Farm lenders have concerns with three provisions in the Bush administration's recently proposed agriculture budget that are meant to save the government $587 million in fiscal 2006 and $5.7 billion over the next 10 years.
The first issue is a proposed cut of 30% in the cap on subsidy payments to individual farms, to $250,000. Sens. Charles Grassley, R-Iowa, and Byron Dorgan, D-N.D., have endorsed the idea, but bankers say reducing the payments would hurt farmers, especially those in the South who grow cotton and rice and need large farms to be efficient.
The administration also wants to eliminate the so-called three-entity rule, which lets a farmer receive a full subsidy payment as an individual plus a payment of up to 50% of the ceiling as a member of two other agriculture-related entities. Under the current subsidy cap, a farmer who forms partnerships with others can collect up to $360,000 as an individual and another $360,000 as part of the partnerships.
Finally, the Bush budget would trim commodity subsidies to $16.4 billion, from an estimated $17.9 billion this year. Commodities are not all treated equally under the budget. While cotton payments would be cut by nearly half, to $2.6 billion, wheat payments would rise 55%, to $2.3 billion.
David Kittrell, the senior vice president for agrifinance at the $278 million-asset United Bank in Atmore, Ala., said the Bush budget throws into doubt the presumed conditions that bankers and their farmer customers are using to conduct business.
In particular, Mr. Kittrell criticized the uneven application of the cuts. The South, he said, would be disproportionately hit, because it has a large number of cotton and rice farmers who would be affected both by the subsidy cap reduction and the commodity payments.
"To see them focus on the South was shocking," he said of the administration's proposed budget. "Didn't the South all go Republican?"
Even outside the South, bankers are concerned.
John V. Evans Jr., the chief executive officer of the $438 million-asset D.L. Evans Bank in Burley, Idaho, said the cuts would hurt all of rural America.
"It's going to hurt our farmers, and it's going to hurt rural banks that rely on this money to go through the banks," he said. "The banks depend on those programs for the repayment of our loans."
The effects would carry over into businesses that rely on farmers for income in small towns across the United States, he said.
As the chairman of the Independent Community Bankers of America's agriculture committee, Mr. Evans said he would work with other bankers to lobby against the cuts.
The cuts are also being opposed by a coalition of organizations such as the National Farmers Union. Tom Bies, the union's vice president of government relations, said rural America would be asked to pay for the overspending and tax cuts made by the rest of the government.
"Higher-income people are not being asked to help with deficit reduction. Rural America is paying for the tax cuts for people not in rural America," Mr. Bies said.
