Permanent Rules (Annotated) - Revised October 2005
Subpart 1. Applicability. Parts 1650.0501 to 1650.0571 establish the criteria and procedures to be used by the RFA in administering the agricultural development bond beginning farmer loan program authorized by Minnesota Statutes, Chapter 41C.
Subpart 2. Purpose. The purpose of the agricultural development bond or "aggie bond" beginning farmer loan program is to facilitate the acquisition of agricultural land and improvements and depreciable agricultural property by beginning farmers. This is accomplished through the issuance of tax exempt bonds, which provides eligible farmers with borrowed capital at below market interest rates.
Subpart 1. Scope. The definitions in this part apply to parts 1650.050 to 1650.057.
Subp. 2. Act. "Act" means the Minnesota Agricultural Development Act in Minnesota Statutes, Chapter 41C.
Subp. 3. Agricultural farmland. "Agricultural farmland" means productive, tillable land or land used for pasture.
Subp. 4. Applicant. "Applicant" means an individual or partnership who submits a completed application for a loan under the program to the authority through an eligible lender.
Subp. 5. Application. "Application" means an application for a loan under the program in the form prescribed by the authority.
Subp. 6. Authority or RFA. "Authority" or "RFA" means the Minnesota Rural Finance Authority established by Minnesota Statutes, section 41B.025, acting through its board or its duly authorized officers.
Subp. 7. Bond. "Bond" means a special, limited obligation revenue bond issued by the authority to an eligible lender to finance a loan to an eligible borrower for an eligible purpose pursuant to a loan agreement between the eligible lender and the authority.
Subp. 8. Borrower. "Borrower" means an eligible borrower who has received a loan under the program.
Subp. 9. Code. "Code" means the Internal Revenue Code of 1986, as amended, and all rules, regulations, and revenue procedures issued under it.
Subp. 10. Depreciable agricultural property. "Depreciable agricultural property" has the meaning given in Minnesota Statutes, section 41C.02, subdivision 9.
Subp. 11. Eligible borrower. "Eligible borrower" means a Minnesota resident or a Minnesota partnership consisting only of individuals who are Minnesota residents, who meets the requirements of Minnesota Statutes, section 41C.05, subdivision 2, and is a first time farmer, as defined in subpart 16, who will be the principal user of the property financed under the code, and will materially and substantially participate in the operation of the farm of which the property is a part or on which the property will be used.
Subp. 12. Eligible lender. "Eligible lender" means a bank, credit union, savings association, insurance company, or other legal entity that is authorized to do business in Minnesota , an individual, or a group of individuals.
Subp. 13. Eligible purpose. "Eligible purpose" means:
Subp. 14. Executive director. "Executive director" means the authority's executive director or any other person authorized to act on behalf of the authority's board or its executive director.
Subp. 15. Farming. "Farming" has the meaning given in Minnesota Statutes, section 41C.02, subdivision 10.
Subp. 16. First time farmer. "First time farmer" means an individual who, together with the individual's spouse and minor children:
Subp. 17. Improvements. "Improvements" to farm land means items that, when complete, become part of the farm land or fixtures, including but not limited to confinement systems, barns and other out buildings, silos and other crop storage facilities, and improvements to land such as tiling, terraces, ponds, erosion control structures, and waterways.
Subp. 18. Lender. "Lender" means an eligible lender who has purchased a bond under the program.
Subp. 19. Loan. "Loan" means the loan of the proceeds of a bond to an eligible borrower for an eligible purpose pursuant to a loan agreement between the authority and the eligible borrower.
Subp. 20. Net worth. "Net worth" means the total value of an applicant's assets and the assets of the applicant's spouse and dependents, less the liabilities of those parties. For purposes of calculating net worth, "assets" means property, real or personal, tangible or intangible, and all contract rights of value that constitute assets, including cash crops or feed on hand, livestock held for sale, breeding stock, marketable bonds and securities, securities not readily marketable, accounts receivable, notes receivable, cash invested in growing crops, cash value of life insurance, machinery and equipment, cars and trucks, farm and other real estate including life estates and personal residence, and the value of a beneficial interest in any trust. For purposes of calculating net worth, "liabilities" means the debts or other obligations for which an applicant is responsible including accounts payable, notes or other indebtedness owed to any source, taxes and rent due or past due, amounts owed on real estate contracts or mortgages, judgments, and accrued interest payable.
