Mark Scanlan: Fighting for ag and rural tax relief

Farmer looking over corn field

Photo by Hirurg/Getty Images

ICBA is pushing for the Enhancing Credit Opportunities in Rural America Act, legislation that would help rural borrowers and level the playing field against unfair competition.

By Mark Scanlan, ICBA

Rural communities sustained by agriculture know that farmers and ranchers must be adaptable and have access to credit to survive. Rural communities also want to offer their communities an ample supply of housing options for current residents and new buyers to bolster their towns’ economic viability.

For farmers and ranchers, challenges can include bad weather, fluctuating commodity prices, rising input costs and tight cash flows that must be met to make it to the next production year. Profit margins are often tight, and working capital can be depleted quickly. Young, beginner and/or small farmers and ranchers often have little equity and are deemed to be less credit-worthy, and secession planning can often be difficult.

For rural homeowners, comparable pricing and housing may be unavailable to potential buyers. Rural properties are often irregular or mixed-use, creating nonuniform properties separated by significant distances. These factors make comps and appraisals required by Fannie Mae and Freddie Mac nearly impossible to satisfy, thus requiring rural banks to keep these mortgages in-house.

These challenges also confront the community banks that must finance rural borrowers but often lack the financial tools that other lenders already enjoy, such as tax exemptions on interest earned from loans. Fortunately, legislation has been introduced in Congress that, if adopted, would allow community bankers to offer better terms and lower interest rates to borrowers while being able to compete against the tax-advantaged Farm Credit System (FCS).

Relief may be on the way

Rep. Ron Kind (D-Wis.) and Rep. Randy Feenstra (R-Iowa) introduced the Enhancing Credit Opportunities in Rural America (ECORA) Act of 2021 (H.R. 1977) in March.

“This important legislation will provide a more competitive market for those looking to finance ag real estate and home mortgages in rural communities,” says Rose Oswald Poels, president and CEO of the Wisconsin Bankers Association and an instrumental advocate for the bill’s introduction. “Lower interest rates and better loan terms will help sustain farmers, ranchers and rural homeowners which also helps sustain Main Street business activities.”

Ag lending provisions

The ECORA Act creates a new, targeted tax incentive for agricultural and rural residential lending. The bill’s provisions would:

  • Exempt interest on loans secured by agricultural real estate from taxation. This gives lenders more flexibility to work with farmers and ranchers while withstanding scrutiny from regulators who often view agricultural loans as risky or too concentrated in rural banks’ portfolios.
  • Exempt taxable income from rural residential mortgages in communities of fewer than 2,500 people. Existing rules are driving lenders out of rural mortgage lending, curtailing access to mortgage credit and undermining the rural housing market. The ECORA Act also exempts income from rural mortgage loans from taxation. The population limits will be determined by the secretary of agriculture based on census data.

This provision would allow community banks to offer lower interest rates on rural home loans. This helps level the competitive landscape with other types of lenders, such as credit unions and the FCS, that enjoy the same tax preferences.

Although credit unions pay no taxes and the FCS is largely tax exempt, these lenders have poor records in serving those most in need, including young, beginner and/or small farmers and ranchers, while community banks heroically seek to serve all borrowers who have a reasonable chance to repay.

“[The ECORA Act] will boost rural economies, help farmers and ranchers remain on their farms and make it more attractive for those seeking home loans to locate in smaller, more remote, rural communities.”
—Dave Caris, Community Bankers of Iowa


The way forward

The bill was introduced in the previous session of Congress and generated a strong level of support in both houses. With the aid of ICBA grassroots advocacy and community bank involvement, direct lobbying, and enthusiastic advocacy by its congressional sponsors, the bill can attract many cosponsors from both sides of the aisle in the new Congress even though the FCS is lobbying against the measure behind the scenes.

Community banks reached out to their members of Congress to advocate for the bill as part of ICBA’s Capital Summit in April and in response to ICBA grassroots action alerts and other advocacy outreach.

“This bill will boost rural economies, help farmers and ranchers remain on their farms and make it more attractive for those seeking home loans to locate in smaller, more remote, rural communities,” says Dave Caris, CEO of the Community Bankers of Iowa, who also pushed for the bill’s introduction in Congress.

As rural economies work to overcome the impact of COVID-19, ECORA will help sustain and revive rural economies. It will provide community bank lenders with tangible real-world benefits they can pass on to customers and give a real shot in the arm to our rural banks.

It’s time for community banks to make a strong push to enact ECORA. Ask your elected representatives to cosponsor the legislation.

Mark Scanlan ( is ICBA’s senior vice president of agriculture and rural policy.