Immigration Reform Update By: Laura Powers. Kentucky Farm Business Management Program

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1 COOPERATIVE EXTENSION SERVICE UNIVERSITY OF KENTUCKY COLLEGE OF AGRICULTURE, LEXINGTON, KY, Agricultural Economics - Extension No. xxx KENTUCKY FARM BUSINESS MANAGEMENT PROGRAM STATE NEWSLETTER Vol. 17, No B Pembroke Road, Hopkinsville, Kentucky June 12, 2013 Inside: Immigration Reform Update...1 On Farm Solar Energy Production...2 Leasing vs Buying Equipment...3 Upcoming KFBM Events...4 Crop Yields by Area Historic Yields by Crop Kentucky Farm Business Management Program Lincoln Trail Association Jonathan Shepherd Immigration Reform Update By: Laura Powers Comprehensive Immigration Reform is once again a hot topic in Congress. Recently, an immigration reform bill was introduced in the Senate. This article will outline some of the provisions of the legislation as it related to agricultural labor. Please keep in mind that the legislation has not been made into law. Although the information provided here is accurate as of the time at printing, it is subject to change. Ohio Valley Association Lauren Omer Suzy Martin Purchase Association Jennifer Rogers Pennyroyal Association Rush Midkiff Michael Forsythe Amanda Jenkins Laura Powers Program Coordinator Jerry Pierce Extension Coordinator Tim Woods One section of this bill includes the creation of a Blue Card program for current undocumented farm workers. Agricultural workers meeting certain criteria (including a documented work history in agriculture over the previous two years, payment of taxes, payment of fines and no felony or violent misdemeanor convictions) would become eligible to obtain a Green Card. A second section of the legislation is the creation of a new Agricultural Worker Program. This new program would contain two work options: 1) a portable, at will employment based visa and 2) a contract based visa. The current H-2a program would sunset one year after the new program is enacted. The new Ag Worker Program would be a three year visa administered by the USDA. Workers would lose their status and must depart from the U.S. if they were unemployed for 60 or more consecutive days. Contract workers who breach their contract must depart the U.S. before accepting another job with a U.S. employer. 1

2 A cap would be placed on the Ag Worker Program. The cap would begin at 112,333 the first year and increase to 337,000 visas by the third year and stay there until year five. After five years, the Secretary of Agriculture would determine the cap. Wages would be set based on six occupational categories and would increase annually by at least 1.5% but no more than 2.5%. H-2a wages would be frozen for three years after enactment of the legislation (or one year after the new program is operational). The employer would be required to hire qualified, ready, willing, and able U.S. workers up to 15 days before the date of need. Employers must provide housing or a housing allowance (except for job sites within 50 miles of the border). An at-will employer will always be able to pay a housing allowance rather than provide housing. A contract employer will only be allowed to provide a housing allowance if certain conditions are met. Contract and at will workers will receive transportation reimbursements and contract employers will be subject to the three-fourths guarantee similar to that in the H-2a program. These are only some of the provisions regarding agricultural labor included in the proposed Comprehensive Immigration Reform legislation. The bill can be found, in its entirety online by searching for comprehensive immigration reform legislation. As always, interested parties are encouraged to contact their congressional representatives to let their opinions be known. ~Thanks to Kentucky Farm Bureau for contributing to this article~ On Farm Solar Energy Production By: Jennifer Rogers Solar energy production has sparked interest within Kentucky agriculture. While farms have always been reliant upon solar energy in crop production, harnessing this power and selling the produced electricity is gaining interest on several Kentucky farms. Why solar energy? Why now? Why on farms? Solar Energy is energy that is produced by the sun, most noticeably is the heat produced. Technology has been available for many years to harness this energy and convert it to electricity through the use of solar panels. You may have seen these panels on the tops of buildings or other areas where they will receive direct sunlight. The production of solar electricity does not use any fossil fuels, nor does it cause pollution. More recently, the cost of the solar panels has dropped significantly, making it an economically viable opportunity for people who were not willing to accept the cost for the ecological benefits alone. Currently, there are several incentives for green energy production. Solar electricity production fits in this category. 30% Energy Investment Tax Credit This is a federal tax credit. It is a nonrefundable credit, meaning that it will offset any tax owed. This credit can be carried back one year, and carried forward for up to 20 years. Depreciable Expense Qualifies under the 50% bonus deprecation allowance. Eligible expense under Code Section 179. Grant Opportunities USDA REAP Grant o Provides up to 25% of the cost of the project in grant funds. o REAP Grant funds are diminishing and may already be allocated or may not be available. KY GOAP Grant o 25% cost share, up to a maximum of $11,250. o You must qualify as a farm to receive this grant. 2

