Hold onto your seats – the Farm Credit Administration (FCA) is going to reform itself in the next few years! Well, not really.
The polls are closed, the ballots are counted and Reform Farm Credit is still hard at work! The 2016 elections were hard fought, but fortunately many advocates for Farm Credit System (FCS) reform came out on top.
CoBank, the most prominent institution in the Farm Credit System (FCS), is authorized to make loans to cooperatives that provide essential services for rural areas –electricity and telephone access are the most common. Of course, CoBank has used this to justify its horrible history of lending to huge telecoms that aren’t cooperatives – Verizon, AT&T, Frontier Communications, US Cellular – and it’s only gotten worse.
The Farm Credit System (FCS) and its regulator the Farm Credit Administration (FCA) had gotten a pass on nearly everything – failing its mission to help small farmers, lending for “automobiles, college tuition, investments, vacation homes or almost any credit need you may have” and lending to huge telecoms.
But for all of the important questions that have been raised by senators and members of Congress, one extremely important point hadn’t been made, until now.
Earlier this month in his column in The Washington Post, George Will touched on an important issue – many agencies in the executive branch of government have five commissioners at the helm, so why are there agencies with three commissioners or fewer?
This may seem like a picky complaint to many, but this is an issue that strikes right to the core of our system of government and the philosophy it is based on. Checks and balances, redundancies and a diversity of opinions is what gives our system of government strength and adaptability. To have an agency or administration operate with fewer than five decision makers at the helm means that there is less room for dissent, less room for non-siloed thinking and less room for innovation.
So it comes as no surprise to see that the FCA’s structure has likely contributed to its stagnation.
The FCA has a three-person board of directors, one of whom is the chairman. Each board member is appointed by the president for a term of six years – an appointment which could potentially outlast a president’s tenure in office. This three-person board structure leaves little room for dissent, innovation and fresh, bold leadership.
This is a problem that Congress can fix easily – amend the Farm Credit Act to require the FCA to have five board members. With two additional board members, the current board members will be exposed to new ideas and to innovation – new ways to increase lending to small farmers, to clamp down on associations that don’t play by the rules and to make the FCS more financially stable. Without change soon, the FCA will continue on its path to total stagnation – and we might all eventually pay for it.
And now we can see something close to an opposite trend. Almost.
Over the past 14 years, while the FCS has exploded in size, the number of constituent associations has decreased steadily. In 2002 there were 117 associations. Now, only 14 years later, that number has decreased by a third – there are only 78 associations.
Many people would see this as a sign of growing efficiency – the FCS is consolidating and streamlining. But there’s too much that’s lost when associations grow too big.
When associations start to span multiple states and economic regions, their leadership becomes out of touch with their member customers – there’s a profound loss of connection to the area and the people who live, work and farm in it. And that has been happening increasingly as associations have gotten bigger – they’ve begun treating Big Ag as their main customer while they leave the small, young and beginning farmer behind.
And there’s a huge merger in process that would reduce the number of associations even further. AgStar, serving parts of Minnesota and Wisconsin, Badgerland Financial, serving southern Wisconsin and 1st Farm Credit Serves, serving Illinois, are slated to merge into a new association, Compeer Financial. With $18.5 billion in projected assets, Compeer will be the third largest FCS association. Its jurisdiction will span from just north of St. Louis, Missouri to beyond Duluth, Minnesota.
Would anyone seriously believe that the new leadership of Compeer will be able to understand, know and serve local farmers from areas as distant as Lax Lake, Minnesota and El Dara, Illinois?
As a government-sponsored enterprise (GSE), the FCS has a duty to serve those farmers who need reliable access to financing the most – young, beginning and small farmers. But when associations keep merging and growing so large and unwieldy, they start to focus their financing efforts on bigger and bigger agricultural operations to the detriment of young, beginning and small farmers. That isn’t right.
The FCS was created to serve those who need it the most, but that can’t happen if it grows to big. Congress needs to keep the FCS in check and investigate whether these mergers will actually help the FCS fulfill its mission.
Year after year, the Farm Credit System (FCS) has grown larger and larger. A year ago, the size of the FCS was $291 billion in total assets. And as of March 31, 2016, the FCS’s size was $315 billion in total assets.
Let that number sink in.
Most community banks, by total asset size, are a drop in the bucket compared to what the FCS has become. If the FCS were considered a bank, it would be the eighth largest in the US. And in just 6 months, the FCS grew by $24 billion – 8 percent.
The FCS’s defenders might claim that this has been an extraordinarily fruitful year, but the truth is in the data. Five years ago, the FCS had $230 billion in total assets. Ten years ago, the FCS had $162 billion. And 13 years ago, as far back as the Farm Credit Administration provides data, the FCS had $115 billion. In only 13 years, the FCS has nearly tripled in size.
Every financial institution has its good years and bad years, but this trend is outrageous. And with all of this explosive growth, you’d think that the FCS would be using these new resources to help young, beginning and small farmers, right?
The FCS has continued to lend to telecoms, foreign subsidiaries of US companies and consumers looking to invest in luxury houses and vacation properties. And all of this, of course, while it receives tax breaks to help the young, beginning and small farmers it’s been short-changing.
The tide is turning, but now’s the time to press the advantage – Congress needs to reform the FCS, before it’s too late.
Iowa – a state with a longstanding agricultural tradition. If someone says something about agriculture there, people across the country should be sure to listen.
How will policymakers know when it’s in the best interests of the economy and the taxpayer to bail out the FCS? The issue lies at Congress’ feet: mandate stress testing and annual reports on the stability of the FCS or be prepared to remain in the dark on whether the FCS can withstand a devastating market crash – before it’s too late.
CoBank is a behemoth – it has $117 billion in total assets. If it were considered a bank, regulated like a bank and taxed like a bank, it would be the twenty-first largest bank in the country. So when CoBank throws its weight around, the ground shakes.
This week the Farm Credit System (FCS) celebrates its 100 year anniversary by descending on Washington, DC to schmooze policy-makers at a congressional reception and to hold a luncheon honoring its Farm Credit 100 Fresh Perspectives Honorees. With so many of the FCS’s members in close proximity, it would make sense for them to hold an event so that they could share ideas on how to improve their services, right?
Though the FCS had planned on hosting an Idea Share event, as it did in years past, the Farm Credit Council (FCC), the FCS’s lobbying arm, recently issued a memorandum quashing the event. According to the FCC’s president, Todd Van Hoose, the FCC “elected to discontinue Idea Share” because of “the recently announced strategic shift in direction for reputation management at the Farm Credit Council.”
The answer is simple: the FCS needs a strategy for reputation management because its own activities have sullied its reputation and it can’t withstand outside scrutiny. Year after year, the FCS lends to huge telecoms, short changes small farmers and finances luxury properties while benefitting from tax exemption. When presented with the overwhelming evidence of the FCS’s mission creep, any reasonable person’s opinion of the FCS would fall drastically.
But instead of stopping questionable practices, the FCS and the FCC have decided that it’s easier to treat the symptom rather than cure the disease – that it’s easier to hide mentions of their questionable practices and say goodbye to the transparency that all taxpayers should demand from a government-sponsored enterprise (GSE).
Both the House and the Senate have started to unravel just how far the FCS has strayed from its mission, and now they have seen how complicit the Farm Credit Administration (FCA), the FCS’s regulator, has been in facilitating and rationalizing the FCS’s mission creep. Sooner rather than later, Congress needs to act to stop the FCS from hiding in the shadows and abusing taxpayers’ trust.