AG ONE Newsletter November 28, 2017

Update on Farm Show “Lease Lease-Back”

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On October 9, Governor Tom Wolf announced that he was unilaterally seeking a way to resolve the FY 2017-18 State Budget impasses with House Republicans by raising capital of up to $200 million from leasing the Farm Show Complex. Since then, various revenue measures were adopted by the General Assembly and signed into law to cover the deficit. Since the revenue legislation included borrowing ahead from future Master Tobacco Settlement payments to Pennsylvania totaling $1.5 billion, Governor Wolf dropped another initiative, to “securitize” or borrow ahead from future PA Liquor Control Board profits. The Farm Show financing process continued with bids from private sector investors starting October 13 and closing November 13. Four bids were received and the PA Department of General Services and PA Office of the Budget are reviewing them. A date has not been given as to when the winning bid will be announced.

What is the actual transaction taking place?

Called a lease lease-back, the transaction more closely resembles a home equity loan. Perhaps the Administration could have been clearer in explaining what financial investments were being done here. It would have reduced confusion among stakeholders.

Is it legal for the Governor to take this action without getting the prior consent of the General Assembly, especially since the legislature decides how much of the Commonwealth’s dollars the Farm Show will receive?

Yes. This is not a surprise to the General Assembly. Governor Tom Wolf made it very clear that he intended to do this when he gave his Budget Address to the General Assembly in February 2017. In addition, the issue was discussed at a Senate committee meeting and at innumerable separate meetings. Before deciding to take an equity loan on the Farm Show Complex, Administration legal counsel also determined that the Governor had the legal authority to make such a move.

Doesn’t this need an OK from the Farm Show’s governing body?

No. That board works on operations, not on financing arrangements such as this.

Will the Farm Show lose its ability to decide programming and conduct daily operations or will the new “owner” be able to decide how the Farm Show is managed and what shows will be held? For example, can the Farm Show Manager be ordered to do something the new “owner” wants such as more gun shows or detests (no gun shows)?

First, the word “owner” is incorrect. Whoever provides the capital for this equity loan is not the owner. The owner remains the Commonwealth of Pennsylvania. The contract has iron-clad language preventing any outside control. It is similar to a home equity loan where the lender does not have the legal authority to tell you what wallpaper to use or what has to be planted outside. The homeowner is the owner. With the Farm Show Complex, PA retains ownership.

The Office of the Budget frequently uses outside legal counsel as well as relying on attorney employees of the state to make sure PA’s interests are not compromised. Besides, any investor is making its money from interest paid on the loan and is not interested in managing the Farm Show Complex.

Will this new money be dedicated for remodeling and updating the physical structure of the Farm Show Complex?

No. This money will go into the General Fund to help balance the deficit. There is a separate effort to generate money for Farm Show renovations and updating HVAC, etc.

When the Governor said he would “securitize” future profits from the PA Liquor Control Board, he was very specific about the amount of money would be generated and the amount of interest that would be paid to service the loan. Why are there no specifics here? The PA Liquor Control Board plan is part of PA State Government so the details were known regarding the amount borrowed and the interest to pay back the loan. This seeks private sector financing and the costs connected with the equity loan would depend on the investor’s desired return on investment. Likewise, although the figure $200 million has been used publically as the amount that could be generated, the actual figure borrowed will depend on what bidders promise.

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CORRECTION TO AG ONE Newsletter 2017.18

In AG ONE Newsletter 2017.18, a legislative status report described House Bill 944 establishing a Commission for Agriculture Education Excellence as being in committee. That legislation was grafted into another School Code bill, House Bill 178 PN 2609 (Act 55 of 2017) which became law November 6 without the Governor’s signature. Text begins on page 45, Section 1549.1. .http://www.legis.state.pa.us/CFDOCS/Legis/PN/Public/btCheck.cfm?txtType=PDF&sessYr=2017&sessInd=0 &billBody=H&billTyp=B&billNbr=0178&pn=2609 This establishes the Commission for Agricultural Education Excellence to assist in developing a statewide plan for agriculture education and to coordinate PDA and Education Department efforts in doing so.

Thanks to PSCFO members Amy Bradford from PennAg Industries Association and Dr. MeeCee Baker from Versant Strategies for spotting the need for this update.

General Assembly Resumes in June

Pa-capitol-300x250The PA General Assembly is readying itself for the June state budget gauntlet where a balanced budget must be signed into law per the constitutional deadline of June 30. To see Governor Corbett’s original proposal for agricultural spending, please refer to the Pa. Budget Office website. PA Department of Agriculture’s budget proposal begins at E8.1 (on page 387). The Farm Show budget is found at C5.1 (page 167). Click here to view PDA’s budget.

Funding for General Government Operations would increase from $22.7 million in available funds now to a proposed $24.738 million for FY 2014-15. This increase does not mean expanded programs. Rather, much of it will go towards meeting increased employee benefits (health insurance) costs.

However, the Corbett budget proposal eliminates funding for numerous successful programs including PA Preferred, the Centers of Agricultural Excellence, Agricultural Research, Agricultural Promotion, Education & Exports, Hardwoods Research & Promotion, Animal Health Commission, Livestock Show, Open Dairy Show, etc.

IMPORTANT NOTE: The Corbett budget proposal (as with former Governor Rendell) treats these zeroed out line items as negotiating items with the General Assembly. It does not mean that agricultural advocates can rest because budgets have been restored in the past. Each budget year requires renewed advocacy so that those line items are not overlooked. The Farm Show Fund anticipates $415,000 in fees and licensing income, $4 million from the PA Race Horse Development Fund and Farm Show leasing income of $6.155 million.