Encouraged by bankers, some Farm Belt legislators are blasting the President's plan to fund the Farm Service Agency with user fees, arguing that it would only jack up loan costs for borrowers who can least afford it.
Rep. Jerry Moran, R-Kan., sent a letter Monday to his House colleagues asking them to sign a letter to Agriculture Secretary Mike Johanns opposing a proposal in the Bush administration's fiscal 2007 budget to fund the Farm Service Agency's loan programs with user fees instead of a congressional appropriation. Eight senators signed a similar letter sent to Mr. Johanns last week.
"If an administration user fee proposal goes through, farmers participating in the Farm Service Agency guaranteed farm loan program could see their costs for credit rise by three, four, or five times what they are today," Rep. Moran wrote.
The Farm Service Agency, a division of the Department of Agriculture, runs programs designed to help keep farm income stable, help farmers conserve land and water resources, provide credit to new or disadvantaged farmers and ranchers, and help farmers recover from disasters.
The program of most interest to bankers is the guaranteed loan program, which covers up to 95% of the loss of principal on farm loans. Through April 5, the agency had guaranteed $473 million of farm ownership loans and $526 million in operating loans this fiscal year, which began Oct. 1.
Over all, the Farm Service Agency plans to guarantee about $3.4 billion of loans next fiscal year. It is seeking a budget of $113 million to support its lending authority, versus the $150 million it requested for this fiscal year; it would fill the gap by increasing user fees.
Teresa Lasseter, the administrator of the Farm Service Agency, said that all government agencies not related to defense have been asked to find ways to trim their budgets. Her agency has proposed increasing the origination costs on farm mortgages and operating loans from 1% to 1.5% of the loan amount. It has also proposed adding a 75-basis-point annual continuation fee to operating loans.
"We hesitate to increase any of our fees, but in times of tight budgets we are looking anywhere for a place to save the taxpayers a dollar and still provide services," she said.
The fee increase would bring the agency's loan fees in line with those the Small Business Administration charges for guaranteeing loans, Ms. Lasseter said. Over the protests of many borrowers, lenders, and lawmakers, the SBA raised its fees in 2004 to replace a $100 million congressional appropriation. The fee hike did not drive borrowers away, as many predicted; the SBA guaranteed a record $18.9 billion in the fiscal year.
But Michael Jorgensen, the president of the $33 million-asset Nebraska State Bank in Oshkosh, said that even though many small-business owners can simply pass fee hikes on to the customer, farmers cannot, because the commodities markets control how much they can get for their crops.
"A small-business owner is not going to go out and change a $5 item to $40, but they can change to $5.25 and still be competitive," he said.
Jeff Wolfgram, a vice president at the $605 million-asset First Dakota National Bank in Yankton, S.D., called the proposal an attempt to balance the budget on the backs of farmers who are least able to afford a fee increase.
Bankers say the increased cost of credit could drive some farmers out of business, and they have voiced their concerns to bank trade groups and their representatives in Congress.
Last week eight Farm Belt senators sent a joint letter to Secretary Johanns; Sen. Robert Bennett, R-Utah, the chairman of the Senate Appropriations subcommittee on agriculture; and Sen. Herbert H. Kohl of Wisconsin, the subcommittee's ranking Democrat. In the letter, the eight senators said they are most concerned about farmers just getting started in business, or those who have been through drought or disaster.
"The purpose of the guaranteed loan program is to facilitate the delivery of credit to these borrowers, not drive up their costs," the letter said. It was signed by Sens. James M. Talent, R-Mo.; Tim Johnson, D-S.D.; Charles E. Grassley, R.-Iowa; Pat Roberts, R-Kan.; Byron L. Dorgan, D-N.D.; Blanche L. Lincoln, D-Ark.; Michael D. Crapo, D-Idaho; and Christopher S. Bond, R-Mo.
John M. Blanchfield, the director of the American Bankers Association's Center for Agricultural and Rural Banking, said bankers are urging Congress to pass a budget amendment that would prohibit the Farm Service Agency from raising fees.
If such an amendment does not pass, the Farm Service Agency would be able to increase fees on its own through the rulemaking process.
