Key House farm-state legislators have developed a proposal calling for reorganization of the faltering Farm Credit System and authorizing up to $3 billion in federal aid if it is needed to keep the system afloat.
Administration officials, who have insisted that reforms must be carried out with the FCS before federal bailout money can be considered, are expected to outline their position on the bill at a House Agriculture credit subcommittee hearing on Thursday.
The legislative package appears to meet the administration's requirements, but the financial-aid portion falls short of the $5 billion that FCS officials have told Congress the system will need to avert a collapse in the next 18 to 24 months.
A central feature of the bill calls for setting up a capital corporation within the FCS to shift funds within the system and to take over defaulted property or bad loans that create instability in the FCS's individual banks.
The measure also would give the federal Farm Credit Administration new enforcement powers, require that it remove itself from day-to-day participation in FCS management decisions and empower it to ensure that borrowers get full information about their loans.
Mounting troubles in the huge farmer-owned lending network, which holds about a third of the nation's $214 billion agricultural debt, have put pressure on the government to provide financial aid.
Officials estimate that about 15 percent of the FCS' $74 billion in loans are "nonperforming," with losses expected to grow as farm prices remain depressed and land values continue to drop in most areas of the country. The FCS this year is projecting its first net operating loss in more than 50 years.
The House bill, cosponsored by Agriculture Chairman E (Kika) de la Garza, (D-Tex.) and Rep. Edward R. Madigan (R-Ill.), the committee's ranking Republican, proposes these major changes:
*An FCS capital corporation would be created to provide the main source of financial aid to member banks and organizations and to sell acquired properties and loans on which farmers have not made payments. The corporation also could refinance or adjust borrowers' debts on such loans.
To finance its activities, the corporation could draw funds from more stable FCS institutions. It would receive and oversee any financial aid coming from outside the system.
*The Farm Credit Administration would be reorganized and given more regulatory power to assure that FCS institutions uniformly follow standard accounting and banking practices. The FCA would be operated by a full-time, five-member presidentially appointed board, with one of its members named chairman by the president.
*The Treasury secretary would be given discretionary authority to buy up to $3 billion worth of the new capital corporation's obligations if it is deemed necessary to protect the stability of the FCS.
The bill would require the Farm Credit Administration to ensure that its own resources have been used to the fullest extent before federal aid could be considered.