As Amended by Senate Committee
Session of 1999
Substitute for HOUSE BILL No. 2527
By Committee on Agriculture
3-24
11 AN ACT
concerning state moneys; providing for
agricultural production
12 loans; amending K.S.A.
75-4209 and 75-4237 and repealing the existing
13 sections.
14
15 Be it enacted by the Legislature of the
State of Kansas:
16 New Section
1. The provisions of sections 1 through 7, and amend-
17 ments thereto, shall be known and may be
cited as the Kansas agricultural
18 production loan deposit program.
19 New Sec.
2. As used in this act sections
1 through 7, and amend-
20 ments thereto: (a)
``Agricultural production loan deposit'' means an in-
21 vestment account placed by the director of
investments under the pro-
22 visions of article 42 of chapter 75 of the
Kansas Statutes Annotated with
23 an eligible lending institution for the
purpose of carrying out the intent
24 of this act;
25
(b) ``agricultural production loan deposit loan package''
means the
26 forms provided by the state treasurer for
the purpose of applying for an
27 agricultural production loan deposit;
28 (c) ``eligible
lending institution'' means
a:
29
(1) A bank, as defined under K.S.A. 75-4201, and
amendments
30 thereto, that agrees to participate in the
Kansas agricultural production
31 loan deposit program and is eligible to be
a depository of state funds; or
32 (2) an
institution of the farm credit system organized under
the
33 federal farm credit act of 1971 (12
U.S.C. 2001), as amended, that
34 agrees to participate in the Kansas
agricultural production loan
35 deposit program and provides
securities acceptable to the pooled
36 money investment board pursuant to
article 42 of chapter 75 of the
37 Kansas Statutes Annotated, and
amendments thereto; and
38 (d) ``eligible
agricultural borrower'' means any person
individual,
39 limited liability agricultural
company, limited agricultural, part-
40 nership or family farm corporation as
defined in K.S.A. 17-5903 and
41 amendments thereto involved in farming.
42 New Sec.
3. (a) The state treasurer is hereby authorized to admin-
43 ister the Kansas agricultural production
loan deposit program. Such pro-
2
1 gram shall be for the purpose of
providing incentives for the making of
2 agricultural production loans. The
state treasurer shall promulgate rules
3 and regulations to carry out the
provisions of this act sections 1
through
4 7, and amendments
thereto.
5 (b) The
state treasurer shall submit an annual report outlining the
6 status of the program to the governor
and the legislature.
7 New Sec.
4. (a) The state treasurer is hereby authorized to dissem-
8 inate information and to provide
agricultural production loan deposit loan
9 packages to the lending institutions
eligible for participation in this act.
10 (b) The
agricultural production loan deposit loan package shall be
11 completed by the borrower before being
forwarded to the lending insti-
12 tution for consideration.
13 (c) (1) An
eligible lending institution that agrees to receive an agri-
14 cultural production loan deposit shall
accept and review applications for
15 loans from eligible agricultural borrowers.
The lending institution shall
16 apply all usual lending standards to
determine the credit worthiness of
17 eligible agricultural borrowers. No single
agricultural production loan de-
18 posit loan shall exceed $250,000. The total
aggregate amount of agricul-
19 tural production loan deposit loans under
this program shall not exceed
20 $50,000,000 of unencumbered funds
pursuant to article 42 of chap-
21 ter 75 of the Kansas Statutes
Annotated, and amendments thereto.
22 (2) To be
eligible to obtain an agricultural production loan, an eligible
23 agricultural borrower must have a
debt-to-asset ratio of 40% or greater.
24 (3) Only one
agricultural production loan deposit loan shall be made
25 and be outstanding at any one time to any
agricultural borrower.
26 (4) No loan shall
be amortized for a period of more than eight years.
27 (d) An eligible
agricultural borrower shall certify on its loan applica-
28 tion that the reduced rate loan will be
used exclusively for the purposes
29 of this act
operating expenses involved in farming.
30 (e) The eligible
lending institution may approve or reject an agricul-
31 tural production loan deposit loan package
based on the lending institu-
32 tion's evaluation of the eligible
agricultural borrowers included in the
33 package, the amount of the individual loan
in the package and other
34 appropriate considerations.