Subp. 21. Principal user. "Principal user" means a person who is a principal owner, a principal lessee, a principal output purchaser, or an "other" principal user as defined in the code.
Subp. 22. Program. "Program" means the agricultural development bond beginning farmer loan program established by the authority.
Subpart 1. Eligibility. To be eligible for a loan under the program an applicant must be an eligible borrower.
Subp. 2. Certification. An applicant must certify to the authority in each loan application that the applicant understands and meets the definition of eligible borrower for the program.
Subp. 3. Net worth. A financial statement showing an applicant's net worth must be submitted with the application and may not include the value of the property or improvements to be acquired with the proceeds of the loan or the liability of the loan. At the loan closing the eligible lender must recertify that the applicant's net worth does not exceed program limits.
Subpart 1. Loan transactions and security.
Subp. 2. Loan evaluation. The lender must determine and evaluate the eligible borrower's financial condition, net worth, and ability to repay the loan of the bond proceeds to be made by the authority, and the lender is solely responsible for that determination. The authority shall not make any independent evaluation of any of these matters, but shall rely upon certifications provided to it by the applicant and the lender as part of an application.
Subp. 3. Loan terms. The payment terms of each loan and the bond that will be issued to fund the loan must be identical and, subject to the applicable provisions of state and federal law or the code, must be established by the eligible borrower and the lender.
Subp. 4. Loan documents. Except as provided in subpart 1 with respect to certain loan security agreements, all loan and bond transactions must be evidenced by use of the authority's standard loan documents. The documentation must include loan agreements, a promissory note, a bond, various closing certificates, legal opinions, and other documents as bond counsel requires.
Subp. 5. Tax exemption.
Subp. 6. Use of bond proceeds; certification. Bond proceeds may not be used for a purpose other than an eligible purpose or by a person other than an eligible borrower. If funds are not fully disbursed at the time of closing, the lender and borrower must certify to the authority that the proceeds were used for an eligible purpose by an eligible borrower, and were fully expended within six months after the loan closing date.
Subp. 7. Assignment of bond. A lender may assign a bond in whole or in part to any person, but the lender is responsible for compliance with all state and federal laws applicable to the assignment. Servicing of the loan may also be assigned. The authority must be notified in writing prior to assignment of servicing of a loan.
Subp. 8. Assumption of loans; substitution of collateral and transfer of property. Loans may not be assumed without the prior approval of the authority, and then only if the purchaser of the property is an eligible borrower. Depreciable agricultural property may be exchanged or traded for similar property, and other property such as breeding livestock may be added or substituted as collateral at the discretion of the lender without the prior approval of the authority. The benefits of the loan made at the tax exempt rate from the proceeds of an authority bond must remain with the eligible lender, and no person to whom property is traded or otherwise transferred may obtain the benefits of the authority loan.
Subpart 1. Application.
Subp. 2. Application fee. The applicant shall provide to the eligible lender for submission to the authority with the application a check payable to the Minnesota Department of Agriculture in an amount established by the authority under Minnesota Statutes, section 41C.12, as an application fee. The fee is not refundable.
Subp. 3. Volume cap allocation charge. The applicant must also provide to the eligible lender for submission to the authority with the application, a check payable to the Minnesota Department of Agriculture in the amount determined under Minnesota Statutes, section 474A.03, as a volume cap allocation fee. If the application is approved and the authority makes application for a volume cap allocation as described in part 1650.0551, subpart 2, the fee must be delivered to the commissioner of Mn Management and Budget in payment of the application charge imposed by Minnesota Statutes, chapter 474A. If the application is rejected, the volume cap allocation fee must be returned to the applicant.
