AB349: Bill Text

Current law requires certain contractors to contribute to the agricultural producer security fund. Some contractors are disqualified from the fund because of their financial conditions. If a contributing contractor defaults on its financial obligations to producers, DATCP makes payments from the fund, up to a maximum deductible amount per default. The deductible varies by industry. The law requires DATCP to buy surety bonds to provide contingent financial backing, that is, to make payments to producers when the total amount of payments that are authorized to be made to producers because of a default exceeds the deductible. The law requires DATCP to buy three bonds, in the amount of $5,000,000 to $20,000,000 each, one for the benefit of milk producers, one for the benefit of grain producers, and one for the benefit of vegetable producers. DATCP is also required to buy a bond in the amount of $20,000,000 to $40,000,000 to be used if one of the industry-specific bonds is not large enough to make authorized payments in case of a large default.

This bill authorizes DATCP to acquire a contract to provide a cash loan to the fund whenever DATCP requests a loan rather than, or in addition to, a surety bond in order to provide contingent financial backing for the agricultural producer security fund. If DATCP obtains a loan, it would repay the principal and interest from the payments made to the fund by contractors. The bill changes the requirements about the amount of contingent financial backing that DATCP must obtain. Under the bill, DATCP is to acquire the amount of contingent financial backing that it determines is sufficient to meet reasonably foreseeable needs for payments to producers, except that DATCP may acquire a smaller amount if necessary to avoid excessive acquisition costs or repayment liabilities and except that DATCP may not acquire contingent financial backing in an amount that exceeds $17,000,000 unless DATCP establishes a different maximum amount by rule.

The bill also changes the deductible amounts (the amounts that are paid to producers from the agricultural producer security fund, above which payments are made from the contingent financial backing). The current deductibles range from $500,000 to $1,500,000. Under the bill, the deductible is 60% of the balance in the fund on the last day of the month before the month in which the default necessitating the payments occurs.

Security filed by contractors

Under current law, contractors who are disqualified from the agricultural producer security program because of their financial conditions are required to file security with DATCP to provide payment to producers in case the contractors default on their financial obligations to producers. The security may be in a form such as a surety bond or a certificate of deposit. Some grain dealers and vegetable contractors who contribute to the fund and who use deferred payment contracts are also required to file security.

This bill requires some additional contractors who contribute to the fund to file security with DATCP to provide an additional source of payment in case the contractors default. A contractor must file security if it does not satisfy financial criteria specified in the bill and it does more than a specified amount of business. The larger the contractor, the more security it must file. The financial criteria vary according to industry. The amount of the contribution to the fund that must be paid by a contractor who is required to file security under this bill is reduced by an amount that varies according to the amount of security that must be filed. The higher the amount of security, the more the contribution is reduced.

Repayment of start-up loan to fund

The legislation creating the agricultural producer security program transferred $2,000,000 from the agrichemical management fund to the agricultural producer security fund. Under current law, DATCP must repay that amount, plus interest compounded at 5% annually, from the agricultural producer security fund by July 1, 2006. This bill changes the interest rate to 2%, beginning on July 1, 2003.

For further information see the state fiscal estimate, which will be printed as an appendix to this bill.

The people of the state of Wisconsin, represented in senate and assembly, do enact as follows:

AB349, s. 1 Section 1. 20.115 (1) (v) of the statutes is amended to read:

AB349,3,5 20.115 (1) (v) Agricultural producer security; bonds contingent financial backing. From the agricultural producer security fund, a sum sufficient to acquire the surety bonds contingent financial backing required under ss. s. 126.06 and 126.07.

AB349, s. 2 Section 2. 20.115 (1) (wb) of the statutes is amended to read:

AB349,4,5 20.115 (1) (wb) Agricultural producer security; bond proceeds of contingent financial backing. From the agricultural producer security fund, all moneys received under s. 126.72 (2) and (3) to be used to make default claim payments under s. 126.71 (1).

AB349, s. 3 Section 3. 20.115 (1) (wc) of the statutes is created to read:

AB349,4,9 20.115 (1) (wc) Agricultural producer security; repayment of contingent financial backing. From the agricultural producer security fund, a sum sufficient to make payments under s. 126.06 (3).

