BILL ANALYSIS C.S.H.B. 1167 By: Patterson 04-05-95 Committee Report (Substituted) BACKGROUND In 1993 legislation was passed that moved the administration of the Farm and Ranch Finance Program from the Veterans Land Board, where the program was idle, to the Texas Department of Agriculture. The purpose of the program is to provide affordable financing to eligible farmers and ranchers in order to purchase land for a base of operation. The program is funded by general obligation bonds and is self supporting. Borrowers are required to make a downpayment of at least five percent, which is a more favorable loan term than is available with commercial loans. Borrowers may not have a net worth of greater than $250,000. These two factors make the program available to young farmers who have a few years experience. The downside of this is that these producers may be a higher credit risk than other producers with more experience and accumulated capital. The current program requires a borrower to have earned at least 25 percent of gross income from farming/ranching for the past three years. This provision is intended to restrict the program to individuals who have experience and who are not "dabblers" or in "tax shelters." Unfortunately, the 25 percent of gross income implies that only individuals who have three years of income from an owned agricultural operation will be able to qualify. Also, the calculations required to determine this are complicated and vary with each individual situation. One other facet of the current legislation that does not meet with legislative intent is the loan amount limit requirement. The loan limit is $150,000 however, the down payment language inadvertently does not allow a loan to exceed $142,500, and actually decreases the loan amount allowed as a tract purchase price increases. PURPOSE The purpose of this legislation is to clarify that a Farm and Ranch Finance loan may be made for an amount up to $150,000. It states that an applicant must provide evidence that he has three years of pertinent experience, and must not have a net worth exceeding $300,000. RULEMAKING AUTHORITY It is the committee's opinion that this bill does not expressly grant any additional rulemaking authority to a state officer, department, agency, or institution. SECTION BY SECTION ANALYSIS SECTION 1. Amends Section 59.022(c), Agriculture Code. Sets forth that fees collected to cover administrative expenses be deposited in the farm and ranch finance program fund. Sets forth that costs not covered by fees shall be paid from the farm and ranch administrative expense fund. SECTION 2. Amends Section 59.024, Agriculture Code to read as follows: Section 59.024. APPLICATION; ELIGIBILITY. (a) Requires a person to submit to the lender an application outlining an agricultural business plan for the land to be purchased. Sets forth that the primary purpose of the land should be for farming or ranching. (b) Requires the applicant to provide evidence at the time of application that he has had three years prior experience pertinent to the applicant's plans for the land. Removes the requirement that the applicant derived at least 25% of his gross income from a farm or ranch. Increases the limit of an applicant's net worth to $300,000. SECTION 3. Amends Section 59.025, Agriculture Code. Changes current language, which inadvertently allows for a loan of only $142,500, to allow for a loan of $150,000. SECTION 4. Sets forth that farm and ranch finance loans made prior to the effective date of this act would not be affected by this act. Also establishes that down payments paid to the Texas Agriculture Finance Authority prior to the effective date of this bill will be refunded to the borrower if the sale of land has not been consummated. SECTION 5. Effective Date: September 1, 1995. SECTION 6. Emergency clause. COMPARISON OF ORIGINAL TO SUBSTITUTE The original legislation required that the fees collected to cover administrative expenses be deposited in the farm and ranch administrative expense fund instead of the farm and ranch finance program fund. Also, it required an applicant to use the land for farming and ranching in order to be eligible for the loan. H.B. 1167 removed the existing limit of $250,000 for an applicant's net worth, whereas the substitute sets a higher net worth limit of $300,000. SUMMARY OF COMMITTEE ACTION H.B. 1167 was considered by the committee in a public hearing on Tuesday, March 7, 1995. The following person testified neutrally on the bill: Mr. Robert Kennedy representing the Texas Department of Agriculture. The bill was left pending. H.B. 1167 was considered by the committee in a public hearing on Tuesday, March 14, 1995. The bill was left pending. H.B. 1167 was considered by the committee in a public hearing on Tuesday, March 21, 1995. The committee considered a complete substitute for the bill. The substitute was adopted without objection. The bill was reported favorably as substituted with the recommendation that it do pass and be printed, by a record vote of 6 ayes, 0 nays, 0 pnv, 3 absent.