compel parties other

than project beneficiaries to submit

information to you.

Response: Section 224(c) of the RRA

requires us to collect all data needed to

carry out and ensure compliance with

the acreage limitation provisions of

4312 Federal Register / Vol. 65, No. 17 / Wednesday, January 26, 2000 / Rules and Regulations

Federal reclamation law. We have

determined that we need additional

information concerning farm operators

to ensure that we are aware of those

providing services to more than 960

acres held in trusts or by legal entities.

Only by reviewing farm operating

arrangements can we be sure that they

are not really leases for acreage

limitation purposes.

Need for the rule

Comment: We believe that until there

is actual evidence that the vast majority

of water users are not in strict

compliance with the current RRA

regulations, you should not impose

additional burdens upon the water

users.

Response: Most parties have long

agreed that Reclamation should be

auditing farm operating arrangements to

ensure they are not leases for acreage

limitation purposes. If we do not take

such action, we believe that in a

relatively short time the vast majority of

water users would not be in strict

compliance. A primary purpose of this

regulation is to more effectively identify

farm operating arrangements that should

be reviewed to determine if they are

leases.

Comment: Expanding the reporting

and certification net to capture more

than what is required for the economic

interest standard is a waste of time, will

add an additional burden to districts

westwide, and will do nothing to help

compliance with the RRA.

Response: We are expanding the RRA

forms requirements so that we can more

efficiently and effectively identify those

farm operators that need to be audited

to determine if their farm operating

arrangements are leases for acreage

limitation purposes. We will audit all

farm operators who will be required to

submit the new Form 7–21FARMOP. At

that point, we will apply the economic

interest-test.

Comment: You could more fully

utilize the sources of information

already available, such as the Farm

Service Agency and existing RRA forms.

Response: We have been utilizing

both of these sources of information

concerning farm operators. Records

maintained by the Farm Service Agency

(FSA) are useful. However, because of

the differences between the acreage

limitation program and the FSA

programs, the FSA records do not

always provide the information we need

to identify farm operators. As for the

RRA forms, we have been collecting

information on farm operators since

1988. However, as we explained in the

Preamble to the proposed rule, this

effort requires the district staff to

provide information to us on every farm

operator reported by landholders on

RRA forms submitted to the district. We

must then collate that information to

determine if any farm operators are

providing services to more than 960

acres and, thus, be the subject of an

audit. Any differences in the

information included on the RRA forms

by landholders concerning names,

addresses, telephone numbers, etc.

materially affect the effectiveness of this

process. This entire system can be

significantly simplified for both the

districts and us by requiring only those

farm operators who provide services to

more than 960 acres to submit RRA

forms.

Comment: New farm operator forms

are not necessary. Landowners could

just note the taxpayer identification

number of the entity providing farm

operating services on their annual

certification forms. Then, if Interior

determines an operator is operating

more than 960 acres, it could collect

applicable data as per RRA Section

224(c). The burden should lie with

Interior, not with farmers and farm

operators.

Response: Requiring landholders to

include the taxpayer identification

number for farm operators on

landholders forms would reduce

problems associated with using names,

addresses and telephone numbers as

identifiers; however, it is only a partial

solution. This is because taxpayer

identification numbers apply only to

legal entities. Individuals who are

providing services as farm operators

have social security numbers and while

we can ask, we cannot require an

individual to provide his or her social

security numbers on RRA forms. We

also do not believe a landholder would

normally have the taxpayer

identification number for farm operators

with whom the landholder has

contracted for services. Thus, this

would add to the burden landholders

face in completing their RRA forms.

Finally, a requirement to include the

taxpayer identification number for farm

operators on landholder forms does not

address the problems we have

encountered with districts annually

having to provide us with information

on all operators providing services to

land in their districts or the need to then

collate that data in order to determine

which farm operators are providing

services to more than 960 acres.

Comment: Farm operator information

is already provided on individual,

entity, and trust forms. To require an

additional farm operator form is

redundant and burdensome. We suggest

that you could change Forms 7–

21Summ–C and 7–21Summ–R to

include information on whether a

landholder utilizes an operator, and if

so, whether the operator works on more

or less than 960 acres. You could then

review the forms and compile a list of

farm operators—this would allow you to

gauge the scope and size of the problem

without causing hardship on custom

operators, landowners, and districts.

Response: This suggestion would

require districts to include additional

information on the tabulation sheets

they are required to annually submit

with their summary forms. We will

require districts, as a result of this final

rule, to complete a new tabulation sheet

providing limited information from the

new Form 7–21FARMOP submitted by

farm operators. The difference is that

the commenter’s suggestion would

significantly increase the burden on

districts as compared to what this final

rule will require, because rather than

providing information on the

tabulations sheets for less than an

anticipated 200 farm operators

submitting forms, district staff would be

required to submit information on every

farm operator reported on landholder

forms. In addition, this suggestion

would not relieve the need for us to

collate that information to determine

which farm operating arrangements

need to be audited. The only way this

suggestion would address that problem

is for us to require much more detailed

information on landholder forms

concerning any farm operating

arrangements. That information would

then have to be included by districts on

tabulation sheets. Such an arrangement

would increase the RRA forms burden

on both landholders and districts.

Comment: You already have the tools

available to determine whether a

farming arrangement is a lease since all

leases must be in writing. You should

focus on your current enforcement

powers instead of imposing new useless

requirements.

Response: It is true that all leases

must be in writing. However, if we only

reviewed those farming arrangements

that the landowner and other party

readily admit are leases, then we would

not be in compliance with the statutory

requirement to review compliance by all

individuals and legal entities. This

includes reviewing operating

arrangements to determine if they are

really leases for acreage limitation

purposes.

Comment: There are sufficient legal

remedies under reclamation law to

correct perceived abuses and to stop

water deliveries to ‘‘entities’’ that are

not in compliance with acreage

limitation.

Federal Register / Vol. 65, No. 17 / Wednesday, January 26, 2000 / Rules and Regulations 4313

Response: We agree we have legal

remedies to correct abuses. The

regulation is intended to gather

information more effectively to

determine if there has been an ‘‘abuse’’

and further define noncompliance with

respect to the excess land provisions.

Comment: Because you may not apply

ownership and full-cost limitations to

lands held in trust, the information

collection from farm operators that

perform operations on trust lands in

excess of 960 acres is unnecessary.

Response: The acreage limitation

requirements are in fact applied to land

held in trust. They are applied in two

ways. First, all land held in trust must

be attributed to individuals or entities,

be it the beneficiaries, trustees, or

grantors. The acreage limitation

entitlements and westwide

landholdings of those individuals and

entities to whom the land is attributed

determine if the land held in trust is

eligible to receive Reclamation irrigation

water and how much must be paid for

such water. The second application

occurs if the trustee should lease out the

land held in trust. The nonfull-cost

provisions apply to that lessee. The new

information collection is to ascertain if

the trustee has employed a farm

operator so that we can review the farm

operating arrangement to determine if it

is really a lease for acreage limitation

purposes.

NEPA Review

Comment: The environmental impact

statement (EIS) prepared for the last

rulemaking generated substantial public

involvement and resulted in ‘‘preferred

alternative’’ regulations that did not

include farm operator reporting

requirements. Those regulations were

finalized subject only to the trust issues

discussed in the ANPR. We do not think

that anything has changed since the

preparation of the EIS to warrant this or

any other change in the RRA

regulations.

Response: This rulemaking is a result

of the trust issues discussed in the

ANPR.

Comment: The law is clear that any

new rulemaking that considers limiting

water subsidies in the 17 Western States

but then results in a final set of

regulations that fails to limit subsidies

is fatally defective if the regulations are

not fully analyzed under NEPA. The

effect on the environment of failing to

enforce the RRA’s pricing limits is

simply too great to allow for categorical

exclusion.

Response: We believe that the

categorical exclusion is justified for this

rulemaking. However, in order to be

responsive to public comments, we have

prepared an Environmental Assessment

to more carefully analyze the regulation

under NEPA.

Comment: You should consider the

alternative of returning any water

savings from the Central Valley Project

to the Trinity River for implementation

of the Trinity River Flow Decision.

Response: This suggestion falls

outside of the scope of this rulemaking.

In addition, we do not anticipate any

water savings, since it is more than

likely that landholders will adjust their

farming practices to minimize any

impact of this final rule.

Part 428—Summary of Changes; Public

Comments and Responses

This section of the preamble describes

changes from the proposed rule to the

final rule and provides responses to

public comments received on the

proposed rule by section.

Section 428.1 Purpose of this Part

This section concisely identifies the

issues that 43 CFR part 428 addresses.

We made no changes to this section in

the final rule as compared to the

proposed rule. We received no

comments on this section.

Section 428.2—Applicability of this Part

This section summarizes to whom the

final rule applies and provides that this

rule supplements the regulations found

in 43 CFR part 426. We made no

changes to this section in the final rule

as compared to the proposed rule.

Comments Concerning § 428.2—

Applicability of this Part

Comment: The language in § 428.2(a)

will add another layer of categorization

of landholders, which will only add to

the confusion for landholders and

districts. This categorization will add to

the administrative burden on districts

and Reclamation.

Response: We agree that at least

initially another RRA forms submittal

threshold and the limitation of the

application to farm operators providing

services to trusts and legal entities could

cause confusion. However, we believe

this is preferable to the burden

associated with requiring all farm

operators to submit Form 7–21FARMOP

if they are providing services to more

than 40, 80, or even 240 acres.

Comment: The proposed regulations

concerning ‘‘farm operator’’ are not

necessary because the original act makes

no mention of this group and more

importantly the farm operator has

nothing to do with the ownership of the

land which is the basis for eligibility.

Response: While ownership is the

basis for determining the eligibility of

land to receive Reclamation irrigation

water, the price to be paid for such

water is based on the amount of eligible

acreage, leased or owned, to be irrigated.

As a result, farm operating arrangements

must be reviewed to determine if they

are leases for acreage limitation

purposes and thus subject to application

of the nonfull-cost entitlement

provisions of the RRA.

Comment: The text of § 428.2 includes

a possible oversight: subsection (b)

extends the regulations to certain

operators of formerly excess land (those

who previously owned the land). But it

does not address the fact that the

operator can mask his true identity,

perhaps by setting up a second legal

entity to farm the land, or adding one

limited partner so that the two identities

are not identical. The use of ‘‘indirect’’

ownership devices and creation of new

legal entities should not be allowed to

frustrate the purpose of the regulations.

