It's a huge controversy in California. Mega-farms with long-term rights to heavily subsidized public irrigation water are making a fortune selling the water back to, uh, you, the public. Often for a vastly higher price than they paid for it, of course. And they'll make more money selling it in the years ahead. We're talking millions. EWG has published extensive, original research on water subsidy controversies in California's Central Valley Project.

House Speaker Nancy Pelosi has praised as 'reform' provisions in the House Agriculture Committee's farm bill that will "eliminate millionaires" from the subsidy rolls. Data that EWG obtained and posted yesterday from USDA showed that the "crackdown" will affect at most 3,175 wealthy farmers and landlords out of 1.6 million or so USDA subsidy beneficiaries in an average year (0.2 percent).

With the help of our betters on the subject, we've thoroughly Mulched the House bill's payment limitation 'reform' as a sham here, here, here, here, here, here, and here.

However, we haven't heard Speaker Pelosi say anything about a provision tucked into the payment limitation 'reform' that specifically allows high-earning mega-farmers and landowners to count water rights sales as "income from farming."

Under current regulations (7 CFR 1400.601, pp. 337-338), income from farming is defined as derived from:

(1) Producing crops, livestock or unfinished raw forestry products; (2) Selling (including the sale of easements and development rights) their own farm, ranch or forestry land or water rights; (3) Selling, but not as a dealer, equipment purchased to conduct farm, ranch or forestry operations when the equipment is otherwise subject to depreciation expense on the IRS Form 4835 or Schedule F; (4) Renting land used for farming, ranching or forestry operations; and (5) Payments made under any program authorized under chapters VI, VII or XIV of this title.[various USDA programs]

EWG's Director of Government Affairs, Sandy Schubert, noticed that "income from farming" is capaciously redefined in the bill the subsidy lobby wrote for the House Agriculture Committee with reference, among many other things, to sale of water rights.

Under the bill (Sec. 1604), income from farming, ranching or forestry is defined as:

Here's the implication. Under the Pelosi payment limitation reforms, a big-bucks cotton farmer--in, say, the Westlands Water District of California--who pulls down between $500,000 and $1,000,000 in adjusted gross income (AGI, averaged over 3 years), is ineligible for crop subsidies unless he can demonstrate that 66.66 percent of the dough was "income from farming", as defined in the bill. If he sells water rights, it will count as income from farming under the bill, making it easier to continue receiving subsidies.

The inclusion of the sale of water rights in the Ag Committee's new, expanded definition of "income from farming" may not mean anything. Who knows, it could even have been a drafting error. Very common problem on the Hill when you're hellbent on 'reform.'

UPDATE: Several people have asked what the difference between the existing regulations and the committee bill is with regard to water rights. It's subtle. It's the the change from the sale of "their own...water rights" in the regs to "the sale of" presumably any water rights in the bill. And this will be in law, which is far harder to change than regulations.

Note also the additional, new categories of income from "the provision of production inputs" and from various "processing, storing, transporting" activities. The latter, we're told, cover income from cotton gins, ethanol plants and other business activities.