AB349, s. 4 Section 4. 25.463 of the statutes is amended to read:

AB349,4,15 25.463 Agricultural producer security fund. There is established a separate nonlapsible trust fund designated as the agricultural producer security fund, to consist of all fees, surcharges, assessments, reimbursements, and proceeds of surety bonds contingent financial backing received by the department of agriculture, trade and consumer protection under ch. 126.

AB349, s. 5 Section 5. 126.05 (2) of the statutes is amended to read:

AB349,4,20 126.05 (2) The department shall deposit into the fund all fees, surcharges, assessments, reimbursements, and proceeds of surety bonds contingent financial backing that the department collects under this chapter. The department shall keep a record by contractor and industry, of all deposits.

AB349, s. 6 Section 6. 126.06 of the statutes is repealed and recreated to read:

AB349,5,2 126.06 Contingent financial backing. (1) Department to acquire. Using moneys appropriated under s. 20.115 (1) (v), the department shall acquire contingent financial backing to secure payment under s. 126.72 (2) of claims against contributing contractors, as defined in s. 126.68 (1). The contingent financial backing may be in one or more of the following forms:

AB349,5,3 (a) A surety bond.

AB349,5,5 (b) A contract to provide a cash loan to the fund whenever the department requests a loan.

AB349,5,8 (2) Amount. The department shall acquire contingent financial backing under sub. (1) in the amount that, in the department's judgment, is sufficient to meet reasonably foreseeable needs under s. 126.72 (2), except as follows:

AB349,5,11 (a) The department may acquire a smaller amount of contingent financial backing if, in the department's judgment, that is necessary to avoid excessive acquisition costs or repayment liabilities.

AB349,5,14 (b) The department may not acquire contingent financial backing in an amount that exceeds $17,000,000, unless the department establishes a different maximum amount by rule.

AB349,5,16 (3) Repayment. The department shall pay principal and interest costs of any loan provided under sub. (1) (b) from the appropriation under s. 20.115 (1) (wc).

AB349, s. 7 Section 7. 126.07 of the statutes is repealed.

AB349, s. 8 Section 8. 126.08 of the statutes is amended to read:

AB349,6,2 126.08 Start-up loan to fund; repayment. On January 1, 2002, $2,000,000 is transferred as a loan from the agrichemical management fund, to the agricultural producer security fund. The department shall repay this loan principal, plus interest compounded at 5% annually, from the agricultural producer security fund by July 1, 2006. Interest shall be compounded at 5% annually before July 1, 2003, and at 2% annually beginning on July 1, 2003. The department shall transfer at least $250,000 from the agricultural producer security fund to the agrichemical management fund on July 1 of each year, beginning on July 1, 2003. The department may accelerate the loan repayment, at its discretion.

AB349, s. 9 Section 9. 126.14 (2) (b) 3. and 4. of the statutes are amended to read:

AB349,6,8 126.14 (2) (b) 3. The grain dealer fails to reimburse the department, within 60 days after the department issues a reimbursement demand under s. 126.73 (1), for the full amount that the department pays to claimants under s. 126.72 (1) or under s. 126.72 (2) with the proceeds of a loan under s. 126.06 (1) (b) because of that grain dealer's default.

AB349,6,12 4. The grain dealer fails to reimburse a bond surety, within 60 days after the bond surety issues a reimbursement demand under s. 126.73 (2), for the full amount that the surety pays to the department under s. 126.72 (2) or (3) for the benefit of claimants affected by that grain dealer's default.

AB349, s. 10 Section 10. 126.15 (1) (intro.) of the statutes is amended to read:

AB349,6,17 126.15 (1) General. (intro.) A contributing grain dealer shall pay an annual fund assessment for each license year. The Except as provided in sub. (6m), the assessment equals $20 or the sum of the following, whichever is greater, unless the department by rule specifies a different assessment:

AB349, s. 11 Section 11. 126.15 (6m) of the statutes is created to read:

AB349,6,22 126.15 (6m) Reduced assessment for certain grain dealers filing security. If a grain dealer files security under s. 126.16 (1) (c), the grain dealer's assessment is the amount determined under sub. (1) reduced by an amount determined as follows:

AB349,6,25 (a) Divide the amount of security that the grain dealer is required to file as determined under s. 126.16 (3) (b) by the amount of the grain dealer's estimated default exposure, as defined in s. 126.16 (1) (c) 1.

