August 28, 2011
On July 28, USDA’s Farm Service Agency (FSA) transferred unneeded Guaranteed Farm Operating Loan (GOL) funds to two credit programs with higher demand – Direct Farm Operating Loans (DOL) and Guaranteed Farm Ownership (GFO) loans. FSA has general authority to transfer a portion of appropriated funds from one loan program to another to bring spending more in line with farmer demand for credit.
Several days later, on August 1, FSA completed an additional transfer of funds from Guaranteed Farm Operating Loans to beginning farmer Direct Farm Ownership (DFO) Loans. This transfer, as well as one that will happen on September 1, is mandated by statute under a beginning farmer provision championed by NSAC.
The July 28 transfer made an additional $100 million in loan funds for direct operating loans, enough to finance approximately 1,600 loans, reducing but not eliminating the backlog. Half of direct operating loan funds are targeted to beginning farmers and an additional percentage, which varies by state, is targeted to minority farmers.
In addition, the July 28 provided an additional $400 million in GFO loans, assisting approximately 1,000 borrowers. Beginning farmers are targeted to receive 40 percent of such loans, though unlike the successful direct loan programs, the target level is rarely reached.
The August 1 transfer provided $33 million in additional beginning farmer Down Payment Loan (DPL) funds, significantly reducing, but not eliminating the backlog of new farmers waiting on real estate financing.
There are still 79 potential borrowers waiting on $11.5 million in down payment loan financing. The upcoming September 1 transfer may be enough to take care of all of them. The September 1 transfer is also potentially available for other types of beginning farmer loans if there are sufficient funds available from unused GOL loans.
Following the August 1 transfer, FSA still has a backlog of 750 DFO applications totaling nearly $130 million that were approved, but for which the agency is unable to provide funds. Over 40 percent of these funds were requested by beginning farmers, and a quarter of those were requested specifically to be used for a down payment loan.
The states with the highest numbers of unfunded DFO loan requests include Iowa, Wisconsin, Nebraska, Kansas, Minnesota, Oklahoma, and South Dakota, in that order. The remaining backlog in these states totals $64 million alone, which is just about half of the entire backlog throughout the country. States with the most backlogged DPLs are, in order, Iowa, Illinois, Kansas, Indiana, Ohio, and Missouri.
Misdirected Appropriations the Problem
This $129 million DFO backlog is primarily due to the recent appropriations in FY11, which cut federal funding for DFO loans from $650 million to $475 million, or by over a quarter, while leaving guaranteed loans relatively untouched despite lower demand. The current backlog in direct loans highlights that the demand for these types of loans remains high, particularly among beginning farmers and ranchers.
Congress’ fairly routine decisions on agricultural appropriations in which the annual appropriations bill provides more than is needed for GOL loans but underfunds DOL and DFO funds remains a critical issue as the Senate prepares to write it’s FY 12 agricultural appropriations bill in September. Had Congress provided for the same DFO loan volume as in FY 10, the current backlog would be small.
NSAC is urging the Senate to restore funding for DFOs back to the FY 10 program level of $650 million and to fund DOLs at least at the $1.05 billion program level requested by the President and included in the appropriations bill passed by the House earlier this year. This recommendation among others will be highlighted in an action alert we will send to readers in early September.
Beginning Farmer Loans as of End of July
By law, FSA is to target 75 percent of DFO loan funds, 50 percent of DOL funds, and 40 percent of GOL and GFO funds to beginning farmers and ranchers.
As of the end of July, FSA was very close to the target rate of 75 percent DFO target and exceeded the DOL target rate, with 56 percent of total funds lent to beginning farmers and ranchers. The two guaranteed loan funds were off target, as if often the case, at roughly 25 percent each relative to the 40 percent statutory target.
Overall, as of the end of July, beginning farmers and ranchers accounted for roughly half (46 percent) of all FY 11 borrowers and those beginning farmer and rancher loans accounted for just over a third (37 percent) of total dollar amount for all FSA lending.