The Access to Credit for our Rural Economy (ACRE) Act would grant tax breaks for commercial banks on income earned from making farm mortgage loans and some rural home loans.
If you’re wondering how this legislation could impact our rural communities, it’s time to take a dive into this edition of President’s Insights with High Plains Farm Credit President and CEO, Kevin Swayne.
Kevin Swayne, President & CEO
I understand some of you or your trade organizations have been approached by commercial bank representatives to support their legislative efforts known as The Access to Credit for our Rural Economy (ACRE) Act or Enhancing Credit Opportunities in Rural America (ECORA) Act.
The ACRE proposal would grant tax breaks on income earned from making farm mortgage loans and some rural home loans. As I understand it, commercial bank interest groups promise this legislation would result in lower interest rates for these loans. I appreciate the opportunity to engage with many of you on this topic and thought it is important to explore the good, the bad and the ugly of our ACRE discussions.
THE GOOD OF THE ACRE ACT.
Oscar Wilde popularized the proverb, “Imitation is the sincerest form of flattery that mediocrity can pay to greatness.” Periodically, commercial bankers visit legislators about their desire to be more like the Farm Credit System. This is a great opportunity for Farm Credit to engage with legislators and our customers to tell our story. The Farm Credit System is a cooperative, which is owned and governed by the very farmers, ranchers, and agribusinesses that we serve.
Throughout our website, you see numerous examples of the benefits of being a Farm Credit customer/owner. For example, as owners you get to vote in the elections, can serve in leadership positions on our Nominating Committee/Board of Directors and receive patronage dividends.
As a cooperative, income earned by Farm Credit institutions is used in only two ways – either it is retained in the organization to build financial strength and support more loans to customers, or it is returned in the form of patronage dividends. In 2022, Farm Credit returned over 41% of its income to customers, approximately $3 billion. Over the past 5 years, Farm Credit returned over $13.6 billion to its customers.
In 2023, High Plains Farm Credit is distributing $17.3 million in patronage back to our customers. My point is: When you are a Farm Credit customer-owner you know exactly where the earnings are going. They stay in the entity you own to fund more loans for you, or they go to your pocket in the form of dividends which are taxable. Commercial banks have trouble copying this because their customers may not be their shareholders.
The benefits do not stop there. You also receive extensive borrower rights, higher capital standards and confidence that Farm Credit is fulfilling its mission that you can verify with publicly available, audited financial statements. When you need agricultural financing, you should always consider doing business with Farm Credit, a cooperative, mission-driven lender, with your best interest at heart!
THE BAD OF THE ACRE ACT.
Commercial bank interest groups promise this legislation would result in lower interest rates for farm mortgage loans and rural residential loans. Many of you have serious questions about bankers’ claims that the money saved in taxes would benefit rural residents and not increase profits for bank owners and/or shareholders. As currently written, passing ECORA or ACRE would result in a multi-billion dollar tax break for bankers. There is NO REQUIREMENT OR ENCOURAGEMENT to pass along any of the benefits provided under the bill to borrowers. The bill would simply make banks more profitable.
When you are asked to lend your reputation or your trade organization’s good standing to a commercial bank interest group’s bill, ask these simple questions: Why doesn’t the ACRE language make any reference to providing interest rate reductions or rebates to benefit farmers and ranchers? Are you willing to alter the bill to ensure farmers and ranchers see some tangible benefits? If so, how? The reality is the commercial bank interest groups do not have a satisfactory answer to these questions because it is all about them with a promise that it may help you or just a chosen few. At a recent trade organization meeting, one commercial banker answered, “Well we aren’t Farm Credit, so we can’t do that.” At least he finally spoke the truth and it should solidify in your mind what ACRE is about.
THE UGLY ABOUT THE ACRE ACT.
After the pandemic, the Kansas Bankers Association (KBA) lobbied to insert a state income tax break on farm mortgage loans and some rural home loans into a pandemic relief bill. The KBA and various commercial banks promoted the need for the tax break to help banks sustain/revitalize communities and promised to pass along lower interest rates to rural borrowers (does this sound familiar?). At the time, I testified my stance was “Neutral With Concerns.” I support legislation that benefits farmers and ranchers, but the legislation did not include how these benefits would be passed directly on to rural residents. I should have known better…. The bill was passed in 2021 and went into effect in 2023 to give Kansas commercial banks time to implement.
The question I have for you and our Kansas legislators: Is there any evidence that the state tax break enacted for commercial banks in Kansas resulted in lower interest rates for Kansas farmers? My guess is that you will not be satisfied with the answer you get to this because I cannot find any evidence either. You would think in Kansas we could have gotten this right. Commercial banks should do the socially responsible things that we do at Farm Credit. We are required to have robust internal controls and publicly available audited financial statements which allow the public to verify our results. That is how you build trust. Today’s state legislation falls short in Kansas, and we should not repeat the same mistake at the Federal level with ACRE.
FOR THE RECORD.
This article is about raising awareness that your commodity and farm organizations are being marketed by commercial bank interest groups with creative competitive promises, not guaranteed, tangible results for you. Farm Credit is held to a higher standard, and we deliver tangible benefits every day. I have already mentioned in this article a few of the benefits that Farm Credit provides to prove our worth and achieve our mission. There is not enough space to name them all.
The bottom line is commercial banks want a tax break without doing the hard work. As written today, ACRE is about increasing profits for commercial bank owners and/or shareholders. That is all it is and all you can expect out of this legislation. Be cautious, ask questions and only support legislation that will directly benefit you and your neighbors.