House File 427 - Introduced HOUSE FILE 427 BY PRICHARD , KAUFMANN , and BENNETT A BILL FOR An Act relating to small farm operations involved in the 1 production of certain commodities that are unprocessed or 2 processed, and used as food on a local or regional basis, 3 including by establishing programs to support production 4 and marketing, providing a preference for government 5 entities when purchasing food, providing a tax credit and 6 appropriation, providing a property tax exemption, and 7 including applicability date provisions. 8 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 9 TLSB 2225YH (9) 86 da/nh

H.F. 427 DIVISION I 1 SMALL FARM OPERATION PROGRAMS 2 Section 1. NEW SECTION . 15E.371 Purpose. 3 The purposes of this division are to encourage and 4 promote the production and purchase of dedicated commodities 5 and dedicated products derived locally or regionally from 6 livestock, milk, or specialty crops produced on small farm 7 operations in order to improve nutrition for the citizens of 8 Iowa, and to strengthen local and regional farm economies. 9 Sec. 2. NEW SECTION . 15E.372 Definitions. 10 As used in this division, unless the context otherwise 11 requires: 12 1. “Commodity” means any of the following: 13 a. Livestock as defined in section 717.1. 14 b. Milk or other dairy product regulated under chapter 192. 15 c. A specialty crop which includes horticulture and nursery 16 crops, fruits, tree nuts, and vegetables. 17 2. “Dedicated commodity” means a commodity produced at a 18 small farm operation for use as food for human consumption. 19 3. “Dedicated product” means a commodity produced at a 20 small farm operation that is processed into a product for human 21 consumption. 22 4. “Small farm operation” means agricultural land as defined 23 in section 9H.1, located in this state, consisting of a total 24 number of acres that does not exceed thirty percent of the 25 median farm size in the state as determined by the authority. 26 5. “Small farm operator” means a person who is the owner or 27 lessee of a small farm operation. 28 Sec. 3. NEW SECTION . 15E.373 General authority. 29 1. The authority shall administer this division and adopt 30 all rules necessary to carry out the purposes of this division 31 as provided in section 15E.371. 32 2. The authority shall cooperate with the Iowa finance 33 authority and the department of agriculture and land 34 stewardship in administering this division. 35 -1- LSB 2225YH (9) 86 da/nh 1/ 14

H.F. 427 3. The authority may employ or contract with a consultant or 1 specialist to assist in developing and implementing a plan to 2 implement this division. 3 Sec. 4. NEW SECTION . 15E.374 Qualifications. 4 In order to qualify to participate in a program under 5 this division, a person shall meet all of the requirements 6 established by the authority which shall include at least all 7 of the following: 8 1. Be a small farm operator. The small farm operator may 9 be an individual, a partnership under chapter 486A, a family 10 farm corporation as defined in section 9H.1, or a family farm 11 limited liability company as defined in section 9H.1. 12 2. Be actively engaged in the small farm operation by making 13 management decisions and performing physical work relating to 14 the production and marketing of a dedicated commodity produced 15 on the small farm operation or a dedicated product derived 16 from a commodity produced on the small farm operation. The 17 person must be actively engaged on a regular, continuous, and 18 substantial basis in a manner that is essential to the success 19 of the small farm operation. If the person is a partnership, 20 family farm corporation, or family farm limited liability 21 company, at least one partner, shareholder, or member must be 22 so actively engaged. 23 3. Be a resident of this state. If the person is a 24 partnership, family farm corporation, or family farm limited 25 liability company, each partner, shareholder, or member must be 26 a resident of this state. 27 4. Have sufficient education, training, or experience 28 in farming. If the person is a partnership, family farm 29 corporation, or family farm limited liability company, each 30 partner, shareholder, or member, who is not a minor, must have 31 sufficient education, training, or experience in farming. 32 5. Have access to adequate working capital and production 33 items. 34 6. Meet the low or moderate net worth requirements 35 -2- LSB 2225YH (9) 86 da/nh 2/ 14

H.F. 427 applicable to a beginning farmer as defined in section 16.58. 1 Sec. 5. NEW SECTION . 15E.375 Small farm operator financial 2 assistance program. 3 1. A small farm operator financial assistance program is 4 created within the authority. The purpose of the program is to 5 provide financial assistance to small farm operators for the 6 purpose of improving or expanding an existing and viable small 7 farm operation or for engaging in a cooperative processing or 8 marketing venture among several small farm operators. 9 2. The authority may provide financial assistance in the 10 form of an interest loan, low-interest loan, no-interest loan, 11 forgivable loan, loan guarantee, grant, letter of credit, 12 equity financing, principal buy-down, interest buy-down, or a 13 combination of these forms. 14 3. The maximum amount of financial assistance for a small 15 farm operator under the program is as follows: 16 a. For a small farm operator seeking to improve or expand an 17 existing viable small farm operation, twenty-five percent of 18 the amount of credit extended to the small farm operator by an 19 eligible lender, as defined by the authority, up to a maximum 20 of fifty thousand dollars. 21 b. For one or more small farm operators engaging in a 22 cooperative processing or marketing venture, twenty-five 23 percent of the amount of credit extended to the venture by an 24 eligible lender, as defined by the authority, up to a maximum 25 of two hundred fifty thousand dollars. 26 4. The authority shall not approve an application to 27 refinance an existing loan. 28 Sec. 6. NEW SECTION . 15E.376 Small farm operator processing 29 and marketing program. 30 1. A small farm operator processing and marketing program 31 is created within the authority. The purposes of the program 32 are to expand processing and promote new markets for dedicated 33 commodities and dedicated products produced by small farm 34 operators. 35 -3- LSB 2225YH (9) 86 da/nh 3/ 14