35 (f) The eligible
lending institution shall forward to the state treasurer,
36 an approved agricultural production loan
deposit loan package, in the
37 form and manner prescribed and approved by
the state treasurer. The
38 package shall include information regarding
the amount of the loan re-
39 quested by each eligible agricultural
borrower and such other information
40 regarding each eligible agricultural
borrower the state treasurer requires,
41 including a certification by the applicant
that such applicant is an eligible
42 agricultural borrower.
43 New Sec.
5. (a) The state treasurer may accept or reject an
agricul-
3
1 tural production loan deposit loan
package based on the state treasurer's
2 evaluation of whether the loan to the
eligible agricultural borrower meets
3 the purposes of this act. If
sufficient funds are not available for an agri-
4 cultural production loan deposit,
then the applications may be considered
5 in the order received when funds are
once again available subject to a
6 review by the lending
institution.
7 (b) Upon
acceptance, the state treasurer shall certify to the director
8 of investments the amount required
for such agricultural production loan
9 deposit loan package and the director
of investments shall place an ag-
10 ricultural production loan deposit in the
amount certified by the state
11 treasurer with the eligible lending
institution at an interest rate, which is
12 2% below the market rate provided in K.S.A.
75-4237, and amendments
13 thereto, and which shall be
recalculated on the first business day of
14 each calendar year using the market
rate then in effect. When nec-
15 essary, the state treasurer may request the
director of investments to place
16 such agricultural production loan deposit
prior to acceptance of an agri-
17 cultural production loan deposit loan
package.
18 (c) The eligible
lending institution shall enter into an agricultural pro-
19 duction loan deposit agreement with the
state treasurer, which shall in-
20 clude requirements necessary to implement
the purposes of the Kansas
21 agricultural production loan deposit
program. Such requirements shall
22 include an agreement by the eligible
lending institution to lend an amount
23 equal to the agricultural production loan
deposit to eligible agricultural
24 borrowers at an interest rate which is not
more than 2% above the market
25 rate as determined under K.S.A. 75-4237,
and amendments thereto, and
26 which shall be recalculated on the
first business day of each cal-
27 endar year using the market rate then
in effect. The agreement shall
28 include provisions for the agricultural
production loan deposit to be
29 placed for a maturity considered
appropriate in coordination with the
30 underlying agricultural production loan.
The agreement shall include pro-
31 visions for the reduction of the
agricultural production loan deposit in an
32 amount equal to any payment of loan
principal by the eligible agricultural
33 borrower.
34 New Sec.
6. (a) Upon the placement of an agricultural production
35 loan deposit with an eligible lending
institution, the institution shall fund
36 the loan to each approved eligible
agricultural borrower listed in the ag-
37 ricultural production loan deposit loan
package in accordance with the
38 agricultural production loan deposit
agreement between the institution
39 and the state treasurer. The loan shall be
at a rate as provided in section
40 5 and amendments thereto. A certification
of compliance with this section
41 in the form and manner as prescribed by the
state treasurer shall be
42 required of the eligible lending
institution.
43 (b) The state
treasurer shall take any and all steps necessary to im-
4
1 plement the Kansas agricultural
production loan deposit program.
2 New Sec.
7. The state and the state treasurer shall not be liable
to
3 any eligible lending institution in
any manner for payment of the principal
4 or interest on the loan to an
eligible agricultural borrower. Any delay in
5 payments or default on the part of an
eligible agricultural borrower does
6 not in any manner affect the
agricultural production loan deposit agree-
7 ment between the eligible lending
institution and the state treasurer.
8 New
Sec. 8. The provisions of this act shall expire on July
1, 2002.
