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September 7, 2001

Legislature creates ag
processing opportunities...

Increased value-added processing of agricultural products has been a goal of the state and Texas Farm Bureau for many years. The 77^th Legislature passed legislation to create more processing opportunities with the authorization of "Agricultural Development Districts."

The bill and concept was the brainchild of State Rep. David Swinford of Dumas, chairman of the House Committee on Agriculture and Livestock. Our organization's policy strongly endorses the concept: "We support tax-free bonds to enable agricultural producers to develop facilities for value-added products."

There has been discussion of Agricultural Development Districts at some of the recent TFB District Policy Development meetings. There is interest in learning more about the details of this new idea that is a first-of-its-kind in the nation.

As a result, we hope this week's column will help answer some of the questions that we are hearing from members of our organization.

The thrust of the idea is to boost producers up the food chain and allow them to capture some value from the processing of their own product. The mechanics of creating an Agricultural Development District are fairly straightforward.

Agricultural producers are allowed to assemble their land into non-contiguous districts. Those wishing to form a district must petition the county commissioners in the county where the processing facility is to be located for a creation election among members of the district (those landowners who chose to form the district in the first place).

The district is governed by a board who would stand for election after appointment by commissioners. The district is actually a governmental entity with extremely limited eminent domain authority. Eminent domain can only be exercised within the district (which was voluntarily formed) for acquisition of land on which the processing facility will be located. In essence, those in the district only have eminent domain over themselves.

The district is not a taxing authority, but it may levy assessments upon those property owners who voluntarily formed the district. These assessments may be levied upon acreage, production, or any other reasonable basis at the discretion of the board.

Because the district is a governmental entity, it would be able to issue tax-free revenue bonds for construction of the facility. These considerations allow producers in a cooperative to compete on a more level playing field with corporations. County and school district property taxes would continue to be paid on the property where the facility is sited at the same amount the property was taxed before construction. The county and school district are held harmless. Also, if the operation employs over 50 people, the board of the district is required to make payments in lieu of taxes to the school district in which the facility is located in an amount to be negotiated to mitigate the expense of new students.

Projects must be approved by the Texas Department of Agriculture with regard to feasibility, and approved projects are eligible for Texas Agricultural Finance Authority assistance. A district may contract, through a qualified management contract, with another entity to operate the enterprise. The district could contract operation to a cooperative consisting of the same members of the district. In this scenario, the profit from the project would flow back to the producers themselves.

Agricultural Development Districts provide a mechanism for producers to acquire capital to process local products at local facilities. Without a doubt, the district concept is a significant economic development tool for rural Texas.