In August 2022, Congress passed a $739 billion spending package known as the Inflation Reduction Act (“IRA”) of 2022. Of the $739 billion in the spending package, $40 billion was allocated to the agricultural sector. Most of the agricultural funding is directed towards conservation programs, rural development, and mitigating the impacts of drought in the Western United States. However, the IRA contains measures designed to provide debt relief, financial assistance, and technical support to agricultural borrowers and underserved producers. The IRA is Congress’ most recent attempt to provide debt relief to agricultural borrowers of certain USDA loans.
On March 11, 2021, President Biden signed into law a stimulus relief bill known as the American Rescue Plan Act (“ARPA”) of 2021. Under §1005 of the ARPA, Congress instructed USDA to provide debt relief for minority or socially disadvantaged farmers and ranchers. Specifically, USDA was authorized to provide direct payments in an amount up to 120% of a socially disadvantaged farmer’s or rancher’s outstanding debt to pay off certain USDA loan balances and the taxes and fees associated with receiving the direct loan forgiveness payment.
The ARPA used §2501(a) of the Food, Agriculture, Conservation, and Trade Act of 1990 to define “socially disadvantaged” farmers and ranchers, which is someone “who is a member of a socially disadvantaged group,” which is further defined as “a group whose members have been subject to racial or ethnic prejudice because of their identity as members of a group without regard to their individual qualities.” 7 U.S.C. § 2279(a)(5)-(6). Thus, according to USDA, farmers and ranchers eligible to receive loan forgiveness under the ARPA included, but were not limited to: Black/African-American, Hispanic/Latino, American Indian, Alaskan Native, Asian-American, and Pacific Islander.
While USDA expected to start issuing debt relief payments in July 2021, several farmers across the nation filed various lawsuits challenging the USDA-led program. In general, the farmers alleged the ARPA’s debt relief provisions violated their equal protection rights under the U.S. Constitution. Essentially, the farmers argued that §1005 is unconstitutional because it limits loan forgiveness to borrowers who qualify as a socially disadvantaged farmer or rancher, a designation based on race. Three courts issued injunctions in favor of the plaintiff-farmers prohibiting USDA from distributing debt relief payments. As a result, no debt relief payments were issued to eligible borrowers under the program.
Meanwhile, Congress sought to amend §1005 of the ARPA under the Build Back Better Act (“BBB”) to resolve the concerns raised in the farmers’ lawsuits. The BBB revised the language of §1005 to shift debt relief eligibility to “economically distressed borrowers.” Under the bill, borrowers were considered an economically distressed borrower if they satisfied certain criteria, such as holding a delinquent debt, currently undergoing bankruptcy, or operating a farm that is located in an area with a poverty rate of 20% or greater. Ultimately, the BBB was modified by Congress and finalized as the IRA. Several provisions of the BBB were enacted into law under the IRA, including portions of the debt relief provision.
Under the IRA, Congress has allocated $3.1 billion to USDA to provide debt relief for “distressed borrowers” whose farming operations are at “financial risk”. This provision specifically directs USDA to provide debt relief payments to borrowers of direct or guaranteed loans. Direct loans are loans made directly from USDA’s Farm Service Agency (“FSA”) to a farmer or rancher. Guaranteed loans, on the other hand, are made by private USDA-approved lenders with the backing of FSA.
Unlike §1005, the IRA provides broad decision-making authority to USDA. Specifically, Congress placed very few restrictions on how USDA determines eligibility for the program and the process of delivering the payments. Thus, USDA will likely establish certain criteria that borrowers must satisfy to qualify as a “distressed borrower” in order to be eligible for debt relief under the program. Also, the IRA does not specify payment limitations, so USDA may choose to establish a limit on the amount of payment an eligible borrower may receive.
Assistance for Underserved Producers
The spending bill also provides $2.2 billion in financial assistance for certain victims of discrimination. This provision directs USDA to provide a program that provides aid to farmers, ranchers or forestland owners that experienced discrimination in a USDA lending program prior to January 1, 2021. Congress again provides USDA discretion as to establishing the eligibility requirements for this financial assistance. These payments under this program will be capped at $500,000 per eligible producer.
Further, the IRA allocates $125 million for USDA to provide technical and customer assistance—such as mediation services, financial training, cooperative development, and access to agricultural capital—to underserved farmers, ranchers, or forest landowners. This includes veterans, limited resource producers, beginning farmers and ranchers, and producers living in high poverty areas. Under the credit provisions, Congress directs $250 million for grants and loans to improve land access for underserved producers. This provision is also intended to improve heirs’ property and fractionated land issues among underserved producers. Last, Congress has also instructed USDA to create an equity commission to address “racial equity issues and the programs” of the agency.
The IRA is Congress’ latest attempt to provide debt relief and other financial support to certain agricultural borrowers and producers. Although the IRA is enacted, USDA still needs time to develop regulations for the programs established under the law. Specifically, the agency will need to establish the eligibility requirements that producers and borrowers must satisfy in order to receive the aid contained under the IRA. Once available, USDA will publish the regulations on the Federal Register website.
To read the text of the IRA, click here.
To read about the other IRA agricultural spending measures, click here.