Department of Agriculture
An Audit Report on the Texas Agricultural Finance Authority
May 1999
Report Number 99-034
Overall Conclusion
The Texas Agricultural Finance Authority (Authority) has improved its processes for making agricultural loans since our previous audit. However, we continue to have concerns about the financial viability and effectiveness of the Authority's main loan program, the Loan Guaranty Program, given its losses and low loan volume. The Commissioner of Agriculture has begun several initiatives to increase the quality and volume of loans. She also has worked with the Texas Legislature on legislation to restructure the programs.
If the Loan Guaranty Program does not improve its financial position, appropriations may be required in the future to meet its general obligation debt. Twenty-two of the program's 83 loans have defaulted since 1993. As a result of the defaults, the program had a negative fund equity of $6.9 million as of August 31, 1998. An additional $4.5 million, associated with loans currently in default, may have to be written off.
Key Facts and Findings
Recent loans appear less likely to default than loans granted previously. None of the defaulted loans were approved within the past two years. The Authority has implemented sound credit policies and procedures, and its credit analysts are diligent in reviewing new loan applications.
Few businesses and individuals have participated in the Authority's financial programs. (See the attachment for information on the number and dollar value of loans for each program.)
Marketing of the programs is problematic since a well-qualified applicant probably will not need the Authority's participation and guarantee. Because it provides loans that otherwise would not be made, the Authority has had difficulty attracting good loans to act as a buffer against its riskier loans. A certain volume of good loans is needed to ensure that losses are offset and that the programs are self-sustaining; however, the Authority has not yet developed financial projections to identify that volume.
The Authority complies with significant requirements contained in the resolution that provides for the issuance of taxable commercial paper.
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