CHAPTER 101 Substitute for HOUSE BILL No. 2527 (Amended by Chapter 159) An Act concerning agricultural production loans; amending K.S.A. 75-4209 and 75-4237
and repealing the existing sections. Be it enacted by the Legislature of the State of Kansas:

      New Section  1. (a) The provisions of sections 1 through 7, and
amendments thereto, shall be known and may be cited as the Kansas
agricultural production loan deposit program.

      (b) The provisions of sections 1 through 7, and amendments thereto,
shall be effective on and after July 1, 2000.

      New Sec.  2. As used in sections 1 through 7, and amendments
thereto: (a) ``Agricultural production loan deposit'' means an investment
account placed by the director of investments under the provisions of
article 42 of chapter 75 of the Kansas Statutes Annotated with an eligible
lending institution for the purpose of carrying out the intent of this act;

      (b) ``agricultural production loan deposit loan package'' means the
forms provided by the state treasurer for the purpose of applying for an
agricultural production loan deposit;

      (c) ``eligible lending institution'' means:

      (1) a bank, as defined under K.S.A. 75-4201, and amendments
thereto, that agrees to participate in the Kansas agricultural production
loan deposit program and is eligible to be a depository of state funds; or

      (2) an institution of the farm credit system organized under the fed-
eral farm credit act of 1971 (12 U.S.C. 2001), as amended, that agrees to
participate in the Kansas agricultural production loan deposit program
and provides securities acceptable to the pooled money investment board
pursuant to article 42 of chapter 75 of the Kansas Statutes Annotated,
and amendments thereto; and

      (d) ``eligible agricultural borrower'' means any individual, limited li-
ability agricultural company, limited agricultural partnership or family
farm corporation as defined in K.S.A. 17-5903 and amendments thereto
involved in farming.

      New Sec.  3. (a) The state treasurer is hereby authorized to admin-
ister the Kansas agricultural production loan deposit program. Such pro-
gram shall be for the purpose of providing incentives for the making of
agricultural production loans. The state treasurer shall promulgate rules
and regulations to carry out the provisions of sections 1 through 7, and
amendments thereto.

      (b) The state treasurer shall submit an annual report outlining the
status of the program to the governor and the legislature.

      New Sec.  4. (a) The state treasurer is hereby authorized to dissem-
inate information and to provide agricultural production loan deposit loan
packages to the lending institutions eligible for participation in this act.

      (b) The agricultural production loan deposit loan package shall be
completed by the borrower before being forwarded to the lending insti-
tution for consideration.

      (c)  (1) An eligible lending institution that agrees to receive an agri-
cultural production loan deposit shall accept and review applications for
loans from eligible agricultural borrowers. The lending institution shall
apply all usual lending standards to determine the credit worthiness of
eligible agricultural borrowers. No single agricultural production loan de-
posit loan shall exceed $250,000. The total aggregate amount of agricul-
tural production loan deposit loans under this program shall not exceed
$50,000,000 of unencumbered funds pursuant to article 42 of chapter 75
of the Kansas Statutes Annotated, and amendments thereto.

      (2) To be eligible to obtain an agricultural production loan, an eligible
agricultural borrower must have a debt-to-asset ratio of 40% or greater.

      (3) Only one agricultural production loan deposit loan shall be made
and be outstanding at any one time to any agricultural borrower.

      (4) No loan shall be amortized for a period of more than eight years.

      (d) An eligible agricultural borrower shall certify on its loan applica-
tion that the reduced rate loan will be used exclusively for the operating
expenses involved in farming.

      (e) The eligible lending institution may approve or reject an agricul-
tural production loan deposit loan package based on the lending institu-
tion's evaluation of the eligible agricultural borrowers included in the
package, the amount of the individual loan in the package and other
appropriate considerations.

      (f) The eligible lending institution shall forward to the state treasurer,
an approved agricultural production loan deposit loan package, in the
form and manner prescribed and approved by the state treasurer. The
package shall include information regarding the amount of the loan re-
quested by each eligible agricultural borrower and such other information
regarding each eligible agricultural borrower the state treasurer requires,
including a certification by the applicant that such applicant is an eligible
agricultural borrower.

      New Sec.  5. (a) The state treasurer may accept or reject an agricul-
tural production loan deposit loan package based on the state treasurer's
evaluation of whether the loan to the eligible agricultural borrower meets
the purposes of this act. If sufficient funds are not available for an agri-
cultural production loan deposit, then the applications may be considered
in the order received when funds are once again available subject to a
review by the lending institution.