Subp. 4. Use of allocation. The allocation purchased from Mn Management and Budget must be used within 90 days. If the allocation expires due to no fault of the authority, the authority may require payment of additional fees to secure a new allocation.
Subp. 5. Insufficient funds. If there are insufficient funds to allocate to all applications received, priority must be given in the order of the application number. If the allocation requested exceeds the allocation fund balance, the next application must then be allowed to request the allocation. This procedure must be used until the balance of the allocation fund is depleted. Eligible lenders are responsible to verify that an allocation has been secured before closing on their bond.
Subp. 6. Authority review. The executive director, or a designee, shall review the information provided and accept or reject the application. If the information provided is not sufficient to make a determination, the executive director, or a designee, shall request additional information from the eligible lender and applicant. The review must include, but is not limited to, whether the loan complies with the act and parts 1650.0501 to 1650.0571. The authority shall notify the applicant and eligible lender whether the application has been approved or rejected. If the application is not approved, a written notice must state the reasons for disapproval.
Subp. 7. Administrative reconsideration. If a proposed application is not approved, the applicant or the eligible lender may petition the executive director for an administrative reconsideration. The petition must be in writing and must be sent within 15 business days of the date of the disapproval. The petition must state the petitioner's reasons for disagreeing with the disapproval and may include additional information relevant to the request for reconsideration. Within 15 business days of receiving the petition, the executive director shall send a written response to the petitioner upholding or reversing the original decision and giving the reasons for the decision.
Subp. 8. Appeal. A petitioner may appeal the executive director's reconsideration directly to the authority's board, by written notice to the executive director within 15 business days of receiving the executive director's reconsideration decision. The decision of the board is final.
Subp. 9. Application expiration. An application that remains inactive for 120 days from the date of the preliminary resolution is considered canceled and the application fee is forfeited.
Subpart 1. Hearing and approval requirement. Under section 147(f) of the code, in order to make the interest payable on a bond excludable from gross income for federal tax purposes, prior to the issuance of the bond the authority or its designated representative must hold a public hearing on the issuance of the bond, and the issuance of the bond must be approved by an "applicable elected representative" of the state, which means, in this case, the governor or another elected official of the state designated by the governor. Notice of the hearing must be published at least 14 days before the hearing in a newspaper of general circulation in the state and where the property being financed is or is to be located. The notice must set forth the date, time, place, and purpose of the hearing; the authority's intention to issue the bond; the maximum principal amount of the bond to be issued; the source of payment of the bond; the purpose for which the proceeds of the bond will be loaned to the borrower; the name of the borrower; and the location of the property being acquired with the proceeds of the loan or where it will be used.
Subp. 2. Volume cap allocation requirement. Under section 146 of the code, in order to make the interest payable on a bond excludable from gross income for federal tax purposes, the authority must obtain a volume cap allocation in an amount equal to the amount of the bond, pursuant to the state volume cap allocation law, Minnesota Statutes, chapter 474A. In order to obtain a volume cap allocation, the authority must submit an application for it to the state Department of Mn Management and Budget together with a preliminary resolution of the authority approving the loan and the issuance of a bond to fund it, a statement of bond counsel that the proposed bond requires an allocation under Minnesota Statutes, chapter 474A, and a statement that the bond is a "qualified small issue bond" within the meaning of section 144 of the code. The authority has no control over whether a volume cap allocation will be received with respect to any volume cap application submitted by it.
Subp. 3. Executive director authority. If upon review of a loan application and all supporting documents and other information requested by the authority in connection with the application the executive director determines that the application is in compliance with the program and parts 1650.0501 to 1650.0571, the executive director will:
Subp. 4. Preliminary resolution. The authority shall consider the adoption of the preliminary resolution described in subpart 3 at its first meeting following approval of an application by the executive director.
