Information Requirements for Certain Farm Operations in Excess of 960 Acres and the Eligibility of Certain Formerly Excess Land

Note: EPA no longer updates this information, but it may be useful as a reference or resource.
 [Federal Register: January 26, 2000 (Volume 65, Number 17)]
[Rules and Regulations]
[Page 4303-4325]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr26ja00-19]

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Part II

Department of the Interior

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Bureau of Reclamation

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43 CFR Part 428

Information Requirements for Certain Farm Operations in Excess of 960
Acres and the Eligibility of Certain Formerly Excess Land; Final Rule

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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.

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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 Secs. 428.9 and 428.10 are effective January 1, 2001.

 Applicability Dates:  For the applicability dates of this rule, see
Sec. 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
nonfull-cost 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 Sec. 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
Sec. 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

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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
economic-interest 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

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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-

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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 Sec. 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

[[Page 4308]]

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 nonfull-cost
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.

[[Page 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
nonfull-cost 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

[[Page 4310]]

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 full-cost 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 Sec. 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 large-scale 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

[[Page 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

[[Page 4312]]

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.

[[Page 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 Sec. 428.2--Applicability of this Part

    Comment: The language in Sec. 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 Sec. 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 Sec. 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, Sec. 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

[[Page 4314]]

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 Sec. 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 Sec. 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, farm-related
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

[[Page 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?

[[Page 4316]]

    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 ``agreed-upon payment'' and then find a
bonus clause included elsewhere in the documentation. If the farm
operator is being compensated solely on a dollar-per-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
Sec. 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
Sec. 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

[[Page 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 Sec. 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 Sec. 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 full-
cost 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,

[[Page 4318]]

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 Sec. 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 Sec. 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 as-needed 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 Sec. 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

[[Page 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
Sec. 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 Reclamation-irrigated 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 Sec. 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

[[Page 4320]]

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 Sec. 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 Sec. 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

[[Page 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
Sec. 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 non-farmers, 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 Sec. 428.9(b)(3)
    Response: While we seriously considered adding this additional
exemption, we have decided not to include any further exemptions in
Sec. 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 Sec. 428.9 (b)(2) of the proposed
rules?
    Response: The acquiring lender or landowner would be subject to
Sec. 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 full-cost, 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 Sec. 428.3.
    Comment: We are not aware of more than two or three farming
operations where Sec. 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

[[Page 4322]]

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 Sec. 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 Sec. 428.11--Effective Date
    Comment: Regarding Sec. 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 Sec. 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 long-term 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 Sec. 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 phase-in 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 phase-in 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 risk-based 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

[[Page 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

[[Page 4324]]

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.

Sec. 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.

Sec. 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.

Sec. 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

[[Page 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.

Sec. 428.4.  Who must submit forms under this part.

    (a) You must submit RRA forms to districts annually as specified in
Sec. 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 Sec. 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
Sec. 426.18(k)(1) of this chapter are not applicable.

Sec. 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.

Sec. 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.

Sec. 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 Sec. 426.20(e) of this chapter. We will determine these
costs in the same manner used to determine costs for landholders under
Secs. 426.20(a)(1) through (3) of this chapter.

Sec. 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.

Sec. 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.

Sec. 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 Sec. 428.9(a), unless an
exception provided in Sec. 428.9(b) applies.

Sec. 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 Secs. 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
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Information Requirements for Certain Farm Operations in Excess of 960 Acres and the Eligibility of Certain Formerly Excess Land

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