Statement of Administration Policy: H.R. 3030 - Agricultural Credit Act of 1987

(House Rules)
(Rep. de la Garza (D) Texas)

The administration supports a legislative effort to strengthen the Farm Credit System (FCS) in a manner that minimizes cost to the taxpayer. In this regard, H.R. 3030 would take some positive steps. At the same time, however, the bill contains a number of highly objectionable and unacceptable provisions which would have to be deleted or substantially amended before the administration could support it. Without such changes, the President's senior advisers will be forced to seriously consider recommending that H.R. 3030 not be signed. In such a case, the administration would urge the use of existing law to assist the FCS until acceptable legislation can be enacted.

The administration urges that H.R. 3030 be amended in several aspects to redress the following problems:

— The secondary market provisions in Title III should be deleted. They would destabilize the FCS, expose the taxpayers to an excessive future liability, reduce the ability of the System to work out its problems, and diminish FCA's ability to help troubled farmers.

— Title II, affecting FmHA, extends the borrower's rights to remain on his farm and receive farm operating and family living expenses paid from the sale of security property. In addition, Title II would force rigid debt restructuring, require mandatory mediation, create a secondary market for certain FmHA loans, and adversely affect the sale of Rural Development loan assets. These provisions would cost up to $750 million per year, and would have no bearing on the primary purpose of H.R. 3030, which is to keep the FCS solvent.

— Title I of H.R. 3030 imposes similar costly and intrusive forbearance and "borrowers rights" provisions on the FCS that would weaken the FCS, rather than enhance its ability to work out its problems. Such provisions, which may cost up to $1.6 billion, include allowing the value of borrower stock to be artificially maintained when loans are written down and providing "homestead protection" to property used as collateral by borrowers.

— The bill would return more than $700 million to healthy system entities that have shared surpluses with entities experiencing shortfalls. Before the taxpayer is asked to bail out the System, all surpluses in the System should be used to minimize costs.

— In addition, when the bill's borrower stock protection program expires in five years, there would likely be a rush by borrowers to redeem their stock. To remedy this, all borrower stock outstanding as of the date of enactment should be guaranteed whenever the borrower pays off his loan. From the date of enactment, however, all newly issued borrower stock should represent actual risk capital and provide borrowers with an ownership interest in the affairs of the lender.

— Finally, the bill does not provide for interest to be paid on any Treasury advances over an unlimited period of time. Enforcement provisions should also be added to ensure that capital adequacy standards are followed. Furthermore, the number of board members of the Temporary Assistance Corporation (TAC) should be reduced from five to three, and the provision prohibiting directors of the Capital Corporation from serving on the board should be eliminated. A smaller, more experienced board would lend stability and continuity to both the TAC and the FCS.

As reported by the House Agriculture Committee, H.R. 3030 also contains several features that would improve the FCS. For example, the bill provides for the necessary protection of borrower stock, reasonable control and discipline over the amount and use of financial assistance, the creation of capital adequacy standards, a debt obligation insurance reserve funded by FCS institutions, and the decentralization of the FCS's multi-layered and overly centralized organization.

These reforms, together with the Administration's amendments discussed above and other needed changes, would provide a strong program for ensuring a healthy future for the FCS.