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Reality Check: The LLC Loophole Is Still NOT Closed

Updated: Jan 20, 2021

Early this winter we were extremely pleased to report that the Iowa DNR conducted an administrative rules review on the LLC loophole and rewrote the rule to close the loophole. This LLC loophole, which plagues all of Iowa, including Jefferson County, allowed CAFOs owned by the same person or persons to be built adjacent to each other, yet be regarded (and regulated) as separate confinements if they are registered under different LLC names. The DNR recognized the LLC as the legal owner of the CAFO, not the owners behind the LLC. Depending on their size, this enables CAFOs to avoid the Master Matrix, larger separation distances, and even sometimes manure management plans that are required of larger operations.

We have since discovered that in practice, the new administrative rule is not a reliable closure of this loophole.

How Does the LLC Loophole Work?

CAFOs that have common owners (one or more common contract growers) or common managers (the large corporation that contracts with local farmer, also known as the integrator) must be separated by 2500’ in order to be considered a separate CAFO and regulated as such. Larger CAFOs have additional environmental requirements, as mentioned above. In Jefferson County approximately half of the CAFOs take advantage of the LLC loophole, which directly impacts our community’s quality of life and water quality.

How Did the Rule Change Come About?

Interestingly last fall, the Iowa Pork Producers Association proposed a change to close the loophole. JFAN, the Iowa Alliance for Responsible Agriculture (IARA), and other like-minded organizations sent out an action alert encouraging input on changes to the rule, and Executive Director Diane Rosenberg traveled to Des Moines to speak on behalf of JFAN and IARA.

About 160 Iowans contributed public comments with about half from Jefferson County. The result was that the DNR announced they were changing the rule to address the loophole with DNR attorney Kelli Book reworking the CAFO application form to require disclosure of LLC ownership.

Two or more adjacent CAFOs in different LLC names would now be considered one larger CAFO if the owners themselves have 10% or more interest in the other LLC. They would be considered “common owners” regardless of their relationship. The CAFO would therefore be considered one larger operation subject to more regulations.

The Actual Situation with the Loophole Rule

However, we’ve discovered that the loophole is not truly closed. The change to the application is an added checkbox, asking if there are common owners. Part of the problem is that the old form, which doesn't have the new checkbox, is still being used, leaving the DNR Field Offices and local communities with the job of staying alert to new CAFOs to determine ownership. But there are more significant issues at play.

This winter, we saw our first test case right here in Jefferson County. CAFO owners Bob Deutsch and Ryan Robertson were building adjacent CAFOs not far from the Daniels Site and the city of Pleasant Plain in Penn Township. It is JFAN’s understanding that for years Deutsch and Robertson have been business partners, building adjacent CAFOs at several sites.

JFAN was alerted to their intentions to build something but no application had come through in 2019. We’ve since learned that these men had already built two 1200-head adjacent factory farms, which don’t require DNR applications, before the LLC loophole was “closed.” They were now expanding their operations to a total of 2480 hogs each.

Knowing their relationship, Rosenberg asked DNR to check to see if the new loophole rule should be applied. She also spoke to DNR Animal Feeding Operation attorney Kelli Book to learn the procedure for double-checking any situation where the new loophole rule was pertinent.

Book told Rosenberg that DNR could request a letter from each owner stating they did not have ownership in the adjacent CAFO—but could not require any legal documentationto verify the accuracy of the letter. On questioning, Book responded that the DNR “trusts CAFO owners to do the right thing,” insisting that it’s beyond DNR’s legal right to ask for more.

Therefore, the Iowa DNR effectively has no legal authority to verify ownership and enforce the new loophole ruling.

Thus, the LLC loophole as it stands today is useless. Laws need to be changed to fix the problem. One way is for the state to require the integrator to be considered as one of the owners as they own the hogs, provide the feed, veterinary care, and management directions. According to a source at the DNR, this was the case years ago, before Iowa’s hog industry began to surge in Northwest Iowa and it was difficult for integrators to site CAFOs 2500’ away from each other and avoid being considered a larger confinement. The State Legislature effectively loosened the regulation to allow for more CAFO construction without regulations for larger CAFOs.

What You Can Do

Speak to your state legislators and urge them to fix this loophole at the state level once and for all by passing a law that will:

  1. Designate integrators as a common owners and require them to be listed on the CAFO application.

  2. Require the DNR to obtain adequate business documentation that shows the legal owners of the LLC and the percentage ownership of each individual as verification of any claims of separate ownership.

It will take action from all of us to see meaningful action take place on this important issue. Let's do it!

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