We have a farming crisis in this country. There are a remarkable number of crops that can be grown in Colorado, which is why this state in particular needs a better program to not only protect our producing farmland, but to help a new generation take to the fields. The average farmer is 55 years old. They will retire soon. In many instances, their children don't have enough credit or operating capital to carry on the family legacy. The U.S.D.A. Farm Service Agency (FSA) offers loan programs to beginning farmers, but these programs have serious limitations and don't help many aspiring young people start farming. There simply isn't enough money in one of these loans to start a sustainable farm operation. The new farmer has to qualify for a bank loan first then ask for the FSA program to cover the loan. These farmers (the ones who keep farming) squeak by with minimal investment in the family farm until their parents retire.
If elected, I will champion a Long Term Farm Stability Program, which will allow new farmers to issue a bond to the state, similar to how large corporations fund projects, rather than taking out a conventional loan to start farming. Bonds will be used rather than loans because they are set up for yearly coupon payments and are also repaid relatively quickly. Farmers will be able to be debt free within 10 years as opposed to 30 years or more for most land banks loans.
The SBA has a loan program for small businesses that can completely fund a startup. Farms are excluded from the funds. The caps on SBA loans can be more than 10 times that of an Aggie Bond or other starting farmer loan. This program will fix the gap in funding for our most critical business - food production. Some important differences will make these funds easier to procure and keep our farmers from relying on banks. The current Aggie Bonds are capped significantly lower than the cost of even buying into a working, economically sustainable farm, let alone purchasing a new one, and the state does not issue the money. The state promises to cover the interest on the loan if the borrower can't. This program will allow the state to directly issue money through the treasurer via a farmer issued bond and secure it through the purchased property and taxes. With the exodus of food production overseas, we can't afford to allow our banking and credit system to deny our farmers access to land. Unlike other farm startup loans this bond is allowed to fund operating costs ending a likely future of bank reliance before it starts.
A good capital investment for a new small farm operation will easily be $1 million or more. These are some basic numbers for $1 million bonded to a new farm. A conventional loan with a 5 percent annual interest rate and a 10 year payoff will generate around $273,000 in interest. It has to be paid monthly to keep the interest that low. This gives just over $127,000 in yearly payments. The bond will have a face value 5 percent, or $50,000, over its purchase price, which will go back to the state rather than a bank. This gives a $223,000 savings to the farmer over 10 years. The farm will be exempt from all state and local taxes as he will now be responsible for $50,000 in income to the state. Bonds for grain, forage, meat, and farm service industries will be a 10 percent return for face value over market price at maturity and will generate $100,000 in revenue to the state.
The money saved each year by not paying principle and interest to a bank will be saved by the farmer in a savings account. A disciplined farmer should have no problem saving enough money generated by a well organized farm to pay the coupons on the bond. State income tax laws will also be re-written so that the money saved can be used as operating capital for the next season without being taxed as income, saving the new farmer from using seasonal operating loans from a bank. I will work with our national legislature to see that the IRS sets the same tax rules. Overall, the interest saved will be substantial enough to allow smaller farms to be economically sustainable. This is critical as our farm size has spiraled out of control with rising prices; commodity prices may be going up but input costs are rising just as fast. Each year it takes more land and capital investment to make money as a farmer than it did the year before. This will reverse the trend. With the emphasis on smaller farms, we create more jobs with this style of lending. Putting more people on farms will result in an increase in the local service industry, too. This will create more than just farm jobs - farmers have to buy fuel, groceries, clothes, etc.
Each farm dollar circulates through the local economy a number of times before dying out. Current estimates show between $5 and $9 are recirculated through the local economy for each dollar a farm spends. The 1-1-7 rule proves mathematically that a $1 dollar farm investment (or any other resource investment) generates $1 farm revenue and $7 off farm revenue. With a savings of $223,000 in interest (not including how much is saved by not having yearly operating notes) each million dollars bonded at 5 percent return generates $1.115 million on conservative estimates and up to $2 million back to the local economy. This is just the extra money generated through savings over a similar loan from a bank. Obviously this extra money can be taxed and can generate much more revenue for the state as well, helping to pay for the cost of purchasing the bond.
Of course there will have to be limitations to this program. The idea is to get more farmers onto the land so access to capital for farms that don't generate enough revenue to exist on a smaller scale, both acreage and total net value wise, will be restricted. The focus will initially be on vegetable and fruit production. Grain, fodder, and livestock farms, such as the cattle ranches that already exist in large numbers in Colorado will have higher face value over purchase price on the bonds, as well as less capital available. Greenhouses and other systems that generate more produce per acre than normally possible in our climate will be favored. Any type of farm that conserves water will also be given preference. Hydroponic and aquaponic facilities will also be given preference. The farming practices won't be looked at as much, but sustainable (not organic) fertilizers and pesticides, as well as minimal or no till will be preferred. The program will also apply to anyone willing to help set up local marketing programs similar to U.S.D.A. terminal markets.
This program will be funded through current taxes on roads and cigarettes. Money will also be directed from other less efficient farm programs such as aggie bonds. It will save money over current programs our state offers farmers and will ultimately help fund itself through increased tax revenue from the healthy communities it creates and repayment of bonds.
The criteria to get a bond will be much different from the qualifications to get a bank note. It will not be based on credit scores. The applicant will need to show a quality business plan and cash flow analysis based on current market prices for the farm they want to start. If they will be renting land they will need a guarantee for a 10 year lease. The applicant will either have an agriculture related degree with 2 years of farm experience, or have 10 years of experience farming. He will also need a letter of recommendation from someone currently employed in the agriculture industry, whether a farmer, co-op employee, or someone who sells farm products. This will eliminate restrictions that prevent people capable of farming from receiving a loan due to lack of collateral or credit scores.
This program will build a long term, sustainable local farm atmosphere in Colorado. We will gain food independence through the implementation of this. Economic stability and downward mobility of wealth will result. Colorado needs this program.
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