While § 428.4(b) helps somewhat by

bringing indirect owners of farm

operators into the definition, that may

not be enough if the operating entity

that is indirectly owned is still not the

same as the original ownership entity.

Also, § 428.9(b)(2) helps by making clear

that part owners of legal entities are still

subject to the new regulations, but this

still assumes the operating and owning

entity are technically the same. You

must change the regulations to address

what happens when the original owner

simply changes the legal entity that it

uses to operate the formerly excess land,

even though the benefits still flow to the

same person or persons.

Response: We have not made any

changes to the regulation as a result of

this comment. While we recognize that

those who really want to evade the new

RRA forms requirement may find a way

to do so, we must balance our efforts to

close such possible loopholes with the

additional burdens such actions will

have on the public.

Comment: Section 428.2 states that

the proposed rule applies to farm

operators who provide services to more

than 960 acres. If a district has not

conformed to the discretionary

provisions of the RRA does the 960-acre

threshold still apply?

Response: Yes, the 960-acre forms

submittal threshold applies to all farm

operators regardless of the acreage

limitation status of the district where

the land in question is located.

Comment: Section 428.2(b) requires

annual forms for ‘‘anyone who is the

indirect owner of a legal entity that is

a farm operator * * *’’ What about

publicly traded corporations that fit the

definition of ‘‘farm operator’’? Does this

mean that shareholders of corporate

4314 Federal Register / Vol. 65, No. 17 / Wednesday, January 26, 2000 / Rules and Regulations

farm operators must file individual

forms every year? What about other part

owners where there is no change in the

operation?

Response: Section 428.2(b) does not

establish forms requirements for farm

operators. However, in § 428.4(b) which

does establish those requirements, we

have made it clear that part owners of

legal entities that are farm operators

which are required to submit RRA forms

only have to submit a Form 7–

21FARMOP if a portion or all of the

land to which the legal entity is

providing services was formerly owned

by the part owner as excess and sold or

transferred at an approved price.

Accordingly, if a corporation is a farm

operator that is required to submit an

RRA form, only those shareholders that

formerly owned land as excess and sold

or transferred it at an approved price

that is now being farmed by that

corporation would have to submit Form

7–21FARMOP annually.

Comment: We understand the

proposed rule to mean that if the same

contractor does work on my ranch and

someone else’s that the two farms would

be considered as one, so that if the total

acreage reaches 960, the remainder of

the property would be ineligible.

Response: That is not a correct

interpretation. The simple fact that a

farm operator is providing services to

more than 960 acres held in trusts or by

legal entities does not result in the

ineligibility of land. The regulation only

requires such farm operators to submit

RRA forms. The land only becomes

ineligible for delivery of Reclamation

irrigation water if a farm operator does

not submit the required RRA form; then

all of the land to which that farm

operator is providing services would be

ineligible until the form is submitted. If

as a result of an audit of a farm

operating arrangement, it is determined

the farm operator is a lessee, then the

nonfull-cost entitlement would apply.

This does not affect the eligibility of the

land; rather, it will impact the price

paid for Reclamation irrigation water

delivered to a portion of the land that

is leased.

Comment: We request clarification as

to how land held by a 100 percent

family-owned entity would be

affected—would land be counted

against the farm operator as land held

by a legal entity?

Response: Yes, there is no exception

for family-owned entities.

428.3—Definitions Used in this Part

This section establishes acreage

limitation program definitions for terms

that are not defined in 43 CFR part 426.

We made two changes to this final rule

as compared to the proposed rule as a

result of comments received. First, we

changed the term ‘‘custom operator’’ to

‘‘custom service provider.’’ We believe

that change will eliminate any

confusion that may have occurred when

we used the terms ‘‘custom operator’’

and ‘‘farm operator.’’ The second change

we made was to make it clear that when

we define ‘‘custom service provider,’’

we are referring to an individual or legal

entity that is providing one specialized

service to the landowner, lessee,

sublessee, or farm operator. We used in

the proposed rule the phrase ‘‘a

specialized, farm related service * * *’’

which seemed to cause some confusion.

Comments Concerning § 428.3—

Definitions Used in this Part

Comment: The definition of farm

operator is unnecessary, unsupported in

reclamation law, and far too broad.

Response: We disagree with the

commenter. The Congress decided in

1987 that we were to audit operators,

and it was clear those operators were a

distinct group from landholders. We

have had definitions of ‘‘operator,’’

‘‘custom farming service,’’ ‘‘principal

operator,’’ etc., that we use in reviewing

farm operating arrangements for quite

some time. We believe that such

definitions are necessary for effective

enforcement of the RRA.

Comment: The regulation creates a

great deal of uncertainty regarding the

definition of an operator. This is

unnecessary because the Congress has

dealt with this definition in reclamation

law.

Response: On the contrary, this

definition will provide districts,

landholders, and others a clearer

understanding of the term ‘‘farm

operator.’’ We are not aware of any

definition of the term ‘‘operator’’ created

by the Congress in conjunction with the

acreage limitation provisions.

Comment: Definition of ‘‘farm

operator’’ could be interpreted to

include any number of employees or

contractors who assist in a farming

operation but are not invested in the

farming enterprises.

Response: The definition of ‘‘farm

operator’’ specifically excludes

employees for whom the employer pays

social security taxes. It also specifically

excludes custom service providers if

that individual or legal entity provides

one specialized, farm-related service. If

a contractor is providing multiple

services and those services are being

provided to more than 960 acres held in

trusts or by legal entities, then we want

to know about that contractor for further

review.

Comment: The definition of ‘‘farm

operator’’ is not sufficient. Many

operators provide multiple services to

one landholder, often this is done by

verbal agreement. This could fall under

either ‘‘farm operator’’ or ‘‘custom

operator.’’

Response: We disagree. However, we

have revised the definition of ‘‘custom

service provider’’ to make it clear that

it only includes those individuals or

entities providing one specialized, farmrelated service. All individuals or

entities providing multiple services to

one landholder would be classified as

‘‘farm operators,’’ with the exceptions

included in that definition (e.g., spouses

and minor children).

Comment: The definition of ‘‘farm

operator’’ is inconsistent with the term

‘‘custom operator.’’ What is the meaning

of ‘‘performs any portion of the farming

operation’’? Custom operators perform

part of the farming operation and may

make a decision, based on equipment

availability and crop maturity when the

crop is fertilized, sprayed, or harvested.

Response: What we mean is that any

individual or legal entity that is

providing more than one specialized,

farm-related service is a ‘‘farm operator’’

for acreage limitation purposes. In order

to make sure that landholders and

others do not consider ‘‘management’’ of

the farm to be one service, we have

made it clear in the definitions that all

farm managers are considered to be

‘‘farm operators.’’

Comment: The definition of ‘‘farm

operator’’ is far too broad; we

understand it to mean that anyone else

except ‘‘custom operators’’ is a ‘‘farm

operator.’’ This could affect farm

managers who are employees of the

farmer and carry out the directions of

the farmer. These managers do not share

in the risk of the operation, and should

not be included in the definition.

Response: As we have stated, if the

‘‘farm manager’’ is an employee of the

farmer for whom the landholder

(employer) is paying social security

taxes, then we do not consider that

individual to be a farm operator.

However, a farm manager who is an

‘‘employee’’ of the landholder, but the

landholder is not paying social security

taxes will be considered to be a farm

operator for acreage limitation purposes.

Other than completing an RRA form if

required, generally this should cause no

problems since a true employee of a

landholder is not likely to have an

arrangement that we will consider to be

a lease for acreage limitation purposes.

If the land in question is formerly excess

land and the ‘‘employee’’ is the former

landowner, all the current landholder

will need to do to avoid application of

Federal Register / Vol. 65, No. 17 / Wednesday, January 26, 2000 / Rules and Regulations 4315

the new excess land provision is to

make the individual a true employee by

paying the social security taxes.

Comment: You should redefine ‘‘farm

operator’’ as follows: ‘‘Farm Operator

means an individual or legal entity

other than a landholder that performs a

substantial portion of the farming

operation on behalf of the landholder.

Farm operator does not include (i)

custom service providers, (ii) ancillary

service providers, or (iii) employees for

whom the landholder pays social

security taxes.’’

Response: We have not incorporated

this suggested change in the final rule.

We have learned that including a phrase

such as ‘‘substantial services’’ in a

definition makes administration and

enforcement difficult.

Comment: The definitions of ‘‘farm

operator’’ and ‘‘custom operator’’ are

confusing and should be more clearly

distinguished. We believe you are

attempting to distinguish between those

who provide discrete services to a farm

under the direction of the landholder or

other operator, and those individuals

and legal entities that truly ‘‘operate’’

the farm on behalf of the landholder.

Using the term ‘‘operator’’ in both

definitions blurs the distinction. We

suggest you use ‘‘custom service

provider’’ for the category of those who

do not have to file forms. We suggest

you define the term to mean an

individual or legal entity that provides

a discrete service or a limited range of

discrete services, and provide as many

examples as possible, including:

• pest control advisors,

• irrigation consultants,

• fertilizer applicators, and

• labor contractors.

Response: We have made the

suggested change to ‘‘custom operator’’;

it is ‘‘custom service provider’’ in the

final rule. However, we have decided

not to add more examples to the ‘‘list’’

of services that would be considered to

be ‘‘custom services,’’ because it would

be impossible to make an all-inclusive

list as part of the regulation and we do

not want to give the impression that we

have created an all-inclusive list. The

definitions are clear that any

specialized, farm related service will be

considered, as long as that service is not

‘‘management.’’

Comment: You should exclude certain

contracting arrangements from the

application of the proposed rule.

Commission merchants may offer

financing and consulting services to a

landholder, but do not share in the risk

of loss of the farming operation. Also,

specialty crops are produced on a

forward or output contract basis. A

commodity buyer similarly offers

financing and consulting services to the

landholder, but does not share in the

profits or risk of loss of the farming

operation. We suggest that you include

these ‘‘ancillary service providers’’

within the custom service definition, or

create an exclusion from the definition

of farm operator.

Response: We have not included the

suggested change in the final rule. It has

been our experience that upon review,

some forward contracting arrangements

actually include transfers of economic

risk from the landholder to the forward

contractor. We have also seen ‘‘forward

contracts’’ where the landholder’s

responsibilities have been reduced to

basically being a gate-keeper, while the

forward contractor performs all of the

work or arranges for all of the work to

be done. Consequently, we have

determined that we need to audit

forward contracting and similar

arrangements to ensure they are not

leases for acreage limitation purposes.

