Funding Limits Raised

Increases in program funding, flexibility and streamlining are helping build interest in the revised Environmental Quality Incentives Program (EQIP).

Increases in program funding, flexibility and streamlining are helping build interest in the revised Environmental Quality Incentives Program (EQIP).

Despite a trade show and other attractions nearby, a standing-room-only crowd of pork producers packed a large room to hear more about EQIP funds during the Iowa Pork Congress.

The U.S. Department of Agriculture (USDA) has loosened the reins on the voluntary conservation program, to encourage broader participation and to provide producers with incentives to comply with the Environmental Protection Agency's (EPA) new Concentrated Animal Feeding Operation (CAFO) rules.

From initial reactions, it appears the overhaul of EQIP has worked to create a buzz amongst producers.

“There is a huge interest in EQIP. It is very competitive,” says speaker Larry Beeler, resource conservationist with USDA's Natural Resources Conservation Service (NRCS) office in Des Moines, IA. Interest has been mounting with producer concerns to upgrade management and protect the environment, he says.

In 2002, for example, Iowa received just $7 million in program funding; Beeler says there were requests for $40 million. The accompanying EQIP map (Figure 1) provides a breakdown of program payments for 1997-2002. EQIP began in 1996.

EQIP fits well with environmental requirements for soil, water, air and wildlife. And it addresses some of the issues facing the livestock industry.

Relaxed Requirements

EQIP also fits more producers. Gone is the $50,000 payment limitation. An individual can receive up to $450,000 for all EQIP contracts during the life of the 2002 farm bill.

President Bush's proposed fiscal year 2004 budget includes $850 million for EQIP funds, an increase of $255 million. Over 10 years, $9 billion in additional funds have been allocated to EQIP, says Agriculture Secretary Ann Veneman. EQIP was funded at $200 million last year.

Previously, 60% of the funds were designated for priority areas. Now that limitation has been dropped, says Beeler. Plus, 50% of the funds were allocated for livestock use; that's been ramped up to 60% of funds.

“Another huge change with the new farm bill and EQIP is the elimination of the 1,000 animal units limitation,” he notes. “Previously, if you were that size producer or larger, you weren't eligible for funding for any type of waste storage facility.”

Producers receiving funds for a livestock treatment or storage facility will be required to develop and implement a nutrient management plan. There are four components: storage, land treatment, nutrient management plan and recordkeeping.

Beeler observes, “That's another change. Before the plan would just cover the storage aspects. Now we are taking a look at not only storage but also proper handling and disposal of the waste nutrients.”

For certain conservation practices, EQIP funding may provide cost-share assistance up to 75% of the total costs and up to 90% of the costs for limited resource and beginning farmers.

Projects may be approved any time during the current farm bill, which expires in 2007. Contracts can run from one year after the implementation of all practices to 10 years.

For the first time, producers can receive EQIP payments in the same year the contract is approved. And, requirements for submitting an application have been streamlined to expedite the process.

Environmental Goals

NRCS is addressing four national priorities that fulfill EQIP's environmental goals. Those include reduction of nonpoint source pollution, reduction of emissions that contribute to air quality problems, reduction in soil erosion and promotion of at-risk species habitat recovery.

Beeler encourages producers to seek out innovative ideas and technologies that might meet the environmental standards outlined in EQIP.

Funding Process, Application

The degree to which an application fits the overall needs of national and state conservation policies and environmental needs of an area will determine which contracts are earmarked for funding and the amount of funds allocated by state conservation officers. Producers should visit with county officials to find out what least-cost technology practices are deemed most eligible for funding.

For details, producers should contact their local USDA Service Center, listed in their local telephone book under U.S. Department of Agriculture, or their local conservation district office. NRCS says state and local lists of all details involving the EQIP implementation process and ranking of applications will be posted on the NRCS Web site located at:

Funding Challenge

The heightened interest in EQIP means despite increased availability, funds will still be tight, notes Beeler.

David Roper, outgoing president of the National Pork Producers Council (NPPC), says his group will encourage each state conservationist to hold to 60% of funds for livestock conservation efforts. And NPPC plans to determine if other economic incentives may be available to meet the demands of CAFO rules. Stresses Roper: “We are encouraging producers to aggressively seek to understand EQIP and to position themselves so they can take advantage of it.”

Beware the Taxman

The growing size of Environmental Quality Incentives Program (EQIP) grants during 2002 may create a tax burden for some operations if not handled properly, explains Joe Horner, Commercial Agriculture Program economist, University of Missouri.

“If you received an EQIP grant, be careful to watch the way your tax preparer handles the grant on your tax return,” he says. “Proper tax reporting of the EQIP grant by your preparer might save you thousands of dollars in income tax that you might not owe.”

Many tax preparers are not familiar with the larger EQIP grants, even though they may have dealt with Soil and Water Conservation District and Farm Service Agency (FSA) cost-share programs, says Horner.

“When they receive a 1099 form from the FSA office, many tax preparers automatically include the income on Schedule F,” he explains. “And, they either list the expenses incurred as soil and water conservation expenses on Schedule F, or on your depreciation schedule just as they have always done with cost-share grants.”

For producers with EQIP grants, the problem is that the Internal Revenue Service (IRS) only allows a maximum of 25% of gross income to be counted as soil and water expense in one year. Any additional expenses are carried forward to future years.

That hasn't been a problem for most livestock producers in the past because the grants were small compared to their gross incomes, notes Horner.

However, some EQIP allocations are now equal to or greater than gross incomes. That creates large tax liabilities when using standard tax treatment policies for cost-share grants.

In these cases, a special section of the IRS code, I.R.C. 126, excludes large capital project cost-share payments from both taxable income and expenses.

“If you had a large EQIP grant in 2002, you may want to take the appropriate reference material on I.R.C. 126 to your tax preparer, along with your tax records,” states Horner. “This will ensure that your preparer is familiar with section 126 and does the proper research on treatment of your EQIP grant.”