The Wire: In Step With the Farm Bill

March 2019 -

CoBank’s Brian Cavey discusses this major legislation and its ramifications for electric co-ops and their customers

The massive, five-year, $867 billion federal Farm Bill, signed by President Donald Trump in late December, covers everything from crop insurance and food stamps to legalizing hemp as an industrial crop. It also sets a road map through 2023 for the nation’s electric cooperatives and their ongoing mission to provide electrification and promote innovative technologies and economic development for rural areas.

“I think there are a number of things to feel very positive about,” says Brian Cavey, senior vice president of government affairs for CoBank. “There are some important new provisions and, significantly, many programs were maintained from previous authorized levels.”

It wasn’t all good news, Cavey adds. Perhaps the most notable casualty: curtailment of the Rural Utilities Service Cushion of Credit, a longstanding program that has enabled co-ops that borrow from the government to deposit excess cash and realize a steady return. Balancing that disappointment was a significant expansion of the government’s commitment to extending broadband internet service to underserved rural areas.

Here are some highlights.

A boost for broadband

The bill includes $350 million in USDA loans and grants to promote innovations in rural broadband technology. “Broadband isn’t something that’s nice to have, it’s an essential utility for agriculture producers and rural residents,” Cavey says. Precision agriculture, using artificial intelligence and other technologies to maximize yields and efficiency, requires access to powerful computing. “Broadband is also essential to providing adequate health care in rural areas, enabling schools to provide state-of-the-art education, and to help our rural communities attract and retain residents,” Cavey says.

“The biggest obstacle is generating cash flow,” he says. Low population density and the physical distance from one business or farm to the next escalate the costs of providing broadband.

According to the National Rural Electric Cooperative Association (NRECA), funding will concentrate on areas with fewer than seven people per square mile, and where 90 percent of homes lack access to Internet service able to upload or download data at high speeds. “This funding specifically targets innovations that help get better speed to rural areas at lower cost,” Cavey says. “The goal is to help close the cost gap between rural and urban broadband infrastructure.”

Underwriter program extended and improved

Under the Guaranteed Underwriter Program, qualified private lenders such as CoBank draw on Federal Financing Bank loans to make guaranteed loans to electric cooperatives. The Farm Bill not only extended the program, but also makes important improvements. “The maximum term for those guaranteed loans increases from 20 years to 30 years,” Cavey says, “and, for the first time, those funds can be used for electric generation projects.” Previously, the loans could be used only for electric distribution and transmission. “This opens up the program to another part of the industry,” Cavey says.

Scaling back the RUS Cushion of Credit Program

One of the biggest changes in the Farm Bill brought disappointing news for electric cooperatives by stripping key advantages of the Cushion of Credit program.

Co-ops with RUS loans could deposit funds in a federal government account paying five percent interest. That rate, far better than the low interest rates available elsewhere that have prevailed in recent years, helped provide the co-ops with a steady source of income and generated revenue that they could in turn use to help promote economic activity in rural areas, Cavey says.

The bill emphasizes and underscores the nation’s commitment to rural America, its central place in the nation’s social and economic future, and the indispensable and ongoing role electric cooperatives play in ensuring that future.

The new Farm Bill prevents co-ops from making new deposits into Cushion of Credit (COC) accounts and incrementally reduces interest rates on deposits already in the system. “Those accounts will receive five percent for this fiscal year, reducing to four percent in fiscal 2021, after which the rate will be reduced to the 1-year Treasury Rate.” To ease the pain, the bill allows holders of COC accounts to prepay existing RUS loans without penalty through the end of September 2020. “But there’s no question that electric co-ops have lost an important tool,” Cavey adds.

Building on momentum

With the exception of the Cushion of Credit scale back, the Farm Bill notably extended a variety of programs that cooperatives use to serve their customers and promote development.

Rural Economic Development Loan and Grant Program

The Farm Bill extended this program enabling cooperatives to support jobbuilding projects in their communities – underscoring co-ops’ key mission of economic development. “Some states use this program much more frequently than others,” Cavey says. For those that do, “It’s been a really valuable tool to drive creation of new jobs in rural communities. Some folks have just made really good use of it in helping their local economies thrive.”

The Rural Energy Savings Program

This initiative helps customers facing large energy bills control consumption. “They get financial assistance for energy conservation retrofits on their house, finance it through the co-op and then pay that back from what they save on their electric bill,” Cavey says. “It’s an important tool to reduce energy use and save money in a way that doesn’t require an upfront outlay of cash. And it creates some energy conservation jobs in the community. It’s a win for everybody.”

Ongoing partnerships

With some exceptions, the same might be said of the bill overall, Cavey notes. Considering the uncertain political climate that pervaded while the bill came together, “One of the most positive things is that the bill got done,” he says. “You have to take your hat off to the Chairs and the ranking members of the House and Senate Agriculture Committee. Their leadership got this bill moved and signed into law in a timely fashion at the end of the 115th Congress.”

Perhaps most importantly, Cavey says, the bill emphasizes and underscores the nation’s commitment to rural America, its central place in the nation’s social and economic future, and the indispensable and ongoing role electric cooperatives play in ensuring that future.

By extension, that’s a mission that partners such as CoBank who work closely with co-ops take to heart. “We’re dedicated to helping them meet the needs of their communities have, to help them thrive and grow,” Cavey says. As for the Farm Bill, “Now the focus is on making sure that the programs in the bill get implemented in a way that works best.”

Also in this issue

  • CoBank and Farmer Mac Enter Into Master Participation Agreement
  • Case Study: Shifting Toward a Brighter Energy Future

Read the Report