Committee forwards $30 million Rural Finance Authority bonding authorization to finance committee

The Minnesota Senate Committee on Capital Investment on May 8 recommended that Senate File 1209, a proposal to authorize $30,000,000 in general obligation bonding for the Rural Finance Authority, be recommended to pass and be sent to the Senate Finance Committee.

The bill’s author, Senator Torrey Putnam, told the committee the Rural Finance Authority (RFA) makes loans to farmers and has a very low historical default rate. The committee adopted a technical author’s amendment (A1) correcting a mathematical error before taking the recommendation vote.

The committee heard operational details from Matt McDevitt, Ag Finance Supervisor for the Rural Finance Authority. McDevitt said the RFA issues bonds on the open market using the state’s bonding capacity and credit to secure low rates, then lends the proceeds to farmers. He said the program issues only the amount of bonds it expects to lend and that loan repayments generally cover the cost of the bonds. McDevitt said the RFA maintains a reserve account of about $2,400,000 to cover potential loan losses and that a mass default would be required before the state’s credit would be substantially exposed.

Senator John Pratt asked whether the state would be on the hook in the event of widespread default; Senator Putnam and McDevitt said defaults have been rare (Putnam referenced roughly a dozen defaults over about 20 years) and that the reserve fund reduces near-term exposure but would not remove theoretical state exposure in an extreme scenario.

Senator Jim Frantz moved that the bill as amended be recommended to pass and be sent to the committee on finance; the committee approved the motion by voice vote.

The committee did not take a roll-call tally on the bill. The bill will next be considered by the Senate Finance Committee.