Excess Land Regulations Finally Enforce Limits on Federal Water Project Benefits

After 75 years of haphazard administration, the Department of the Interior has proposed "Reclamation Rules and Regulations for Acreage Limitations" to enforce basic provisions of the reclamation laws which are designed to foster creation of family-sized farms in areas irrigated by federal water projects.¹ The proposed regulations have been issued in response to a court order² requiring initiation of public rulemaking proceedings to develop criteria for ensuring enforcement of two important statutory provisions, § 5 of the Reclamation Act of 1902³ and § 46 of the Omnibus Adjustment Act of 1926.⁴ The goal of the regulations is implementation of the statutory requirements that ownership of land receiving water from federal irrigation projects be limited to 160 acres per person and that any "excess" land above this limit be sold at a price equivalent to its value absent the right to federal water. Since the proposed rules make major changes in existing policy while establishing methods for implementing some statutory requirements not previously enforced, substantial criticism and delaying litigation can be expected.

The successful effort to compel promulgation of these regulations rests on a lawsuit by National Land For People, a non-profit California corporation composed of small farmers unable to buy excess lands because of past Bureau of Reclamation policies that enabled landowners in the Westlands Water District of the San Joaquin Valley to obtain holdings far in excess of 160 acres. On November 17, 1975, the organization filed a rulemaking petition before the Bureau of Reclamation seeking adoption of standards to prevent circumvention of the 160-acre limitation.⁵ The group specifically sought to compel adoption of procedures to prevent those practices previously approved by the Bureau that enabled landowners [7 ELR 10190] to circumvent major requirements of § 5 while still retaining water project benefits. The organization criticized Bureau approval of "group" sales of excess lands through which several landowners were able to use corporate entities to gain acreage in excess of their individual limits by purchasing land under a single grant deed. In addition, the petitioners charged the Bureau with failure to enforce residency requirements and illegal approval of excess lands sales at prices which partially reflected enhanced value due to presence of publicly subsidized irrigation water.

After the Bureau denied the petition, National Land For People succeeded in obtaining district court review of the Bureau's decision. The court subsequently ordered the Bureau to comply with statutes that were enacted with the dual objectives of providing federally subsidized water to arid regions and of settling family farmers on that land. Successful implementation of these long-dormant policies rests on strict agency enforcement of regulations designed to affect over one million acres of federally irrigated acres in the West. Yet, negative congressional and public reaction to these strict regulations may result in successful pressure to amend an acreage limit and supporting statutory policy which arguably have lost their validity in an era where corporate farms are seen by some as the most economically and environmentally successful methods of agricultural production.⁶

Provisions of the Proposed Regulations

Full implementation of excess land provisions has historically languished because of Bureau of Reclamation failure to adopt uniform rules to enforce statutory requirements which severely limit the circumstances under which excess land may receive "project water."⁷ The proposed rules continue the statutory policy of permitting an individual landowner to receive project water for irrigable lands in excess of 160 acres only if the owner has executed a valid recordable contract for its sale to a non-excess owner. The new proposed regulations do alter one procedural requirement, for new excess land would have to be sold within five years if water benefits are to be retained.⁸ To ensure that the land is actually sold, the Bureau would continue to have the authority to exercise a power of attorney to sell the excess acreage.⁹

Specific provisions have been drafted that would prevent land speculation practices by which many private owners have taken illegal advantage of publicly-financed irrigation benefits through selling land at a price which reflects the enhanced value attributable to federal irrigation.¹⁰ To enforce the anti-speculation policy of § 46, the regulations provide that excess land subsequently sold into non-excess status must meet price control standards if it is to retain its eligibility for federal irrigation benefits. The regulations establish a two-tier price policy: former excess lands resold within ten years after acquisition must be sold at a dry land price, while such lands that are resold after ten years and until one-half of the total irrigation-related costs of construction have been paid are to be sold at prices which do not reflect an unreasonable gain.¹¹

The Bureau further proposes to assume responsibility for selecting eligible purchasers of excess lands and for administering the sales. To eliminate the problem of absentee ownership, the land could be sold only to individuals who reside or intent to reside within 50 miles of the particular tract.¹² Another eligibility requirement would place the burden on the prospective purchaser to show that after the acquisition he will not own more than 160 acres of land which receives project water. After meeting the eligibility rules, the prospective buyer would then file a formal expression of interest which describes his financial ability to own and operate the parcel being offered for sale. If there is more than one eligible buyer, the government would hold a lottery among eligible non-excess landowners.¹³

Other provisions are specifically intended to prevent circumvention of the acreage limit. Partnerships, trusts, and corporations could hold more than 160 acres only if a family relationship exists among participants who individually meet the residency and non-excess ownership requirements.¹⁴ As drafted, the regulations require that the legal entity be composed only of persons in a direct lineal relationship and their spouses. An example of a proper corporate entity would be that of a father, his children, and his grandchildren, plus their spouses. The regulations would not permit the children and grandchildren collectively to form the entity, for each child and his descendants form a separate family line. Further, and perhaps more important, an owner would not be able to avoid the limit completely by leasing the land back from [7 ELR 10191] the purchaser.¹⁵ The owner would be allowed to lease up to an additional 160 acres, however, and still be able to receive project water.¹⁶ The only restriction is that the lessor must not have purchased the land from the lessee. The regulations thus permit third-tier sales to be used to avoid the leaseback restriction.

