Washington Insider -- Monday

By DTN's Washington Insider

Here's a quick monitor of Washington farm and trade policy issues from DTN's well-placed observer.

Court Rules Against Plaintiffs Seeking to Force EPA to Regulate Feedlots

A federal court in Washington last week dismissed a lawsuit brought by four Iowa residents who wanted the Environmental Protection Agency to regulate air emissions from concentrated animal feeding operations. The plaintiffs were concerned about emissions from a hog feeding operation near an elementary school and sought to require the EPA to list animal feeding operations as stationary sources to be regulated under the Clean Air Act and to list ammonia and hydrogen as criteria pollutants.

The court found that EPA does not have a nondiscretionary duty to list a specific pollutant as a criteria pollutant until the agency first makes a policy determination on whether the pollutant is expected to "cause or contribute to air pollution which may be reasonably anticipated to endanger public health or welfare." In other words, plaintiffs and the court cannot usurp EPA's exclusive authority to make that endangerment finding.

The court added that the plaintiffs do have the ability to petition EPA for rulemaking to regulate emissions from animal feeding operations. Attorneys for the plaintiffs said no decision has been made whether they will appeal the decision or petition EPA for rulemaking.

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Community Bankers Continue Fight with Farm Credit System

The long-smoldering conflict between the country's commercial community bankers and the Farm Credit System, a government-sponsored enterprise (GSE), flared again last week as bankers called on Congress to reject what they said was an FCS proposal to expand its reach and make loans to non-farm entities. The FCS denies that it has made any such proposal recently.

"Credit unions and FCS lenders are using their taxpayer-funded subsidies and funding advantages to cherry pick community banks' strongest and most profitable customers," the Independent Community Bankers of America (ICBA) said in a statement. The organization was referring to the tax-exempt status enjoyed by FCS since 1916 that was provided as a way to encourage lending to farmers who otherwise did not have access to adequate credit.

There is no doubt that farm borrowers needed the assistance in the early part of the last century since few commercial lenders at that time were willing to extend credit to agricultural producers. However, commercial banks and some in Congress argue that those days are long past, that there today is adequate credit available to farmers and that the FCS no longer needs the competitive advantage it has enjoyed for decades due to its status as a GSE. And, they add, the FCS certainly should not be able to use that competitive advantage to lend to borrowers who are not farmers.

As indicated above, this fight has been going on for years. However, with an increase in the number of members of Congress who worry that the federal government is overly involved in the nation's economy, there could be increased interest in taking another look at whether the reasons that led to the establishment of government-sponsored enterprises still exist. (Also see longer item below.)

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Washington Insider: Farm Credit Scrutiny

In addition to recent press reports that the House Ag Committee is thinking of examining the Farm Credit System to find if it still plays the role Congress intended, commercial bankers have rekindled their long fight against the System, arguing that the government-sponsored entity damages them. They say it undercuts loan rates to attract away their most profitable customers –– and, that the System is seeking to expand its lending authority beyond farm borrowers.

The statement came in the form of a plea from the Independent Community Bankers of America last week urging Congress to oppose Farm Credit system efforts to expand its portfolio and make non-farm loans, an action the FCS vigorously denied.

The FCS said that not only has it not made recent proposals to Congress to increase its lending authority, that its interest rates are required to be competitive and that commercial bankers also have access to funding available to government sponsored enterprises (GSEs).

Nonetheless, ICBA argues that the FCS does not play fair. "Credit unions and FCS lenders are using their taxpayer-funded subsidies and funding advantages to cherry pick community banks' strongest customers," it said. "In addition, these tax-advantaged institutions are seeking new powers in an effort to siphon non-farm loans away from banks' portfolios."

The bankers are referring to the Farm Credit System's status as a GSE. This fight really goes back to 1916 when the FCS was established to provide dependable and affordable credit to rural areas at a time when commercial lenders tended to avoid farm loans and the sector was in crisis.

The modern FCS is cooperatively owned by its borrowers, funded through the sale of bonds on Wall Street. Four large banks allocate these funds to 82 credit associations that provide direct loans to eligible applicants. The FCS is regulated by the independent Farm Credit Administration.

Across the U.S. economy, GSEs have been organized to assist several sectors. These corporations are privately held but have public purposes and were created by the Congress to reduce costs for certain borrower groups such as students, farmers and homeowners. While the GSEs have implicit backing of the U.S. Government, their bonds are not direct obligations of the United States. Still, among some observers GSEs continue to be controversial and "stealth recipients of corporate welfare."

In the recent exchange, Ken Auer, president of the Farm Credit Council, which represents FCS interests before Congress, took strong exception to ICBA's charges. He noted that commercial banks also can obtain benefits similar to those available to a GSE by choosing to be organized as Subchapter S Corporations.

"ICBA also keeps hanging on to these taxpayer-funded subsidies, when they have access to multiple forms of GSE funding," Auer said.

In addition to its general complaint against the Farm Credit System, ICBA urges in its policy resolutions for 2014 that FCS lenders be subject to taxes when they exceed a given asset threshold, when they lend to large borrowers and if they engage in any non-farm lending activities.

In fact, three branches of the nation's credit institutions are active farm lenders and relations among the three have often been contentious. For example, commercial banks now hold some 40% of farm debt, while the FCS accounts for roughly 41% of the total. USDA's Farm Service Agency holds the rest and issues direct loans to farmers who cannot qualify for regular credit. Since the ready availability of competitively priced credit is essential to modern commercial agriculture, active oversight of the system is an important duty of the Ag committees of both chambers. This argues for tough and continuing scrutiny of the system and the effectiveness of all its elements, Washington Insider believes.

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