Brief (1)
Sub. for HB 2527 would establish the Kansas Agricultural Production Loan Deposit Program to be administered by the State Treasurer. The purpose of the Program would be to provide incentives for the making of agricultural production loans by "eligible lending institutions" which would be defined by the bill as banks which are eligible to be a depository of state funds or institutions of the Farm Credit System if they provide securities acceptable to the Pooled Money Investment Board. "Eligible borrowers," under the bill, would be defined to mean any individual, limited liability agricultural company, limited agricultural partnership, or family farm corporation as defined by the Kansas Corporate Farming Law involved in farming.
The bill would require that the lending institution apply all usual lending standards to determine the credit worthiness of borrowers. Under the provisions of the bill, no single agricultural production loan to any one borrower could exceed $250,000. Loans only would be made to eligible agricultural borrowers who have debt to asset ratios of 40 percent or greater and could not be amortized for a period of more than eight years. Eligible agricultural borrowers would certify that the reduced rate loan would be used exclusively for operating expenses involved in farming.
The State Treasurer would disseminate information and provide agricultural production loan deposit loan packages to eligible lending institutions. The eligible lending institution would forward to the State Treasurer an agricultural production loan deposit loan package, in a form and manner prescribed and approved by the State Treasurer. Under the bill, the package would include information regarding the amount of the loan requested by each eligible agricultural borrower and other information the State Treasurer would deem necessary. The State Treasurer would have the authority to accept or reject an agricultural production loan deposit loan package. If a loan package is approved by the State Treasurer, then the State Treasurer would certify to the Director of Investments of the Pooled Money Investment Board the amount required and the Director of Investments would place the amount certified with the eligible lending institution. The interest rate to the eligible lending institution would be 2 percentage points below the market rate. The eligible lending institution could not loan the money out for agricultural production loans at more than 2 percentage points above the market rate. The bill also would allow for the resetting of the interest rate annually on the first business day of the year. Under the provisions of the bill, the State and the State Treasurer would not be liable for payment of the principal or interest on the loan to an eligible agricultural borrower. The bill would limit the total aggregate amount of agricultural production loan deposit loans under the Program to $50,000,000 of unencumbered funds.
The bill would require that the State Treasurer submit an annual report outlining the status of the program to the Governor and the Legislature. The provisions of the bill would sunset July 1, 2002.
The bill also would amend current law with respect to the requirements of the Director of Investments to loan money to banks at the market rate to make it clear that this requirement does not apply to the money deposited in banks for use under the Kansas Agricultural Production Loan Deposit Program. Another section of current law would be amended to clarify that investments made by the Director of Investments for the Kansas Agricultural Production Loan Deposit Program could be for eight years and not the current limit of four years for other investments.
In addition, the bill would permit state banks, national banking associations, production credit associations, or agricultural credit associations chartered by the Farm Credit Administration, which extend or renew agricultural production loans to eligible agricultural borrowers, under certain conditions, to claim a tax credit. In order to obtain the tax credit, the lenders would be required to make the agricultural production loans at least one percentage point below the prime interest rate specified by the banks for equally collateralized loans, or in the case of production credit associations, at least one percentage point below the lowest agricultural production loans being made by them. The loans would have to be made between the effective date and July 1, 2004.
The bill would limit the tax credit by allowing the credit to be based on interest rate reductions on the total principal amount not exceeding 15 percent of agricultural production loans reflected in a bank's Report on Condition filed with the Federal Deposit Insurance Corporation as of December 31, 1999. Likewise, in the case of production credit associations and agricultural credit associations, the base amount would be 15 percent of the agricultural production loans for calendar year 1999 as reported to the Farm Credit Administration. Further, the tax credit on any one agricultural production loan is not to exceed an amount equal to 3 percent per annum on the unpaid principal balance of the loan.
Additionally, the bill would define the term "eligible agricultural borrower" to mean a person, limited agricultural partnership, limited liability agricultural company, or family farm corporation as defined in KSA 17-5903, located in the state of Kansas, having an agricultural production loan which has been classified by any banking regulator as substandard or doubtful or by a production credit association as substandard or doubtful. In addition, the designated loan committee of the lending institution could classify a loan as substandard or doubtful.
The bill would permit the tax credit to be the amount by which interest income had been reduced on and after the effective date of this act (publication in the Kansas Register) and prior to July 1, 2004. The tax credit for any taxable year would not be permitted to exceed one-fifth of the total tax credit, with the unused tax credit available to be used in future years as a credit against tax liability. The credit for any tax liability would be used for taxable years commencing after December 31, 1999.
The interest rate reduction provided by this bill may be applied only when the eligible borrower can reasonably be expected to service the principal and interest for the term of the loan.
Institutions claiming the tax credit under these provisions of the bill could not use the funds provided as a part of the Kansas Agricultural Production Loan Deposit Program to qualify for the tax credit.
The bill would become effective upon publication in the Kansas Register.
Background
At the hearing on the original bill, the following appeared as proponents: Representative Sharon Schwartz, a representative of the Kansas Pork Producers, a representative of the Kansas Farm Bureau, and a representative of the Kansas Bankers Association. There were no opponents to the bill.
The House Committee on Agriculture adopted a substitute bill which replaced the original bill. The fiscal note on the original bill would no longer be applicable.
The Senate Committee on Agriculture amended the bill to:
1. *Supplemental notes are prepared by the Legislative Research Department and do not express legislative intent. The supplemental note and fiscal note for this bill may be accessed on the Internet at http://www.ink.org/public/legislative/bill_search.html