9 Sec.
9. 8. K.S.A. 75-4209 is
hereby amended to read as follows: 75-
10 4209. (a) The director of investments may
invest and reinvest state mon-
11 eys eligible for investment which are not
invested in accordance with
12 K.S.A. 75-4237, in the following
investments:
13 (1) Direct
obligations of, or obligations that are insured as to principal
14 and interest by, the United States of
America or any agency thereof and
15 obligations and securities of the United
States sponsored enterprises
16 which under federal law may be accepted as
security for public funds, on
17 and after the effective date of this act
moneys available for investment
18 under this subsection shall not be invested
in mortgage-backed securities
19 of such enterprises and of the government
national mortgage association,
20 except that any such mortgage-backed
securities held prior to the effec-
21 tive date of this act may be held to
maturity;
22 (2) repurchase
agreements with a bank or a primary government se-
23 curities dealer which reports to the market
reports division of the federal
24 reserve bank of New York for direct
obligations of, or obligations that are
25 insured as to principal and interest by,
the United States government or
26 any agency thereof and obligations and
securities of United States gov-
27 ernment sponsored enterprises which under
federal law may be accepted
28 as security for public funds;
29 (3) commercial
paper that does not exceed 270 days to maturity and
30 which has received one of the two highest
commercial paper credit ratings
31 by a nationally recognized investment
rating firm.
32 (b) When moneys
are available for deposit or investments, the direc-
33 tor of investments may invest in SKILL act
projects and bonds pursuant
34 to K.S.A. 1997 Supp. 74-8920, and
amendments thereto, and in state
35 agency bonds and bond projects.
36 (c) When moneys
are available for deposits or investments, the di-
37 rector of investments may invest in
preferred stock of Kansas venture
38 capital, inc., under terms and conditions
prescribed by K.S.A. 74-8203,
39 and amendments thereto, but such
investments shall not in the aggregate
40 exceed a total amount of $10,000,000.
41 (d) When moneys
are available for deposits or investments, the di-
42 rector of investments may invest in loans
pursuant to legislative mandates,
43 except that not more than the lesser of 10%
or $80,000,000 of the state
5
1 moneys shall be invested.
2
(e) Interest on investment accounts in banks is to be paid at
maturity,
3 but not less than annually.
4
(f) Investments made by the director of investments under the
pro-
5 visions of this section shall be made
with judgment and care, under cir-
6 cumstances then prevailing, which
persons of prudence, discretion and
7 intelligence exercise in the
management of their own affairs, not for spec-
8 ulation, but for investment,
considering the probable safety of their capital
9 as well as the probable income to be
derived.
10 (g) Investments
under subsection (a) or (b) of this section or under
11 K.S.A. 75-4237 shall be for a period not to
exceed four years, except that
12 agricultural production loan deposits
authorized under the provisions of
13 sections 1 through 7, and
amendments thereto, shall not exceed a period
14 of eight years.
15 (h) Investments
in securities under paragraph (1) of subsection (a)
16 shall be limited to securities which do not
have any more interest rate
17 risk than do direct United States
government obligations of similar ma-
18 turities. For purposes of this subsection,
``interest rate risk'' means market
19 value changes due to changes in current
interest rates.
20 (i) The director
of investments shall not invest state moneys eligible
21 for investment under subsection (a), in the
municipal investment pool
22 fund, created under K.S.A. 1997 Supp.
12-1677a, and amendments
23 thereto.
24 (j) The director
of investments shall not invest moneys in the pooled
25 money investment portfolio in derivatives.
As used in this subsection,
26 ``derivatives'' means a financial contract
whose value depends on the value
27 of an underlying asset or index of asset
values.
28 (k) Moneys and
investments in the pooled money investment port-
29 folio shall be invested and reinvested by
the director of investments in
30 accordance with investment policies
developed, approved, published and
31 updated on an annual basis by the board.
Such investment policies shall
32 include at a minimum guidelines which
identify credit standards, eligible
33 instruments, allowable maturity ranges,
methods for valuing the portfolio,
34 calculating earnings and yields and limits
on portfolio concentration for
35 each type of investment. Any changes in
such investment policies shall
36 be approved by the pooled money investment
board. Such investment
37 policies may specify the contents of
reports, methods of crediting funds
38 and accounts and other operating
procedures.
39 (l) The board
shall adopt rules and regulations to establish an overall
40 percentage limitation on the investment of
moneys in investments au-
41 thorized under paragraph (3) of subsection
(a), and within such author-
42 ized investment, the board shall establish
a percentage limitation on the
43 investment in any single business
entity.
