SBA No!

A disastrous program

When the two-year drought first parched much of the country in 1976, farmers cried that unless Washington came to their rescue they faced financial ruin. Congress obliged by making the farmers eligible for easy-to-get, easy-to-repay loans under the Small Business Administration's disaster relief program. Now farmers in some areas are afflicted not by drought but by harvests so bountiful that prices have fallen. So back to the trough of federal aid they have come--in a stampede. They have made such a run on the SBA farm loans that administrators who once budgeted their largesse at $750 million have had to go back to Congress and ask for $1.4 billion more--and the demand is expected to soar to $4.6 billion by next August. The SBA program itself faces ruin.

Some farmers were, and still are, genuinely on the brink of disaster--and genuinely in need of federal relief. But in many cases the availability of the emergency loans has been simply unwarranted. The SBA overgenerously declared a full two-thirds of S all U.S. counties disaster areas and therefore eligible for the loans.

Nor should farmers necessarily be faulted for accepting the money when Congress holds it out. They can borrow as much as $250,000, to be repaid in up to 20 years at the virtual giveaway interest rate of 3%. The eligibility rules, moreover, were written so loosely that far more farmers qualify than anyone expected. Sadly concedes Democratic Congressman Robert Giaimo, whose House Budget Committee has tried in vain to keep a lid on the program's overflowing costs:

"Any businessman, whether he's a farmer or not, would be mad not to take a loan with such a generous interest rate."

The Government's predicament can be blamed on both congressional and bureaucratic shortsightedness. Normally after droughts or other natural disasters, farmers had got aid through the Farmers Home Administration. But that agency, run by the Agriculture Department, made its loans hard to come by. An applicant's credit record was scrutinized closely and his loan request reviewed by a committee of local farmers and FHA officials quite likely to know his real needs. These committees then kept tabs on a loan recipient to make sure he spent the money for the intended purpose. It was partly because farmers complained about the stringency of those rules that Congress required the SBA to include farmers in its loan programs. Neither Congress nor the SBA made the requirements tight enough and, amazingly, neither foresaw the demand for such easy loans.

Like Giaimo in the House, Democratic Senator Edmund Muskie, chairman of the Senate Budget Committee, tried to keep appropriations for the SBA farm loans to the original $750 million budget. But he was overpowered by Senators with large constituencies of farmers--ironically including a number of anti-Big Government, pro-free enterprise conservatives like South Carolina's Strom Thurmond and Georgia's Sam Nunn.

Last month Congress approved a supplemental appropriation of $1.4 billion for the program.

Unless eligibility for the loans is quickly limited, more billions will be needed next year. Giaimo hopes, at the least, to get the interest rate raised to 5% --still a bargain when compared with the 7.5% rate charged by banks to major corporations.

Meanwhile, the Congressman can only point to the $50 billion to $60 billion deficit in this year's federal budget and lament, "The SBA loan fund is set up to help people cope with an unusual disaster--one that happens once in a lifetime. What has happened is that it has turned into a crop insurance program for agriculture."

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