AB349,7,2 (b) Multiply the amount of the assessment determined under sub. (1) by the amount determined under par. (a).

AB349, s. 12 Section 12. 126.16 (1) (c) of the statutes is created to read:

AB349,7,5 126.16 (1) (c) 1. In this paragraph, "estimated default exposure" means the sum of the following:

AB349,7,8 a. Thirty-five percent of the grain dealer's average monthly payment for the 3 months, during the preceding 12 months, in which the grain dealer made the largest monthly payments for producer grain procured in this state.

AB349,7,11 b. The grain dealer's highest total, at any time during the preceding 12 months, of unpaid obligations for producer grain procured in this state under deferred payment contracts.

AB349,7,17 2. A grain dealer shall file security with the department, and maintain that security until the department releases it under sub. (8) (bm), if the grain dealer files an annual financial statement under s. 126.13 (1) that shows negative equity, a current ratio of less than 1.25 to 1.0, or a debt to equity ratio of more than 4.0 to 1.0 and the grain dealer's estimated default exposure is greater than the following amount:

AB349,7,18 a. For the license year beginning on September 1, 2003, $18,000,000.

AB349,7,19 b. For the license year beginning on September 1, 2004, $19,000,000.

AB349,7,20 c. For a license year that begins on September 1, 2005, or later, $20,000,000.

AB349, s. 13 Section 13. 126.16 (3) of the statutes is renumbered 126.16 (3) (a), and 126.16 (3) (a) (intro.) and 1., as renumbered, are amended to read:

AB349,7,25 126.16 (3) (a) (intro.) A Except as provided in par. (b), a grain dealer who is required to file or maintain security under this section shall at all times maintain security that is at least equal to the sum of the following:

AB349,8,5 1. An amount equal to 35% Thirty-five percent of the grain dealer's average monthly payment for the 3 months, during the preceding 12 months, in which the grain dealer made the largest monthly payments for producer grain procured in this state, except that this amount is not required of a contributing grain dealer after December 1, 2002.

AB349, s. 14 Section 14. 126.16 (3) (b) of the statutes is created to read:

AB349,8,9 126.16 (3) (b) A grain dealer who is only required to file or maintain security under sub. (1) (c) shall at all times maintain security equal to the grain dealer's estimated default exposure, as defined in sub. (1) (c) 1., less the following amount:

AB349,8,10 1. For the license year beginning on September 1, 2003, $18,000,000.

AB349,8,11 2. For the license year beginning on September 1, 2004, $19,000,000.

AB349,8,12 3. For a license year that begins on September 1, 2005, or later, $20,000,000.

AB349, s. 15 Section 15. 126.16 (8) (a) (intro.) of the statutes is amended to read:

AB349,8,16 126.16 (8) (a) (intro.) The department may release security filed under sub. (1) (a), except for any amount of security that the grain dealer is required to file because sub. (1) (b) or (c) applies to the grain dealer, if any of the following applies:

AB349, s. 16 Section 16. 126.16 (8) (b) (intro.) of the statutes is amended to read:

AB349,8,20 126.16 (8) (b) (intro.) The department may release security filed under sub. (1) (b), except for any amount of security that the grain dealer is required to file because sub. (1) (a) or (c) applies to the grain dealer, if any of the following applies:

AB349, s. 17 Section 17. 126.16 (8) (bm) of the statutes is created to read:

AB349,9,2 126.16 (8) (bm) The department may release security filed under sub. (1) (c), except for any amount of security that the grain dealer is required to file because sub. (1) (a) or (b) applies to the grain dealer, if the grain dealer files 2 consecutive annual financial statements under s. 126.13 showing that the grain dealer no longer has negative equity, a current ratio of less than 1.25 to 1.0, or a debt to equity ratio of more than 4.0 to 1.0.