6
1 Sec.
10. 9. K.S.A. 75-4237 is
hereby amended to read as follows: 75-
2 4237. (a) The director of investments
shall accept requests from banks
3 interested in obtaining investment
accounts of state moneys. Such re-
4 quests may be submitted any business
day and shall specify the dollar
5 amount, maturity or maturity range
and interest rate. Except as provided
6 in subsection (c), if the
interest rate bid by the bank is at or greater than
7 the market rate determined by the
director of investments in accordance
8 with subsection (b), the director of
investments is authorized to award
9 the investment account to the bidding
bank at the market rate. Awards
10 of investment accounts pursuant to this
section shall be subject to in-
11 vestment policies of the pooled money
investment board. When multiple
12 bids are received and are in excess of the
amount available for investment
13 that day for any maturity, awards shall be
made available in ascending
14 order from smallest to largest dollar
amount bid, subject to investment
15 policies of the board.
16 (b) The market
rate shall be determined each business day by the
17 director of investments, in accordance with
any procedures established
18 by the pooled money investment board.
Subject to any policies of the
19 board, the market rate shall reflect the
highest rate at which state moneys
20 can be invested on the open market in
investments authorized by sub-
21 section (a) of K.S.A. 75-4209 and
amendments thereto for equivalent
22 maturities.
23
(c) Notwithstanding the provisions of this section,
agricultural pro-
24 duction loan deposits made pursuant to
the provisions of sections 1
25 through 7 and amendments thereto, shall
be at 2% less than the market
26 rate provided by this section
and which shall be recalculated on the
27 first business day of each calendar
year using the market rate then
28 in effect.
29 New Sec. 10. (a) On
and after the effective date of this act and
30 prior to July 1, 2004, a state bank
or national banking association
31 which extends or renews an
agricultural production loan under the
32 provisions of this section to an
eligible agricultural borrower at an
33 interest rate which is at least one
whole percentage point less than
34 the prime interest rate then
specified by the bank on such loans
35 with equivalent collateral, and a
state bank or national banking
36 association which reduces the rate of
interest being charged on any
37 outstanding agricultural production
loan to an eligible agricultural
38 borrower by at least one whole
percentage point shall receive a
39 credit against its tax liability
pursuant to K.S.A. 79-1106 et seq.,
and
40 amendments thereto, for taxable years
commending after December
41 31, 1999, to the extent hereinafter
provided. Such tax credit shall
42 be allowed for such interest rate
reductions upon agricultural pro-
43 duction loans having a total
principal amount not exceeding 15%
7
1 of the amount of such loans
reflected in the bank's report of con-
2 dition filed with the federal
deposit insurance corporation as of De-
3 cember 31, 1999.
4
(b) For the purposes of this section, the term ``eligible
agricul-
5 tural borrower'' means any
person, limited agricultural partner-
6 ship, limited liability
agricultural company or family farm corpo-
7 ration, as defined in K.S.A.
17-5903, and amendments thereto,
8 located in the state of Kansas,
having an agricultural production
9 loan which has been classified
as substandard or doubtful: (1) by
10 any banking regulator, the farm
credit administration or a district
11 farm credit system institution which
is subject to review by the farm
12 credit administration; or (2) by
the designated loan committee of
13 such banking association prior to
examination for classification el-
14 igibility by the banking regulator,
the farm credit administration
15 or a district farm credit system
institution which is subject to review
16 by the farm credit
administration.
17 (c) An
interest rate reduction may be applied under the provi-
18 sions of this section only when the
eligible borrower can be reason-
19 ably expected to service the
principal and interest for the term of
20 such person's loan.
21 (d) The
total credit against tax liability shall be the amount
by
22 which the interest income to the
state bank or national banking
23 association on and after the
effective date of this act and prior to
24 July 1, 2004, has been reduced on
such loans because of such re-
25 ductions in rates of interest, except
that the credit allowed as a
26 result of an interest rate reduction
on any one agricultural produc-
27 tion loan shall not exceed an amount
equal to 3% per annum on the
28 unpaid principal balance of the loan.
