A long-running feud reached new heights last week when the Farm Credit System's most outspoken critic released his estimates of the tax breaks it gets.
Bert Ely, who writes an American Bankers Association-sponsored newsletter critical of the Farm Credit System, calculated that Farm Credit banks received tax breaks totaling $430 million in 1997.
Like credit unions, he said, Farm Credit banks use their exemption from federal corporate income tax-and some state and local taxes-to lower interest rates on loans to farmers, undercutting banks.
"We don't have a level playing field," he said.
Using Farm Credit System call reports, Mr. Ely said the lenders paid an income tax rate of 13.9% in 1997 while commercial banks gave up 35% of their income in taxes.
But the Farm Credit Council-the trade group that represents Farm Credit System lenders-is disputing Mr. Ely's figures. Pointing to the Farm Credit System's 1997 annual report, the trade group maintains that the lenders were taxed at a rate of 17.4%.
A government-sponsored enterprise, the Farm Credit System is a cooperative of 205 agencies that lend money to farmers. Mr. Ely, who heads the consulting firm Ely & Co. of Alexandria, Va., has been critical of the system since the late 1980s, when it was bailed out by the federal government.
The ABA hired Mr. Ely this year to write a monthly newsletter on the Farm Credit System. In the September issue he analyzed its tax structure and called for a thorough congressional review.
"There shouldn't be this type of discrimination against banks," he said.
Mildred Cooper, spokeswoman for the Farm Credit Council, said Mr. Ely and the ABA are starting a campaign to convince Congress to raise the Farm Credit System's tax rate. That, she said, would make loans more expensive for farmers.
"The real message they are sending is that farmers should be paying more for credit," she said.
Ms. Cooper also pointed out that commercial banks get a break of their own when they withdraw tax-free advances from Federal Home Loan banks and then loan those funds to customers.
But John Blanchfield, manager of the ABA's agricultural division, said the ABA is not advocating an end to the Farm Credit System's tax benefits. The ABA would, however, like Congress to justify the tax break by assigning a social responsibility to the agency, such as requiring it to lend to minority or struggling farmers.
"If we give an entity a special break, it should have some sort of mission," he said.
Mr. Blanchfield also noted that until recently, small agricultural banks-many of which compete directly with Farm Credit System lenders-did not qualify for membership in the Federal Home Loan banks. They were ineligible for Federal Home Loan Bank advances, because they did not make enough mortgage loans to use as collateral.
Only since July have these banks been allowed to pledge agricultural real estate loans as collateral.