New Law Puts State ‘In Competition’ With Local Banks When It Comes to Farm Loans

By Carrie Haderlie

Special to the Wyoming Truth

Gov. Mark Gordon said the state should not compete with local banks when it comes to agricultural loans, although he noted a new law has blurred that line.

Gordon said Thursday the state’s Farm Loan program is an “incredibly valuable safety valve” for ag producers, but that it was only intended as that — not as a way for the state to offer competing loans to what Wyoming banks currently do.

At the State Loan and Investment Board (SLIB) meeting in Cheyenne, the state’s top five elected officials discussed changes following the 2023 legislative session to Wyoming’s Farm Loan program. It was established in 1921 and has provided long-term real estate loans to Wyoming’s agriculture operators for over a century.

According to board documents, the program has been amended over the years to include irrigation loans and beginning agricultural producer and livestock enhancement loans. In 2019, the Legislature repealed the irrigation and livestock enhancement loan components, and funding was set at $275 million. Of that, $220 million was reserved for farm loans and $55 million was reserved for beginning agricultural producer loans.

During the 2023 Legislative session, the Wyoming Legislature enacted Senate Enrolled Act No. 37, which reduced the statutory allotment from $275 million to $50 million from Wyoming Permanent Funds for the program. The legislation also eliminated the 20% allotment for beginning ag loans, and amended the interest rate for farm loans to be equal to the yield on a United States treasury security “of the same duration of the loan.”

The 2023 law also allows SLIB to add an additional percentage “not to exceed 2% as a risk premium to the U.S. treasury rate,” and to set an interest rate for all farm loans to beginning agricultural producers of not less than 3%.

SLIB Director Jenifer Scoggin said that her office was looking for guidance from the board, as there were “unforeseen consequences” of the new law.

“The intent of the farm loan program has historically been not to compete with the commercial banking industry. It has been considered a safety net for the agricultural industry when rates have gone high, making it difficult for farmers and ranchers to afford funding to continue operations,” Scoggins said.

She continued that set interest rates in the Farm Loan program for non-beginning ag loans were historically higher than bank loans.

“With the changes to the farm loan program by the Legislature, it removed the 20% beginning ag allocation, so now the full amount can be used for standard farm loans,” Scoggins said. “This is a dramatic departure from the historic use of the farm program.”

“Mostly, what [the 2023 changes does] is limit the existing bank industry to operational loans, which are not particularly well-secured,” Gordon said. “It really affects our local banks, most of whom are community banks that are pillars of the community. To the point that the director [Scoggins] made, we were never intended to be a competitor.”

Gordon said he vetoed the bill during the 2023 session, adding that the change was akin to fixing “something that was not broken.”

While he wrote in his veto that he approved of much in the bill, the changes to the farm loan program were “severe enough” that he was compelled to veto it.

“The changes this bill would make to the interest rates for farm loans would put the State in direct competition with private financial institutions,” Gordon wrote on Feb. 23 in his veto letter. “This is not the proper role of the State.”

The bill was ultimately passed by a two-thirds vote in the House and Senate following the governor’s veto.

SLIB heard from Scott Meier, president and CEO of the Wyoming Bankers Association, who agreed the state’s program was intended for “emergency purposes, and not something that we just do to make sure there is another source of financing” for ag producers.

Beth Blackwell, grants and loans manager for SLIB, told the board her office has received one regular farm loan application with zero beginning ag applications since the law took effect. That single regular farm loan application will likely go before the board in December or February, she said.

Secretary of State Chuck Gray asked how Blackwell’s office is responding to inquiries about the farm loan program.

“I want to understand how you are going to proceed at this point. You have this application, you might get some more,” Gray said. “What are you going to tell them the interest rate is going to be?”

“What we have been telling people when we have inquiries is the facts,” Blackwell replied. “This is the interest rate now. The board may add a 2% risk premium. That is what we tell people.”

State Auditor Kristi Racines said she’d support adding, at a minimum, a 2% risk premium to the state’s loan program, but the board took no action Thursday.

Following the governor’s direction, Scoggins said her office will schedule a special meeting so board members can take comment from stakeholders, including stockgrowers, the Farm Bureau and banking officials, before making a decision on the loan program’s direction.