Pub. 11 2016-2017 Issue 4

November/December 2016 21 Extraordinary Service for Extraordinary Members.  Bert Ely — continued on page 20 The totals at the bottom of the table are quite informa- tive, too, as they contrast the total amount of ag lending by the FCS institutions with the ag lending by the 100 largest commercial bank ag lenders. The FCS institutions dominate farm real estate lending, with more than three times as much of such lending as the commercial banks. This dominance reflects two key competitive advantages that FCS lenders enjoy: 1) Their profits on loans secured by real estate are exempt from federal and state income taxation; and, 2) The FCS, by virtue of its government-sponsored enterprise (GSE) status, is able to fund long-term, fixed-rate loans with long- term, fixed-rate debt. The FCS has much less of a competitive advantage in its production and intermediate-term lending, which is not secured by real estate, and consequently holds a smaller share of that type of lending compared to commercial bank ag lenders. Specifically, FCS profits on non-real-estate- secured lending are exempt only from state income taxes and the FCS has much less of an interest-rate advantage for the shorter-term funding used to finance non-real-estate- secured loans. FCA Inspector General Ignores Key Flaw in FCS YBS Numbers Last month, Elizabeth Dean, the inspector general (IG) for the FarmCredit Administration (FCA), issued a report on the FCA’s oversight of the FCS’ programs for lending to young, beginning, and small (YBS) farmers. The link to that 18- page report is at http://bit.ly/2016YBSreport. IGs at federal agencies are supposed to provide independent oversight and review of the agency’s activities. Despite all its verbiage and the auditing Dean and her staff did, the report fails to address, or even identify, the fundamental flaw in how the FCS tallies its YBS loan data—the double- and triple-counting of YBS The FCS has much less of a competitive advantage in its production and intermediate-term lending, which is not secured by real estate, and consequently holds a smaller share of that type of lending compared to commercial bank ag lenders. loans, which severely overstates the amount of the FCS’ YBS lending. That overstatement, in turn, leads to an understate- ment of the extent to which the FCS lends to larger farmers, ranchers, and agribusinesses—borrowers hardly in need of taxpayer-subsidized FCS loans. The FCA candidly admits to this double- and triple-count- ing, yet elsewhere it has demonstrated the ability to eliminate it. A young (Y) farmer is defined by the FCS as being 35 or younger, a beginning (B) farmer as someone with 10 or fewer years of farming or ranching experience, and small (S) as a farmer, rancher, or producer of aquatic products who nor- mally generates less than $250,000 in gross annual sales. As the FCS routinely notes when reporting YBS data, “farmers/ ranchers may be included in multiple categories since they are included in each category in which the definition is met.” That means a loan to a 32-year-old farmer with seven years of experience who generates $220,000 a year in farm sales is counted three times in the YBS data. Worse, each loan to that farmer is counted separately, so if the farmer in this example has three FCS loans, he or she will be counted nine times in the YBS data. IG Dean apparently sees no problem with this multiple counting. Interestingly, in its 2015 Annual Information Statement, the FCS implicitly acknowledged that it does aggregate indi- vidual loans by borrower when, for the first time, it published data showing the number of borrowers by dollar size range. Previously, the FCS had reported individual loans by size range. The FCS’ acknowledged ability to aggregate loans by borrower means that the FCS could report its YBS lending by borrowers who are a Y, B, and S; some combination of two