The tax credit allowed for any
29 taxable year shall not exceed 1/5 of
the total tax credit of the bank
30 allowed under this section. Unused
tax credit shall be carried for-
31 ward as a credit to the bank's tax
liability in each subsequent tax-
32 able year and shall then be taken
into account, subject to the lim-
33 itation that the credit in any one
taxable year may not exceed 1/5 of
34 the total tax credit.
35 New Sec.
11. (a) On and after the effective date of this act
and
36 prior to July 1, 2004, any production
credit association or agricul-
37 tural credit association chartered by
the farm credit administration
38 under the federal farm credit act, as
amended (12 U.S.C. 2001 et
39 seq.), which extends or renews
an agricultural production loan un-
40 der the provisions of this section to
an eligible agricultural bor-
41 rower at an interest rate which is at
least one whole percentage
42 point less than the lowest rate at
which the association is making
43 agricultural production loans to
agricultural loan customers with
8
1 equivalent collateral, and any
such association which reduces the
2 rate of interest being charged
on any outstanding agricultural pro-
3 duction loan to an eligible
agricultural borrower by at least one
4 whole percentage point shall
receive a credit against its income tax
5 liability pursuant to article
32 of chapter 79 of the Kansas Statutes
6 Annotated, for taxable years
commencing after December 31, 1999,
7 to the extent hereinafter
provided. Such tax credit shall be allowed
8 for such interest rate
reductions by an association upon agricultural
9 production loans having a total
principal amount not exceeding
10 15% of the amount of such loans
reflected in the association's report
11 filed with the farm credit
administration for calendar year 1999.
12 (b) For the
purposes of this section, the term ``eligible agricul-
13 tural borrower'' means any person,
limited agricultural partner-
14 ship, limited liability agricultural
company or family farm corpo-
15 ration, as defined in K.S.A. 17-5903,
and amendments thereto,
16 located in the state of Kansas,
having an agricultural production
17 loan which has been classified as
substandard or doubtful: (1) by
18 any banking regulator, the farm
credit administration or a district
19 farm credit system institution which
is subject to review by the farm
20 credit administration; or (2) by
the designated loan committee of
21 such association prior to examination
for classification eligibility
22 by the banking regulator, the farm
credit administration or a dis-
23 trict farm credit system institution
which is subject to review by the
24 farm credit
administration.
25 (c) An
interest rate reduction may be applied under the provi-
26 sions of this section only when the
eligible borrower can be reason-
27 ably expected to service the
principal and interest of such person's
28 loan.
29 (d) The
total credit against tax liability shall be the amount
by
30 which the interest income to the
association on and after the effec-
31 tive date of this act and prior to
July 1, 2004, has been reduced on
32 such loans because of such reductions
in rates of interest, except
33 that the credit allowed as a result
of an interest rate reduction on
34 any one agricultural production loan
shall not exceed an amount
35 equal to 3% per annum on the unpaid
principal balance of the loan.
36 The tax credit allowed for any
taxable year shall not exceed 1/5 of
37 the total tax credit of the
association allowed under this section.
38 Unused tax credit shall be carried
forward as a credit to the asso-
39 ciation's tax liability in each
subsequent taxable year and shall then
40 be taken into account, subject to the
limitation that the credit in
41 any one taxable year may not exceed
1/5 of the total tax credit.
42 (e) Any
taxpayer who qualified for and claimed credit under
43 this section prior to its amendment
by this section shall continue to
9
1 be subject to this section as
in effect at the time the taxpayer qual-
2 ified for such credits for the
entire period for which the credits were
3 claimed.
4 New
Sec. 12. Any state bank, national banking association
or
5 production credit association
or agricultural credit association
6 chartered by the farm credit
administration under the federal farm
7 credit act, as amended (12
U.S.C. 2001 et seq.), who claims a
tax
8 credit pursuant to section 10
or 11, and amendments thereto, shall
9 not use any funds from an
agricultural production loan deposit,
10 invested pursuant to sections 1
through 7, and amendments thereto,
11 for agricultural production loans to
qualify for the tax credit pur-
12 suant to section 10 or 11, and
amendments thereto.
13 Sec.
11. 13. K.S.A. 75-4209
and 75-4237 are hereby repealed.
14 Sec.
12. 14. This act shall
take effect and be in force from and after
15 its publication in the Kansas register.