3 TVA Electric Production Incentive TVA customers currently can sign an agreement to receive a $0.09 premium per kwh of electricity produced. This is above the price paid for electricity. If the price of electricity is $0.10/kWh, then the producer would receive $0.19/kWh. This incentive is paid based on a 10-year contract with TVA. Rising Electricity Rates Rates for electricity have risen in recent years and are expected to continue to increase. Solar electricity production allows a producer to hedge against this rising cost of electricity. Farms have been especially interested in solar electricity production for several reasons. Over the last several years we have seen record high net farm incomes for Kentucky farms, providing funds for new projects. Only farms qualify for the energy grants. Many farm types, especially those with large quantities of grain storage, contract poultry, or hog production use large quantities of electricity. These farms may also have large tax liabilities and will be able to benefit from the tax incentives (30% tax credit and depreciation). Farms may also not be limited on space to construct these solar panels, free of interference from the sun. While solar electricity has many perceived benefits, it is important to fully assess the project before construction. Many of the companies selling these solar energy systems will provide the producer with a payoff analysis. It is important for the producer to meet with their tax professional and lending institution before entering into a contract. The tax professional will be able to advise on how long it will take the individual producer to take advantage of the full tax credit, and whether or not the individual will be able to take advantage of the accelerated depreciation opportunities. Many producers, unless they have a high level of income, will not be able to use both of these tax savings methods in the first year, thus spreading out the payoff for the project. Any financing charges for the project 3 must also be added to the payoff analysis. The lender will need to be willing to loan money on this project and will be able to provide estimated interest expense. Solar electricity production should be analyzed as a money-making venture, not simply offsetting electricity usage. In most cases, the electric company will provide a check to the producer for the electricity produced and the producer will pay for the electricity used. The income (both grant and electric production) and tax savings should be used to calculate the expected payoff period for the project and the accumulated returns. These returns will help you determine if this is a good business venture to pursue. Leasing vs. Buying Equipment By: Amanda Jenkins Have you ever wondered which option, buying or leasing a piece of equipment, is a better suit for your operation? While leasing may not be a popular decision as of right now, with the availability of bonus depreciation and Section 179 write-offs as high as they are, a reduction in that expense may lead farmers to look for other alternatives. The decision to lease or buy should be made on a case by case basis because every operation is different. Both options offer advantages and disadvantages. Leasing Equipment: Advantages 1) Preserving capital - leases require less money up front so they do not have a major effect on your cash flow. 2) Providing flexibility - leases are usually easier to obtain and have more flexible terms than loans for buying equipment. 3) Upgrading equipment - leasing allows individuals to obtain the latest in technology, horsepower, and/or features. 4) Tax deductions - lease payments are considered production expenses that can be written off when incurred. Leasing Equipment: disadvantages 1) No ownership - leased equipment is not considered an asset on your balance sheet. 2) Repair costs - the lessee is typically responsible for repair and maintenance of the equipment. 3)

4 Lease terms - most leases have a specific time limit on equipment use. Exceeding this limit could greatly increase the cost of leasing equipment, and getting out of a lease may be difficult or costly. Buying Equipment: Advantages 1) Ownership - buying equipment gives one the pride of ownership and increases one s assets, and the number of hours of machinery use doesn't have to be taken into consideration. 2) Tax incentives - Section 179 expense allows $500,000 (subject to a cap if purchases go over $2,000,000) of purchases in 2013 to be claimed in the first year of ownership; or if the equipment is new, bonus depreciation of 50% of the cost. 3) Depreciation deductions - if not all depreciation is taken with Section 179, then the cost of the equipment can be taken over the life of the asset. Buying Equipment: disadvantages 1) Higher initial cost - a down payment is required for most purchases, and any required loans may tie up lines of credit. 2) Upgrading equipment - buying exposes one to the risk of it becoming obsolete before the equipment is worn out. 3) Repair costs - repair costs may rise as machinery ages, but with leasing, the lease may be up before repair costs begin to accumulate. When trading equipment in on either a lease or a purchase, one thing to consider is depreciation already taken on it. A trade with a purchase allows the depreciation and gain to roll into the new one. However, when trading an owned piece in for one that is going to be leased, the old piece must be shown as a sale and the gain recognized. For instance, if Section 179 expense is taken on a piece of equipment and then traded in on a lease, then the accelerated depreciation must be recaptured and the sale will be shown as a gain. Upcoming KFBM Events: June 9 th June 13 th : National Association of Farm Business Analysis Specialists Annual Meeting in Overland Park, KS July 23 rd State Board Meeting: the Annual Delegates meeting of the Kentucky Association of Farm Business Analysis Groups, Inc. 4

5 Crop Yields by Area Kentucky Purchase Pennyroyal Ohio Valley Central KY Yellow Corn White Corn Full Season Soybeans Double Crop Soybeans Wheat Tobacco - Burley 2,268 2,176 2,628 2,249 Tobacco - Air Cured 2,771 2,765 2,866 Tobacco - Fire Cured 3,125 2,240 3,138 Note: Yields are in bushels per acre except for Alfalfa (tons) and Tobacco (pounds) Historic Yields by Crop YEAR Yellow Corn White Corn Soybeans Wheat Barley All Tobacco Full Season Double Crop , , , , , , , , , ,572 5 Year Average , Year Average ,562 5

6 University of Kentucky Pennyroyal Farm Analysis Group 2850 B Pembroke Rd. Hopkinsville, KY Return Service Requested PRESORTED STANDARD US POSTAGE PAID PERMIT 58 Hopkinsville, KY University of Kentucky Department of Agricultural Economics 400 Charles E. Barnhart Bldg. Lexington, KY Phone: Fax: