Legislature passes economic recovery loan program

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A bill creating a $60 million low-interest loan program for businesses struggling from the economic fallout of the COVID-19 pandemic cleared the Kansas Legislature on Thursday.

The House voted 122-1 to pass legislation allowing banks to deduct interest income from agricultural loans and single-family housing loans in rural areas with populations of fewer than 2,500 people outside a metro area.

The legislation also expands the geographical area that credit unions can serve.

Credit unions, under state law, cannot serve geographic areas totaling more than 1 million people. The bill now expands that area to 2.5 million people.

The bill now goes to Gov. Laura Kelly, who vetoed the legislation last year because she didn’t want to provide tax breaks for banks in light of a looming budget shortfall.

There’s more than enough support in the Legislature to override a veto this year, although the measure has the backing of newly appointed Democratic state Treasurer Lynn Rogers, who helped refine the proposal.

“I’m hopeful that this loan program will play an important role in getting our Main Street businesses and small agriculture operations back on solid footing,” Rogers said in a statement.

The bill was pushed by the Kansas Bankers Association as part of a two-year effort that started over a taxing dispute with the credit unions.

“We commend the Kansas House and Senate leadership for taking quick action to enhance the availability of credit for struggling Kansas businesses and for helping sustain local access to credit in communities across Kansas,” Bankers Association President and CEO Doug Wareham said in a statement.

State revenue officials estimate this year’s bill would cost the state $2 million in fiscal 2023, $3.9 million in fiscal 2024 and $3.9 million in 2025.

The bill redirects idle money from a loan program established more than a decade ago to help build new housing during the Great Recession.

The proposal would take money the Legislature allocated for the program in 2008 and use it to offer low-interest loans to struggling businesses.

The money for the program in 2008 came from the Pooled Money Investment Board, which invests money available from the general fund.

The state would loan the money to the banks, credit unions or Farm Credit at 0.25%, and the banks could make the loans to the businesses at up to 3.25%.

The program would make loans up to $250,000 to each business for up to 10 years.

Funds from the loan program must be used by small businesses or agriculture operations in Kansas.

The Legislature must review the program in January 2024 to ensure funds are available and are used to support recovery efforts from the pandemic.

The loans are limited to businesses operating in Kansas with no more than 200 full-time employees.

The banks and the credit unions had been engaged in a fight since 2019 over whether there was an even playing field for taxes.

In 2019, the banks introduced two bills aimed at credit unions, claiming they were encroaching on their business.

Lawmakers set aside one bill that would have levied taxes on the business lending income of credit unions with assets of more than $100 million.

They advanced a second bill allowing banks to deduct interest income from business loans and single-family housing loans in rural areas of the state.

The banks and the credit unions ultimately agreed on a compromise that was reflected in the bill that passed the House on Thursday.