AB349, s. 18 Section 18. 126.29 (2) (a) of the statutes is amended to read:

AB349,9,6 126.29 (2) (a) A grain warehouse keeper who is required to file security under s. 126.31 (1) (a) is disqualified from the fund until the department releases that security under s. 126.31 (8) (a).

AB349, s. 19 Section 19. 126.30 (1) (intro.) of the statutes is amended to read:

AB349,9,11 126.30 (1) General. (intro.) A contributing grain warehouse keeper shall pay an annual fund assessment for each license year. The Except as provided in sub. (5m), the assessment equals $20 or the sum of the following, whichever is greater, unless the department by rule specifies a different assessment:

AB349, s. 20 Section 20. 126.30 (5m) of the statutes is created to read:

AB349,9,16 126.30 (5m) Reduced assessment for certain grain warehouse keepers filing security. If a grain warehouse keeper files security under s. 126.31 (1) (b), the grain warehouse keeper's assessment is the amount determined under sub. (1) reduced by an amount determined as follows:

AB349,9,19 (a) Divide the amount of security that the grain warehouse keeper is required to file as determined under s. 126.31 (3) (b) by the amount of the grain warehouse keeper's estimated default exposure, as defined in s. 126.31 (1) (b) 1.

AB349,9,21 (b) Multiply the amount of the assessment determined under sub. (1) by the amount determined under par. (a).

AB349, s. 21 Section 21. 126.31 (1) of the statutes is renumbered 126.31 (1) (a).

AB349, s. 22 Section 22. 126.31 (1) (b) of the statutes is created to read:

AB349,10,3 126.31 (1) (b) 1. In this paragraph, "estimated default exposure" means 20% of the current local market value of grain that the grain warehouse keeper holds in this state for others.

AB349,10,9 2. A grain warehouse keeper shall file security with the department, and maintain that security until the department releases it under sub. (8) (am), if the grain warehouse keeper files an annual financial statement under s. 126.28 (1) that shows negative equity, a current ratio of less than 1.25 to 1.0, or a debt to equity ratio of more than 4.0 to 1.0 and the grain warehouse keeper's estimated default exposure is greater than the following amount:

AB349,10,10 a. For the license year beginning on September 1, 2003, $18,000,000.

AB349,10,11 b. For the license year beginning on September 1, 2004, $19,000,000.

AB349,10,12 c. For a license year that begins on September 1, 2005, or later, $20,000,000.

AB349, s. 23 Section 23. 126.31 (3) of the statutes is renumbered 126.31 (3) (a) and amended to read:

AB349,10,18 126.31 (3) (a) A Except as provided in par. (b), a grain warehouse keeper who is required to file or maintain security under this section shall at all times maintain security equal to at least 20% of the current local market value of grain that the grain warehouse keeper holds in this state for others.

AB349, s. 24 Section 24. 126.31 (3) (b) of the statutes is created to read:

AB349,10,23 126.31 (3) (b) A grain warehouse keeper who is only required to file or maintain security under sub. (1) (b) shall at all times maintain security equal to the grain warehouse keeper's estimated default exposure, as defined in sub. (1) (b) 1., less the following amount:

AB349,10,24 a. For the license year beginning on September 1, 2003, $18,000,000.

AB349,10,25 b. For the license year beginning on September 1, 2004, $19,000,000.

AB349,11,1 c. For a license year that begins on September 1, 2005, or later, $20,000,000.

AB349, s. 25 Section 25. 126.31 (8) (a) (intro.) of the statutes is amended to read:

AB349,11,4 126.31 (8) (a) (intro.) The department may release security filed under sub. (1) (a) if any of the following applies:

AB349, s. 26 Section 26. 126.31 (8) (am) of the statutes is created to read:

AB349,11,11 126.31 (8) (am) The department may release security filed under sub. (1) (b), except for any amount of security that the grain warehouse keeper is required to file because sub. (1) (a) applies to the grain warehouse keeper, if the grain warehouse keeper files 2 consecutive annual financial statements under s. 126.28 showing that the grain warehouse keeper no longer has negative equity, a current ratio of less than 1.25 to 1.0, or a debt to equity ratio of more than 4.0 to 1.0.