Focus on Ag: How infrastructure legislation affects the agriculture industry

Kent Thiesse
Farm Management analyst and vice president
Kent Thiesse

As farm operators have been completing harvest and fall fieldwork in 2021, one key piece of legislation has been approved by Congress, while the U.S. House has passed another proposal that could greatly affect the agriculture industry and rural communities.

After months of negotiation, the federal Infrastructure Investment and Jobs Act, or so-called Bipartisan Infrastructure Framework, was passed by Congress and signed into law by President Biden.

And recently, the U.S. House passed the $1.75 trillion Build Back Better Act, which addresses funding for several potential climate change and social programs. The Build Back Better Act is being debated and considered in the U.S. Senate, but had not been approved as of this writing. Following is a brief summary of the Bipartisan Infrastructure Framework and Build Back Better pieces of legislation as they relate to funding for farmers and the agriculture industry.

Highlights of provisions in the Bipartisan Infrastructure Framework legislation include $1.2 trillion in funding for basic infrastructure projects. This includes approximately $550 billion in new spending, with the remaining $650 billion being pre-allocated funding for highways and other projects that were already scheduled.

What follows  is a breakdown of some of the provisions for the new funding in the legislation.

About $284 billion, or 52% of the new funding, would be allocated toward for surface transportation needs:

  •  $110 billion for roads and bridges. The federal government estimates that 173,000 miles of highways and major roads, as well as 45,000 bridges, are in poor or failing conditions, many of which are in rural areas of the U.S.
  • $66 billion to expand and modernize the U.S. rail system, which can be extremely important to freight transportation issues for farmers and the agri-business.
  • $17 billion dedicated toward investments and improvements in ports and waterways, which are also extremely important for keeping export markets open for U.S. ag products and the access of imports for ag-related inputs.
  • There is also funding allocated for public transit, airports, surface transportation, electric vehicle chargers, and other provisions.

The remaining $266 billion, or 48 %of the new funding, is allocated to other core infrastructure projects:

  • $65 billion toward expanding and improving broadband access, especially to underserved areas, many of which are in rural areas of the U.S.
  • $60 billion toward energy and power projects to improve the U.S. electrical grid.
  • $55 billion for water infrastructure and wastewater improvement projects, which could greatly benefit many rural areas that are having difficulty funding needed improvements in aging water and waste treatment infrastructure.
  • There is also funding for flood mitigation projects, specialized watershed projects, charging stations for electric vehicles, and other specific programs.

Highlights of agriculture-related provisions in the proposed Build Back Better legislation that passed the U.S. House follow.

This proposed broad-based piece of legislation would addresses many issues and would boost targeted spending for climate change, renewable energy, health care, childcare, education, immigration, and other social infrastructure provisions. Portions of this legislation would likely affect farmers and the agriculture industry in the future. It is estimated that approximately $82 billion of agriculture-related provisions and spending are included in the proposal.

Some of these proposals include $27 billion in new conservation-related funding that would be primarily targeted to help farmers increase so-called “climate-smart” farming practices to sequester carbon and reduce greenhouse gas emissions:

  • $5 billion for a five-year program to pay farmers $25 per acre to plant cover crops.
  • $9 billion of additional funds for the Environmental Quality Incentives Program, commonly called EQIP.
  • $4.1 billion for the Conservation Stewardship Program.
  • $7.5 billion for the Regional Conservation Partnership Program.
  • $1.7 billion for the Conservation Easement Program.

Most of the programs that are being funded are existing conservation programs that have currently been administered and funded through the Farm Bill process. It is not clear how the proposed Build Back Better legislation would affect current or future conservation programs or funding that have traditionally been included in the Farm Bill.

The Build Back Better Act passed by the U.S. House would also include other provisions for new programs and spending toward rural development programs, as well as funding for other programs that might affect farmers and rural communities:

  • More than $25 billion in new funding for rural cooperatives and renewable energy development, as well as grants to states and local governments for renewable energy projects.
  • Extending the $1-per-gallon biodiesel and renewable diesel tax credit through 2026, which is projected to generate several billion dollars in tax credits for these industries.
  • Money for research and development of “sustainable” aviation fuels, including a new $1.25-per-gallon tax credit for the sale and use of these fuels, which could be a potential future growth opportunity for the biofuels industry.
  • $7 billion to pay off Farm Service Agency loans to underserved farmers and ranchers, which replaces earlier FSA debt relief provisions in the American Rescue Plan, which have been challenged by several lawsuits.
  • $320 billion in the form of tax credits to companies and consumers for clean energy funding to increase the use of electric vehicles, install solar panels and improve energy efficiency, some of which may benefit farm families and rural communities.

One of the big questions with getting the bill passed by Congress has been the rather large amount of dollars that are being allocated, both now and in the future, as well as the tax provisions that might be included to pay for that extra funding. The Build Back Better bill that passed the U.S. House does not increase the capital gains tax rate or include any adjustments to the “stepped-up basis” rule on farm assets. There are no changes being proposed in the farm estate tax exemption amount, which is scheduled to increase to over $12 million in 2022. As it stands now, the legislation would not change individual income tax rates and would only increase the tax rate for corporations with incomes higher than $5 million. The bill keeps the top individual tax rate at 37% and the capital gains tax rate at 20%.

What does it all mean?

The implementation process for the Bipartisan Infrastructure Framework basic infrastructure legislation has already begun, which should benefit farmers and rural communities by providing much-needed funding for upgrading roads and bridges, rail and waterway improvements, broadband enhancements, and many other local projects.

The much larger and more diverse Build Back Better bill may or may not pass the Senate with the language that is in the original House version. However, if a compromise is reached that allows it to pass both houses of Congress and be signed into law, it will likely include several provisions that might affect farmers and the agriculture industry. There will likely be opportunities through the climate portions of the legislation for renewable energy and carbon sequestration efforts; however, farmers remain very wary of potential future costs and possible tax implications of this legislation.

For additional information contact Kent Thiesse, farm management analyst and senior vice president, MinnStar Bank, Lake Crystal, Minn., at 507-381-7960 or kent.thiesse@minnstarbank.com.