Unresolved Problems

National Land For People and other proponents of the regulations claim that the proposed rules will cause a decline of vast corporate farms and the reemergence of a more equitable distribution of land among family farmers in the arid West.¹⁷ Critics, especially landholders faced with the prospect of selling a substantial percentage of their acreage, fear the elimination of efficient farming units. Nevertheless, the large landholding corporations that exist in the Westlands Water District may be retained so long as non-family shareholders are replaced with members that meet the family relationship requirement. Even if the regulations result in substantial reduction of the number of participants in corporations, partnerships, or trusts, substantial flexibility to obtain subsidized water for vast acreage remains since each member and his spouse is able to own and lease up to a total of 640 acres.

Though the regulations should be successful in forcing such large landholders as the Southern Pacific Railroad to divest 83,000 of its 109,000 acres in the Westlands, they do not guarantee the end of single-unit operation of vast tracts of farmland. Small farmers still may find it economically advantageous to group their holdings together to avoid substantial duplication of effort in analyzing soil and preparing and marketing crops. Moreover, farmers have argued that the 160-acre limitation itself is inherently counterproductive because it forces them to grow water-intensive crops in order to meet high agricultural yields while discouraging the use of additional acreage which would enable dryland crops to be developed so as to lessen the impact on the land.

That the regulations enable more efficient joint operations to continue in fact underscores one crucial feature of the reclamation laws; they are geared more toward how land is to be distributed than as to how it is to be farmed. Discussion focusing solely on the 160-acre limit as a land reform device is somewhat shortsighted, because the statutes and implementing regulations have great impact on economic and environmental management of farmlands. The regulations leave unanswered, though, the question of whether the acreage limitation operates to promote excessive use of pesticides and irrigation water by small farmers with duplicate needs. If the regulations and statutes indeed can be shown to encourage such waste and resulting environmental degradation, this evidence might be used to support efforts by large landowners to either amend or eliminate the 160-acre requirement.

The regulations do promote two general policies worth preserving: the distribution of land so as to prevent monopoly control of agricultural development and the limitation on private benefits from publicly subsidized water that can accrue when land is not sold at a dry-land price. Yet the regulations as currently proposed will not completely prevent circumvention of these small farmer and anti-speculation policies. First, the regulations do not guarantee a sudden registration of land, because prospective purchasers still must obtain financing within 90 days of winning the lottery if they are to retain the right to purchase the land. Since most of these parcels will be broken into 160-acre segments by the owner of excess land, it can be excepted that many of those proponents of the regulations that expect sudden acquisition of land will still be faced with the same problem of inability to obtain financing. The result of the regulations may simply be a redistribution of land among those who currently have been able to amass vast fortunes through the benefit of 75 years of statutory non-enforcement. Finally, heirs and mortgagees will be able to recover publicly financed benefits on resale of land so acquired since the regulations add to the statute the provision that such excess land may be disposed without price approval.¹⁸ Though the regulatory provision is primarily designed to encourage financing of lands, the effect of this rule is to encourage mortgagees to foreclose and excess landowners to divest their holdings through devisements so as to enable future sale of land at a cost reflecting federal irrigation benefits.

Delays Expected

The regulations promise substantial alteration of practices that enabled owners of vast acreage to accrue greater benefit from the millions of tax dollars which have financed irrigation projects than was available to the original intended beneficiaries, the small farmers. It is thus inevitable that litigation challenging their validity will ensure and that there will be concommitant delays in their implementation.

Opponents may raise due process claims that judicial adjudication of excess owner status must be made before irrigaton benefits may be withheld from land found to be in excess of the statutory limit on holdings. Judicial acceptance of this view depends on whether federal irrigation subsidies are protected as property rights or entitlements under the Due Process Clause in the same manner as welfare benefits.¹⁹ This argument would probably not survive judicial scrutiny, however, because welfare benefits are received in accordance with statutory mandates while excess lands receive irrigation benefits in violation of statutory provisions.

The status of excess lands can be better compared to that of Taylor Grazing Act lands. In United States v. Fuller,²⁰ the Supreme Court found that enhanced value attached to private lands was statutorily precluded from inclusion in a condemnation action because the government as condemnor need not compensate for value that it has created. Likewise, excess lands that have received irrigation benefits in violation of statute should be subject to revocation of irrigation benefits without compensation since the benefits were granted subject to [7 ELR 10192] knowledge that they could be lawfully revoked. Moreover, any argument which claims an unlimited right to receive irrigation benefits regardless of acreage is contrary to the general rule that a parcel's status is subject to governmental powers to reclassify and impose additional restrictions on its use and disposition.²¹ Just as land is taken with knowledge that the value depends on its zoning status, excessacreage is held with knowledge that the law severely limits the circumstances under which irrigation subsidies may be received.

