Pub. 6 2017 Issue 1

January 2017 21 l e a d i n g a d v o c a t e f o r t h e b a n k i n g i n d u s t r y i n k a n s a s ABA protests to FCA about illegal CoBank loan On December 1, ABA sent a letter to Farm Credit Administration (FCA) chairman Dallas Tonsager registering its strong objection to CoBank’s participation in a $1.55 billion credit facility recently extended to CyrusOne LP, the operating partnership of CyrusOne, Inc., a NASDAQ-listed Real Estate Investment Trust, or REIT. CoBank’s portion of the loan participation was not disclosed, but could easily fall in the $50 ‑ $100 million range. CyrusOne is in the business of leasing buildings used to house computer data centers to a variety of businesses. It is highly unlikely that any of CyrusOne’s lessees is engaged in agriculture. All of CyrusOne’s 35 data centers are located in major metropolitan areas, so there is absolutely nothing rural about its activities. Worse, there is no way CoBank can cite lending to a “similar entity” to justify buying this loan participation, a justification it cited in buying participations in loans to Verizon, AT&T, and other investor-owned utilities that compete against cooperatively owned rural utilities that CoBank can and does lend to. Further, since REITs already enjoy substantial tax advantages, they are hardly in need of taxpayer-subsidized financing. To date, the FCA has not responded to the ABA’s letter. Yet another CoBank loan to an ineligible FCS borrower According to a November 15 BusinessWire article, CoBank participated in a $434 million “tax equity investment and construction/term loan” to sPower, “the largest private owner in the United States of utility-scale solar operating assets.” sPower, in turn, “is a portfolio company of Fir Tree Partners, a global investment fund” that “is a privately owned hedge fund sponsor. The firm primarily provides its services to pooled investment vehicles. It invests in the public equity markets and real estate investments in commercial and residential real estate.” There is absolutely no indication that sPower or Fir Tree Partners are involved in agriculture. The three solar projects financed by this loan also are not related to agriculture, for the electricity produced by the projects will be sold exclusively to the City of Los Angeles’ Department of Water and Power (LADWP) under 25-year Power Purchase Agreements. The LADWP, of course, serves the highly urbanized City of Los Angeles, hardly a rural area. The fact that the solar projects are located in an unincorporated, rural area in Kern County, California does not qualify this project for taxpayer-subsidized financing, especially since its ultimate owner, Fir Tree Partners, is a “privately owned hedge fund sponsor” that “invests worldwide.” It is quite puzzling that CoBank continues to lend to businesses it is not authorized to lend to despite the sharp questioning of such lending by members of the Senate and House Agriculture Committees during the recent FCS and FCA oversight hearings the two committees held. How Dallas Tonsager became the new FCA chairman and CEO As last month’s FCW reported on November 22, President Obama “designated” FCA board member Dallas Tonsager as the FCA’s new chairman and CEO. He succeeded Kenneth Spearman, who had been FCA chairman and CEO since March 2015. Although Spearman’s term as an FCA board member expired last May, he can continue to serve on the FCA board until the president appoints and the Senate confirms his replacement as a board member. However, as authorized by the Farm Credit Act, the president can designate another FCA board member to serve as FCA chairman and CEO as soon as the current chairman’s term as an FCA board member expires even if that person stays on the FCA board. Most importantly, that designation does not require Senate confirmation, which differs from the situation at many other federal boards and commissions, notably the FDIC and the Federal Reserve’s Board of Governors, where the Senate has to confirm someone’s appointment as chairman of that board even if that person already is serving on the board. Congress should extend that policy to the FCA by amending the Farm Credit Act to require Senate confirmation of the person designated by the president to serve as FCA chairman and CEO even if that person already is an FCA board member. That confirmation requirement would enable the Senate Agriculture Committee to hold a hearing at which it could quiz the prospective chairman about how he or she will manage the FCA and, most importantly, enforce the Farm Credit Act and specifically its lending restrictions. FCA board gets update on FCS’s YBS lending At its November 10 meeting, the FCA board was presented with an update on the FCS’s lending to young, beginning, and small (YBS) farmers. The report provides some interesting demographic information on trends in American agriculture as they relate to the age of farm operators, farm operator experience, number of farms with annual farm sales above and below $250,000, and gross farm revenues by type of revenue — crops, animals, farm-related, and direct government payments. However, the report is highly misleading with regard to the FCS’s YBS lending. BERT ELY’S FARM CREDITWATCH®