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CBA- FCA letter was misleadingJournal readers were recently done a disservice by an extremely misleading "letter to the editor" article from the Farm Credit Council which has engaged for the past 12 months in a high dollar marketing campaign promoting their legislative initiative, the HORIZONS project. Farm Credit System (FCS) seeks dramatically expanded lending powers to make commercial business loans and home mortgages. What is lacking in the FCS's initiative? The truth . . . there is no economic justification for crowding out the private sector, nor is there any indication that there is a lack of credit in rural areas, nor is there an explanation of why FCS does not seek cooperation with other rural lenders. Lastly, one should ask why FCS is not proposing to serve low-to-moderate income borrowers. Let's review history. Farm Credit System (FCS) was created by Congress as a government sponsored enterprise (GSE) that was granted tax exemptions and low cost funding privileges to serve farmers and ranchers. The FCS has a 3.5 percent combined federal-state-local tax rate and is completely exempt from taxes on real estate and mortgage loans. To contrast, Kansas community banks pay on average 10 times that amount of tax or about 35 percet in a combined federal-state-local tax rate. Additionally, community banks often strive for earnings as a percent of their asset size measured in the term, return on assets or ROA. That benchmark is 1 percent for community banks. In a recent FCS annual report, Frontier Farm Credit is operating at a 2 percent ROA. You judge who has record profits in the final analysis when those figures reflect after tax income for banks as compared with FCS who pays very little in taxes. FCS uses its government advantages to "cherry pick" the best loans from the portfolios of community banks and has implemented quasi-deposit taking mechanisms to siphon local deposits out of our rural communities where they can no longer be used for local economic development. If FCS receives expanded lending powers, they'll do the same with business lending authority. Near 50 percent of FCS loans are over $1 million. FCS is currently using government granted subsidies to make loans to large borrowers who least need subsidized credit. When FCS succeeds in driving away community banks, insurance agents, accountants, tax preparers and other small businesses they will have successfully "Wal-Martized" rural America and Main Street. This is why Farm Credit's non-farm oriented agenda has generated so much opposition. FCS wants markets and customers without restraints while retaining government granted privileges--that's bad public policy and bad farm lending policy. FCS's proposals are not a modest attempt to modernize. FCS has solicited widespread support based on misrepresentations to many groups suggesting their proposals won't impact community banks and are "incremental" changes. Cast as "serving farmers" and needed to address "rapid change in rural America that requires greater flexibility," the HORIZONS project's main goal is a dramatic increase in non-farm lending by FCS. FCS's sole criteria for loan eligibility . . . that a business be "primarily engaged" in agricultural activities . . . is meaningless. In the FCS proposal, most businesses in rural America could be considered eligible since most farm states are considered "agriculturally dependent." Last week, the House Agriculture sub-committee took action to adopt the entire legislative framework proposed by FCS with a loose requirement related to renewable energy activities. The language is equally unrestricted and totally unenforceable. For example, can you imagine a seed dealer proving the seed he sold farmers was used to produce a crop that went to an ethanol or biodiesel refiner? In reality, the regulator wouldn't ever seek to monitor or regulate such impossible scenarios. In closing, please note that the FCS is already growing at its fastest pace since 1981, which occurred just before the farm crisis of the 1980s when FCS foreclosed on thousands of farmers. And, FCS's loan volume grew by 16 percent last year. FCS's desire to grow even more quickly is based on greed, not need. I encourage you to ask your local community banker for "the rest of the story" on the FCS's HORIZONS power grabbing legislative initiative and its true effect on communities. --Paul R. Boeding, President, Baileyville State Bank, Seneca, Chairman of Community Bankers Association of Kansas (CBA)
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