Statement of Administration Policy: H.R. 3298 - Farm Credit Banks and Associations Safety and Soundness Act of 1991

(House)
(de la Garza (D) Texas)

The Administration supports the objectives of H.R. 3298 and will work with Congress to secure enactment of the constructive features of H.R. 3298 and S. 1709 as passed by the Senate. Both bills would improve current law by accelerating Farm Credit System (FCS) assessments to repay taxpayer contributions for the 1987 rescue of the system. The Administration also supports the core provisions of H.R. 4906 (discussed in the Attachment), to target Farmers Home Administration (FmHA) loans to beginning farmers and ranchers.

Upon further review, this Office has determined that H.R. 5237, the "Rural Electrification Administration (REA) Improvement Act of 1992", is not subject to the pay-as-you-go requirement of the Omnibus Budget Reconciliation Act of 1990 (OBRA).¹ However, for the reasons stated in the Attachment, the Administration opposes the incorporation of H.R. 5237 into S. 1709, as provided by the proposed rule on H.R. 3298.

The Administration position on H.R. 3298 is presented below. Positions on H.R. 5237, H.R. 4906, and the three other bills that would be added to S. 1709 pursuant to the rule are presented in the Attachment.

H.R. 3298

The Administration has no objection to House passage of H.R. 3298 as amended by section 2 of the rule. The Administration will continue to seek amendments to:

• Clarify the Funding Corporation's authority to set conditions for establishing financial standards and economic incentives for participation of Farm Credit Banks in FCS debt issuances. Such conditions could include financial standards and risk-based pricing of system-wide obligations.
  (The Funding Corporation is the FCS-wide entity responsible for coordinating system-wide debt issuance.)
  
  
• Add the Administration's proposals to establish risk-based insurance premiums, eliminate potential conflicts of interest between the boards of the Insurance Corporation and the Farm Credit Administration, and give the Insurance Corporation authority to access FCS association capital.
  (The Insurance Corporation insures against default on system-wide obligations; the Farm Credit Administration is the FCS regulator.)

S. 1709 generally meets the objectives of the above two points.

Pay-As-You-Go Scoring

H.R. 3298 would increase receipts; therefore, it is subject to OBRA's pay-as-you-go requirement. OMB'S preliminary scoring estimates of this bill is presented in the table below. Final scoring of this bill may deviate from these estimates.

The Administration has reviewed its earlier estimate for H.R. 5237 and concluded that the bill is not subject to pay-as-you-go.

Estimates For Pay-As-You-Go 1/
(receipts in millions)

¹ OMB's preliminary estimates of H.R. 5237 were based on a calculation that mistakenly included certain indirect effects.

Attachment

Other Bills Proposed to Be Incorporated into S. 1709

This Attachment addresses the five bills (besides H.R. 3298) that would be incorporated into a House substitute for S. 1709 pursuant to a motion made in order by the rule.

H.R. 5237 - REA Improvement Act

The Administration opposes enactment of H.R. 5237 because it would:

• Defeat the purpose of Federal subsidies that have already been provided to encourage borrowers to graduate from REA to private credit markets. Specifically, the bill would:
  

  — Allow 30 borrowers to return for more REA-subsidized loans. These borrowers were given $283 million in loan discounts and a special tax break to prepay outstanding REA loans. Contrary to the contracts they signed, these borrowers would not have to repay most of the discounts and interest as a condition to additional REA loans. Another REA borrower, which was prohibited by law from reentering the program in exchange for $66 million in benefits, would be allowed to borrow again from the REA without repaying the benefits.

  — Allow financially healthy borrowers with REA loans at interest rates of 2 and 5 percent to repay those loans at a discount and get more 5 percent loans from the REA after 5 years.

• Expand by roughly 650 percent (from 6 million to over 39 million) the copulation eligible for REA telephone loan assistance. Communities such as Palm Beach, Florida, and Falls Church, Virginia, would qualify. Major telephone companies (e.g., regional Bell companies) that now serve most of these communities would become eligible for REA loans at federally-subsidized interest rates of 5 percent.

H.R. 4906 - Agricultural Improvement Act

The Administration supports targeting FmHA assistance to beginning farmers and has no objection to House passage of H.R. 4906, but will seek amendments to:

• Delete the provision that waives fees for unsubsidized loan guarantees by FmHA. These standard FmHA fees are consistent with sound business practice.
  
  
• Reduce the time period for loan eligibility. The bill limits direct loan eligibility to 10 years and guaranteed loan eligibility to 15 years. The Administration believes 7 and 10 years, respectively, would provide the necessary assistance while keeping with FmHA's mandate as the "temporary lender of last resort." (Emphasis added.)
  
  
• Retain flexibility to match the level of financial assistance to borrower needs. The bill sets the amount of interest subsidy for farm operating direct loans and subsidized guarantees equal to the "limited resource rate" on direct loans (currently 5 percent). This would not allow intermediate levels of assistance. Flexibility would make the program more effective and less costly.
  
  
• Delete the provision that allows the FCS to guarantee tax-exempt debt obligations. This guarantee would indirectly constitute a double subsidy from the Federal Government to the tax-exempt issuer. One subsidy arises from exempting interest from taxation. A further subsidy comes from the lower interest rate afforded by the FCS guarantee.

H.R. 5741 - Perishable Agricultural Commodities Act Technical Amendments of 1992

The Administration does not oppose House passage of H.R. 5741, which would clarify the requirement that a trust be placed on the assets of produce buyers to protect the unpaid produce seller. However, the Administration notes that H.R. 5741 only clarifies present law and does not address the funding problem which will develop if legislated fee caps and reserves are not revised.

H.R. 5763 - Relief for Sugarcane Producers

The Administration has no objection to enactment of H.R. 5763, which relieves sugarcane growers from observing their "proportionate shares" in certain situations. ("Proportionate shares" is the method used to control the quantity of domestic sugarcane marketings.) However, the Administration urges Congress to consider granting the growers relief by repealing the "proportionate shares" language in section 359f of the Agricultural Adjustment Act of 1938.

H.R. 5764 - United States Warehouse Act Amendment

The Administration supports House passage of H.R. 5764, which would permit all cotton warehouses to use electronic warehouse receipts rather than paper receipts. The Administration will seek Senate amendments to: (1) preempt State law to ensure that electronic receipts are superior to all other proof of ownership; (2) prohibit warehousemen who use electronic receipts from using any other type; and (3) give a single Federal agency the authority to oversee and audit the system.