Pub. 10 2015-2016 Issue 1

www.nebankers.org 18 Extraordinary Service for Extraordinary Members. K EN AUER IS PRESIDENT OF THE FarmCredit Council, the Farm Credit System (FCS) trade association that lobbies on behalf of the FCS and its constituent Farm Credit banks and associations. During the 2013-2014 period, the Farm Credit Council (Council) Political Action Committee raised $1.08 million and contributed $935,000 to candidates for federal office. Those contributions give the Council, and therefore the FCS, a lot of clout in Congress and especially with members of the House and Sen- ate Agriculture Committees as the FCS fights to protect its tax exemptions while opposing the American Bankers Association’s (ABA’s) request for peri- odic congressional oversight hearings of FCS activities. Here is the link to the ABA letter requesting hearings: http:// bit.ly/Keating-Ltr-AgComm-2015-02. A similar letter was sent to the House Agriculture Committee. In the April 15 issue of Brownfield Ag News, Auer asserted that “the FCS does pay federal taxes, but has special Bert Ely’s FARM CREDIT WATCH ® Shedding Light on the Farm Credit System, America’s Least Known GSE © 2015 Bert Ely Does Ken Auer Fully Understand the FCS’ Tax Advantages? tax provisions and does not pay many state taxes.” Auer is right that the FCS “does not pay many state taxes,” but he grossly misrepresented the extent to which the FCS is exempt from the fed- eral corporate income tax, or perhaps he does not understand the magnitude of that exemption. The FCS’ largest tax break is its exemption from federal income taxes on profits earned on real estate lending; FCS real estate loans are carried on the books of Federal Land Credit Associations (FLCAs). All but two FLCAs are subsidiaries of the FCS’ 74 Agricultural Credit Associations (ACAs) that cover almost all of the country. Each ACA also has a Production Credit Association (PCA) subsidiary that holds its non-real estate loans; PCA profits are subject to federal income taxes. Understandably, the ACAs have a pow- erful financial incentive to maximize the profitability of their tax-exempt FLCA subsidiary while minimizing the income of their federally taxable PCA subsidiary. According to the FCS’ annual Infor- mation Statement for 2014, the FCS’ “nontaxable entities,” principally the FLCAs, effectively reduced the FCS’ federal tax bill by $1.26 billion, or 73 percent. The comparable reductions were $1.23 billion and 72 percent in 2013, and $1.09 billion and 72 percent in 2012. This federal income tax reduc- tion gives a lie in Auer’s statement to Brownfield Ag News that “there is NO federal or taxpayer money involved in the [FCS].” The FCS’ federal income savings are financially equivalent to the U.S. Treasury Department sending checks in those amounts to the FCS. Additionally, the FCS has a $10 billion line of credit at the Treasury. Perhaps Auer does understand the magnitude of the FCS’ tax subsidy but does not want to publicly admit it, especially since the FCS increasingly tilts toward lending to larger borrowers and investor-owned utilities rather than to young, begin- ning, and small (YBS) farmers the FCS is supposed to focus on serving. FCA’s Double Standard on Enforcement Actions Like the bank regulators, the Farm Credit Administration (FCA) takes enforcement actions against FCS insti- tutions for various reasons. Unlike the bank regulators, though, the FCA does not publish its enforcement orders nor does it even name the FCS institutions subject to those orders. However, these institutions (usually FCS direct-lending associations) do disclose the existence of those orders in their quarterly and annual reports to their members. It takes a lot of work, though, to identify those institutions. Presumably the FCA fears dire consequences if it names names, yet the FCA does not hesitate to name the individuals it has barred from serving, without the FCA’s consent, “as a director, officer, or employee of any FCS institution.” Rarely, though, are individuals prohibited fromworking in the FCS—over the last decade, just four persons have been subject to a prohibi- tion order. Although the FCA does not name the institutions subject to enforcement