2016 MBG Science Conference
Dennis and Deb Moroney                                                                                                                           

One ranch family’s story about planning for succession

Introduction by Ben Brown:    “People always seem to put a great deal of value on ‘local color.’  And I think this next presenter has about the most local color of anybody I know in this part of the world.   Dennis Moroney started raising cows as a teenager and went to 4H Club in Phoenix.    He apparently had a checkered career in high school, but did manage to get accepted at Arizona State University’s Animal Science program.   There he overlapped with Temple Grandin, who later pioneered animal welfare practices in the livestock industry.   When Dennis’ wife Deb was accepted to medical school in Washington they went to the northwest, where Dennis taught forestry, agriculture, and horticulture at an alternative high school.  In 2002 Deb’s residency brought them back to Arizona to a ranch just outside Prescott.  They bought the 47 Ranch and returned to ranching in the borderlands.
     Dennis has been involved in a number of efforts; how to collaborate, finding ways to ranch better, how to market the animals you raise, and the problems of ranch succession.    He has done all of those things.   This afternoon he will talk to us about his experiences in planning ranch succession on his own ranch.”
Dennis:  “The most stressful thing about this kind of presentation has nothing to do with ranching, or knowledge, or ability to communicate...it’s that interface with technology.   Believe me, growing up with technology in my era was a black and white TV with four channels and the AM radio...and thank goodness for the AM radio!
     So, the first thing I will do is NOT talk, but let you watch this seven minute video done by the University of Arizona,  that sets the stage.   The timing of this video and the timing of this meeting could not have been more serendipitously brought together, and it was done without any planning or anticipation on my part.  It was just pure luck of the draw.”
[Seven minute video presentation...first 2+ minutes inaudible.]       
Deb [on video]: ...inaudible parts...  “The broader picture of the work of land trusts that work with land protection....is to do everything they can to help landowners find the tools that are available to protect these landscapes and keep them connected.   As a landowner you have a lot of rights.   A conservation easement essentially removes the right to develop or the right to subdivide.   You are left with the underlying land; you still own it, you can pass it on to your family members, you can sell it.   But the conservation easement stays in place ‘in perpetuity’ which means forever.   Succession issues are really a big issue for our trust.   At the end of the day it is the landowners who are the stewards of the land that are going to help keep these places intact.”
Dennis [on video]:   “I have known a lot of ranchers that didn’t have a plan for succession for their ranch, and they just worked until they dropped dead.   It’s not a good idea.   I recognize I can’t do things I used to do ten years ago...just got to shift gears a little bit.   One of the big problems is that I have two kids and they say they aren’t sure they are interested in ranching.   Deb and I are getting older and we felt like we couldn’t wait around while they made up their minds.   So in the meantime we are working with another person who is really committed to ...our ranch....The reality is you have to work with who there is to work with.”
Ranch apprentice [on video]:    “In the mornings I will pick up my buckets of pre-measured, soaked corn and go into the pigpen and feed my pigs and usually visit with them for a couple of minutes...scratch them on the ears.   Then I just go about the day.   I met...Dennis and Deb Moroney at a Society of Range Management section meeting, and they told me what they do on the 47 Ranch.   I became friends with them.  About 6 years later...the timing was right...and Dennis and Deb asked me ‘Hey, are you interested in the business at all?’   And that’s when I seriously started considering moving to the ranch and becoming their apprentice employee.”
Dennis [on video]: ...”We were consciously transitioning the company from something that was owned by Deb and me to one that was essentially an employee owned company.   Over time she will continuously earn a larger share of the company...and larger proportion of the ownership.   You can get really wrapped up in a place...emotionally and psychologically...and you invest a huge amount of human energy in the land and the livestock and the community.  It’s pretty real.   The cost of the land and livestock, machinery, infrastructure... etc... is huge.   Removing the barrier associated with all the financial impediments is a big challenge and requires farmers and ranchers who want to pass some of their land on to others to think outside the box.    Young people are...endowed with energy, with ....new ways of seeing things, great creativity, and problem solving skills.   I am all for being on the sidelines or in the background...and let them go for it.   Where things may be problems for me, the next generation may have the solutions.”
Ranch apprentice [on video]:   “At the end of the day...how many people actually want to do it?    I think the resources to do it are here, but the people just aren’t there.   I think it is possible if you want to work hard to do it.”