      (b) Upon acceptance, the state treasurer shall certify to the director
of investments the amount required for such agricultural production loan
deposit loan package and the director of investments shall place an ag-
ricultural production loan deposit in the amount certified by the state
treasurer with the eligible lending institution at an interest rate, which is
2% below the market rate provided in K.S.A. 75-4237, and amendments
thereto, and which shall be recalculated on the first business day of each
calendar year using the market rate then in effect. When necessary, the
state treasurer may request the director of investments to place such
agricultural production loan deposit prior to acceptance of an agricultural
production loan deposit loan package.

      (c) The eligible lending institution shall enter into an agricultural pro-
duction loan deposit agreement with the state treasurer, which shall in-
clude requirements necessary to implement the purposes of the Kansas
agricultural production loan deposit program. Such requirements shall
include an agreement by the eligible lending institution to lend an amount
equal to the agricultural production loan deposit to eligible agricultural
borrowers at an interest rate which is not more than 2% above the market
rate as determined under K.S.A. 75-4237, and amendments thereto, and
which shall be recalculated on the first business day of each calendar year
using the market rate then in effect. The agreement shall include provi-
sions for the agricultural production loan deposit to be placed for a ma-
turity considered appropriate in coordination with the underlying agri-
cultural production loan. The agreement shall include provisions for the
reduction of the agricultural production loan deposit in an amount equal
to any payment of loan principal by the eligible agricultural borrower.

      New Sec.  6. (a) Upon the placement of an agricultural production
loan deposit with an eligible lending institution, the institution shall fund
the loan to each approved eligible agricultural borrower listed in the ag-
ricultural production loan deposit loan package in accordance with the
agricultural production loan deposit agreement between the institution
and the state treasurer. The loan shall be at a rate as provided in section
5 and amendments thereto. A certification of compliance with this section
in the form and manner as prescribed by the state treasurer shall be
required of the eligible lending institution.

      (b) The state treasurer shall take any and all steps necessary to im-
plement the Kansas agricultural production loan deposit program.

      New Sec.  7. The state and the state treasurer shall not be liable to
any eligible lending institution in any manner for payment of the principal
or interest on the loan to an eligible agricultural borrower. Any delay in
payments or default on the part of an eligible agricultural borrower does
not in any manner affect the agricultural production loan deposit agree-
ment between the eligible lending institution and the state treasurer.

      Sec.  8. On and after July 1, 2000, K.S.A. 75-4209 is hereby amended
to read as follows: 75-4209. (a) The director of investments may invest
and reinvest state moneys eligible for investment which are not invested
in accordance with K.S.A. 75-4237, in the following investments:

      (1) Direct obligations of, or obligations that are insured as to principal
and interest by, the United States of America or any agency thereof and
obligations and securities of the United States sponsored enterprises
which under federal law may be accepted as security for public funds, on
and after the effective date of this act moneys available for investment
under this subsection shall not be invested in mortgage-backed securities
of such enterprises and of the government national mortgage association,
except that any such mortgage-backed securities held prior to the effec-
tive date of this act may be held to maturity;

      (2) repurchase agreements with a bank or a primary government se-
curities dealer which reports to the market reports division of the federal
reserve bank of New York for direct obligations of, or obligations that are
insured as to principal and interest by, the United States government or
any agency thereof and obligations and securities of United States gov-
ernment sponsored enterprises which under federal law may be accepted
as security for public funds;

      (3) commercial paper that does not exceed 270 days to maturity and
which has received one of the two highest commercial paper credit ratings
by a nationally recognized investment rating firm.

      (b) When moneys are available for deposit or investments, the direc-
tor of investments may invest in SKILL act projects and bonds pursuant
to K.S.A. 1997 Supp. 74-8920, and amendments thereto, and in state
agency bonds and bond projects.

      (c) When moneys are available for deposits or investments, the di-
rector of investments may invest in preferred stock of Kansas venture
capital, inc., under terms and conditions prescribed by K.S.A. 74-8203,
and amendments thereto, but such investments shall not in the aggregate
exceed a total amount of $10,000,000.

      (d) When moneys are available for deposits or investments, the di-
rector of investments may invest in loans pursuant to legislative mandates,
except that not more than the lesser of 10% or $80,000,000 of the state
moneys shall be invested.

      (e) Interest on investment accounts in banks is to be paid at maturity,
but not less than annually.

      (f) Investments made by the director of investments under the pro-
visions of this section shall be made with judgment and care, under cir-
cumstances then prevailing, which persons of prudence, discretion and
intelligence exercise in the management of their own affairs, not for spec-
ulation, but for investment, considering the probable safety of their capital
as well as the probable income to be derived.

