The House Agriculture Subcommittee on Commodity Exchanges, Energy, and Credit’s December hearing to review agricultural credit conditions didn’t put observers at ease about Farm Credit’s ability to serve farmers and producers. But it wasn’t all negative – lawmakers have begun to call for meaningful reform of agricultural credit.
In 2019, Rep. Steve Watkins (R-KS) introduced HR 1872, the Enhancing Credit Opportunities in Rural America (ECORA) Act. And during the hearing, Rep. Roger Marshall (R-KS) called for one of the witnesses, Shan Hanes, to describe its benefits:
“The ECORA Act is a very simple act that would lower the borrowing cost for all borrowers, regardless of who they choose to bank with. What it would do is it would make the income earned on the interest from ag real estate loans and residential real estate loans in communities less than 2,500 – that interest would then be income tax free. While that sounds like a specific carve-out, it just matches what Farm Credit has, and so we’re not asking for anything in addition, we’re just asking for the same, because this would allow our borrowers to have the same borrowing costs as other borrowers. And at the end of the day, would lower credit costs.”
Hanes put it better than most anyone else could. The ECORA Act would lower credit costs by freeing up more capital. If lenders are paying less in taxes, then there’s more capital to lend out. And if there’s more capital to lend out, then interest rates – income which helps sustain lenders’ operations – can decrease. More capital goes to borrowers and lenders can decrease their interest rates to competitive levels. This is a win-win.
And it’s what Farm Credit lenders already have. Farm Credit’s income from interest on agricultural real estate is already exempt from tax. This is a massive advantage over other lenders, and it allows the Farm Credit System (FCS) as a whole to get away with paying only $126 million in taxes, despite bringing in $5.45 billion in income.
There’s no reason for there to be an un-level playing field between Farm Credit and every other lender. Beyond it being unfair to every lender beside Farm Credit, it’s unfair to farmers and producers who want to do business elsewhere – why should they be captive to Farm Credit’s taxpayer-subsidized low interest rates? Commodity prices are low, weather is unpredictable, and farmers and producers always need credit. Congress should take heed and seriously consider the ECORA Act.