Subp. 5. Public hearing. A public hearing must be held at the offices of the authority during regular business hours on regular business days. A person appearing in person at the hearing will be allowed ten minutes to present views. A protest may also be made in writing by mailing or faxing it to the authority. The authority is not responsible for delays in delivery of written protests. The person conducting the hearing shall make a written record of the hearing and all information or views presented at the hearing. The record must be maintained as part of the public records of the authority.
Subp. 6. Public approval. Following the public hearing, if no information is presented indicating that the loan to be made and the bond to be issued are not in accordance with the program and parts 1650.0501 to 1650.0571, the executive director shall cause to be prepared and sent to the governor's office, or the office of the elected official of the state designated by the governor, a statement describing each bond or series of bonds it proposes to issue, along with a summary of the public comments received at the hearings. Any information received at the hearing must be presented to the authority at its next meeting, at which the authority shall confirm or take further action on the application in question that may be indicated.
Subpart 1. Loan documents. The executive director shall provide standard forms of all loan documents and closing documents necessary to evidence a bond and related loan transaction to all applicants and prospective lenders. All bond and loan transactions must be done on standard forms, with only insertions and changes necessary to accurately reflect the transaction in question or to assure compliance with section 144 of the code.
Subp. 2. Lender's responsibility. The lender must use its own form of additional security documents (mortgage, security agreement, or guarantee) it believes are necessary and appropriate under the particular loan circumstances. These items must be referenced in the bond documents. Any additional requirements not specifically provided for in the bond documents, such as insurance coverage and amounts, must also be added. It is the lender's responsibility to ensure that any security agreements, mortgages, guarantees, or other security documents that the lender requires in a transaction, have been completed and signed, and that any financing statements have been filed, mortgages recorded, or any other necessary steps taken to protect the lender's interests. The authority makes no warranties or representations with respect to the effectiveness, validity, or priority of any liens or security interests, that a lender has, or believes it may have, with respect to a particular loan or bond.
Subp. 3. Authority's responsibility. The authority shall by resolution authorize all documents to be executed by it and is responsible for the preparation, execution, and delivery by the borrower and the authority of the authority's loan documents and closing documents; compliance with the procedures in part 1650.0551; the issuance of necessary legal opinions by the authority's bond counsel; the filing with the Internal Revenue Service of all reports and forms required to be filed in connection with the issuance of a bond; and the furnishing of fully executed copies of those items to the borrower and the lender.
Subp. 4. Origination fee and closing costs. At the loan closing, the applicant shall deliver to the authority a check payable to the Minnesota Department of Agriculture in an amount sufficient to pay the origination fee as established in Minnesota Statutes, section 41C.12. Under no circumstances shall this fee be less than $200. The authority shall estimate and the borrower shall pay these costs at closing. Loan proceeds may be used to pay closing costs subject to the limitation established by the code, which is described in part 1650.0531, subpart 1, item B, subitem (2).
Subpart 1. Forms. The executive director shall provide forms necessary for administration and implementation of the program. The number and type of forms must be sufficient to safeguard the interests of the authority.
Subp. 2. Waivers. The authority or the executive director may waive or vary particular provisions of parts 1650.0501 to 1650.0571 to conform to requirements of the code necessary to make the interest on any bond excludable from gross income of the recipient for federal tax purposes. No waiver may conflict with Minnesota Statutes, chapter 41C.
Subp. 3. Right to audit. The authority may audit at any time the records of the lender and the borrower relating to a loan and bond to ensure that bond proceeds were used for an eligible purpose by an eligible borrower.
Subp. 4. Data privacy. Financial information, including credit reports, financial statements, and net worth calculations received by the authority regarding any loan and the name of each eligible borrower who is the recipient of a loan are private data under Minnesota Statutes, chapter 13, and may be disclosed only in accordance with Minnesota Statutes, chapter 13. The name of an eligible borrower, the proposed amount of any loan, the purpose of the loan, and the location of the property to be acquired with the loan proceeds or the location where it is to be used must be disclosed as provided in part 1650.0551 and as required by the code in order to make the interest payable on the bond issued to fund the loan excludable from gross income for federal tax purposes.