      (g) Investments under subsection (a) or (b) of this section or under
K.S.A. 75-4237 shall be for a period not to exceed four years, except that
agricultural production loan deposits authorized under the provisions of
sections 1 through 7, and amendments thereto, shall not exceed a period
of eight years.

      (h) Investments in securities under paragraph (1) of subsection (a)
shall be limited to securities which do not have any more interest rate
risk than do direct United States government obligations of similar ma-
turities. For purposes of this subsection, ``interest rate risk'' means market
value changes due to changes in current interest rates.

      (i) The director of investments shall not invest state moneys eligible
for investment under subsection (a), in the municipal investment pool
fund, created under K.S.A. 1997 Supp. 12-1677a, and amendments
thereto.

      (j) The director of investments shall not invest moneys in the pooled
money investment portfolio in derivatives. As used in this subsection,
``derivatives'' means a financial contract whose value depends on the value
of an underlying asset or index of asset values.

      (k) Moneys and investments in the pooled money investment port-
folio shall be invested and reinvested by the director of investments in
accordance with investment policies developed, approved, published and
updated on an annual basis by the board. Such investment policies shall
include at a minimum guidelines which identify credit standards, eligible
instruments, allowable maturity ranges, methods for valuing the portfolio,
calculating earnings and yields and limits on portfolio concentration for
each type of investment. Any changes in such investment policies shall
be approved by the pooled money investment board. Such investment
policies may specify the contents of reports, methods of crediting funds
and accounts and other operating procedures.

      (l) The board shall adopt rules and regulations to establish an overall
percentage limitation on the investment of moneys in investments au-
thorized under paragraph (3) of subsection (a), and within such author-
ized investment, the board shall establish a percentage limitation on the
investment in any single business entity.

      Sec.  9. On and after July 1, 2000, K.S.A. 75-4237 is hereby amended
to read as follows: 75-4237. (a) The director of investments shall accept
requests from banks interested in obtaining investment accounts of state
moneys. Such requests may be submitted any business day and shall spec-
ify the dollar amount, maturity or maturity range and interest rate. Except
as provided in subsection (c), if the interest rate bid by the bank is at or
greater than the market rate determined by the director of investments
in accordance with subsection (b), the director of investments is author-
ized to award the investment account to the bidding bank at the market
rate. Awards of investment accounts pursuant to this section shall be
subject to investment policies of the pooled money investment board.
When multiple bids are received and are in excess of the amount available
for investment that day for any maturity, awards shall be made available
in ascending order from smallest to largest dollar amount bid, subject to
investment policies of the board.

      (b) The market rate shall be determined each business day by the
director of investments, in accordance with any procedures established
by the pooled money investment board. Subject to any policies of the
board, the market rate shall reflect the highest rate at which state moneys
can be invested on the open market in investments authorized by sub-
section (a) of K.S.A. 75-4209 and amendments thereto for equivalent
maturities.

      (c) Notwithstanding the provisions of this section, agricultural pro-
duction loan deposits made pursuant to the provisions of sections 1
through 7 and amendments thereto, shall be at 2% less than the market
rate provided by this section and which shall be recalculated on the first
business day of each calendar year using the market rate then in effect.

      New Sec.  10. (a) On and after the effective date of this act and prior
to July 1, 2004, a state bank or national banking association which extends
or renews an agricultural production loan under the provisions of this
section to an eligible agricultural borrower at an interest rate which is at
least one whole percentage point less than the prime interest rate then
specified by the bank on such loans with equivalent collateral, and a state
bank or national banking association which reduces the rate of interest
being charged on any outstanding agricultural production loan to an eli-
gible agricultural borrower by at least one whole percentage point shall
receive a credit against its tax liability pursuant to K.S.A. 79-1106 et seq.,
and amendments thereto, for taxable years commencing after December
31, 1999, to the extent hereinafter provided. Such tax credit shall be
allowed for such interest rate reductions upon agricultural production
loans having a total principal amount not exceeding 15% of the amount
of such loans reflected in the bank's report of condition filed with the
federal deposit insurance corporation as of December 31, 1999.

      (b) For the purposes of this section, the term ``eligible agricultural
borrower'' means any person, limited agricultural partnership, limited li-
ability agricultural company or family farm corporation, as defined in
K.S.A. 17-5903, and amendments thereto, located in the state of Kansas,
having an agricultural production loan which has been classified as sub-
standard or doubtful: (1) by any banking regulator, the farm credit ad-
ministration or a district farm credit system institution which is subject
to review by the farm credit administration; or (2) by the designated
loan committee of such banking association prior to examination for clas-
sification eligibility by the banking regulator, the farm credit administra-
tion or a district farm credit system institution which is subject to review
by the farm credit administration.