Comment: The definitions of ‘‘farm

operator’’ and ‘‘custom operator’’ are not

understandable, and the distinction

between the two is not clear—by ‘‘farm

operator’’ do you mean farm managers

only? Is a tomato cannery that provides

both contract planting and harvesting a

‘‘custom operator’’ or a ‘‘farm operator’’?

Response: A custom service provider

is an individual or legal entity that is

providing one specialized, farm-related

service to a landholder or farm operator.

Everyone else is a farm operator,

including all farm managers. The only

exceptions are for spouses, minor

children, and employees for whom

social security taxes are being paid by

the employer. Since the subject tomato

cannery is providing a planting service

and a harvesting service to the same

land, it is a farm operator of that land.

Comment: You should delete the term

‘‘farm manager.’’

Response: We have not incorporated

this suggestion. It is important for

everyone to understand that we

consider all farm managers to be ‘‘farm

operators.’’ Otherwise, it could be

interpreted that the farm manager is an

exempt custom service provider because

the farm manager only provides one

service; namely, management of the

farm.

Comment: In many cases it is virtually

impossible to determine whether a

contractor hired by a farmer is a farm

operator or a custom operator, because

many ‘‘custom operators’’ may provide

more than one service. Is the distinction

between the two based on the number

of services a contractor provides?

Response: Yes. We have made that

clear in the final rule by revising the

definition of custom service provider to

state that it is an individual or legal

entity that provides one specialized,

farm-related service to the land in

question.

Comment: Section 428.3 defines farm

operator, but does not address the

reclamation law status of the farm

operator. This raises several questions

about how the regulations would apply:

• If a farm operator only performs

services in a district that has not

conformed to the RRA discretionary

provisions, is the farm operator subject

to prior law provisions?

• Can a farm operator make an

irrevocable election to conform to the

discretionary provisions?

• Would a farm operator that benefits

more than 25 natural persons be

considered a limited recipient (defined

in 43 CFR 426.2)?

• If a farm operator is attributed to a

foreign entity or nonresident aliens, do

all the provisions of the proposed rules

still apply?

Response: A farm operator is not

subject to either the discretionary

provisions or the prior law provisions,

since we are not applying the acreage

limitation provisions to farm operators.

However, if after reviewing the

associated farm operating arrangement,

it is determined that a farm operator is

a lessee, then the farm operator will be

required to submit the appropriate

certification or reporting forms. Whether

or not that lessee is subject to the

discretionary or prior law provisions

will then depend on the acreage

limitation status of the district where

the lessee holds the land in question

and if the lessee has made an

irrevocable election. If the lessee is

subject to the discretionary provisions

and is a legal entity, whether or not the

entity is a qualified recipient or a

limited recipient will depend on how

many natural persons the legal entity

benefits.

If a farm operator is a foreign entity

or nonresident alien and provides

services to more than 960 acres held in

trusts or by legal entities, the foreign

entity or nonresident alien will be

required to submit a Form 7–

21FARMOP. If it is determined that the

associated farm operating arrangement

is a lease, then whether or not the

foreign entity lessee or nonresident

alien lessee is eligible to receive

Reclamation irrigation water will

depend on if they meet the criteria

provided in 43 CFR 426.8.

Comment: If a farm operator is

employed for an ‘‘agreed-upon

payment,’’ does this make the farm

operator a custom operator and

therefore exempt?

4316 Federal Register / Vol. 65, No. 17 / Wednesday, January 26, 2000 / Rules and Regulations

Response: We cannot provide a

general answer to this question. We

have reviewed more than one farm

operating arrangement where the farm

operator is employed for an ‘‘agreedupon payment’’ and then find a bonus

clause included elsewhere in the

documentation. If the farm operator is

being compensated solely on a dollarper-hour or dollar-per-acre basis, then

they have not assumed any economic

risk and the arrangement will not be

determined to be a lease for acreage

limitation purposes. However, that does

not make the farm operator exempt from

the RRA forms requirement if he/she/it

is providing services to more than 960

acres held in trusts or by legal entities.

Only by identifying such farm operators

and reviewing the associated farm

operating arrangements can we

determine if the farm operating

arrangement is or is not a lease for

acreage limitation purposes.

Comment: The proposed rule does not

take into consideration the actual

farming practices in the west. Is a

processor of any kind of an agricultural

commodity that finances a grower

considered to be a ‘‘custom farmer’’ or

a ‘‘farm operator’’ because they provide

one or more services to the farm? What

if this processor has several thousand

acres of this crop? We do not think that

the Congress intended to do this in

1982.

Response: If a processor is only

providing financing, then the processor

will not be considered to be a farm

operator. However, if the processor, for

example, is providing financing,

harvesting services, and marketing the

crop we will consider that processor to

be a farm operator. If that processor is

providing multiple services to more

than 960 acres held in trusts or by legal

entities, the processor will need to

submit a Form 7–21FARMOP.

Regardless of whether a processor has to

submit an RRA form or not, if it turns

out, upon review of the farm operating

arrangements, that the processor is a

lessee for acreage limitation purposes,

the nonfull-cost entitlement will apply

to that processor. That was the intent of

the Congress when they required us in

1987 to audit landholdings and

operations.

Comment: Section 428.2 states that

the new regulations apply only to ‘‘farm

operators,’’ and the definition of this

term excludes ‘‘custom operators.’’ But

the second term is defined so broadly

that many true farm operators might

believe that they qualify as a ‘‘custom

operator’’ and fail to comply with any

part of the new regulations. To fix this

gigantic loophole which could render

the whole rulemaking pointless, the

definition of ‘‘custom operator’’ must be

tightly reworded so that operators know

exactly who is covered.

Response: We have revised the

definition of ‘‘custom service provider,’’

which is now defined very narrowly.

That is, it includes only individuals or

legal entities that provide one

specialized, farm-related service.

Comment: In order to ensure that you

receive information on the full range of

operators who may meet the standards

for ‘‘use or possession of land’’ or

‘‘economic risk,’’ the definition of ‘‘farm

operator’’ must include ‘‘custom

operators,’’ or else you should place

some reporting requirements on

‘‘custom operators.’’ Without requiring

some response from these entities, you

would be relying on self-definition and

self-reporting to determine which

operators have to submit forms. An

entity could determine that it is a

custom operator, and be completely

exempt from the new reporting

requirements.

Response: We have not incorporated

this suggested change. To do so would

be imposing an RRA forms requirement

on individuals and legal entities that we

would never determine to be lessees for

acreage limitation purposes.

Accordingly, we do not need to collect

information from such parties and to do

so would not be in the spirit of the

Paperwork Reduction Act of 1995.

Comment: Based on the definition of

‘‘farm operator,’’ independent

contractors who perform specialized

services for farms and have no vested

interest in the outcome of the crops

would have to fill out forms.

Response: If an independent

contractor is providing more than one

service to more than 960 acres held in

trusts or by legal entities, then that

independent contractor will have to

complete the Form 7–21FARMOP. Even

without this form requirement, we

would want to review the associated

farm operating arrangement to ensure it

is not a lease for acreage limitation

purposes.

Comment: Instead of creating a new

section on farm operators, you should

create a definition of ‘‘economic

interest.’’ This would avoid the

confusion regarding custom operators

and place the responsibility of reporting

accurately on the landowner/operator,

not the district.

Response: We are not sure if the

commenter is suggesting a change to the

definitions in this rulemaking or to the

information submitted by landholders

on their RRA forms. We have not made

any change to the final rule based on

this comment; however, the question of

who has all or a portion of the economic

risk in a farm operating arrangement

remains a key component of our review

of farm operating arrangements.

428.4 Who Must Submit Forms Under

this Part

This section establishes an RRA forms

submittal requirement for farm

operators who provide services to more

than 960 acres held in a single trust or

legal entity or any combination of trusts

and legal entities. We have made several

changes to this section of the final rule

as compared to the proposed rule,

primarily in response to comments

received. Specifically, we have made it

clear that farm operators will be

submitting forms to districts, not

directly to us. We have reviewed the

references we included in the proposed

rule to the ‘‘exceptions’’ provided in 43

CFR 426.18(g)(2) and (3) and

determined adjustments were needed.

We have limited which part owners of

legal entities providing services to more

than 960 acres held in trusts or by legal

entities must submit a farm operator

form. We have made it clear that farm

operators will not be eligible to use a

verification form, even if their farm

operations do not change from year to

year. Farm operators will also not be

subject to the RRA forms requirement

associated with landholding changes, if

their farm operations change during a

water year after they have submitted

their RRA form for that year.

Paragraph (a) provides the general

criteria as to which farm operators must

annually submit RRA forms to districts.

In the proposed rule, we referenced

‘‘exceptions’’ included in 43 CFR

426.18(g)(2) and (3). Upon review, we

determined that we need to better

explain the forms requirements

concerning entities that are farm

operators and are wholly owned

subsidiaries, rather than simply

referring to 43 CFR 428.18(g)(2).

Accordingly, we have included that

explanation as the new § 428.4(a)(2).

The provisions of 43 CFR 426.18(g)(3)(i)

(cannot utilize class 1 equivalency

factors in determining if RRA forms

must be submitted) apply to this new

RRA forms submittal requirement

without such being specified, since this

final rule supplements 43 CFR part 426.

The provisions of 43 CFR

426.18(g)(3)(ii) (part owners not

considering certain involuntarily

acquired land in determining if RRA

forms must be submitted) do not apply

to this final rule, because § 428.4(b)

specifies which part owners of legal

entities that are farm operators must

submit RRA forms, regardless of how

much land is attributed to the part

owner in question. Consequently, we

Federal Register / Vol. 65, No. 17 / Wednesday, January 26, 2000 / Rules and Regulations 4317

removed all references to 43 CFR

426.18(g)(2) and (3) from the final rule.

Paragraph (b) continues to address the

applicability of the RRA forms submittal

requirements to indirect owners of a

legal entity that is a farm operator and

is required to submit RRA forms. We

have limited the application of the RRA

forms submittal requirements to only

those part owners who owned the land

the legal entity is now providing

services to, when that land was excess

and those part owners sold or

transferred that land at an approved

price.

Paragraph (c) is new in the final rule.

It provides that a verification form

cannot be used to meet a farm operator’s

annual RRA form submittal

requirement.

Paragraph (d) is new in the final rule.

It provides that once a farm operator has

met his/her/its RRA forms submittal

requirements for a water year, no

additional RRA form needs to be

submitted for that year, even if the farm

operator experiences a change to the

farm operating arrangements reported

on the form that was submitted.

