Congress could fix some of Farm Credit’s most egregious issues.

Every five years, Congress makes sure that agricultural policy stays fresh by developing a piece of legislation called the Farm Bill. Congress is working on it this year, and that means there is imminent opportunity for Congress to fix some of the Farm Credit System’s (FCS) most egregious issues.

Congress can’t tackle all of the FCS’s issues, but that doesn’t mean it can’t get a head start. First things first: Congress needs to consider the system’s mission. The system was founded over 100 years ago, when agriculture was much different. And despite revisions to the FCS in the early 1990s, its overall mission has never been reconsidered. Now is a good time for Congress to take a closer look at the FCS’s mission to ensure that it’s working to promote America’s farmers, including the ones it most often leaves behind – young, beginning and small farmers.

Second, Congress should require the FCS’s regulator, the Farm Credit Administration (FCA), to publicly disclose whether it has taken enforcement action against an FCS institution. If an FCS institution isn’t playing by the rules, or if it’s not financially stable, then the public deserves to know. The FCS is a government-sponsored enterprise (GSE), and it has the implicit backing of taxpayers. Taxpayers deserve full knowledge of when the FCS is playing by the rules and whether it is at risk of another taxpayer-funded bailout.

Third, Congress should eliminate the FCS’s use of in-house appraisers, which create conflicts of interest. In 2010, Congress passed a law which contained a provision that prohibited financial institutions from employing appraisers because they have a vested interest in providing appraisals that may not be true to fact. The FCS is a financial institution and should be held to the same standard.

Fourth, the Farm Bill should substantially revise the “similar entity” rule that the FCS uses to justify loans to Verizon, Rayonier Inc., Cyrus One and other huge corporations.

Under this rule, Farm Credit institutions can extend loans to these entities because they are “similar” to the rural telephone and utilities cooperatives that are eligible for loans. Any reasonable layman would call foul on this rule – Congress should too.

Fifth, the FCS benefits immensely from tax exemption on real estate loans. In order to max out this benefit, it has made the requirements for a real estate loan lax beyond reason. To qualify for a loan, at least one of the following criteria must be met:

·         The property must be at least 5 acres;

·         The town where the property is located must have a population of 2,500 or less;

·         The potential owner must have the intent to farm;

·         The property must yield at least $500 in gross farm income.

This is ripe for abuse and that means it’s equally ripe for remedy. Consideration of the Farm Bill will provide an opportunity to revise these criteria so that real estate loans are going to the farmers who need them, rather than to someone looking to purchase a vacation home or maintain a hobby garden.

There are dozens of unique problems with the FCS, and Congress can’t address them all at once. But as the Farm Bill works its way through the House and the Senate, lawmakers should strongly consider these reforms so that the FCS stays true to its mission.

Congress could fix some of Farm Credit’s most egregious issues.

Every five years, Congress makes sure that agricultural policy stays fresh by developing a piece of legislation called the Farm Bill. Congress is working on it this year, and that means there is imminent opportunity for Congress to fix some of the Farm Credit System’s (FCS) most egregious issues.

Congress can’t tackle all of the FCS’s issues, but that doesn’t mean it can’t get a head start. First things first: Congress needs to consider the system’s mission. The system was founded over 100 years ago, when agriculture was much different. And despite revisions to the FCS in the early 1990s, its overall mission has never been reconsidered. Now is a good time for Congress to take a closer look at the FCS’s mission to ensure that it’s working to promote America’s farmers, including the ones it most often leaves behind – young, beginning and small farmers.

Second, Congress should require the FCS’s regulator, the Farm Credit Administration (FCA), to publicly disclose whether it has taken enforcement action against an FCS institution. If an FCS institution isn’t playing by the rules, or if it’s not financially stable, then the public deserves to know. The FCS is a government-sponsored enterprise (GSE), and it has the implicit backing of taxpayers. Taxpayers deserve full knowledge of when the FCS is playing by the rules and whether it is at risk of another taxpayer-funded bailout.

Third, Congress should eliminate the FCS’s use of in-house appraisers, which create conflicts of interest. In 2010, Congress passed a law which contained a provision that prohibited financial institutions from employing appraisers because they have a vested interest in providing appraisals that may not be true to fact. The FCS is a financial institution and should be held to the same standard.

Fourth, the Farm Bill should substantially revise the “similar entity” rule that the FCS uses to justify loans to Verizon, Rayonier Inc., Cyrus One and other huge corporations.

Under this rule, Farm Credit institutions can extend loans to these entities because they are “similar” to the rural telephone and utilities cooperatives that are eligible for loans. Any reasonable layman would call foul on this rule – Congress should too.

Fifth, the FCS benefits immensely from tax exemption on real estate loans. In order to max out this benefit, it has made the requirements for a real estate loan lax beyond reason. To qualify for a loan, at least one of the following criteria must be met:

·         The property must be at least 5 acres;

·         The town where the property is located must have a population of 2,500 or less;

·         The potential owner must have the intent to farm;

·         The property must yield at least $500 in gross farm income.

This is ripe for abuse and that means it’s equally ripe for remedy. Consideration of the Farm Bill will provide an opportunity to revise these criteria so that real estate loans are going to the farmers who need them, rather than to someone looking to purchase a vacation home or maintain a hobby garden.

There are dozens of unique problems with the FCS, and Congress can’t address them all at once. But as the Farm Bill works its way through the House and the Senate, lawmakers should strongly consider these reforms so that the FCS stays true to its mission.

JOIN US!

Help us Reform Farm Credit

Scroll to top