[End of Video]
Dennis:   “I  have photos  here that will just play in the background as I also speak to you about other things at the same time.   If the photos are distracting, you can focus on the photos or focus on my words.   Let me say that since the video was filmed ...we were holding out to give my son another chance to decide.   He and his new wife came down to the ranch.   They said they wanted to join with us and go forward.   And then, a week into it his wife said...’You know I don’t like it here...it’s dirty ...hot... dusty.’   So, they are now in Wyoming.    
      Next, we went to our fall back plan.    We knew a young guy that went to high school the same place my kids went, and he was a couple of years older than my daughter.    We just hired him (he moved in about a month ago), and it is making a huge difference already.   This guy has come with a ‘cowboy skills’ set, and mechanical skills, and water skills (like for windmills), and he can weld.   He is really giving us a great balance.
     What I want to talk about is a problem that presents itself to a lot of ranchers.  For those of you who have a family situation where the kids are interested in taking over and that’s all going well...that is fine.   If any of this is helpful to you or you want to share with your neighbors that is great too.  But for others, and there are many in farming and ranching, the kids have moved to town, gotten good jobs,  and they just aren’t interested in doing this.    Sometimes I think the 2500 rock-and-wire check dams that we built when our kids were in high school that we used as bait to get privileges like using the car to go out at night and all that stuff...I don’t know...may have been a little too much?  (Laughter)  But anyway, that ball has already been played, and we have to live with what we have to deal with now.
     The problems I am seeing are these... First the average age of farmers and ranchers, at least in Arizona, is in excess of 65.   Second these ranches are very expensive.   The entry fee is huge; just the land  without even talking about livestock, the pickup truck and trailer, the good horses,  is just very prohibitive.  Third, most people in ranching are very busy working and they just don’t have time to put together a good plan for succession.   I have seen so many personal friends who worked until literally the day they died...and then the ranch went into probate...the ranch sold... developers bought it... subdivision occurred.   But the passion and dedication and love for that land that the people had for a lifetime is never even considered once that happens.  
     Then we look at such things as estate taxes ( which can be prohibitive),   and limited or partial development,  which is almost always  a short term fix that many families often are forced into because their payment for estate taxes is due 18 months after the last principle dies.   Generally speaking realtors, bankers, and the IRS are the ones that benefit.     The land, the culture, the ability to produce food from marginal landscapes... these are the things that suffer.  The craft knowledge that is sitting just in this room is cancelled out:  how to work cattle in rough, brushy country,  how to draw the most out of the meager amount of water we have available, how to do things horseback, how to use genetics in your cattle, horses, your dogs, and even in your human makeup.
     So I have to ask myself this question...who wants to ranch?    In the best of circumstances it would be ranchers’ kids of course, or cowboys’ kids.   But can they pull together that huge wide span of skills needed to do the job?    In this day you can’t just be good doing the horseback or the cowboy skills...you have to have significant business knowledge.   (Pause for emotional moment looking at Wendy Glenn’s portrait)  But other people might also want to ranch, like kids who grow up in town.   When I say kids I mean anyone younger than 50.   Those kids may want some sense of involvement in growing their own food, or providing food for the world, or working on the land, or working with nature...all of those things.  
      I know people in Tucson who are so proud of having half a dozen chickens in their back yard.   That speaks to me of ...the genetic memories that are within most of us from 10,000-14,000 years of agriculture necessary to our survival... memories that can still be drawn out and nurtured.   You can take somebody’s desire and share with them the skill set you have and make a person that is capable of doing this.
       I just made a short list of who wants to ranch:  ranchers kids, cowboy’s kids, city kids, dreamers, agency employees...(you know those kids who graduated from college with $40,000 in student debts, who took the job with the federal  government so they could pay their debts off.   But in their heart of hearts they really would rather be out there growing food or working with animals.).    And then add the usual lawyers, doctors, contractors, car dealers, college professors... they all think they can do it better than us.   But, that’s OK...(Laughter)...  I worked as a college professor, so I can’t hold it against them.
     So, how do we make this transition?    I feel there are a few specific things that are pretty important. Let me tell you what works for us; but know that variations on this are as broad as your imagination.  In our situation, we are an ‘S Corp’; a family held corporation which currently has two shareholders, two officers and two board members who are all the same two people...guess who?    But with a corporation you have perpetual life.   You can do an ESOP (Employee Stock Ownership Plan), or you can compensate employees with stock shares, or you can create a profit sharing program based on net return on an annual basis.
