[Congressional Record Volume 142, Number 48 (Tuesday, April 16, 1996)]
[Senate]
[Pages S3384-S3402]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. GRASSLEY (for himself, Mr. Pressler, and Mr. Baucus):
  S. 1674. A bill to amend the Internal Revenue Code of 1986 to expand 
the applicability of the first-time farmer exception; to the Committee 
on Finance.


                     the aggie bond improvement act

  Mr. GRASSLEY. Mr. President, as you might expect, as I so often do on 
the floor of the Senate, I rise to speak about agriculture because it 
is a very important industry in my State. The legislation that I am 
introducing today, with Senators Pressler and Baucus, is bipartisan in 
sponsorship and changes the treatment of what are referred to as the 
aggie bond provisions of our tax statutes. We call this the Aggie Bond 
Improvement Act.

  This legislation is important because of the changing scene of 
agriculture,

[[Page S3402]]

the inability of young farmers to get started in farming, and 
particularly because today the average age of farmers. In my State of 
Iowa, and I think in most agricultural States, farmers average in their 
upper fifties. In 5 to 6 years we will have 25 percent of the farmers 
retiring. Hence, the necessity for improving programs to encourage 
young people to go into farming is clear. We introduce this bill today 
for with this purpose in mind.
  This legislation will recondition and strengthen the popular first-
time farmer programs administered by various State authorities. These 
authorities issue tax-exempt bonds to finance first-time farmers' 
loans. This combined agriculture and tax legislation enjoys the company 
of a companion bill in the House to be introduced by my colleagues from 
Iowa, Congressman Lightfoot and Congressman Ganske and the remainder of 
the Iowa House delegation. Joining me in our efforts in the Senate, as 
I have already said, are Senators Pressler of South Dakota and Senator 
Baucus of Montana. These two Senators are very interested in the 
problems of agriculture. The problems in their States are similar to 
those in mine.
  We encourage all of our colleagues in the Senate to join us as 
sponsors in this Aggie Bond Improvement Act. Many beginning farmers and 
ranchers utilize low-interest loans authorized by aggie bonds to get 
started in farming and ranching. With the help of State authorities, 
these usually younger farmers must secure a participating private 
lender. This is a Government-private sector partnership. This private 
lender assumes all of the loan risk.
  A Federal law limits the use of aggie bonds for first-time farmer 
purchases and restricts them to a maximum of $250,000 per family, per 
lifetime. I know that sounds like a lot of money to people that do not 
understand agriculture, but with that sort of loan you create one job. 
We are not talking about a massive farming operation with a massive 
amount of hired help. It takes that much capital to create one job in 
agriculture because of the nature of the investment.
  State laws usually impose additional restrictions in addition to 
those that we do in the Federal Government. They might do this from the 
standpoint of net worth, material participation, and residence 
requirements--all very legitimate requirements. Therefore, there is no 
risk of any misappropriation of any underlying tax benefit.
  These State programs present American taxpayers with a new generation 
of farmers to ensure that our grocery stores continue to stock the 
greatest food bargains in the world. However, to fully succeed, the 
States need the improvements offered by this legislation.
  First, cosponsors to this bill will help family members purchase the 
family farm by changing the current rule prohibiting aggie bond 
financing for family member transactions.
  Senators from agriculture States know that the high startup costs for 
farming and the unique expertise required of farmers, cooperate to 
ensure that only the children and family members of present farmers can 
themselves become farmers. Therefore, disallowing aggie bond financing 
for family member transactions has operated as an unintended obstacle 
to the success of aggie bond programs.
  Second, cosponsors to this bill will help more first-time farmers 
become lifetime farmers by allowing more young people to qualify for 
aggie bond financing. Present law disqualifies beginning farmers who 
have previously owned and farmed any parcel of land that is 15 percent 
or more of the median-size of a farm in the same county. Depending on 
the size of other farms in the county, many young farmers cannot 
utilize beginning farmer loans because of this restriction. Therefore, 
this legislation would qualify a beginning farmer who had previously 
owned and operated any farm that is no more than 30 percent of the 
average size of a farm in the same county. In Iowa, this means where 
present law disqualifies an average beginning farmer for having farmed 
only 35 acres, with this legislation, average beginning farmers can 
farm up to 100 acres and still qualify for aggie bond financing.
  Having been a farmer all of my adult life, I can attest that no 
farmer can make a living to support even himself on 100 acres, not to 
mention supporting a family. These persons truly are just starting out 
in the farming trade and desperately need the first-time farmer's loans 
financed by these aggie bonds.
  Mr. President, farm State Senators know the average age of farmers is 
increasing. Presently, our farmers in Iowa average in their late 
fifties. This aging trend is common in every State in this country. 
Last year, the Iowa Agriculture Development Authority--the authority 
that issues these aggie bonds in my State along with comparable 
agencies in about 20-some other States--issued 177 of these loans in my 
State, and nearly 80 percent of the applicants were under 35 years of 
age.
  Truly, there is an aging generation of farmers still on the land who 
would like to retire and there is a younger generation of farmers who 
want to begin. This legislation to improve the State aggie bonds 
programs simply makes the necessary transactions possible. Seeing these 
possibilities, the National Counsel of State Agriculture Finance 
Programs, and a farming organization called Communicating for 
Agriculture, strongly endorse this legislation. It is also important to 
note that the Federal Government shoulders absolutely no financial risk 
in aggie bonds, and their cost, after these improvements, will be 
minimal.
  I urge my colleagues to join me and the other cosponsors of this bill 
in supporting America's beginning farmers.
  Mr. President, I ask unanimous consent to have printed in the Record 
the legislation.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                S. 1674

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. EXPANSION OF FIRST-TIME FARMER EXCEPTION.

       (a) Acquisition From Related Person Allowed.--Section 
     147(c)(2) of the Internal Revenue Code of 1986 (relating to 
     exception for first-time farmers) is amended by adding at the 
     end of the following new subparagraph:
       ``(G) Acquisition from related person.--For purposes of 
     this paragraph and section 144(a), the acquisition by a 
     first-time farmer of land or personal property from a related 
     person (within the meaning of section 144(a)(3)) shall not be 
     treated as an acquisition from a related person.''
       (b) Substantial Farmland Definition Modified.--Clause (i) 
     of section 147(c)(2)(E) of the Internal Revenue Code of 1986 
     (defining substantial farmland) is amended by striking ``15 
     percent of the median'' and inserting ``30 percent of the 
     average''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to bonds issued after the date of the enactment 
     of this Act.
                                 ______