Farm Credit Faced an Oversight Hearing – Again

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On February 28 the House Appropriations Committee’s Subcommittee on Agriculture, Rural Development, Food and Drug Administration and Related Agencies held an oversight hearing on the FCA for the first time in 19 years. It came on the heels of a Senate Agriculture Committee oversight hearing in May 2016 and an oversight hearing conducted by the House Committee on Agriculture in December 2015, and like the oversight hearings before it, this one showed the FCA’s gross incompetence.

Dallas Tonsager, the new FCA Chairman, who also spoke at the Senate oversight hearing, was in the hot seat this time.

Ranking Member Sanford Bishop (D-GA) began his criticism of the FCS’s actions with a recap:

“There’s been controversy about loans in which your institutions have participated, some say are outside the basic mission, and of course some folks refer to the $725 million loan to Verizon and reports of loans for casinos and restaurants.”

If that weren’t a bad enough start for the FCS, Ranking Member Bishop continued:

“There’s another criticism relating to loans to wealthy individuals…half of the loans made by the FCS went to less than one percent of all borrowers in 2015, with an average loan size of $24.1 million.”

Tonsager’s response, while straightforward, was lackluster, and didn’t actually refute what Ranking Member Bishop asserted – it only stated the FCS’s same old talking points.

The next flare-up was with Rep. Mark Pocan (D-WI), who was worried – and rightfully so – about the unnecessary conglomeration of FCS associations:

“In your testimony, you mention the mergers of financial institutions that you are dealing with… can you talk about the circumstances behind mergers and impact it might have on access to credit?”

Tonsager, addressed the question in a roundabout way:

“The 1980s taught us that too small institutions can be overwhelmed sometimes, if it isn’t careful. And larger institutions have a bit greater bit capacity to do that. So it is a constant struggle and debate within the agency and the System each time there is a proposed merger.”

What wasn’t answered, however, was the effect this would have on farmers’ ability to access credit locally – farmers shouldn’t have to drive for hours on end to visit an FCS branch.

Next at bat was Rep. Rosa DeLauro (D-CT), who took special issue with the FCA’s consistent pattern of lending to wealthy and large farmers when it’s supposed to be helping those farmers who need it the most:

“It is my impression that lending through the FCA is not subject to income limits as well. And that some of your resources might be going to… those who are wealthy individuals who may in fact not need the same kind of help that some other farmers might…and might you address the needs of lower income farmers and also reduce the risk to US taxpayers?”

 To his credit, Tonsager provided clear and direct answers – just not the ones that all Americans and taxpayers would want to hear.

“There is not a limit to income that exists…it’s job by definition for the past hundred years is to serve all producers, large and small, throughout rural America.”

 In this instance, Tonsager is correct: the FCS’s job has been to serve all producers. But should it serve all producers indiscriminately? Should large, lucrative farms be getting credit from a lender of last resort – a lender that could improve agriculture in America by lending to young, beginning and small farmers?

Rep. DeLauro didn’t seem to accept the status quo however:

“I think it’s worthy to take a look at what the portfolio is; who are the entities and individuals getting the loans, as we do with other federal programs. In addition to that, I think the Congress… needs to reexamine the rationale for the FCS’s similar entity lending authorization.” 

What Rep. DeLauro proposed is staggering – if the FCS loses its “similar entity lending” authority then it won’t be able to continue making gargantuan loans to entities like Verizon, Cracker Barrel or a to a publicly-traded REIT that invests in data centers.

Rep. David Young (R-IA) was intrigued by the similar entity lending authorization – he went straight to the point:

“Do you have the proper oversight to make sure these procedures are in place? What are they? How do you keep an eye on this? Just, give me an overview of what happened and where we’re going with this.” 

Tonsager’s response was limp:

 “We provide guidance to the System institutions regarding each of the programs…they are allowed to make these investments. Now, the similar entity lending is an initiated loan made by a bank, and the Farm Credit System is offered the opportunity, if they choose, to buy into that loan.”

Rep. Young followed up this limp answer with the natural question:

“Over the last few years, how many times can you think of some instances where the FCA asked Farm Credit to divest itself for whatever reason because of what may have been legal but looked bad and wasn’t in the spirit of the law?”

In this instance, Tonsager deferred to his counsel and replied:

“I can think of three or four offhand but I’ll ask my counsel if he recalls. [To counsel] Is that the correct number? [To Rep. Young] It’s a small number in the three or four area.

Taking Tonsager at his word, the FCA has asked the FCS to divest of a disturbingly small number of loans. In the spirit of helping the FCA do its job for them, here are other loans in the hundreds of millions of dollars that the FCA should seek divestment of:

·         CoBank’s loan to a publicly-traded REIT

·         CoBank’s loan to Lumos Networks

·         CoBank’s loan to Frontier Communications Corporation

·         CoBank’s loan to a publicly-traded forestry REIT

·         CoBank’s loan to an investor-owned water company

The members of the committee, after hearing that the FCS had only divested of only three or four inappropriate loans, got to the heart of the issue. Rep. DeLauro revisited the similar entity provision, ending the critical portion of the hearing, stating:

“I’d like to second what my colleague Mr. Young has said and I hope that we can work together because I think that reexamining of the rationale for this similar entity lending, and what this means and what is happening in this realm, is a real concern. And I think that we really need to have Congress take a look at this again to make a determination as to what it really means for the lending process.” 

Rep. DeLauro has said what many have thought: Congress desperately needs to reform Farm Credit. So far, multiple committees in both the House and the Senate have decided that Congress needs to take a closer look at the FCS and the FCA. And it should, because the FCS is on the precipice: it is growing larger every day, small farmers are being neglected and the FCS continues to make loans outside of its mission. Congress needs to act now.