Comments Concerning § 428.4—Who

Must Submit Forms Under this Part

Comment: We strongly support the

proposal to expand information

collection requirements to farm

operators, since without this change,

any meaningful enforcement of the

acreage limitation provisions is

impossible.

Response: We agree. The final rule

retains the expansion of the information

collection requirements to certain farm

operators.

Comment: Regarding the 960-acre

threshold for submission of forms,

although the regulation requires

reporting by operators of multiple

holdings that total more than 960 acres,

these holdings are limited to lands held

by trusts and legal entities, leaving the

situation of lands held by individuals

unclear. We believe that trusts and legal

entities and individuals should submit

forms, so you can make the nonfull-cost

eligibility determination as to all large

scale operators.

Response: We have reviewed this

matter and decided at this time not to

further expand the information

collection in the regulation to include

farm operators providing services to

more than 960 acres held by individuals

or any combination of individuals,

trusts, and legal entities. Nevertheless,

just because such farm operators do not

have to submit an RRA form, it does not

mean their farm operating arrangements

will not be audited when Reclamation

becomes aware of their existence. On

the contrary, we will audit such farm

operators, and if we determine their

farm operating arrangements are leases

for acreage limitation purposes, we will

apply the nonfull-cost entitlement

accordingly. The same holds true for

any legal entities that are farm

operators, but would be limited

recipients if they were landholders and

are providing services to any acreage.

Comment: You should rewrite

§ 428.4(a)(1) to add the words ‘‘directly

or indirectly’’ after ‘‘services’’ so it

reads: ‘‘You provide services directly or

indirectly to more than 960 acres

westwide . . .’’ This is necessary

because otherwise, operating companies

could choose a new corporate shell for

each 960 acres they operate. Subsection

(b) tries to solve this problem, but does

not because the triggering standard is in

subsection (a).

Response: We have not incorporated

this comment. However, we have

explained how the parent entity of

wholly owned subsidiaries must submit

a Form 7–21FARMOP and include on

that form all land to which its wholly

owned subsidiaries are providing

services.

Comment: All landholdings that farm

more than 960 acres must have forms

submitted which clarify whether there

are farm operators or custom operators

affiliated with that farm or operation. In

the case of any landholding or farm that

claims to have no farm operator subject

to the new rules, yet reports one or more

custom operators serving that farm, you

should ensure that adequate

documentation is provided to ensure the

intent of the regulations is met, and

there is no ‘‘farm operator’’ in fact.

Response: Any landholding that

includes more than 960 acres (other

than for a trust) must be in compliance

with the current acreage limitation

provisions. Accordingly, all ineligible

excess land is not receiving Reclamation

irrigation water, and any land selected

as full-cost is either not receiving

Reclamation irrigation water or the fullcost rate is being paid for the delivery

of such water to that land. We see no

value in auditing farm operating

arrangements associated with such

lands, since entering into a farm

operating arrangement does not alter the

fact that the land in question is either

ineligible excess land or subject to the

full-cost rate. A landholder who holds

less than 960 acres westwide should not

be responsible for determining if his/

her/its farm operator is providing

services to more than 960 acres

westwide.

Comment: We believe the proposed

rules impose significant and

unnecessarily burdensome reporting

requirements on ‘‘farm operators.’’

Response: We disagree. We estimate

that the reporting burden would be

increased by less than 200 hours (or on

average 1 hour, 18 minutes per Form 7–

21FARMOP) as a result of the final rule.

Comment: Section 428.4 is far too

broad in its reach. It would be enough

to limit the certification requirement to

farm operators providing services to ‘‘a

single trust or legal entity.’’ But then the

section continues to require certification

from such providers to ‘‘any

combination of trusts and legal

entities.’’ This language covers not only

large trusts or other legal entities, but

sweeps in every single testamentary

trust and intervivos trust, no matter how

small. Farm operators who think they

are working only for a series of

individuals or entities will become

subject to the regulation without

knowing it if some landowner dies

leaving a testamentary trust. There are

countless trusts and legal entities,

including part-ownerships created

through inheritance or other family

arrangements that have nothing to do

with large trusts created to hold excess

land, and operated by the original

owner.

Response: We have considered this

issue and determined to make no

change to the regulation. We do not

need to collect additional information

that only concerns the landholdings and

operations of single trusts or legal

entities that hold more than 960 acres.

This is because we already know about

all trusts that hold more than 960 acres,

their farm operators have been

identified, and any associated farm

operating arrangements have been

reviewed to determine if they are leases

for acreage limitation purposes. As for

legal entities, if a legal entity holds more

than 960 acres, the land is either eligible

excess due to an exception included in

the acreage limitation provisions (e.g.,

the involuntary acquisition provisions),

ineligible excess, or full-cost. Again, we

do not need any additional information

from such legal entities because the

forms they already submit results in the

determination of the eligibility of the

land and the water rate to be paid,

regardless of any existing farm operating

arrangement.

The information we do not have

concerns farm operators who are

providing services to multiple

landholders, the total of which would

exceed the applicable nonfull-cost

entitlement if the farm operating

arrangement was determined to be a

lease. We cannot make an exception for

testamentary trusts or any other types of

trusts from the RRA forms requirements,

4318 Federal Register / Vol. 65, No. 17 / Wednesday, January 26, 2000 / Rules and Regulations

because to do so would create a means

for avoiding our intent to identify farm

operators providing services to more

than 960 acres held in any combination

of trusts and legal entities. The RRA did

not make any distinction between trusts

established for families, inheritance

purposes, etc., and we will not initiate

such a distinction in these rules.

Comment: Requiring indirect owners

of farm operators to submit forms under

§ 428.4 is burdensome and unnecessary.

If indirect owners are shown on the

farm operator’s form, the only purpose

served by indirect owner forms would

be to determine if the indirect owner

exceeds the acreage limitations through

farm operator arrangements. To do this

implies that all farm operators are

lessees until proven otherwise. The RRA

does not support this, or require it.

Response: We have incorporated this

suggestion in the final rule. We have

limited the requirement to submit an

RRA form by part owners of legal

entities who are farm operators to those

part owners who formerly owned the

land in question as excess and sold or

transferred that land at an approved

price. We need information from such

part owners in order to administer

§ 428.9 of the final rule.

Comment: Determining who must

submit forms will be very hard, if not

impossible, for the districts.

Response: We realize that it will be

harder for districts to identify farm

operators who will need to submit RRA

forms than to identify landowners and

lessees. In order to facilitate this activity

we encourage districts to provide

information to all their landholders

concerning the new requirements,

especially those landholders who

include information about farm

operators on the RRA forms they

submit. We have also changed the

effective date to January 1, 2001, rather

than 2000, to provide all parties an

opportunity to prepare for the new

requirements.

Comment: The landholder has the

burden of identifying what farm

operators must submit forms.

Response: We disagree. The farm

operator is responsible for knowing how

much land is held in trusts and by legal

entities to which he/she/it provides

services. If that acreage totals more than

960 acres, the farm operator must

submit the new Form 7–21FARMOP.

Farm operators are responsible for being

aware of and in compliance with all

statutory, regulatory, and other

requirements that impact their

activities. The landholder also may have

contractual remedies against a farm

operator whose failure to comply with

legal requirements causes damages to a

landholder. Moreover, the landholder is

receiving the benefits of the

Reclamation irrigation program and is

responsible at all times for maintaining

its farming enterprise in full compliance

with existing law.

Comment: If the farm operator does

not assume any risk in the growing,

harvesting and sale of the crops, does

the farm operator still have to comply

with the proposed rules?

Response: Yes, a farm operator would

still need to submit RRA forms if he/

she/it provides services to more than

960 acres held in trusts or by legal

entities.

Comment: Instead of requiring farm

operators to file forms, you should add

to the existing forms a requirement that

the landowner identify anyone other

than the lessee listed (if any) who has

the use or possession of the property, is

responsible for paying the operation

expenses or is entitled to any of the

profits. If there are questions about the

arrangement disclosed, you have the

authority to request copies of contracts,

examine financial records, etc.

Response: We considered this

approach, but decided against it. The

alternative to requiring the submission

of RRA forms from the farm operators in

question is to request data on an asneeded basis and require landholders to

provide information on their RRA forms

about any farm operators with which

they contract. We have been using this

approach since 1988 and have

determined that the approach taken in

this rule will be more effective. Further,

the approach suggested by the

commenter places a greater burden on

both the districts and Reclamation, than

if certain farm operators are required to

submit RRA forms. The commenter’s

approach also greatly increases the

likelihood that all farm operators

providing services to more than 960

acres westwide will not be identified.

We need to identify those farm

operators providing services to multiple

landholdings, the total of which exceed

960 acres. Then we can determine if the

arrangements under which the services

are being provided are leases for acreage

limitation purposes.

Comment: What determined that 960

acres should be the form submittal

threshold for farm operators? If the

reason for the 960 acres is to identify

those who formerly owned lands as

excess and are operating them again, the

960-acre form submittal threshold may

not be sufficient for identification of

such lands. Farm operators should be

subject to the certification/reporting

thresholds currently established.

Response: We chose the 960-acre

forms submittal threshold for farm

operators because it is the maximum

acreage limitation entitlement. We agree

that certain farm operators, if they were

landholders, would have much lower

acreage limitation entitlements

applicable. However, we have

determined at this time not to impose

forms requirements on such farm

operators. As for the excess land

provision, we believe that the 960-acre

forms submittal threshold for farm

operators will help us find many of the

farm operators who are directly

providing services to their formerly

excess land or indirectly providing

those services as part owners of legal

entities that are farm operators.

Comment: If the proposed rule is

adopted, the submittal threshold for

farm operators should not be less than

960 acres.

Response: We have not changed the

forms submittal threshold in the final

rule.

Comment: Landowners who wish to

receive water should only have to file

their eligibility papers one time, not

every year, and require a refiling only

when there is a change in ownership.

Response: This comment is outside of

the scope of the proposed rulemaking

and this final rule. RRA forms submittal

requirements for landholders were

reviewed and adjusted during the

rulemaking that was completed on

December 18, 1996. Annual RRA forms

submission for all landholders remains

a statutory and regulatory requirement.

All exemptions from this requirement

are provided in 43 CFR 426.18(g).

428.5 Required Information

This section specifies what

information farm operators must submit.

Paragraph (a) provides that we will

determine what RRA form farm

operators will complete, while

paragraph (b) requires farm operators to

include on that form all land to which

they are providing services that is

subject to the acreage limitation

provisions.

