The federal government’s new fiscal year is less than two weeks away, but the Agriculture Department has not decided whether to raise fees on a loan guarantee program popular with farmers and ranchers — and their lenders.
Borrowers, lenders, and both houses of Congress oppose a fee hike, but if Congress does not pass an Agriculture Department appropriations bill before adjourning to campaign for midterm elections, the department would have the authority to raise fees on loans guaranteed by its Farm Service Agency.
If the fees are raised, borrowers who could least afford it would be paying considerably more for loans, said Jeff Wolfgram, a vice president at the $623 million-asset First Dakota National Bank in Yankton, S.D.
He said his bank uses the guarantees to help farmers who have run into troubles because of higher energy costs and bad weather.
“Some of the user fee increases … [the Agriculture Department] is talking about implementing could be a huge hurdle to the borrower,” Mr. Wolfgram said. “We’re talking about paying the government two to three times more” to use the agency’s program.
So far the Farm Service Agency is not tipping its hand. Stevin Wescott, a spokesman for the agency, would not discuss the matter, except to say, “A final decision is pending on the fee increase.”
The agency guarantees up to 95% of a loan that a bank makes to a farmer or a rancher. As of Aug. 31 it had guaranteed more than 9,300 farm ownership and operating loans valued at more than $2 billion this fiscal year.
Historically, the agency’s loan losses have been covered through a congressional appropriation, but a proposal in the Bush administration’s fiscal 2007 budget would fund the losses with higher user fees instead.
The increase was proposed to make the program self-funding and reduce its costs to the government. The change is modeled after one made to the Small Business Administration’s funding in 2004.
The American Bankers Association estimates that the Farm Service Agency’s fees, currently 90 basis points on the amount borrowed, would rise to 150 basis points for farm ownership loans and 200 basis points for operating loans.
Bankers have been lobbying against a fee increase since it was proposed in February.
Both the House and the Senate Agriculture Department appropriations bills include provisions that would prohibit any future fee increases without congressional approval. However, the two bills have not been reconciled, and it is unlikely they will be by the time the new fiscal year begins Oct. 1.
As the law stands now, the Agriculture Department has the authority to raise or lower fees as it sees fit.
Congress is likely to approve an appropriations bill when it returns for a lame-duck session in November, but under the current bills it would have the authority only to prevent future fee increases.
Still, Nancy Baerwald, a vice president with the $39 million-asset CountryBank USA in Cando, N.D., said she hopes that the Agriculture Department abandons the idea to raise fees in the face of congressional opposition.
All of North Dakota’s counties have been declared disaster areas, because some parts of the state have gotten too much rain, while others have not received enough, she said.
“A lot of the help is coming across in low-interest loans or guaranteed loans. Assessing a [higher] fee is just penalizing the very people who are struggling to survive as it is,” Ms. Baerwald said.
Gary Sipiorski, the president of the $111 million-asset Citizens State Bank of Loyal, Wis., said his dairy farmer customers are getting 1975 prices for their milk but are facing 2006 costs.
The Farm Service Agency’s guarantees let banks like his make low-interest loans to risky borrowers, and higher fees would make it harder for borrowers to pay off their loans, he said.
