Plan Would Cut Interest Payments : Iowa Pushing Bond Issue to Rescue State’s Farmers

Iowa state officials and bankers, despairing over the prospects for immediate federal farm aid, are polishing a rescue plan of their own that they contend could save 5,000 family farms in the next two months and forestall the demise of 50,000 more.

If successful, the Iowa plan could become a model for other heartland states where the most serious agricultural economic crisis in a half century is threatening the future of tens of thousands of farmers.

Interest ‘Buy-Down’

Under the proposal, being rushed through the state Legislature, an independent state agency would be created to sell $60 million in bonds, and the proceeds would be used to reduce or “buy-down” interest on agricultural loans for one year. The bonds would be secured by a $150-million special account established by the state’s 400 banks.

The tentative plan is to use the money to reduce the cost of spring operating loans--money farmers borrow to plant their spring crops. But there is some sentiment for reducing interest on existing loans also.

Once the plan is implemented, farmers who are now paying 13.5% interest on their loans would be charged only 7.5%. The fund would finance 3% of the reduction and banks would absorb the remaining 3% themselves.

Holding Action

The plan is viewed only as a holding action against mounting farm debt problems. After an expansive decade in which millions of new acres of farmland were brought into production, thousands of farmers now find themselves with unsustainable debt burdens as commodity prices, exports and land values have fallen while interest rates remain high. By some estimates, about 40% of the nation’s family farms are in danger of bankruptcy.

“We’re trying to stop an avalanche until we can figure out a way to melt the snow,” farm expert Gary Lamb told the state Senate.

“It’s a one-year Band-Aid program,” Neal Conover, co-chairman of the Iowa Bankers Assn., said.

Legislators in Iowa and 11 other Farm Belt states are searching for ways to help financially ailing farmers who, collectively, form the region’s biggest industry.

There is a sense of urgency because farmers must plant their spring crops of corn and soybeans before the middle of May, and the Reagan Administration has said that it will provide no additional financial aid. Planting usually begins about mid-March, and funds to finance the purchase of seed, fertilizer and herbicides are borrowed during these final weeks of winter.

Guaranteed Loan Aid

The Reagan Administration has agreed to provide $650 million in guaranteed loan aid for farmers, but agricultural economists say that, nationwide, about $3 billion is needed this year, most of that in the Midwest.

Both Agriculture Secretary John R. Block and Budget Director David A. Stockman have said that any additional aid must come from the states and the banking industry.

The Administration’s attitude is a source of growing resentment in the region. For example, Wednesday morning’s Des Moines Register carried a front page editorial cartoon showing two newspaper front pages. One was a 1975 Daily News with a headline saying, “Ford to New York: DROP DEAD!” The second was a 1985 Register with the headline: “Reagan to Farmers: DROP DEAD!!”

“Our belief is there will be no further substantive help from the federal government in 1985,” Conover of the bankers’ association said.

State Bond Agency

The Iowa proposal, which emerged in slightly different form in both houses of the state’s General Assembly Tuesday, calls for the state to create an independent agency, the Central Investment Authority, to market bonds and then give that money to banks for the interest reduction.

The proposal includes state guarantees on a percentage of the planting loans and a provision that will allow banks to hold farmland they acquire through foreclosure for five years rather than the current one year. That is designed to prevent a value-deflating glut of farmland on the market later this year or early next year.

Action on the proposal began Tuesday, when the Iowa Senate suspended all business to hold an extraordinary committee-of-the-whole session to hear from leading bankers, economists and farm group leaders.

“Unusual circumstances require unprecedented actions,” Senate Majority Leader Lowell L. Junkins said. “The current farm crisis is one of the biggest challenges Iowa has ever faced.”