Memo to House Agricultural & Rural Affairs Committee

It is our understanding that the committee will consider House Bill 1265 next week prior to the Holiday Recess. The Pennsylvania Association of Community Bankers, representing 175 community banks, respectfully asks for your opposition to this legislation.

The bill would allow Farm Credit System (FCS) institutions to be eligible to participate in the First Industries Program. Advocates for this legislation argue that few agricultural loans have been made under the First Industries Program, and more loans will be made to farmers if FCS institutions are made eligible. There are approximately 70 banks interested in participating in First Industries. We believe there is plenty of credit available within the Commonwealth for agricultural loans and plenty of interest among community banks.

Instead of opening up the program to tax-subsidized FCS institutions, we would propose that the loan guidelines themselves need to be studied. From what we understand, the minimum size loan under this program is $1 million, likely too large for most farmers needs and projects.

We believe there is also another fundamental issue here. When this program was initiated as part of Governor Rendell’s economic stimulus package, we understood there was a conscious public policy decision made at that time to limit eligibility for making the loans to taxpaying depository institutions. FCS institutions are tax-subsidized, government sponsored enterprises that receive generous benefits from the government including exemptions from federal, state and local taxes. According to an October 2000 public statement made by the U.S. Treasury Department, “Because FCS associations lend much like private sector banks, it is tempting to think of them as just another competitor in the agricultural credit market. But they are not just another competitor: they are a lender to which the government has given significant competitive advantages.” (Emphasis added)

While the General Assembly is considering this legislation, the FCS institutions are lobbying Congress to authorize a massive expansion of their loan capability into non-farm commercial and mortgage lending. At the federal level, FCS wants to take the “farm” out of the Farm Credit System.

We view this legislation as an extension of the FCS national agenda. Community banks have consistently been the largest provider of agricultural credit, and will continue to serve their rural customers in good times and bad. Community banks have no other option than to stick with their customers through thick and thin as their bank’s success is tied to the success of their communities. This fact was painfully evident during the agricultural credit crisis of the 1980s when hundreds of community banks were allowed to fail while the FCS received a federal bailout through a $4 billion line of credit to the U.S. Treasury.

We urge the committee to reject this legislation, and respectfully suggest that the Administration and leaders in the House from the Agricultural and Rural Affairs and Business & Commerce Committees form a task force of interested parties to thoroughly study this issue on how to strengthen the First Industries program in order to better serve Pennsylvania’s farm community. PACB pledges its support for such a process.

Thank you for your consideration. Please do not hesitate to contact me or Dave Transue, PACB’s Government Affairs Consultant, if you have any questions or wish to discuss our position.

Cc: Rep. Peter Daley
      Rep. Dick Hess
      Sen. Don White
      Sen. Mike Stack
      Sen. Jane Orie
      The Honorable Steve Crawford
      The Honorable Steve Kaplan
      The Honorable Dennis Wolff
      The Honorable Dennis Yablonsky