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Government

Aggie Bonds before legislature this session

Written by Christy Hemken
    One piece of legislation that will return to Cheyenne in the 2009 Legislative Session is a bill containing the beginning agricultural producer loans that would offer tax-exempt bonds to Wyoming’s lending institutions.
    Cindy Garretson-Weibel of the Wyoming Business Council’s Agribusiness Division has dusted off the legislation, known commonly as “Aggie Bonds,” from several years ago.
    The federal program that authorized the bond programs was granted in 1992 and currently 18 states have Aggie Bond programs.
    “The federal program provides the states with the ability to establish a beginning farmer/rancher bonding program that can issue bonds to private lending institutions or qualified individuals,” says Garretson-Weibel. “The tax-free bonds provide incentives to help beginning farmers and ranchers.”
    She says the Aggie Bond program is a little different than the state investment program because the state isn’t the lending institution – the banks are and the state only provides bonding authority.
    “Financing from these programs can be used to purchase land and depreciable agricultural property, as well as assets including machinery and breeding livestock,” says Garretson-Weibel, adding, “A lot of the loans are prohibitive with machinery.”
    The Aggie Bond process would begin with an application from a beginning farmer or rancher to a lending institution for loan financing. “The interest rates are negotiated between the farmer or rancher and the lending institution, so the state has no involvement in negotiating the deal,” explains Garretson-Weibel. “Typically the interest rate is reduced one to two percent because the lending institution receives the tax exemption from the bonding authority.”
    The lender would then purchase a bond for loan amount through the state program and the funds would be re-loaned to a beginning farmer or rancher for the purchase of the assets. “Neither the state nor the federal government would assume the liability for the loan. The risk is entirely with the private lender,” she says.
    The federal program does outline several specific guidelines for eligibility requirements. “This is set up to serve first-time beginning farmers and ranchers, and not necessarily only young people, but maybe somebody who’s middle-aged that wants to purchase their own place,” says Garretson-Weibel. The program sets a minimum of 18 years old, but there’s no maximum age requirement.
    Another stipulation is the individual applying for the loan cannot have had a direct or indirect ownership in substantial farmland. The definition of “substantial farmland” in the federal regulation defines the limit as a parcel of land larger than 30 percent of the median size farm or ranch in the county.
    “This measure was put in to prevent the family from using their children to refinance the farm or ranch,” says Garretson-Weibel. “There’s also a net worth requirement, which has been $300,000, but that may have gone up with the new farm bill. That’s included so some dentist from California can’t come to Wyoming as a beginning farmer or rancher and participate in this program.”
    The maximum loan amount is now $450,000, after the 2008 farm bill increased the maximum from $250,000. That also includes an annual adjustment for inflation.
    The federal rule also says a person can’t buy from a related person unless they pay fair market value. “This prevents the original owners from using this program to refinance their existing debt,” notes Garretson-Weibel.
    “This program can be used for land, agricultural improvements and depreciable property, but it can’t be used for working capital or inventory, except for livestock for breeding purposes or dairy animals, which are eligible to be purchased,” she says.
    “The advantages of this program for Wyoming’s farmers and ranchers is that it allows new farmers and ranchers to get a start in the business and it reduces interest costs to those individuals, enhances cash flow and can be combined with other loan options like the FSA down payment program,” states Garretson-Weibel.
    “The advantage to lenders is the bond is classified as a qualified small issue bond, which provides tax exemption to the lender and creates new business for the banking community,” she continues. “The thing I really like is that it doesn’t compete with private industry and lending institutions in the state. It compliments what they’re doing and becomes a public/private partnership.”
    She says the advantage to communities is that the program helps support family farming and ranching. “It’s not a financial risk to the state or a program with a big budget.”
    She says the program isn’t a guarantee and doesn’t eliminate down payment requirements. “It doesn’t substitute for sound credit, and that determination will be based on lending institutions.”
    So far 18 states have Aggie Bond programs. “When we looked at this legislation in the early 2000’s there were only 12 states,” says Garretson-Weibel. “Since that time it’s become even more popular. The draft legislation Wyoming has is patterned after Iowa, which was the original state that had programs. Many states have replicated what they’ve done.”
    “This bill creates a beginning agricultural producer finance authority, and that’s what the state is required to do to participate in the program,” she explains.
    Christy Hemken is assistant editor of the Wyoming Livestock Roundup and can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..