The Farm Credit System’s (FCS) record of loans to huge telecommunications companies leaves most observers confused, and for good reason. Why is a government-sponsored enterprise (GSE), which was established to furnish sound credit to farmers, extending enormous loans to Verizon ($725 million), US Cellular and AT&T ($425 million) and Frontier Communications ($350 million)?
If anything, it must be profitable. Because in spite of past scrutiny from lawmakers, CoBank has entered into another questionable telecom loan, this time with Union Telephone Company (UTC), selected by AT&T and serving Wyoming and surrounding states, for $100 million.
As with Farm Credit’s other telecom loans, CoBank is taking the lead, and to little surprise: it’s massive. CoBank holds nearly $152 billion in total assets. It holds just under 40 percent of the dollar volume of the System’s assets, making it by far the System’s largest institution. But it’s not just CoBank’s size that brings it to lead these kind of loans. CoBank is authorized by the Farm Credit Act to lend to farmer-owned cooperatives.
So how is it permitted to lend to UTC? UTC appears to be a for-profit corporation based in Wyoming, and there’s little indication that it’s owned by the many people who use its services. And its latest filing indicates that it’s owned by one family, or at the very least operated by one – the president, vice president and treasurer are all from the same family. Its own professed values that its “final responsibility is to our stockholders,” and “business must make a sound profit,” would lead almost anyone to think that it’s a privately-owned company – most cooperatives proudly advertise that they are owned by their members. With all this taken into account, is CoBank really authorized to lend to UTC?
Absolutely! The Farm Credit Act allows CoBank and other FCS institutions to participate in loans extended to a “similar entity.” The Farm Credit Administration (FCA), the System’s regulator, has regulations on the books which explain further: a “similar entity” means “a party that is ineligible for a loan from a Farm Credit bank or association, but has operations that are functionally similar to the activities of eligible borrowers in that a majority of its income is derived from, or a majority of its assets are invested in, the conduct of activities that are performed by eligible borrowers.” So as long as the entity is similar enough to one which would normally be eligible for credit, then it’s legal for System institutions to lend to them.
Just because it’s legal doesn’t mean that it’s right. Farmers, ranchers and producers need internet and access to a telephone – that’s undisputed. But why is the FCA incentivizing System institutions to forego making loans to cooperatives that can fulfill this mission? Why is it going to a company that has this peculiar relationship with AT&T? AT&T and UTC don’t need CoBank’s help – rural cooperatives do!
Congress needs to examine the similar entity rule, because it can’t just be an excuse for CoBank and other System institutions to lend to large organizations at the expense of small, rural cooperatives. On the contrary, the System needs to do the opposite, and must begin to focus more on fostering cooperatives. The FCA established the rule, but it must commit to changing it. If the FCA won’t, then Congress should.