FOCUS ON AG

December 13, 2021

INFRASTRUCTURE LEGISLATION IMPACTS ON THE AG INDUSTRY

As farm operators have been completing harvest and Fall fieldwork in 2021, one key piece of legislation has been approved by Congress, while the U.S. House has passed another proposal, that could greatly impact the agriculture industry and rural communities. After months of negotiation, the Federal “Infrastructure Investment and Jobs Act” or so-called “Bipartisan Infrastructure Framework” (BIF), was passed by Congress and signed into law by President Biden. Recently, the U.S. House passed the $1.75 Trillion “Build Back Better” (BBB) Act, which addresses funding for several potential climate change and social programs. The BBB Act is now being debated and considered in the U.S. Senate (but was not approved as of this writing). Following is a brief summary of the BIF and BBB pieces of legislation as they relate to funding for farmers and the agriculture industry.

Highlights of provisions in the BIF legislation that was passed:

• The Bipartisan Infrastructure Framework (BIF) legislation that was signed into law last month provided $1.2 trillion in funding for basic infrastructure projects. This includes approximately $550 billion in new spending, with the remaining $650 billion being pre-allocated funding for highways and other projects that were already scheduled. Following is a breakdown of some of the provisions for the new funding in the BIF legislation:
• $284 billion, or 52 percent of the new funding, would be allocated toward for surface transportation needs.
• $110 billion for roads and bridges. The Federal Government estimates that 173,000 miles of highways and major roads, as well as 45,000 bridges, are in poor or failing conditions, many of which are in rural areas of the U.S.
• $66 billion to expand and modernize the U.S. rail system, which can be extremely important to freight transportation issues for farmers and the agri-business.
• $17 billion dedicated toward investments and improvements in ports and waterways, which are also extremely important for keeping export markets open for U.S. ag products and the access of imports for ag-related inputs.
• There is also funding allocated for public transit, airports, surface transportation, electric vehicle chargers, and other provisions.

• The remaining $266 billion, or 48 percent of the new funding, is allocated to other core infrastructure projects.
• $65 billion toward expanding and improving broadband access, especially to underserved areas, many of which are in rural areas of the U.S.
• $60 billion toward energy and power projects to improve the U.S. electrical grid.
• $55 billion for water infrastructure and wastewater improvement projects, which could greatly benefit many rural that are having difficulty funding needed improvements in aging water and waste treatment infrastructure.
• There is also funding for flood mitigation projects, specialized watershed projects, charging stations for electric vehicles, and other specific programs.

Highlights of agriculture-related provisions in the proposed BBB legislation that passed the U.S. House:

The U.S. House recently passed the so-called “Build Back Better” (BBB) Act, which is now being debated in the U.S. Senate. This proposed broad-based piece of legislation would addresses many issues and would boost targeted spending for climate change, renewable energy, health care, childcare, education, immigration, and other social infrastructure provisions. Portions of this legislation would likely impact farmers and the agriculture industry in the future. It is estimated that approximately $82 billion of agriculture-related provisions and spending are included in the proposed BBB legislation. Following is a brief summary of some of these proposals:

• $27 billion in new conservation related funding that would be primarily targeted to help farmers increase so-called “climate-smart” farming practices to sequester carbon and reduce greenhouse gas emissions.
• $5 billion for a 5-year program to pay farmers $25 per acre to plant cover crops.
• $9 billion of additional funds for the Environmental Quality Incentives Program (EQIP).
• $4.1 billion for the Conservation Stewardship Program (CSP).
• $7.5 billion for the Regional Conservation Partnership Program (RCPP).
• $1.7 billion for the Conservation Easement Program (CEP).

Most of the programs that are being funded are existing conservation programs that have currently been administered and funded through the Farm Bill process. It is not clear how the proposed BBB legislation would affect current or future conservation programs or funding that have traditionally been included in the Farm Bill.

• The BBB legislation passed by the U.S. House would also include other provisions for new programs and spending toward rural development programs, as well as funding for other programs that may impact farmers and rural communities.
• This includes over $25 billion in new funding for rural cooperatives and renewable energy development, as well as grants to States and local governments for renewable energy projects.
• The BBB legislation would extend the $1 per gallon biodiesel and renewable diesel tax credit through 2026, which is projected to generate several billion dollars in tax credits for these industries.
• The Bill also includes funds for research and development of “sustainable” aviation fuels, including a new $1.25 per gallon tax credit for the sale and use of these fuels, which could be a potential future growth opportunity for the biofuels industry.
• $7 billion in funding within the legislation is directed to pay off Farm Service Agency (FSA) loans to underserved farmers and ranchers, which replaces earlier FSA debt relief provisions in the American Rescue Plan, which have been challenged by several lawsuits.
• The House Bill allocated $320 billion in the form of tax credits to companies and consumers for clean energy funding to be used to increase the use of electric vehicles, install solar panels, and improve energy efficiency, some of which may benefit farm families and rural communities.

One of the big questions with getting the BBB bill passed by Congress has been the rather large amount of dollars that are being allocated through the legislation, both now and in the future, as well as the tax provisions that may be included to pay for that extra funding. The BBB bill that passed the U.S. House does not increase the capital gains tax rate or include any adjustments to the “stepped-up basis” rule on farm assets. There are no changes being proposed in the farm estate tax exemption amount, which is scheduled to increase to over $12 million in 2022. As it stands now, the legislation would not change individual income tax rates and would only increase the tax rate for corporations with incomes higher than $5 million. The bill keeps the top individual tax rate at 37% and the capital gains tax rate at 20%.

Summary

The implementation process for the BIF basic infrastructure legislation has already begun, which should benefit farmers and rural communities by providing much needed funding for upgrading roads and bridges, rail and waterway improvements, broadband enhancements, and many other local projects. The much larger and more diverse BBB bill that has passed the U.S. House (now being debated in the U.S. Senate) may or may not pass with the language that is in the original House Bill. However, if a compromise is reached on the BBB legislation that allows it to pass both houses of Congress and be signed into law, it will likely include several provisions that may impact farmers and the agriculture industry. There will likely be opportunities through the climate portions of the legislation for renewable energy and carbon sequestration efforts; however, farmers remain very wary of potential future costs and possible tax implications of this legislation.

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Note — For additional information contact Kent Thiesse, Farm Management Analyst and Sr. Vice President, MinnStar Bank, Lake Crystal, MN. (Phone — (507) 381-7960) E-mail — kent.thiesse@minnstarbank.com) Web Site — http