WASHINGTON -- The issuance of tax-exempt bonds by states to aid first-time farmers, which languished after passage of the Tax Reform Act of 1986, has been staging a comeback in the last couple of years, state officials say.
But that resurgence has been slowed recently by fears that the exemption for those bonds will not exist in a few weeks. First-time farmer bonds, or "aggie bonds" as they are commonly known, are a form of small-issue industrial development bonds, which are set to expire Dec. 31, unless Congress continues the authority to issue them.
"The uncertainty associated with future federal tax legislation" means the ability of states "to build and conduct meaningful and effective first-time/beginning farmer programs that have long-term continuity is now in question," John C. Gamble, chairman of the National Council of State Agricultural Finance Programs, told Congress earlier this month.
Issuance of aggie bonds, which began in 1980 and flourished through the middle of the decade, dwindled after the 1986 tax act eliminated the deduction banks took for purchasing and carrying IDBs.
But in the past few years, "some states have been able to renew the interest of the lending community" and start new programs or revive old ones, Mr. Gamble said in an interview on Oct. 8 after testifying before the House Agriculture Committee's Subcommittee on Conservation, Credit and Rural Development. He did not say which states have started programs since 1986.
Others, however, are hesitant about going forward with new programs because the outlook for extending the IDB exemption still is very unclear, nearly 10 months into the year, state officials said.
Small-issue IDBs, scheduled to expire in 1989 and 1990, were saved from extinction by Congress both times. This year, however, the outlook for the IDB exemption and other expiring tax provisions is bleak because tax lawmakers still have made no move to draft tax legislation that would be a vehicle for extensions of those tax breaks.
Aggie bonds were first issued in 1980, when Georgia, Alabama, and Iowa created bond-financed farmer-aid programs. In 1984, Congress passed legislation requiring that proceeds from the bonds support only first-time farmers and limiting the amount any one farmer could receive to $250,000.
Over the last 11 years, $450 million in bonds have been issued to provide loans for more than 3,500 farmers in 18 states, with the most active programs in Illinois and Iowa, according to figures compiled by the agriculture council. Proceeds from the bonds go toward making loans to finance the construction of facilities and the purchase of land and small amounts of equipment.
Iowa alone has issued $100 million of aggie bonds since 1981, Rep. Fred Grandy, R-Iowa, told the agriculture subcommittee. The Iowa Beginning Farmer Program has used those proceeds to make 1,548 loans that allowed the purchase of about 70,000 acres of farmland in the state, he said.
Five other states now have active programs: Kansas, Colorado, Nebraska, Missouri, and North Carolina. At least five more are trying to start new programs, though Mr. Gamble said some of those are hesitant because of the undertainty over whether the IDB exemption will be continued.
"Aggie bonds provide a very affordable means for first-time/beginning farmers to acquire their first piece of land or gain ownership of productive assets that can get them started," Mr. Gamble said in his testimony. He is also the Agricultural Economic Administrator for the Alabama Department of Agriculture Industries.
A 1988 council survey of first-time farmers in nine states found 66% of the respondents said they would not have been able to make the land and equipment purchases they made without the bond-financed loan they received.
One-third sought out the program because they were turned down by other lenders, and 57% said they went into the program because loans from other sources were too expensive. More than three quarters of the respondents said the money they received allowed them to buy land for the first time.
While some states are hesitant about starting aggie bond programs, at least two others are going ahead despite the approaching expiration date. Texas has just started an aggie bond program, and Alabama is working to make its program active again. Those cases are a testament to the "pent-up need" for the programs, said Donald K. Cochran, executive director of the Illinois Farm Development Authority.
Several members of Congress have introduced bills to extend the overall tax exemption for IDBs. In addition, Sen. Charles Grassley, R-Iowa, has offered legislation that would permanently extend the exemption only as it applies to first-time farmers.