     In our concept we needed to get the people who have the ability and desire to do this, and then we needed to find a way that we could afford to keep them.   Honestly, we operate on a fairly marginal level for a business with a net worth of maybe $4 million.   I make $24,000 a year.   That’s kinda how it is.   All our trucks have 230,000 or more miles on them.    We get used tires and put them on things (they are better used tires than the used ones we took off them)...it’s like that.    But, the idea is for us to essentially just fade out of the picture over time, and the next generation to just fade in.
     Essentially we asked ourselves how we could get something for nothing.   You can wait to have it just fall out of the sky, or you can plant seeds and sometimes they would grow... and that’s all good.    But the thing that has worked best in my life and in Deb’s life has been ‘sweat equity’.     You go out and do the work and you earn some ownership.    It doesn’t work efficiently if you go out and work somewhere else and get a big wad of cash.  Doing that, you forgo all the practical knowledge that you would get working side by side...with us elderly folks... that make up my generation.   If you can learn from your mentors while earning at least a survival income and incrementally increasing ownership at the same time, you have a pathway to ownership that doesn’t require serving 30 years as an attorney.
     So working together creates a relationship where teaching, sharing, and learning becomes a way of life.   That doesn’t mean it happens without any disagreements.   There are days when I would like to kill Vanessa,...and many more days when she would like to kill me!  And it works that way in families as well.  We learn to forgive, and move on, and talk about it, and work out the details.   It’s not necessary to be related in order to pass on craft knowledge and a business over the long haul.
     The way we set it up was...and I will tell you this as a disclaimer right up front... we are making this up as we go along.   I am not saying this is the only way.    It’s almost weekly that a new thorn comes into the picture, and we have to give it more thought... The first year you earn wages, and housing is provided, and you get all the fringe benefits of living on a ranch... The second year you get wages and housing plus an ownership share and then each year  it increases.   The third year....more shares and bigger end of year bonus...the fourth year more shares, more equity..the fitfth year you all of that plus...we had to think about Deb and myself...We are getting older and old age ain’t pretty.   It’s a mess...we have medical bills coming up.   So we considered our personal needs and knew we had to have a cushion and not give it all away.    We started to look around at other options for employee benefits.
     There’s a USDA beginning farmer/rancher program which offers...about $350,000... in a loan program for farm ownership.    This is in the ballpark for purchase prices for homes today.   So we thought , in the fifth year you’ve got to apply for the farmer/rancher loan program, and then purchase some equity from Deb and I  so that we have a little nest egg for unforeseen issues.  This is still not unfair, although I spent a lot of time grieving about that.    The equity could be the purchase of a percent of the cattle, or purchase of some company stock or some land base...we are still working on this concept.    But they must purchase some tangible equity.   This would allow the next generation to access conventional agricultural credit if they ever needed it, and it would provide a benefit for us retiree’s nest egg.   Meanwhile, every year our equity diminishes and theirs increases.
      There are a couple of benefits for us.   First we retain a life estate in our home.   We get to stay there and they have to put up with us.   We’ve had many a heart to heart talk about what this involves...it may include...a lifetime supply of depends...or maybe even help using them...that’s part of the deal.    Full ownership then accrues to the successors upon the death of whichever one of us retirees dies last.    It is not a sale, because the company has perpetual life.     And the second benefit is that...In this scenario it is my hope that we deprive the bankers, and the IRS and the realtors of any returns from this transfer!  [Laughter]  That’s the big picture.
     I will tell you, and this is not advertising as I get not a dime from this,... [joking and laughter]... I do have a chapter in the book that Tom talked about this morning that talks in more detail about how we diversified our operation and how we used this tool of conservation easements to eliminate debt.                                           It is easier to do a transition when you have no debt.   We operate our entire business on a cash basis.   We have no debts.   We owe nobody any money.  We pay for things when we have the money.    When I need something big I think of what I can sell to afford to buy it.   I am a shameless dumpster diver.  We watch for and use a lot of used materials.  I try to trade a lot.   
     I also utilize conservation programs when I feel they will be beneficial.    We have done a lot of conservation where there was an ulterior motive.  I’ll give you an example.    We had an opportunity to do a rangeland improvement project in an area that had been surveyed by federal biologists.   They had identified three species of migratory sparrows (Bairds, Brewers, and Black Chinned) that needed more open grasslands with just a scattering of low shrubs.    
     We had one pasture in particular that had a lot of little mesquites.    I did the math and figured we could do this project if we did so many acres at so much an acre.    We could buy the machine and when the job was done we would own the machine, which we could then use to do other stuff.   So we bought a used machine and we went out there and grubbed and we all (even Deb) learned how to use this little track hoe machine...and   we dug out the little mesquites.   It worked to everyone’s satisfaction.     
