Page 60 - The GSE Report March-April 2018

FARM CREDIT SYSTEM / FARMER MAC MJARN.U-ARPYR.20210818
FARM CREDIT SYSTEM / FARMER MAC
Tax bill drives the FCS’s effective tax rate to 0.73%
“One effect of last year’s tax bill was to drive the FCS’s effective tax rate in 2017 to a new low—to just 0.73 percent, compared to 3.48 percent for 2016 and 4.03 percent for 2015,” wrote Bert Ely
in Farm Credit Watch. “This sharp decline was due largely to the tax bill’s effect on CoBank. Like other corporations, CoBank had to recalculated its deferred tax assets and tax liabilities, as of the end of 2017, at the new lower tax rate; doing so generated a $142.3 million tax benefit for CoBank, reducing its tax bill from $171 million in 2015 and $158 million in 2016 to just $15 million for 2017. The tax bill for the rest of the FCS actually increased, from a miniscule $17 million in 2016, for an effective tax rate of just 0.43 percent, to a still miniscule $23 million, on $4.087 billion of pre-tax income in 2017, for an effective tax rate of 0.56 percent. These absurdly low effective tax rates highlight why Congress needs to undertake a fundamental examination of how the FCS is taxed relative to commercial banks and other taxpaying firms financing farmers and rural America.” (Farm Credit Watch, Bert Ely, March 2018)
FCSIC rebates $162.7 million to FCS institutions
The Farm Credit System Insurance Corporation (FCSIC), the arm of the Farm Credit System which insures the timely payment of principal and interest on debt issued by the Federal Farm Credit Banks Funding, will “return” to the four FCS banks $162.7 million of “excess funds”— the amount exceeding the “secure base amount” of 2% of the outstanding debt issued by the Funding Corporation.
“The timing of this rebate is questionable given the likelihood of growing credit-quality problems within the FCS due to declining net farm income and the unwise practice of some associations
to encourage their borrowers to defer loan principal repayments,” wrote Bert Ely. “As the FCSIC news release announcing this rebate noted, ‘the FCSIC board has the authority to hold the excess funds if conditions warrant doing so.’ Current conditions certainly do warrant holding back those excess funds. It would have been far more appropriate, though, for the FCSIC to send those funds to the U.S. Treasury as compensation for the $10 billion taxpayer-backed line-of-credit Treasury began providing to the FCSIC in Sept. 2013. In the Dec. 2017 Farm Credit Watch, I discussed the most recent extension of this line-of-credit, to Sept. 2018. To date, the FCSIC has paid absolutely zero to the Treasury for this line of credit.” (Farm Credit Watch, Bert Ely, March 2018)
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