Page 65 - September October 2018 Disruption Report Flip Book

FARM CREDIT SYSTEM / FARMER MAC SEJPATN.U-AORCYT.20210818
In Farm Credit Watch, Bert Ely wrote:
Implications of the growth in on-farm electricity generation CoBank, the only FCS institution empowered to lend to rural utility cooperatives, recently published a report about farmers generating more and more of the electricity they use... While the report focuses on solar generation of electricity, wind power and the burning of farm and animal waste also are sources of energy for on-farm generation of electricity. The decreasing cost of batteries further enhances the attractiveness of on-farm electricity production as does the ability of farmers to sell the excess power they generate to their local utility through “net metering” arrangements. On-farm electricity generation and storage may even reach the point, especially in remote areas, where a farmer or rancher can completely disconnect from the electricity grid.
All forms of on-farm electricity generation and storage are capital intensive, which creates loan demand that can be financed by banks, the FCS, and other lenders. How FCS institutions classify their electricity-related loans for tax purposes, though, will determine how effectively banks and other taxpaying-lenders can compete for this business. This is the case because the profits an FCS institution earns on loans secured by real estate are exempt from all income taxation while profits earned on non-real-estate loans, such as
for tractors and other farm equipment, are subject to federal income tax. This difference
in tax treatment is a key reason why the FCS has more of a competitive edge in real- estate lending than in non-real-estate lending. Therefore, the FCA should require that
FCS institutions treat all loans related to on-farm electricity generation and storage as equipment loans rather than as real estate loans even when the equipment, such as solar panels or wind turbines, are permanently attached to the ground. The FCA can accomplish this by mandating that loans made by an FCS association related to electricity generation and storage be placed on the books of its production credit association subsidiary, which is subject to the federal corporate income tax, rather than on the books of its tax-exempt federal land credit association subsidiary. (Farm Credit Watch, Bert Ely, September 2018)
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