Paragraph (c) provides a list of the

information we will require farm

operators to provide on their RRA

forms. This list is not to be considered

an all-inclusive list.

We made no changes to this section

in the final rule as compared to the

proposed rule.

Comments Concerning § 428.5—

Required Information

Comment: The information you

would request would provide you no

benefit, and may potentially damage the

parties providing it. This is an invasion

of privacy, and farm operators and

landowners may have more incentive to

Federal Register / Vol. 65, No. 17 / Wednesday, January 26, 2000 / Rules and Regulations 4319

avoid filing the forms than to comply,

because of fear of adverse business

consequences if the information is

available to anyone that could misuse

the information. For example, it is

unlikely that a farm operator would be

willing to disclose to its customers the

names of all the other customers of that

farm operator and a list of the lands

owned or leased by those other

customers. Similarly, landowners may

be unwilling to allow a farm operator to

disclose to another landowner the

information about that landowner’s

operations—who determines when

services should be performed, which

services are provided to that landowner,

etc.

Response: We contend the

information we will collect from farm

operators will be very useful. We do not

believe the new RRA forms

requirements are any more of an

invasion of privacy than it is for a lessee

who must provide information about the

land being leased and the terms of the

lease agreement. Section 224(c) of the

RRA authorizes Reclamation to collect

all data necessary to carry out the

acreage limitation provisions. Therefore,

if a farm operator wants to provide

services to land that is subject to the

acreage limitation provisions, that farm

operator must be prepared to provide us

with information, whether it be through

the submittal of an RRA form or in

response to a request for information

that he/she/it receives. In addition,

information provided by farm operators

on Form 7–21FARMOP is protected by

the Privacy Act of 1974 as is

information provided by landholders on

other RRA forms.

Comment: We generally agree with

the listing of information you would

collect on the farm operator forms, but

you should clarify § 428.5(c)(7) to

exclude the assignment of accounts

receivable as collateral.

Response: We have considered this

suggested change and decided to not

include it in the final rule. We believe

the provision in question is clear. It asks

if the farm operating agreement itself

can be used as collateral in any loan, not

if the farm operator can assign accounts

received as collateral.

Comment: You should not require

farm operators to provide the following

information: details on all lands that he

or she works on, including legal

descriptions and acreage; who decides

what services are needed; a list of

services provided for each parcel;

whether he can use his agreement with

the landowner as collateral for any loan;

and whether he can be sued by the

landowner. If you try to implement this,

it will take another bureaucracy of

people to administer it and check the

forms.

Response: On the contrary, including

all of this information on the form will

help us effectively utilize our limited

resources dedicated to acreage

limitation administration and

enforcement. The information we ask

from farm operators is necessary so that

we can prioritize our audit efforts in

determining if farm operating

arrangements are leases. Without some

of the information, such as legal

descriptions, we would not know if all

the land was owned by one trust, related

companies, etc. It should also be noted

that this information needs to be

provided to us when we audit such farm

operators, even if we do not ask for it

on an RRA form.

Comment: This information collection

does not appear to address the issue of

financial risk. If it is going to address

the issue of who has use of the land, I

think it should address financial risk, or

else leave both issues to be decided

through a review of the actual

agreement.

Response: We think that many

commenters have the belief that we will

be able to determine if a farm operating

arrangement is a lease for acreage

limitation purposes simply by reviewing

the information provided on the Form

7–21FARMOP. That is simply not the

case. We will have to review associated

farm operating documents (e.g., farm

operating agreements, farm management

agreements) before making such a

determination. After we have some

experience with the forms submitted by

farm operators, we may revise those

forms to include additional questions,

some of which may be about financial

risk. If we decide to revise the Form 7–

21FARMOP in the future, we will

provide the public with ample

opportunity to comment through the

process associated with the Paperwork

Reduction Act of 1995.

Comment: Farm operator or custom

operator information will be virtually

impossible to acquire or verify.

Response: We disagree. Farm

operators will submit forms, and then

we can audit the farm operating

arrangements to determine if they are

leases, and thus, subject to application

of the nonfull-cost entitlement.

Verification of the information

submitted will be possible by comparing

the information on the Form 7–

21FARMOP with the documentation

associated with the farm operating

arrangement and the information

submitted on the landholders’ RRA

forms.

Comment: The reporting regulations

ask the right questions regarding farm

operations, but they do not necessarily

ask those questions of all the right

people. To avoid the problem of you

having to survey all Reclamationirrigated land that is not reported on by

farm operators, I suggest you require

that landowners subject to RRA

reporting requirements also submit

information about their farm operators.

Those landowners who employ farm

operators would have to supply the

names, addresses, and other identifying

information for these entities. Without

this, you would remain virtually blind

with respect to those farm operators

who fail to report.

Response: Direct landowners have

been required to provide information on

their RRA forms concerning certain farm

operators since the late 1980’s. The

required information has included the

name, address, and telephone number

for each farm operator by land parcel.

428.6 Where To Submit Required

Forms and Information

This section specifies where farm

operators are to submit their completed

RRA forms. We made no changes to this

section in the final rule as compared to

the proposed rule. We received no

comments on this section.

428.7 What Happens if a Farm

Operator Does Not Submit Required

Forms?

This section establishes what will

happen if a farm operator does not

submit the required RRA form.

Paragraph (a) provides that if a farm

operator does not submit the required

RRA form, the district is not to deliver

Reclamation irrigation water to the land

in question and nobody is to accept

delivery of such water to that land. We

made no changes to this paragraph.

Paragraph (b) specifies that once the

required RRA form is submitted,

eligibility of the land in question to

receive Reclamation irrigation water

will be restored. We made no changes

to this paragraph.

Paragraph (c) provides that we will

impose the administrative fee defined in

43 CFR 426.20 if a farm operator fails to

submit the required RRA forms and the

land in question receives Reclamation

irrigation water despite noncompliance

with the forms requirements. We made

changes to this paragraph to make it

clear that we will determine the amount

of any applicable administrative fee in

the manner we do for landholders.

Comments Concerning § 428.7—What

Happens if a Farm Operator Does Not

Submit Required Forms?

Comment: A district is powerless to

require compliance from a farm operator

4320 Federal Register / Vol. 65, No. 17 / Wednesday, January 26, 2000 / Rules and Regulations

that it has no relationship with. Districts

have no legal ability to do so, and they

do not want it. Districts have no way to

identify farm operators within their

service areas and will have no way of

enforcing the proposed rules unless an

operator voluntarily complies.

Response: We suggest that districts

review RRA forms submitted by trusts

and legal entities. That will provide an

initial basis of who might be a farm

operator that will be required to submit

the new Form 7–21FARMOP, since

landholders have been required to

provide limited information concerning

any operators for a number of years. The

year 2000 can be used by districts to

start reviewing such forms and

preparing lists of farm operators who

might need to be contacted. Then,

starting with the 2001 water year,

district staff can contact such operators

to determine if they provide multiple

services to more than 960 acres held in

trusts or by legal entities, or simply send

them a copy of the Form 7–21FARMOP

with instructions.

Comment: Districts may be unfairly at

risk for an administrative fee under the

following example: Farm Operator X

operates a 640 acre farm in District A

and a 960 acre farm owned by a trust

located in District B. If District A is

unaware of the fact that the farm

operator is operating more than 960

acres total, and they fail to get a form,

then District A may be at risk for an

administrative fee. This may also place

the landowner at risk for full-cost

charges.

Response: If the land in District A is

held by a trust or legal entity, then the

District A would be subject to receiving

an administrative fee bill if Reclamation

irrigation water is delivered to the land

in question. District B would also be

subject to such a bill, if it too delivered

Reclamation irrigation water to Farm

Operator X without a form being on file.

At that point, the districts have the

option of contacting the farm operator to

collect the assessed administrative fee;

how districts encourage payment is up

to each district. The landowners will

not be at risk for full-cost charges,

because we no longer apply the

compensation rate (full-cost) for

instances of violations of RRA forms

submittal requirements. However, if it

turns out that a farm operating

arrangement is a lease for acreage

limitation purposes, then full-cost

charges may apply. That would be the

case regardless of whether the RRA

forms submittal requirement applies to

farm operators.

Comment: The proposed rules are

unworkable for both districts and

landowners. Farm operators are

independent contractors and cannot be

controlled by the farmers that hire them.

Farmers have no way of correcting a

problem caused by a farm operator

failing to file forms other than firing

them. Terminating contractors may be

difficult, legally or practically.

Response: If a landholder is

concerned about a farm operator being

in compliance with the RRA forms

requirements, that landholder has the

option of including in any written farm

operating agreement a requirement that

the farm operator must be in compliance

with those provisions. If a landholder

cannot control or terminate their farm

operator, the landholder’s lack of

control might indicate that the farming

arrangement has characteristics of a

lease.

Comment: The prohibition in § 428.7

against delivering water to land if a farm

operator fails to submit forms is

particularly harsh. It will take time after

the landholders submit forms for an

irrigation district to determine whether

a farm operator has submitted their

forms. To allow a district to determine

which lands have become ineligible

because of this failure, the submission

date for farm operators’ forms should be

at least 60 days after the landholders

submit their forms.

Response: We have considered this

comment and decided not to

incorporate it in the final rule. We

encourage districts to take advantage of

the delay in implementing this final

rule, until the 2001 water year, to

identify farm operators who may be

subject to the new RRA forms

requirement. Based upon more than a

decade of administration of forms

requirements, it is our experience that

districts have proven effective in

obtaining voluntary compliance.

Moreover, when we discover a failure to

comply with the forms requirement of

this final rule during a water year (after

irrigation water has been delivered),

then we would make a ‘‘final

determination’’ that the farm operator

has not complied with this final rule.

Such ‘‘final determinations’’ are subject

to the notice and appeal provisions of

43 CFR 426.24.

428.8 What Can Happen if a Farm

Operator Makes False Statements on the

Required Forms

This section provides what action we

can take if a farm operator makes a false

statement on his/her/its RRA form. We

made no changes to this section in the

final rule as compared to the proposed

rule. We received no comments on this

section.

428.9 Farm Operators Who are Former

Owners of Excess Land

This section establishes a restriction

on former owners of excess land who

sold or transferred such land at an

approved price from becoming the farm

operator of their formerly excess land, if

that land is to be eligible to receive

Reclamation irrigation water. This

restriction is limited to land held in

trust or by a legal entity and two

exceptions are provided as explained

below.

