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Published May 10, 2010, 03:08 PM

Vilsack: USDA needs to take chances

WASHINGTON — Agriculture Secretary Tom Vilsack said at a White House clean energy forum May 6 that USDA may have to take bigger chances with its business loan guarantees if it is going to finance energy plants that make a real difference in rural America.

By: Jerry Hagstrom, Special to Agweek

WASHINGTON — Agriculture Secretary Tom Vilsack said at a White House clean energy forum May 6 that USDA may have to take bigger chances with its business loan guarantees if it is going to finance energy plants that make a real difference in rural America.

Noting that USDA’s rural development business loan programs have a default rate of 1 percent, Vilsack said that rate is too low.

“We’ve got to be willing to take a chance” on projects large enough to reverse the economic decline in rural America, Vilsack told the 100 plus renewable energy executives, bankers, lawyers and executives who had been invited to the Eisenhower Executive Office Building to mark the one year anniversary of President Obama’s biofuels directive and discuss implementation of the renewable energy provisions in the 2008 farm bill.

But Vilsack also appealed for political support if the agency guarantees some energy projects that don’t work out. “What we need from the private sector is the freedom to make a mistake,” Vilsack said. “There is a corresponding political risk. When you think big, there will be times you do not succeed.”

Education

Agriculture Undersecretary for Rural Development Dallas Tonsager said his staff is in the process of educating bankers and the rest of the credit industry about USDA’s loan guarantee programs for the energy. But John May, managing director of Stern Brothers & Co., a St. Louis investment banking firm, said USDA needs to adjust its programs to guarantee bond financing rather than bank loans. Since the financial crisis, banks have become too conservative to in their lending habits to fund renewable energy projects they consider risky, but the bond market is mostly untapped, May said.

Tonsager replied that he is “not averse to what you are saying.”

In an interview after the event, May said USDA has allowed bond financing as part of a project but still requires a bank to be the lend of record and to hold a portion of the debt.

“We have to go to an all-bond model to get away from a bank as the validator of risk,” May said.

John Kirkwood, an attorney accompanying May, said that Tonsager has shown an interest in using loan guarantees for bond financing, but that changing the rules will happen only “as long as he can get bureaucrats who are lifers to buy into it.”

During the forum, Vilsack also

offered to meet personally with airline executives who want to use more bio-fuels in their aircraft and are talking about starting a program called “Farm to Fly.”

Vilsack also noted that USDA has announced the availability of funds under several energy provisions of the 2008 farm bill, including the Biorefinery Assistance Program, Repowering Assistance Payments to Eligible Bio-

refineries, Payments to Eligible Advanced Biofuel Producers, and the Rural Energy For America Program. Information: www.rurdev.usda.gov

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