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GUEST COMMENTARY: The state needs to stop acting like a bank

Monday, December 12, 2011 | 11:31 a.m. CST; updated 8:25 p.m. CST, Monday, December 12, 2011

During this time of year, no one wants to say, “Bah, Humbug!” However, I would be remiss if I did not mention that the state might run into a revenue shortfall (between $400 million and $600 million) next year.

That can be troublesome, but it also presents an opportunity for the state to re-examine some of its questionable spending decisions. In earlier commentary, I have listed some areas where the state should reconsider spending money.

However, for now, I will focus on the state’s support of the Missouri Agricultural and Small Business Development Authority.

The mission of the authority is to make “capital available to Missouri farmers, particularly independent producers; agribusiness; and small business at competitive interest rates on a scale to make a major impact.”

This raises a red flag for me. An entity that makes capital available to businesses at a “competitive” interest rate sounds an awful lot like a bank to me. In fact, a couple of the programs that the authority administers include: Missouri Agribusiness Revolving Loan Fund, Alternative Loan Program and Animal Waste Treatment Loan Program.

The total state funds loaned to the Animal Waste Treatment Loan Program alone is close to $500,000 ($485,333.56 for fiscal year 2011, specifically).

Is anybody uncomfortable that a part of state government is acting like a bank? Why can’t the recipients of these loans get private financing? If they are great deals, why are private banks and/or financial institutions not jumping at the chance to invest in these projects?

Farms already face lower property tax burdens compared to commercial businesses (farm property has an assessment ration of 12 percent compared to commercial at 32 percent and residential at 19 percent, and the soil quality grading system sets a very low appraised value already) so why do they need additional help with subsidized loans?

Also, how can a government and a private enterprise compete when it comes to financing? By issuing below market interest rates to different businesses, isn’t the state undercutting private financial institutions?

Even if a state department/agency/program loses money, it can acquire new financing by compulsion with increased taxes. A private organization does not have that same power to tax (although with TDDs and CIDs, we are getting there).

Thus, with the ability to achieve easier financing, what real incentive is there for the state to make wise spending decisions when it comes to these loans besides avoiding grief  from dedicated bloggers such as me? Isn’t it time for the state to get out of the business of lending with your money and return to the basics?

Just some food for thought.

Michael Rathbone writes for The Show-Me Institute.


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Comments

Richard Saunders December 12, 2011 | 1:36 p.m.

"Acting like a bank" is a primary purpose of the state, transferring wealth from the masses to the politically connected. To object to these expenditures is to object to all state expenditures, but I doubt the author would follow the logic to this ultimate conclusion.

Instead, what happens is the incoherence of fighting over what to spend the loot upon, never realizing that one's justification for butter is another's justification for guns.

Murray Rothbard referred to this as the Welfare/Warfare State, where one cannot survive without the other. It's merely a polarized, mandate-driven version of divide and conquer.

(Report Comment)
Christopher Foote December 13, 2011 | 9:38 a.m.

The purpose of this program is to limit surface and groundwater contamination from agriculture run-off. To facillitate this goal, the state provides loans to farmers. It is probably a lot cheaper to incentivize pollution controls than it is to clean up contaminated waters after the fact. If the Show-Me Institute thinks the program is a waste of money, perhaps they could provide data demonstrating that the amount of animal waste entering Missouri's waterways is not significantly decreased by providing below market loans to farmers for waste containment.

(Report Comment)
george luebbering December 15, 2011 | 10:32 p.m.

As some one who has been involved with MASBDA since 1996, I can say that MASBDA is a major waste of taxpayer dollars. To quote a past director of the state milk board, "MASBDA is the carrot dangled in front of unsuspecting farmers, to entice them (farmers) to do, what DNR could not get the legislature to dictate to them (farmers) what to do."
I built a manure system that was finaced, designed, and approved of by MASBDA, and DNR. The system failed miserably, and dumped waste water into the maries river for 9 years. MASBDA and DNR were aware of the problem. They falsified records and looked the other way to avoid taking responiblity for their design failures.
To my knowledge, not one of the employees of MASBDA ever had experience in banking pryor to working for MASBDA. In fact the first loan-officer that I worked with had a degree in horticulture. They are by no means bankers and have no business loaning money.

(Report Comment)

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