To help farmers — clean up loan mess

The N.C. Rural Rehabilitation Corp. was created during the Depression to provide low-interest loans and other help for the state’s poor farmers. But a state audit shows that the agency needs some dramatic rehabilitation itself.

The audit was prompted by a disclosure earlier this year that the Rehabilitation Corp. had lent Sen. Marc Basnight’s nephew $63,000, without proper collateral, and had let him go nine years without making payments. (The senator has emphatically denied any knowledge of the loan.) Now, it’s obvious that’s hardly the only problem in the agency’s $5 million portfolio.

The audit found that one-third of the Rural Rehabilitation Corp.’s loans were given without a formal application or certified appraisal. One quarter of the loans lacked deeds of trust as collateral, which could inhibit the ability to collect on delinquent loans. That wasn’t an issue, however, because there was no evidence that the agency had ever attempted to collect on borrowers who were in arrears. In fact, the audit found that the agency’s loan committee went for six years without keeping any record of its deliberations or actions.

As Agriculture Commissioner Meg Scott Phipps acknowledged when confronted with the audit, the situation is a “mess.” The audit’s revelations are particularly galling now, when the state is coping with a budget shortfall and many small farmers are coping with erratic weather conditions, which have included hurricanes and drought, as well as shifts away from agricultural mainstays such as tobacco.

While the agency’s budget may seem miniscule compared to other state programs, its relatively modest loans represent a lifeline for some struggling farmers trying to expand production or launch new ventures. That’s why it’s important for the agency to operate as efficiently as possible and make sure its money goes where it’s most needed — and is paid back in timely fashion.

The audit includes several recommendations for tightening up the agency’s loan procedures and administration, which should be swiftly implemented. Long term, however, the most efficient remedy would be to fold the agency — now part of the Department of Agriculture and Consumer Services — into the N.C. Agricultural Finance Authority, which also makes farm loans. Phipps has indicated she supports that reorganization, and a provision in the pending state budget bill would do just that.