      I know a lot of people don’t like the Fish and Wildlife Service because they are bringing us wolves...and I’m not too excited about that either...but you have to look at the good side of things too.  We want bird habitat...so let me help create what you want...by paying me something for doing the work.   And if I can buy a machine...that lets me do more of that kind of thing...then that’s good for everybody.
     Let me mention quickly a little bit about the wolf...not to stir up any controversy...but I believe it is inevitable that we will need a wolf.   I know we have had dog-wolf hybrids on our ranch... animals that people had raised for a while and then for whatever reason they set them loose.     We are raising cattle and slowly transitioning to our herd being all Criollo cattle.    These are cattle which are descended from stock brought to the Dominican Republic and then northern Mexico in 1493 on Columbus’s second voyage.  It turns out that they have a different way of responding to predators.    They circle up and face outward, and they have pretty nice sized horns with fairly sharp tips on them.    They like to throw things around with those horns!   This was a real eye-opener for my cow dogs when we first started! [Laughter] So I really have seen how this works.     I am very optimistic.  (Dennis refers to photo of his big Criollo steer put in with his sheep.)  This steer tolerates the guard dogs, so we can have both the dogs and the steer in with the sheep at the same time.    I have watched my steer run across a quarter mile of rangeland to pursue coyotes.    It is pretty amazing.  So I am not saying we won’t have any wolf predator problems, and we have bears and lions and humans (humans being the worst of the predator group) too,  but that’s what we are doing for now.”
Questions:
Q:  re Transitioning ranch to a non family member “...how do the kids feel about it?”
Dennis:   “I try to operate from a set of principles which help me put this all in perspective.     In principle I say that no one ‘deserves’ anything.  At the ranch we have two kinds of property:  the company property, and our own equity, or personal property that is owned by Deb and me.   So, we will make a will, and we will give out our property however we feel right about it, and our kids won’t be without anything.   They have had a ring side seat to this conversation for the last 4-5 years, and that has been very productive.   We have made this open-ended up to a point.
      Some of you that have studied psychology know about this phenomenon called the ‘maturation of the prefrontal cortex.’   It comes in right on time at about age 26 or 27, and children become fully functional, rational, polite, kind, loving adults.   Prior to that, they were sort of “not OK.”    We hold out some minor amount of hope for that for the future.    But if they decide they don’t want to do it, it’s also not right for us to guilt-trip or obligate them to something they really don’t want to do.  
     So right now I have two people on the ranch who want to do ranching, and my kids and those guys know one another.    So part of the provision is that in future my kids could apply for a job with the company, and the company could decide that if it’s in the best interests of the company they will hire them.   They could work for a year for wages and board and then ease into the company.   They may always have a junior position...I don’t know.   
     And we also have to think about what happens if one person decides to leave.    My current employee Vanessa is a single woman...her boyfriend is in graduate school...what happens when he graduates?    Will love carry the ball?    We don’t know.    If equity is part of the compensation, how do we not let that wreck the company?     That is an issue we are working through now... to find some kind of stock buyback plan or some kind of equitable trade-out if someone does decide to leave.  
      One of the biggest issues I have had to fight with its commitment.   But remember, your kids aren’t born with commitment either, and in spite of all our best efforts they don’t always manifest it.                         We can look at marriage statistics, or business failures, or just the friends list on your Facebook as it ebbs and flows over time.    We don’t all get along forever.    We have to be realistic about this.  
     The important things to me are the stewardship of the land and the passage of the craft knowledge which I believe is so much in danger.     And I also think ...and this may sound kind of silly...that I am here to facilitate the smooth, ecologically sensitive flow of solar energy through animals to someone’s dinner plate.    That’s how I see my job; to somehow respond to this chaotic system to facilitate a smooth flow of protein to those in my part of the world who are still interested in consuming protein.   [Laughter]  That’s what we do.   In the meantime we are keeping a relatively...big chunk of land... intact and functional and with a really not so bad representation of biological diversity.
     So, that’s the point from my perspective.   As we go along we are keeping copious notes about what we are doing...perhaps for a future book with mores specific boiler plate information to use.    But for now, this is what we are trying to do.  And from my set of  values...it beats just listing it with Hebbard and Webb (agricultural and ranch land sales) or whoever, and hoping that whoever comes next will care, and hoping they won’t just chop it up and make it into homesites.    In the meantime, I am also cross checking on current and additional pending easements on the ranch...another pending hopefully in the next 5-6 months.”
End of presentation