Paragraph (a) specifies that formerly

excess land may not receive

Reclamation irrigation water if that land

is now held by a trust or legal entity and

the individual or legal entity that

formerly owned the land as excess and

sold or transferred it at an approved

price is the direct or indirect farm

operator of that land.

Paragraph (b) provides two exceptions

to this restriction: The land becomes

exempt from the acreage limitation

provisions or the full-cost rate is paid

for Reclamation irrigation water

delivered to such land. This paragraph

also explains how the full-cost rate will

be applied if a legal entity that is the

farm operator has a part owner who

formerly owned the land as excess and

sold or transferred it at an approved

price.

We have made grammatical changes

to this section, and also added the

words ‘‘or transferred’’ after the word

‘‘sold’’ in 428.9(a)(2), so that these

regulations are consistent with part 426.

Comments Concerning § 428.9—Farm

Operators Who are Former Owners of

Excess Land

Comment: We agree with you

clamping down on the operation of

formerly excess land by those with ties

to the former excess landowner. A

situation where the prior owner of

excess land serves as the current farm

operator for a trust is a clear abuse of the

RRA, and I applaud your decision to

look past trust arrangements to the

reality of the single underlying farm

operation.

Response: We believe this provision

will make our enforcement efforts under

the RRA more effective.

Comment: With respect to the excess

land provisions, I believe it is

appropriate to extend the prohibition

against receiving Reclamation water to

farm operators operating land they

formerly owned. However, the

regulation appears to leave open the

possibility that a simple corporate shell

or other legal fiction could be used to

allow continued operation by an entity

controlled by the former owner of

Federal Register / Vol. 65, No. 17 / Wednesday, January 26, 2000 / Rules and Regulations 4321

excess land. You should modify the

regulation to ensure that such

transactions cannot be used to shield

the former owner.

Response: We do not believe this

result would occur because the

proposed rule clearly refers to indirect

farm operators in § 428.9(a)(3).

Accordingly, we made no revisions to

this section of the final rule.

Comment: We do not understand

Interior’s statement that the intent of the

excess land provisions is not met in the

example given in the proposed rule at

63 FR 64155. The farm operator would

not earn a share of the profits or income

on the land that was sold. If the farm

operator is paid a fixed fee for services,

and profits go to trust beneficiaries, why

does this not meet the intent of

reclamation law?

Response: The intent of the excess

land provisions of Federal reclamation

law is for the former owner of the excess

land to be totally divested of any

interest in excess land, if such land is

to become eligible to receive

Reclamation irrigation water when it is

sold or transferred. The reason the

excess land provisions were created was

to provide farming opportunities to new

family farmers. The intent of the excess

land provisions cannot be met if the

land is being sold or transferred to nonfarmers, speculators, investors, absentee

owners, etc., who then hire the former

owner to farm the land for a fixed fee

for service. The final rule strongly

encourages the former owner of excess

land to have only the most limited

relationship with that land. Specifically,

the former owner can provide one

specialized, farm-related service to the

new landholder as a custom service

provider. If the new landholder believes

the former owner is indispensable to the

operation of the land, the full-cost rate

can be paid for any Reclamation

irrigation water delivered to that land.

Comment: The excess land provisions

with respect to the operation of formerly

excess land by a former owner are

draconian. Exceptions should be made,

such as when a farmer moves operations

from one region to another. In order for

the land to be profitable while the new

operation is beginning, the farmer often

leases land back to the previous

landowner or lessee. The new owner

should not be penalized for using the

most qualified farm operator (the former

owner).

Response: The excess land provision

only applies to farm operators who are

providing services to excess land they

formerly owned and disposed of at an

approved price. If the farm operator

moves operations from one region to

another, that farm operator is not likely

to be providing services to land he/she/

it formerly owned as excess and sold or

transferred at an approved price. As for

new owners utilizing the former excess

landowner to farm the land, the entire

point of the excess land provisions of

Federal reclamation law is to provide

farming opportunities for new family

farmers, not to continue farming

opportunities for the former landowner,

now with the availability of

Reclamation irrigation water. We would

also like to note that 43 CFR 426.12(g)

already prohibits that new owner from

leasing the land to the former owner of

that land when it was excess, unless the

new owner and lessee do not intend to

use Reclamation irrigation water or they

intend to pay the full-cost rate.

Comment: You should not adopt the

proposed rule, but if you do, the two

exemptions provided should be the

minimum. You should add at least one

additional exemption: Expiration of the

deed covenant associated with the sale

of formerly excess land should negate

application of the proposed rule. You

should include this as § 428.9(b)(3)

Response: While we seriously

considered adding this additional

exemption, we have decided not to

include any further exemptions in

§ 428.9(b) than those found in the

proposed rule.

Comment: Section 426.14 of the

current rules provides that nonexcess

land acquired through an involuntary

foreclosure or similar involuntary

process of law, conveyance in

satisfaction of a debt (including, but not

limited to, a mortgage, real estate

contract or deed of trust), inheritance, or

devise remains eligible to receive

irrigation water for 5 years. During the

5-year period, you charge the same rate

for water as you charged the former

owner (unless the land becomes subject

to full-cost pricing through leasing). Our

question is that if the acquiring lender

or landowner uses a farm operator on

the involuntarily acquired land, will

you price the water under the current

rules, or will it be subject to § 428.9

(b)(2) of the proposed rules?

Response: The acquiring lender or

landowner would be subject to § 428.9

in its entirety if they hire as a farm

operator the former owner of that land

when it was excess and who sold or

transferred it at an approved price.

Comment: Section 428.9(b)(2), which

requires districts to calculate separate

water rates for each proportional owner

or for different parcels owned by one

landowner, exceeds your regulatory

powers.

Response: Districts are already

required to calculate separate water

rates for different parcels owned by one

landowner and for those parcels owned

by proportional owners, as required by

43 CFR 426.12(g)(3). For example, if a

landowner leases a portion of his land

to a lessee who selects the land as fullcost, the district must apply the full-cost

rate to only those portions of the

landowner’s land. In fact, except for

limited recipients that did not receive

Reclamation irrigation water on or

before October 1, 1981, the nonfull-cost

entitlement requires districts to apply

the nonfull-cost rate to selected portions

of a landholding and the full-cost rate to

the rest of the land for any landholder

whose westwide landholding exceeds

the applicable nonfull-cost entitlement.

Comment: Requiring a farmer to fire a

non-complying operator may limit or

prohibit a farmer from employing

someone with a specialized and

necessary service, one that may not be

easily replaced. The proposed rule

leaves farmers at the mercy of operators

that must be willing to comply with

burdensome RRA rules, when these

operators are not a problem according to

reclamation law.

Response: While there may be

situations where only one individual or

legal entity has the knowledge and

expertise to provide a specific,

specialized farm-related service to land

in an area, we believe such instances are

rare. Nevertheless, if it is only one

service that is being provided, other

than management of the land, there

should be no need to terminate the

contract or arrangement, because such a

individual or legal entity can probably

be classified as a custom service

provider as defined in § 428.3.

Comment: We are not aware of more

than two or three farming operations

where § 428.9 would apply. It appears to

us that you have specifically targeted

one company’s farm operator

arrangement with a specific trust in an

attempt to appease certain

environmental groups. Such a targeted

rulemaking is abusive and clearly

violates the equal protection provisions

of the Constitution.

Response: This rule is not targeted at

any particular arrangement. This

rulemaking addresses the practice of

landholders selling excess land at an

approved price and then being hired by

the new landholder to continue to farm

the formerly owned land as a farm

operator. We believe this practice has

been used by some existing large trusts

in the Central Valley Project. Without

the finalization of the proposed rule,

this practice may spread to other areas,

thereby allowing excess landholders to

fashion arrangements that permit them

to continue substantially the same

enterprise using subsidized water. By

4322 Federal Register / Vol. 65, No. 17 / Wednesday, January 26, 2000 / Rules and Regulations

eliminating any incentive for the excess

landowner to maintain any interest,

either property or contractual, with its

formerly excess lands, we believe we

will have furthered the policies set forth

in Section 209 of the RRA and the

excess land provisions of Federal

reclamation law.

428.10 District’s Responsibilities

Concerning Certain Formerly Excess

Land

This section specifies that districts are

not to deliver Reclamation irrigation

water to formerly excess land that is

prohibited from receiving such water

under § 428.9. We made no changes to

this section in the final rule as

compared to the proposed rule. We

received no comments on this section.

428.11 Effective Date

This section provides details

concerning the effective date of this

final rule. We have made several

changes to this section of the final rule

as compared to the proposed rule,

primarily in response to comments

received and to reflect when the final

rule is likely to be published in the

Federal Register. Specifically, we

decided to postpone the effective date

for implementation of this rule until

January 1, 2001.

Paragraph (a) provides a January 1,

2001, implementation date for all

provisions of the final rule. However,

our intent is to make this rule effective

for the 2001 water year. Since there are

a few districts that are subject to the

acreage limitation provisions whose

water years commence before January 1,

we have recognized that fact by

including an October 1, 2000, effective

date for such districts concerning the

forms requirements for farm operators.

As with the proposed rule, in

paragraph (b) we make it clear that on

January 1, 2001, the excess land

provisions will apply to all farm

operating arrangements then in effect

and those that may be agreed to in the

future. This has the effect of applying

the excess land provisions of the final

rule both prospectively to future farm

operating arrangements and

retroactively to those already in place

starting on January 1, 2001.

Comments Concerning § 428.11—

Effective Date

Comment: Regarding § 428.11, the

second sentence seems to limit the

applicability of this effective date to

only one of the 10 subsections of the

regulations. This is confusing and could

lead to enforcement problems and

possibly litigation over the intent of the

regulations. We suggest you include the

sentence in § 428.9, instead.

Response: In preparing the final rule,

we have made it clear that all provisions

of the final rule will be effective with

the 2001 water year.

Comment: The January 1, 2000,

effective date is not fair and does not

allow enough time for landholders to

make other farming arrangements to

avoid cost implications. You should

pick some later date to allow irrigation

districts, landholders, and farm

operators adequate time to adjust their

operations to conform to the regulations.

Many tree and vine operators have longterm operating agreements.

Response: In response to this and

similar comments, we have postponed

the effective date of the final rule until

January 1, 2001.

Comment: Regarding § 428.11, your

assertion that parties potentially

affected by the regulations need merely

make ‘‘other farming arrangements’’

before January 1, 2000, to avoid paying

full-cost for water is unrealistic. There

are many long-term contracts that

cannot be easily terminated, and the

result of terminating these contracts will

significantly affect perfectly legitimate

(from an RRA perspective) business

relationships.

