US Senate proposes bill to extend first-time farmer financing.

On September 5th, U.S. Senators Sherrod Brown (D-OH) and Joni Ernst (R-IA) introduced the bipartisan bill, The Modernizing Agriculture and Manufacturing Bonds (MAMBA) Act, to extend financing to first-time farmers and small manufacturers ¹ . The bill has been through Congress ² and is referred to the Senate’s Finance Committee for further discussion, but if approved, the MAMBA Act would represent the first update to the Internal Revenue Service’s (IRS) rules for First-Time Farmer Bonds (Aggie Bonds) and Industrial Development Bonds (IDBs) in almost four decades.

Current MAMBA Proposals:

MAMBA introduces 6 key reforms on the regulations around IDBs and Aggie bonds as follows:

1. Expand the Definition of “Manufacturing Facility” The current bill draft proposes that the definition of “manufacturing facility” shall expand to include facilities used in the creation or production of intangible assets. Since the last time IDBs were updated almost 40 years ago, the US economy has witnessed a technological revolution with software ubiquitous across manufacturing processes. Today’s manufacturers participate in high tech practices involving biotech, energy generation, software, and intellectual property generation, all of which are not covered under existing classifications. Definition expansion would align financing with the modern manufacturers to support software, patent, copyright, formulas, and other intellectual property production.

2. Eliminate and Clarify Restrictions on “Directly Related and Ancillary Facilities” As it exists, IDBs are limited to financing the primary tangible property facilities with only a maximum 25% of bond issuance net proceeds capable of supporting ancillary facilities (like cafeterias, lockers, offices). It is proposed to remove this 25% limitation, thus facilitating manufacturers to improve growth in both tangible and intangible assets.

3. Increase the Maximum IDB size Limitation from $10 Million to $30 Million, Indexed to Inflation Since the 1980s, the US economy has witnessed steady inflation. As a result, IDB issuers have informed in several industry surveys that most manufacturing project demands require issuance in the $15-$30 million range, well above the current maximum. As a result, the bill proposes increasing the limit to rectify reductions in financing power since 1979 and also links issuance to inflation to prevent future losses.

4. Increase the limitation on Aggie Bond proceeds for First-Time Farmers from $450,000 to $1 Million The internal revenue code limits that only 25% of Aggie bond proceeds may be used to purchase land, unless the individual qualifies as a first-time farmer. As it stands, the maximum issuance was set in 2007 at $450,000 indexed to inflation. With low-interest rate environments through 2021, many first-time farmers saw land prices jump dramatically pushing well beyond the maximum limits. The new MAMBA bill proposes to increase the max to $1 million to rectify.

5. Repeal the Separate Dollar Limitation off Bond Proceeds for Depreciable Property Currently, first-time farmers are limited to $62,500 worth of proceeds for depreciable property (e.g. machinery) and $250,000 for existing buildings and farm improvements. These separate dollar limitations turned off many would-be farmers to the industry. As a result, MAMBA proposes to eliminate these limits, allowing first-time farmers to use as much as they need of the $1 million for farming equipment, livestock, seeds, and other farming operations assets.

6. Modify the Definition of “Substantial Farmland” Many first-time farmers combine proceeds of Aggie bonds with loans from the USDA Farm Services Agency (FSA) in order to maximize their new operation’s financing profile. However, the 2014 Farm Bill changed the definition for how the FSA defines beginning farmers, creating misalignment between the two programs and limiting available capital for first-time farmers. Thus, the bill proposes to bring in line with the FSA definition, which uses a reference to 30% of the average county acreage instead of median county acreage. This further benefits beginning farmers as the growth of hobby farming over the past decade has pushed the median acreage lower, while industrial farming has pushed the average upwards.

MAMBA Historical Proposals and Ongoing Process

The 118th Congress is not the first time MAMBA was introduced. The Act in very similar forms received bipartisan support in the three previous Congresses (117th, 116th, and 115th) yet failed to reach the Senate floor for votes. In the 117th Congress, MAMBA was attached to the Build Back Better Act but was not included in the Inflation Reductions Act that eventually passed.

The current bill continues to have significant bipartisan support with endorsements from the likes of the National Council of State Agricultural Finance Programs, the Council of Development Finance Agencies, Bond Dealers of America, National Association of Bond Lawyers, and hundreds of other finance agencies and industry stakeholders.

In terms of next steps, the bill will go through the Senate Committee on Finance for consideration. It is up to the committee to release the bill to the Senate floor for debate, potential amendments, and a vote for a simple majority. If changes have been made, then it returns to Congress for concurrence and resulting bill back to the House and Senate for final approvals. The resulting bill then passes to the President’s desk where he has 10 days to veto or ratify the bill.