The State Needs To Stop Acting Like A Bank

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 is a policy researcher at the Show-Me Institute,
which promotes market solutions for Missouri public policy.