Response: As we stated above, the

excess land provision is narrowly

focused and will only affect land that is

now held in trust or by a legal entity

and was formerly owned as excess land

by the current farm operator of that

land. Nevertheless, we have changed the

effective date for the rule to January 1,

2001.

Comment: You should have a phasein period for the forms collection. We

suggest that you do not apply full-cost

or shut off water during the first year if

any farm operator fails to file a form.

You will not be harmed by the year

delay in imposing penalties, and this

would make it more fair for landholders

and farm operators.

Response: Instead of having a phasein period, we have changed the effective

date to January 1, 2001, rather than

2000. It should be noted that we no

longer apply the compensation rate

(full-cost) when we find instances of

RRA forms requirements being violated.

Comment: We suggest a 3-year

implementation period, which would

allow land owners, farmers, custom

harvesters and farm operators time to

sort out contractual matters, cropping

questions and long-term financing.

Response: We believe that a 3-year

implementation period is too long.

However, we have changed the effective

date for the rule to January 1, 2001.

Comment: You issued a memorandum

to water districts dated February 1,

1999. The memorandum blurs the riskbased distinction between lessees and

custom operators that has been the

primary basis for determining who is a

lessee since the adoption of the 1987

regulations. The terms defined in the

memorandum as ‘‘custom farming

service,’’ ‘‘contract operator,’’ and

‘‘principal operator’’ are not in the

current regulations. The proposed rule

defines the terms ‘‘custom operator’’

and ‘‘farm operator’’ similarly to the

definitions in the memorandum. It

appears you have begun to prematurely

implement some of the new concepts

and definitions contained in the

proposed rule before the comment

period closed and before the

Commissioner has reviewed the

comments, responded to them, and

made a determination on the rule. We

believe this conflicts with the

Administrative Procedure Act and that

it is improper for you to

administratively direct water districts to

use those terms until the rulemaking is

complete. You should withdraw the

memorandum.

Response: Clearly, the commenter

misunderstands the purpose of the

February 1, 1999 memorandum. The

policy memorandum, dated February 1,

1999, was the most recent clarification

of how Reclamation applies the acreage

limitation provisions to sharecropping

arrangements. Previously, we issued

internal policy memoranda applying the

criteria on what constitutes a lease

under the RRA, as set forth in 43 CFR

426.6, to farming arrangements,

including sharecropping. See Lease and

Farm Operating Agreement Review

Guidelines (April 1990); Applicability

of the Reclamation Reform Act of 1982

to Sharecropping Arrangements (Sept.

28, 1993); Sharecropping and Custom

Farming Services (Dec. 17, 1997). These

memoranda do not address the same

issues as those contained in the final

rule.

Through data gathering, the final rule

will assist us in identifying those

farming operations that may constitute

leases under the RRA. Neither the final

rule nor the memoranda change the

analysis for determining what is a lease.

They make no change to the economic

risk plus use or possession test currently

set forth in 43 CFR 426.6.

While it is true that some of the

definitions used in the prior memoranda

are also used in the final rule, principal

operator, farm operator, and custom

operator are not new concepts or terms.

We used similar definitions, where

possible, to provide consistency and

avoid confusion for those implementing

Federal Register / Vol. 65, No. 17 / Wednesday, January 26, 2000 / Rules and Regulations 4323

the RRA. However, to the extent that

any definitions in the policy

memoranda conflict with those

promulgated in the final rule, the rule

controls. Accordingly, there is no reason

to withdraw the February 1, 1999

memorandum because it deals with

whether sharecropping arrangements

constitute leases under the acreage

limitation provisions. The final rule

does not affect those criteria or

determinations.

Comment: A few commenters

addressed the substance of the February

1, 1999 memorandum, asserting that the

memo defined principal operator but

did not provide any implications of

being so identified, that the risk-based

test was being abandoned, and that the

determination of reasonable and

ordinary crop shares to pay for services

fluctuated and depended on political

changes or the amount of pressure being

exerted by opponents of the

Reclamation program.

Response: As discussed above, the

February 1, 1999 memorandum

addresses issues distinct from the final

rule. It is beyond the scope of this

rulemaking to address the substance of

the February 1, 1999 memorandum. Any

substantive concerns should be

addressed in another forum.

IV. Procedural Matters

National Environmental Policy Act

We have analyzed this regulation in

accordance with the criteria of the

National Environmental Policy Act of

1969 (NEPA) and Departmental Manual

516 DM. In the proposed rule, we stated

that the regulation was categorically

excluded from NEPA review under 40

CFR 1508.4, Departmental Manual 516

DM 2, Appendix 1, paragraph 1.6, and

516 DM 6, Appendix 9, paragraph

9.4A.1. However, we received

comments that suggested we needed

further environmental review. In order

to be responsive to public comments,

we have therefore prepared an

Environmental Assessment (EA) and

have found that the final rule would not

constitute a major federal action

significantly affecting the quality of the

human environment under Section

102(2)(C) of NEPA [42 U.S.C.

4332(2)(C)]. We have placed the EA and

the Finding of No Significant Impact

(FONSI) on file in the Administrative

Record for this rulemaking. We invite

you to review these documents by

contacting us at the addresses listed

above (see ADDRESSES).

Executive Order 12866, Regulatory

Planning and Review

Under Executive Order (E.O.) 12866,

(58 FR 51735, Oct. 4, 1993), an agency

must determine whether a regulatory

action is significant and therefore

subject to Office of Management and

Budget (OMB) review and the

requirements of the E.O. Executive

Order 12866 defines a ‘‘significant

regulatory action’’ as a regulatory action

meeting any 1 of 4 criteria specified in

the E.O. This rulemaking is considered

a significant regulatory action under

criterion number 4, because it raises

novel legal or policy issues arising out

of legal mandates, the President’s

priorities, or the principles set forth in

the E.O. We have therefore submitted

the regulation to OMB for review.

Regulatory Flexibility Act

The Department of the Interior

certifies that this document will not

have a significant economic effect on a

substantial number of small entities

under the Regulatory Flexibility Act (5

U.S.C. 601 et seq.). We provide some

140,000 western farmers with irrigation

water. We estimate that out of this

number, fewer than 200 entities, not

necessarily small entities, could be

affected by the regulation. The effect on

most of these entities starting on January

1, 2001, would be limited to the annual

completion of RRA forms. The annual

costs of completing such forms is

estimated to total $4,200. The costs to

the districts will be limited to

distributing the RRA forms which is a

nominal additional cost, if any, since

districts are required to distribute RRA

forms to all landholders anyway. In

addition, some districts would collect a

few additional forms and place

information concerning farm operators

on a new tabulation sheet. Considering

that there are very few farm operators

Westwide providing services to more

than 960 acres held in trusts and by

legal entities, such costs to most

districts will be zero and Reclamation

estimates that no district will incur

more than $1,000 in additional costs

due to the expansion of the information

collection requirements.

For some of these entities, the farm

operator was also the owner of the land

in question when the land was

ineligible excess land or under a

recordable contract. In cases where such

a farm operating arrangement is still in

place on January 1, 2001, or is

implemented on or after that date, the

full-cost rate will apply to all deliveries

of Reclamation irrigation water to such

land. However, the landholder in

question can avoid paying the full-cost

rate by hiring a different farm operator

who did not formerly own the land in

question as excess. We believe it is

extremely likely that trusts and legal

entities will take action to have any

formerly excess land in their possession

farmed by farm operators who did not

own such land as ineligible excess or

under recordable contract. In such

cases, the trustees of trusts and the

owners of legal entities may incur two

types of opportunity costs: (1)

Additional costs if economies of scale

cannot be realized because the trustee or

owner cannot select a certain farm

operator to provide services to their

land without incurring the full-cost rate

for Reclamation irrigation water and (2)

additional costs because the trustee or

owner was not able to hire the farm

operator with the most knowledge of the

land in question without incurring the

full-cost rate for Reclamation irrigation

water.

Small Business Regulatory Enforcement

Fairness Act (SBREFA)

This regulation is not a major rule

under 5 U.S.C. 804(2), the Small

Business Regulatory Enforcement

Fairness Act. This regulation:

(1) Will not have an annual effect on

the economy of $100 million or more.

The regulation could affect up to an

estimated 200 farms, but the effects

would not approach $100 million or

more. For the 1996 water year,

Reclamation collected nearly $6.5

million in full-cost charges westwide.

These collections were from many more

landholders with more associated

acreage than would be affected by the

final regulations. However, these

regulations will not result in any

immediate application of the full-cost

rate, unless a farm operator is

determined to actually be a lessee for

acreage limitation purposes or the farm

operator also was the former owner of

the land when it was excess. In the case

of a determination that the farm

operating arrangement is a lease for

acreage limitation purposes, that

determination would be made with or

without this rule. Nevertheless, the

intent of this rulemaking is to provide

a more efficient and effective way to

find farm operators that should be

audited. Consequently, it is likely that

we will find more farm operating

arrangements that are leases for acreage

limitation purposes and, therefore,

subject to application of the nonfull-cost

entitlement than we would without this

rule. But without the information

collection, we simply do not know how

many that may be and how much

additional full-cost will be collected.

Therefore, the initial economic effect is

4324 Federal Register / Vol. 65, No. 17 / Wednesday, January 26, 2000 / Rules and Regulations

estimated at approximately $7,000; the

cost of the expanded information

collection requirements and these costs

include additional costs to Reclamation

for the design and distribution of the

new forms.

(2) Will not cause a major increase in

costs or prices for consumers,

individual industries, Federal, State, or

local government agencies, or

geographic regions. There could be an

economic effect on less than an

estimated 200 farms, but we do not

anticipate that this will cause any

increase in costs or prices.

(3) Will not have significant adverse

effects on competition, employment,

investment, productivity, innovation, or

the ability of U.S.-based enterprises to

compete with foreign-based enterprises.

At most the regulation will only affect

a small sector of the farming industry,

and will not have significant adverse

effects on competition, employment,

investment, productivity, innovation, or

the ability of U.S.-based enterprises to

compete with foreign-based enterprises.

Paperwork Reduction Act

This regulation requires a new

information collection from 10 or more

parties, and thus a submission under the

Paperwork Reduction Act was required.