      (c) An interest rate reduction may be applied under the provisions of
this section only when the eligible borrower can be reasonably expected
to service the principal and interest for the term of such person's loan.

      (d) The total credit against tax liability shall be the amount by which
the interest income to the state bank or national banking association on
and after the effective date of this act and prior to July 1, 2004, has been
reduced on such loans because of such reductions in rates of interest,
except that the credit allowed as a result of an interest rate reduction on
any one agricultural production loan shall not exceed an amount equal to
3% per annum on the unpaid principal balance of the loan. The tax credit
allowed for any taxable year shall not exceed 1/5 of the total tax credit of
the bank allowed under this section. Unused tax credit shall be carried
forward as a credit to the bank's tax liability in each subsequent taxable
year and shall then be taken into account, subject to the limitation that
the credit in any one taxable year may not exceed 1/5 of the total tax credit.

      New Sec.  11. (a) On and after the effective date of this act and prior
to July 1, 2004, any production credit association or agricultural credit
association chartered by the farm credit administration under the federal
farm credit act, as amended (12 U.S.C. 2001 et seq.), which extends or
renews an agricultural production loan under the provisions of this section
to an eligible agricultural borrower at an interest rate which is at least
one whole percentage point less than the lowest rate at which the asso-
ciation is making agricultural production loans to agricultural loan cus-
tomers with equivalent collateral, and any such association which reduces
the rate of interest being charged on any outstanding agricultural pro-
duction loan to an eligible agricultural borrower by at least one whole
percentage point shall receive a credit against its income tax liability pur-
suant to article 32 of chapter 79 of the Kansas Statutes Annotated, for
taxable years commencing after December 31, 1999, to the extent here-
inafter provided. Such tax credit shall be allowed for such interest rate
reductions by an association upon agricultural production loans having a
total principal amount not exceeding 15% of the amount of such loans
reflected in the association's report filed with the farm credit administra-
tion for calendar year 1999.

      (b) For the purposes of this section, the term ``eligible agricultural
borrower'' means any person, limited agricultural partnership, limited li-
ability agricultural company or family farm corporation, as defined in
K.S.A. 17-5903, and amendments thereto, located in the state of Kansas,
having an agricultural production loan which has been classified as sub-
standard or doubtful: (1) By any banking regulator, the farm credit ad-
ministration or a district farm credit system institution which is subject
to review by the farm credit administration; or (2) by the designated
loan committee of such association prior to examination for classification
eligibility by the banking regulator, the farm credit administration or a
district farm credit system institution which is subject to review by the
farm credit administration.

      (c) An interest rate reduction may be applied under the provisions of
this section only when the eligible borrower can be reasonably expected
to service the principal and interest of such person's loan.

      (d) The total credit against tax liability shall be the amount by which
the interest income to the association on and after the effective date of
this act and prior to July 1, 2004, has been reduced on such loans because
of such reductions in rates of interest, except that the credit allowed as a
result of an interest rate reduction on any one agricultural production
loan shall not exceed an amount equal to 3% per annum on the unpaid
principal balance of the loan. The tax credit allowed for any taxable year
shall not exceed 1/5 of the total tax credit of the association allowed under
this section. Unused tax credit shall be carried forward as a credit to the
association's tax liability in each subsequent taxable year and shall then
be taken into account, subject to the limitation that the credit in any one
taxable year may not exceed 1/5 of the total tax credit.

      (e) Any taxpayer who qualified for and claimed credit under this sec-
tion prior to its amendment by this section shall continue to be subject
to this section as in effect at the time the taxpayer qualified for such
credits for the entire period for which the credits were claimed.

      New Sec.  12. Any state bank, national banking association or pro-
duction credit association or agricultural credit association chartered by
the farm credit administration under the federal farm credit act, as
amended (12 U.S.C. 2001 et seq.), who claims a tax credit pursuant to
section 10 or 11, and amendments thereto, shall not use any funds from
an agricultural production loan deposit, invested pursuant to sections 1
through 7, and amendments thereto, for agricultural production loans to
qualify for the tax credit pursuant to section 10 or 11, and amendments
thereto.

 Sec.  13. On and after July 1, 2000, K.S.A. 75-4209 and 75-4237 are
hereby repealed.
 Sec.  14. This act shall take effect and be in force from and after its
publication in the Kansas register.

Approved April 16, 2000.
 Published in the Kansas Register April 27, 2000.
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