Another possible line of attack might be the claim that the regulations arbitrarily restrain the alienability of property and therefore violate the right to equal protection.As long as the government can show that the regulations governing prospective purchasers are rationally related to a valid governmental purpose and are a reasonable means of achieving that end, however, the regulations should survive equal protection challenges. The important issue here will be whether the 160-acre limit is economically rational in view of the claimed need for large acreage in order that water-intensive crops may be rotated with dry-land crops. Even if the 160-acre limit can be considered archaic, the government might be able to prevail by asserting that the doctrine of Kleppe v. New Mexico²² provides a virtually unlimited federal proprietary power to control the allocation of water that is furnished by or through federally financed facilities.

Even if the regulations survive judicial review and the reclamation laws survive congressional scrutiny, the result surely will not be to effect any major change in farming techniques. Excessive application of pesticides and water will continue regardless of acreage limitations because no statute operates to punish the wasteful and environmentally damaging practices that often result from the need to achieve highest possible economic return. Though better safeguards will exist to prevent monopolistic or oligopolistic exploitation of irrigation benefits, small individual and family farmers will gain greater shares of the subsidies only to the extent they are able to overcome the burden of obtaining financing for the acreage that will be subject to sale. The result may be merely a realignment of large farming units into informal economic entities so that compliance with regulatory restrictions may be ensured while large scale farming of vast acreage continues in fact.

1. 42 Fed. Reg. 43044 (Aug. 25, 1977) (to be codified in 43 C.F.R. pt. 426).

2. National Land for People, Inc. v. Bureau of Reclamation, No. 76-928 (D.D.C. Aug. 13, 1976).

3. 43 U.S.C. § 431.

4. 43 U.S.C. § 423e.

5. Rulemaking petition to the Bureau of Reclamation (Bur. Recl., filed Nov. 17, 1975). Copies of the petition and supporting memorandum are available from ELR (13 pp. $1.75, ELR Order No. 465A-B). For a summary of the arguments, see ELR 65309.

6. Washington Post, Aug. 29, 1977, at A1, col. 4.

7. As defined at 42 Fed. Reg. 43046 (Aug. 25, 1977) (to be codified in 43 C.F.R. § 426.4(m)), "project water is water that is furnished by or through Federally financed facilities." Project water also is defined to include water from any other source which "is delivered by or through Federally financed facilities." 42 Fed. Reg. 43046 (Aug. 25, 1977) (to be codified in 43 C.F.R. § 426.4(o)). The unresolved status of these commingled waters prompted immediate criticism due to fear that users of the state-owned California Water Project would have to comply with the new excess land regulations. On August 23, 1977, the Solicitor of the Department of the Interior clarified the confusion generated by the loosely defined status of non-federal waters. Solicitor Krulitz stated that "the new regulations were not intended to apply to users of state water delivered through a joint state-federal facility where there is no federal subsidy to the state user." Los Angeles Times, Aug. 24, 1977, § I, at 3, col. 5.

8. 42 Fed. Reg. 43046 (Aug. 25, 1977) (to be codified in 43 C.F.R. § 426.5(a)).

9. Id. (to be codified in 43 C.F.R. § 426.5(a)(iii)).

10. 42 Fed. Reg. 43048 (Aug. 25, 1977) (to be codified in 43 C.F.R. § 426.10(a)).

11. Id. (to be codified in 43 C.F.R. § 426.9(b)).

12. 42 Fed. Reg. 43046 (Aug. 25, 1977) (to be codified in 43 C.F.R. § 426.4(k)).

13. The lottery will not be held if a person in a direct lineal descendant relationship to the owner is able to buy the offered land. 42 Fed. Reg. 43048 (Aug. 25, 1977) (to be codified in 43 C.F.R. § 426.10(b)).

14. 42 Fed. Reg. 43047 (Aug. 25, 1977) (to be codified in 43 C.F.R. § 426.7).

15. 42 Fed. Reg. 43048 (Aug. 25, 1977) (to be codified in 43 C.F.R. § 426.10(e)).

16. 42 Fed. Reg. 43047 (Aug. 25, 1977) (to be codified in 43 C.F.R. § 426.8).

17. Washington Post, Aug. 29, 1977, at A1, col. 4.

18. 42 Fed. Reg. 43047 (Aug. 25, 1977) (to be codified in 43 C.F.R. § 426.5(b)).

19. See Goldberg v. Kelly, 397 U.S. 254 (1970).

20. 409 U.S. 488 (1973).

21. Euclid v. Ambler Realty Co., 272 U.S. 365 (1926).

22. 426 U.S. 529, 6 ELR 20545 (1976).