Lawmakers Give Up Hope for Any Farm Aid Measure

Times Staff Writer

Most farm-state members of Congress gave up hope Thursday of getting President Reagan to accept even a scaled-down version of legislation to bail out debt-strapped farmers and their banks.

"This is the end of the road," Sen. Tom Harkin (D-Iowa) said Thursday after Reagan vetoed a debt-relief package Wednesday and called it a "budget buster."

Rep. Thomas A. Daschle (D-S.D.), one of the few lawmakers who vowed to keep seeking a compromise, warned that desperate farmers are "ready to turn to violence." But Rep. Timothy J. Penny (D-Minn.) expressed the majority sentiment: "The President has us over a barrel."

In the wake of the veto, Agriculture Secretary John R. Block predicted that rural banks--realizing that they will get no more help from Washington--will begin making plenty of federally guaranteed loans to farmers in dire need of spring planting cash.

But a spokesman for a bank association said he does not expect much of an increase in loan activity unless federal or state governments provide more protection against defaults.

"I don't think there is any incentive out there right now that will make a material difference in banks' usage of the federal loan guarantees," Ken Lee of the American Bankers Assn. said. "We will continue to see a fairly good-sized number of farmers going out of business."

However, another banker said he believes that most farmers will be financed. Weldon Barton, executive director of the Independent Bankers Assn. of America, estimated that the veto affects up to 35,000 farmers who would have been assured of financing. But he declined to say that none of those 35,000 will get financing now.

"The vast majority of farmers will be financed," he said. "But there is going to be a relatively large number that will not be."

Block, testifying before the Senate Agriculture Committee, said Reagan had erred in his veto message when he stated that only 4% of American farmers are in financial difficulty. Actually, 10% of the nation's 2.4 million farmers are in "serious financial stress," Block acknowledged to Sen. David L. Boren (D-Okla.), adding that 4% of the total are headed for bankruptcy this year.

Block reiterated his belief that banks have sufficient incentive to use an existing $650-million loan guarantee program, which the Administration revised three times last month to make it less costly and less risky for banks.

Only $25 Million Used

So far, however, banks have used only $25 million of the $650-million program. They complain that they have to ease the terms of the loans too much--by reducing the interest rate or by forgiving part of the principal--to qualify for the federal guarantees. And, arguing that the federal government effectively guarantees only about 75% of a loan against default, they insist on a 90% guarantee.

Several debt-ridden farmers, in Washington this week to lobby for credit relief, said they do not expect banks to make many more loans now that Reagan has vetoed the debt aid bill, which would have provided $100 million for banks to reduce interest rates on farm loans, authorized another $1.85 billion for loan guarantees and raised the effective guarantee to 90%.

"They're damn sure gonna say no now," said Don Sutter, a corn, bean and alfalfa farmer from Iowa. He said he could stave off almost certain bankruptcy if he could obtain advances on federal harvest loans--another provision of the legislation that Reagan vetoed. Sutter said he could have used the advances to qualify for additional loans from a private bank.

Iowa corn farmer Carroll (Hoss) Nearmyer, noting that the federal requirement that banks write off 10% of a loan to qualify for guarantees, said: "If you ask a bank to write off 10% of the note, they'll laugh you right out of the bank."

Cost Estimates Vary

Reagan said the bill would have cost taxpayers $4.5 billion, mostly on the assumption that farmers would not have been able to repay many of the loans. However, the Congressional Budget Office estimated the cost at a maximum of $450 million.

As a result of the President's veto, Barton said, several Midwestern states--where the crisis is most serious--are considering legislation to provide an interest buy-down similar to the one that was vetoed.

At the same time, Barton indicated that rural bankers are encouraged by the Senate Budget Committee's decision Wednesday not to recommend deep cuts in farm price-support programs for next year.

"Banks can see more light at the end of the tunnel--that the farm economy will be supported," he said.

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