[Congressional Record Volume 144, Number 125 (Friday, September 18, 1998)]
[Senate]
[Page S10591]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Ms. MOSELEY-BRAUN (for herself and Mr. Grassley):
  S. 2501. A bill to amend the Internal Revenue Code of 1986 to exempt 
small issue bonds for agriculture from the State volume cap; to the 
Committee on Finance.


                      Agricultural Tax Legislation

 Mr. GRASSLEY. Mr. President, today we introduce two bills that 
will help farmers. These bills take another step in insuring the 
viability of family farming into the next century.
  This first bill clarifies the laws regarding both Section 521 and 
Subchapter T agricultural cooperatives. Recent action by the Internal 
Revenue Service hinders farmers' attempts to form value-added 
cooperatives and to use these cooperatives as a source of income and 
stability. Specifically, the IRS changed its position of allowing 
cooperatives, in connection with their marketing functions, to 
manufacture or otherwise change the basic form of their members' 
products without jeopardizing the cooperatives' status.
  Farmers value-added cooperatives were designed to encourage farmers 
to own the businesses that process their products, and to give them the 
benefit of the finished product. These cooperatives help create new 
products that benefit farmers. The IRS is choosing to differentiate 
between using a machine process and using a biological process to 
manufacture the finished product. There should be no difference--there 
isn't for business, there isn't for farmers, so there shouldn't be for 
the IRS.
  The second bill that we are introducing today will take Aggie bonds 
out from under the private activity bond cap. Aggie bonds are an 
important tool for first time farmers. Removing them from the existing 
cap will greatly enhance the opportunities for beginning and less 
established farmers and ranchers to acquire affordable, low cost credit 
for agricultural purchases. Most industrial revenue bonds are typically 
issued for millions of dollars, underwritten, rated and sold to 
investors. Aggie bonds, which cannot exceed $250,000, are not 
underwritten, are not rated, and are not sold to investors. Rather, 
they are sold to local lenders who finance beginning farmers with a 
lower than normal interest rate. Several states would like to start 
offering Aggie bonds but cannot because their volume cap is already 
used for non-agricultural projects. Many other states, including my 
state of Iowa, cannot meet the demand for Aggie bonds.
  These are two bills that will help farmers now, and always. These 
offer immediate help, and are part of the tax code restructuring that 
we must enact to make the playing field fair to America's farmers. I 
want to thank Senator Moseley-Braun for working with me on these 
important pieces of legislation.
 Ms. MOSELEY-BRAUN. Mr. President, I am pleased to introduce 
two bills today with my distinguished colleague from Iowa, Senator 
Grassley, that will benefit farmers in rural America.
  As my colleagues may be aware, farmer-owned cooperatives play a major 
role in providing food and fiber to consumers. These cooperatives also 
provide their farmer-owners with additional market stability and help 
to strengthen farm income.
  Current tax law states that farmers, fruit growers, or ``like 
associations'' that are organized and operated on a cooperative basis 
for the purpose of marketing the products of its members or other 
producers shall be exempt from federal income tax if those cooperatives 
are developed for the purpose of marketing the products of the members 
or other producers, and turning back to the members proceeds of the 
sales, less marketing expenses.
  Farmers nationwide are joining together in self-help efforts to 
develop cooperatives and to develop new uses for the commodities that 
they grow, but recently the Internal Revenue Service (IRS) ruled that 
in certain instances, some forms of value-added farmer-owned 
cooperatives are not tax exempt. The Grassley/Moseley-Braun bill would 
overturn that IRS ruling and amend the current section of the tax code 
to explicitly cover these types of cooperatives.
  Another concern that farmers have shared with me is the future of 
agriculture and the ability of their children and other beginning 
farmers to enter into farming as a way of life. I have worked in the 
Senate to change federal policies that will lower the obstacles for 
younger farmers who enter into farming as a profession.
  One such program is the ``Aggie Bonds'' program. In the 103rd 
Congress, I cosponsored the law that granted a permanent tax exemption 
for these bonds. I also worked to include provisions in the Small 
Business Tax Relief Act of 1996 to widen eligibility for the bonds, 
increasing the amount of land a beginning farmer may own to qualify for 
the loan.
  Today my Iowa colleague and I introduce a bill that further improves 
this successful program by exempting aggie bonds from the volume cap on 
industrial revenue bonds. Currently, Federal law allows states to issue 
tax exempt industrial revenue bonds that are earmarked for purchases of 
farmland, equipment, breeding livestock, as well as farm improvements 
by new or beginning farmers. The Farm Service Agency (FSA) also has 
authorized State chartered, non-profit corporations to make guaranteed 
mortgage and farm operating loans. Unfortunately, the aggie bond 
program and the FSA guaranteed farm mortgage programs have size limits 
of $250,000 and $300,000 respectively.
  Given the rise in property costs, these limits fail to provide 
meaningful funds for small farm purchase or often time prevent certain 
classes of farmers from obtaining credit. In addition, aggie bonds are 
subject to statewide ``caps'' applicable to both small farmers and 
established users.
  Most industrial revenue bonds are typically issued for million of 
dollars, underwritten, rated and sold to investors. Aggie bonds, which 
cannot exceed $250,000, are not underwritten, are not rated, and are 
not sold to investors; they are sold to local lenders who finance 
beginning farmers with a lower than normal interest rate. Most of the 
private-activity bond volume is used by large corporations for 
manufacturing or for multi-family housing. Aggie bonds are used by 
beginning farmers and ranchers.

  Several states, such as Illinois, has discovered that the volume cap 
is already used up by non-agricultural projects, and many states cannot 
meet the demand for Aggie Bonds.
  Exempting Aggie Bonds from the volume cap would greatly enhance the 
opportunities for young or beginning, less established farmers and 
ranchers to acquire affordable, low cost credit for agricultural 
purchases such as land, livestock, machinery, and farm improvements. 
The Moseley-Braun/Grassley bill exempts aggie bonds from the volume 
cap.
  These two bills will help farmers in Illinois, Iowa, and all of rural 
America. I hope my colleagues will join us in supporting these bills 
and I urge their swift passage in the United States Senate.
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