On July 14, 1999, OMB approved the

new Declaration of Farm Operator

Information (Form 7–21FARMOP) as

part of the RRA forms package for

landholders, under control number

1006–0005. On the same date, OMB

approved new tabulation forms called

Tabulation G [1. District Summary of

Certification and Declaration Forms,

Tabulation G of ‘‘Declaration of Farm

Operator Information’’ Forms (Form 7–

21FARMOP) and 2. District Summary of

Reporting and Declaration Forms,

Tabulation G of ‘‘Declaration of Farm

Operator Information’’ Forms (Form 7–

21FARMOP)] as part of the RRA forms

package for districts, under control

number 1006–0006. Both clearances

expire on December 31, 2001.

Executive Order 13132, Federalism

In accordance with Executive Order

13132, this rule does not have

Federalism implications. This rule does

not substantially and directly affect the

relationship between the Federal and

State governments. The rule would not

affect the roles, rights, and

responsibilities of States in any way.

The rule would not result in the Federal

Government taking control of traditional

State responsibilities, nor would it

interfere with the ability of States to

formulate their own policies. The rule

would not affect the distribution of

power, the responsibilities among the

various levels of government, nor

preempt State law. The rule modifies

existing provisions for administering the

RRA by requiring a new collection of

information and extending the excess

land provisions to certain farm

operators.

Executive Order 12630, Takings

In accordance with E.O. 12630, the

regulation does not have significant

takings implications. Thus, a takings

implication assessment is not required.

This final rule will not result in

imposition of undue additional fiscal

burdens on the public. The regulation

will not result in physical invasion or

occupancy of private property or

substantially affect its value or use.

Specifically, the regulation will not

result in the taking of contractual rights

to storage water in Reclamation

reservoirs or water rights established

under State law.

Unfunded Mandates Reform Act of 1995

This regulation does not impose an

unfunded mandate on State, local, or

tribal governments or the private sector

of more than $100 million per year. The

regulation does not have a significant or

unique effect on State, local, or tribal

governments or the private sector. A

statement containing the information

required by the Unfunded Mandates

Reform Act (2 U.S.C. 1531 et seq.) is not

required. The regulation will require

certain farm operators, which are not

small governments, to submit RRA

forms. The excess land provisions of the

regulation will not affect small

governments. The potential effects of

this final rule will not amount to costs

of more than $100 million per year.

Executive Order 12988, Civil Justice

Reform

In accordance with E.O. 12988, the

Office of the Solicitor has determined

that this regulation does not unduly

burden the judicial system and meets

the requirements of sections 3(a) and

3(b)(2) of the E.O.

List of Subjects in 43 CFR Part 428

Agriculture, Irrigation, Reclamation,

Reporting and recordkeeping

requirements, Water resources.

Dated: January 18, 2000.

Patricia J. Beneke,

Assistant Secretary—Water and Science.

For the reasons stated in the

preamble, the Bureau of Reclamation

adds a new part 428 to title 43 of the

Code of Federal Regulations as follows:

PART 428—INFORMATION

REQUIREMENTS FOR CERTAIN FARM

OPERATIONS IN EXCESS OF 960

ACRES AND THE ELIGIBILITY OF

CERTAIN FORMERLY EXCESS LAND

Sec.

428.1 Purpose of this part.

428.2 Applicability of this part.

428.3 Definitions used in this part.

428.4 Who must submit forms under this

part.

428.5 Required information.

428.6 Where to submit required forms and

information.

428.7 What happens if a farm operator does

not submit required forms.

428.8 What can happen if a farm operator

makes false statements on the required

forms.

428.9 Farm operators who are former

owners of excess land.

428.10 Districts’ responsibilities concerning

certain formerly excess land.

428.11 Effective date.

Authority: 5 U.S.C. 301; 5 U.S.C. 553; 16

U.S.C. 590z–11; 31 U.S.C. 9701; 32 Stat. 388,

as amended.

§ 428.1 Purpose of this part.

This part addresses Reclamation

Reform Act of 1982 (RRA) forms

requirements for certain farm operators

and the eligibility of formerly excess

land that is operated by a farm operator

who was the landowner of that land

when it was excess.

§ 428.2 Applicability of this part.

(a) This part applies to farm operators

who provide services to:

(1) More than 960 acres held (directly

or indirectly owned or leased) by one

trust or legal entity; or

(2) The holdings of any combination

of trusts and legal entities that exceed

960 acres.

(b) This part also applies to farm

operators who provide services to

formerly excess land held in trusts or by

legal entities if the farm operator

previously owned that land when the

land was ineligible excess or under

recordable contract.

(c) This part supplements the

regulations in part 426 of this chapter.

§ 428.3 Definitions used in this part.

Custom service provider means an

individual or legal entity that provides

one specialized, farm-related service

that a farm owner, lessee, sublessee, or

farm operator employs for agreed-upon

payments. This includes, for example,

crop dusters, custom harvesters, grain

haulers, and any other such services.

Farm operator means an individual or

legal entity other than the owner, lessee,

or sublessee that performs any portion

of the farming operation. This includes

farm managers, but does not include

Federal Register / Vol. 65, No. 17 / Wednesday, January 26, 2000 / Rules and Regulations 4325

spouses, minor children, employees for

whom the employer pays social security

taxes, or custom service providers.

We or us means the Bureau of

Reclamation.

You means a farm operator.

§ 428.4. Who must submit forms under

this part.

(a) You must submit RRA forms to

districts annually as specified in § 428.6

if:

(1) You provide services to more than

960 nonexempt acres westwide, held by

a single trust or legal entity or any

combination of trusts and legal entities;

or

(2) You are the ultimate parent legal

entity of a wholly owned subsidiary or

of a series of wholly owned subsidiaries

that provide services in total to more

than 960 nonexempt acres westwide,

held by a single trust or legal entity or

any combination of trusts and legal

entities.

(b) Anyone who is the indirect owner

of a legal entity that is a farm operator

meeting the criteria of paragraph (a) of

this section must submit forms to us

annually, if any of the land to which

services are being provided by that legal

entity is land that the part owner

formerly owned as excess land and sold

or transferred at an approved price.

(c) If you must submit RRA forms due

to the requirements of this section, then

you may not use a verification form for

your annual submittal as provided for in

§ 426.18(l) of this chapter to meet the

requirements of this section.

(d) If you must submit RRA forms

solely due to the requirements of this

section, then once you have met the

requirement found in paragraph (a) of

this section you need not submit

another RRA form during the current

water year, even if you experience a

change to your farm operating

arrangements. Specifically, the

requirements of § 426.18(k)(1) of this

chapter are not applicable.

§ 428.5 Required information.

(a) We will determine which forms

you must use to submit the information

required by this section.

(b) You must declare all nonexempt

land to which you provide services

westwide.

(c) You must give us other

information about your compliance with

Federal reclamation law, including but

not limited to:

(1) Identifier information, such as

your name, address, telephone number;

(2) If you are a legal entity,

information concerning your

organizational structure and part

owners;

(3) Information about the land to

which you provide services, such as a

legal description, and the number of

acres;

(4) Information about whether you

formerly owned, as ineligible excess

land or under recordable contract, the

land to which you are providing

services;

(5) Information about the services you

provide, such as what they are, who

decides when they are needed, and how

much control you have over the daily

operation of the land;

(6) If you provide different services to

different land parcels, a list of services

that you provide to each parcel;

(7) Whether you can use your

agreement with a landholder as

collateral in any loan;

(8) Whether you can sue or be sued in

the name of the landholding; and

(9) Whether you are authorized to

apply for any Federal assistance from

the United States Department of

Agriculture in the name of the

landholding.

§ 428.6 Where to submit required forms

and information.

You must submit the appropriate

completed RRA form(s) to each district

westwide that is subject to the acreage

limitation provisions and in which you

provide services.

§ 428.7 What happens if a farm operator

does not submit required forms.

(a) If you do not submit required RRA

form(s) in any water year, then:

(1) The district must not deliver

irrigation water before you submit the

required RRA form(s); and

(2) You, the trustee, or the

landholder(s) who holds the land

(including to whom the land held in

trust is attributed) must not accept

delivery of irrigation water before you

submit the required RRA form(s).

(b) After you submit all required RRA

forms to the district, we will restore

eligibility.

(c) If a district delivers irrigation

water to land that is ineligible because

you did not submit RRA forms as

required by this part, we will assess

administrative costs against the district

as specified in § 426.20(e) of this

chapter. We will determine these costs

in the same manner used to determine

costs for landholders under

§§ 426.20(a)(1) through (3) of this

chapter.

§ 428.8 What can happen if a farm operator

makes false statements on the required

forms.

If you make a false statement on the

required RRA form(s), Reclamation can

prosecute you under the following

statement:

Under the provisions of 18 U.S.C. 1001, it

is a crime punishable by 5 years

imprisonment or a fine of up to $10,000, or

both, for any person knowingly and willfully

to submit or cause to be submitted to any

agency of the United States any false or

fraudulent statement(s) as to any matter

within the agency’s jurisdiction. False

statements by the farm operator will also

result in loss of eligibility. Eligibility can

only be regained upon the approval of the

Commissioner.

§ 428.9 Farm operators who are former

owners of excess land.

(a) Land held in trust or by a legal

entity may not receive irrigation water

if:

(1) You owned the land when the

land was excess, whether or not under

recordable contract;

(2) You sold or transferred the land at

a price approved by Reclamation; and

(3) You are the direct or indirect farm

operator of that land.

(b) This section does not apply if:

(1) The formerly excess land becomes

exempt from the acreage limitations of

Federal reclamation law; or

(2) The full-cost rate is paid for any

irrigation water delivered to your

formerly excess land that is otherwise

eligible to receive irrigation water. If

you are a part owner of a legal entity

that is the direct or indirect farm

operator of the land in question, then

the full-cost rate will apply to the

proportional share of the land that

reflects your interest in that legal entity.

§ 428.10 Districts’ responsibilities

concerning certain formerly excess land.

Districts must not make irrigation

water available to formerly excess land

that meets the criteria under § 428.9(a),

unless an exception provided in

§ 428.9(b) applies.

§ 428.11 Effective date.

(a) All provisions of this part apply on

January 1, 2001, except:

(1) For those districts whose 2001

water year commences prior to January

1, 2001, the applicability date of

§§ 428.1 through 428.8 is October 1,

2000.

(b) On January 1, 2001, this part

applies to all farm operating

arrangements between farm operators

and trusts or legal entities that:

(1) Are then in effect; or

(2) Are initiated on, or after, January

1, 2001.

[FR Doc. 00–1587 Filed 1–25–00; 8:45 am]

BILLING CODE 4310–94–P