President Bush's plan to raise fees on government-guaranteed farm loans has hit a roadblock in Congress.
An amendment the House Appropriations Committee approved last week to the agricultural appropriations bill would prohibit the Farm Service Agency, an arm of the Department of Agriculture, from raising fees on its guaranteed loans.
Agricultural bankers applauded the committee's action. They said farmers struggling with energy costs can ill afford an increase in credit costs.
Rep. Tom Latham, an Iowa Republican who sponsored the amendment, agreed. In an interview Friday he said he expected the full House to vote on the bill this week and was optimistic that the prohibition on the fee increase would remain.
"I think most people understand that we don't need to pile on any more fees on farmers," he said.
The Farm Service Agency guarantees up to 95% of a loan that a bank makes to a farmer or rancher. Historically its loan programs have been funded through a congressional appropriation, but a proposal in the Bush administration's fiscal 2007 budget would fund the programs with user fees instead.
Under the President's plan, fees on farm ownership loans would be increased by 50 basis points, to 1.5% of the loan amount. On operating lines of credit the fee would be increased by 60 basis points, to 1.5% of the amount, and borrowers would also have to pay a new annual maintenance fee of 75 basis points.
There is precedent for funding guaranteed-loan programs through fees. Two years ago Congress approved a proposal to fund the Small Business Administration's loan programs with fees instead of a congressional subsidy. Many bankers, small-businesspeople, and lawmakers argued that the fee hike would scare away borrowers, but in the fiscal year that ended Sept. 30 the SBA guaranteed a record $19 billion of loans.
But bankers say that farmers' profit margins are already razor thin, and that many could fall behind on loan payments if their fees were raised.
Dennis L. Brack, the president and chief executive officer of the $118 million-asset Bath State Bank in Indiana, said that farmers in areas hard hit by drought or storms could be especially vulnerable. "From our standpoint, these are customers that need some kind of assistance," said Mr. Brack, whose bank has about $25 million in Farm Service Agency-guaranteed loans on its books.
Through May 2 the agency had guaranteed about $1.2 billion of loans this fiscal year, putting in on pace to guarantee about $2 billion, on a budget of about $150 million.
Next fiscal year it is seeking to do more with less. It said in its budget proposal that it is seeking to guarantee more than $3 billion of loans in fiscal 2007 on a budget of $113 million, plus whatever it collects in fees.
James F. Radintz, the director of the Farm Service Agency's loan-making division, said he was "not aware of any official reaction" to Rep. Latham's bill. "The agency still supports the President's budget," he said.
John M. Blanchfield, the director of the American Bankers Association's Center for Agricultural and Rural Banking, said that though the Farm Service Agency's budget proposal describes the fee increase as "modest," fees on a typical loan could triple.
For example, he said, a farmer who wanted a $75,000 line of credit that can be renewed each year for five years and a seven-year, $150,000 loan to buy equipment would pay $6,190 in fees under the 2007 budget proposal, versus $2,025 now.
"Modest does not appear to be an accurate characterization" of the increase, Mr. Blanchfield said.
The Senate has taken no action on the Farm Service Agency proposal. The ABA and the Independent Community Bankers of America said they are lobbying senators to support a ban on raising fees. "We'll keep pushing it and asking our bankers to let some key lawmakers to know how important it is," said Mark K. Scanlan, the director of agricultural finance at the ICBA.
Some senators from Farm Belt states have expressed concern about the impact a fee hike would have on young farmers or those hit by natural disasters.
"The purpose of the guaranteed loan program is to facilitate the delivery of credit to these borrowers, not drive up their costs," eight senators said in a letter last month to Agriculture Secretary Mike Johanns and two of their colleagues: 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.
The letter 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.
