Proponents of the Modernizing Agricultural and Manufacturing Bonds Act, which could expand aggie bond issuance, are pessimistic about the possibility of any congressional movement this year.
Versions of MAMBA have been bouncing around in both houses of Congress since 2017 as a proposed bipartisan update to regulations governing aggie bonds. The legislation is also designed to spur light manufacturing industries in underpopulated areas. Ongoing efforts to pass a farm bill offered a chance for MAMBA movement, but hopes are fading fast.
"The farm bill historically has had tax titles within it, "said Mitchell Smith, senior director, government & external affairs, Council of Development Finance Agencies. "The farm bill was discussed last year but it never came to fruition through political gridlock. We have it on pretty good authority that it's probably not going to happen again this year, which is problematic on several levels."
The comments came during a webinar hosted by CDFA on Tuesday, the same day the farm bill was pulled into another Senate clash involving the Supplemental Nutrition Assistance Program.
Aggie bonds are typically tax-exempt. Lenders are often small agricultural banks who utilize state development agencies as a conduit. They offer below market rates with funds going towards financing land, buildings, livestock, machinery, and refinancing existing debt.
The Internal Revenue Service classifies aggie bonds as private activity bonds designed to assist "first time farmers," who do not own "substantial farmland" and have not received financing for an amount that when added to a current financing exceeds $250,000. Maximum issuance is capped at $450,000 and indexed to inflation which currently pegs the number at $649,400.
Manufacturing bonds, also referred to as industrial development bonds or industrial revenue bonds are regulated by IRS rules that date back to 1986. The maximum that can be financed with an IRB is $10 million.
MAMBA yokes the two sets of restrictions together into a rules change that could ignite growth in rural areas. "Manufacturing bond reforms would spur investment in smaller manufacturing projects and companies that can be sited in areas with lower population and deliver downstream economic development," said Smith.
MAMBA would increase the limitation on small issue bond proceeds for first-time farmers to $1 million and triple the cap on industrial development bonds to $30 million from $10 million.
It would also allow up to a quarter of bond proceeds to be used for facilities that are located on or near the same site, align aggie bond definitions with the U.S. Department of Agriculture Farm Service Agency, and expand the definition of manufacturing to include more current product lines like microchips and software.
It would repeal the separate dollar limitation on depreciable property for first-time farmers and modify the definition of "substantial farmland."
As the director of the Colorado Agriculture Development Authority, Jim Rubingh has overseen the issuance of over four-hundred beginner farmer bonds this year. "It's looks like it could be a fairly good year for us, with well over $66 million," he said. The CADA's borrowers include sausage factories, flour plants, and dairy farms.
"We've done four of those (dairies) for about $15 million," said Rubingh. "We've also done sewage treatment, we've helped dairies with livestock confinement, doing holding ponds and other things to better treat the water."
In the Senate, MAMBA is co-sponsored by Sens. Sherrod Brown, D-Ohio, and Joni Ernst, R-Iowa who reintroduced it last
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"Right now, it remains to be seen what appetite Congress has for passing any major bills throughout the rest of the year," said Smith.