H.F. 427 2. In carrying out the purposes of the program, the 1 authority shall do all of the following: 2 a. Investigate the processing and marketing of dedicated 3 commodities and dedicated products produced by small farm 4 operators and recommend efficient and economical methods of 5 processing and marketing. 6 b. Promote the sale, distribution, and merchandising of 7 dedicated commodities and dedicated products produced by small 8 farm operators. 9 c. Furnish information and assistance to the public 10 concerning the marketing of dedicated commodities and dedicated 11 products produced by small farm operators. 12 d. Gather and diffuse useful information concerning all 13 phases of the marketing of dedicated commodities and dedicated 14 products produced by small farm operators in cooperation 15 with other public or private agencies. The authority shall 16 cooperate with Iowa state university of science and technology 17 to avoid any unnecessary duplication of efforts. 18 e. Ascertain sources of supply of dedicated commodities 19 and dedicated products produced by small farm operators, and 20 prepare and publish from time to time lists of names and 21 addresses of small farm operators, processors, and marketers. 22 Sec. 7. NEW SECTION . 15E.377 Small farm operations fund. 23 1. A small farm operations fund is created in the state 24 treasury as a revolving fund under the control of the 25 authority. The fund shall consist of any moneys appropriated 26 by the general assembly for deposit in the fund and any other 27 moneys available to and obtained or accepted by the authority 28 from the federal government or private sources for placement 29 in the fund. 30 2. Moneys in the fund are appropriated exclusively to 31 support the programs created in this division. 32 3. Notwithstanding section 12C.7, interest or earnings 33 on moneys in the fund shall be credited to the fund. 34 Notwithstanding section 8.33, moneys credited to the fund that 35 -4- LSB 2225YH (9) 86 da/nh 4/ 14

H.F. 427 remain unexpended or unobligated at the end of a fiscal year 1 shall not revert to any other fund. 2 Sec. 8. NEW SECTION . 15E.378 Certification. 3 1. Upon application, the authority shall issue an annual 4 certificate to a person eligible to participate in a program 5 under this division verifying that the person is a qualified 6 small farm operator, regardless of whether the person actually 7 participates in a program. 8 2. A person may use a certificate issued to the person under 9 this section as proof of eligibility for a benefit under other 10 programs benefiting small farm operators, including all of the 11 following: 12 a. The selling of dedicated commodities or dedicated 13 products to the department of administrative services pursuant 14 to section 8A.315, the commission for the blind pursuant 15 to section 216B.3, the board of directors of a merged area 16 pursuant to section 260C.19C, the board of regents pursuant to 17 section 262.9, the state department of transportation pursuant 18 to section 307.21, and the department of corrections pursuant 19 to section 904.312. 20 b. The from small farm operation to school tax credit as 21 provided in chapter 190B. 22 c. A property tax exemption as provided in section 427.1. 23 Sec. 9. CODE EDITOR DIRECTIVE. The Code editor shall 24 organize the provisions of this division of this Act as a new 25 division in chapter 15E. 26 DIVISION II 27 PURCHASE BY GOVERNMENT ENTITIES 28 Sec. 10. Section 8A.315, Code 2015, is amended by adding the 29 following new subsection: 30 NEW SUBSECTION . 9. When providing for the purchase of 31 food, the department, whenever cost competitive, shall purchase 32 dedicated commodities or dedicated products originating from 33 commodities produced by persons certified as qualified small 34 farm operators by the economic development authority pursuant 35 -5- LSB 2225YH (9) 86 da/nh 5/ 14

H.F. 427 to section 15E.378. 1 Sec. 11. Section 216B.3, Code 2015, is amended by adding the 2 following new subsection: 3 NEW SUBSECTION . 13A. When providing for the purchase of 4 food, give a preference to purchasing dedicated commodities 5 or dedicated products originating from commodities produced 6 by persons certified as qualified small farm operators by the 7 economic development authority pursuant to section 15E.378. 8 Sec. 12. Section 260C.19C, Code 2015, is amended to read as 9 follows: 10 260C.19C Purchase of designated biobased certain products. 11 The board of directors providing services to a merged area 12 shall give preference to purchasing designated all of the 13 following: 14 1. Dedicated commodities or dedicated products originating 15 from commodities produced by persons certified as qualified 16 small farm operators by the economic development authority 17 pursuant to section 15E.378. 18 2. Designated biobased products in the same manner as 19 provided in section 8A.317 . 20 Sec. 13. Section 262.9, Code 2015, is amended by adding the 21 following new subsection: 22 NEW SUBSECTION . 6A. When providing for the purchase of 23 food, give a preference to purchasing dedicated commodities 24 or dedicated products originating from commodities produced 25 by persons certified as qualified small farm operators by the 26 economic development authority pursuant to section 15E.378. 27 Sec. 14. Section 307.21, Code 2015, is amended by adding the 28 following new subsection: 29 NEW SUBSECTION . 6A. The administrator shall, when 30 providing for the purchase of food, give a preference to 31 purchasing dedicated commodities or dedicated products 32 originating from commodities produced by persons certified as 33 qualified small farm operators by the economic development 34 authority pursuant to section 15E.378. 35 -6- LSB 2225YH (9) 86 da/nh 6/ 14

H.F. 427 Sec. 15. Section 904.312, Code 2015, is amended by adding 1 the following new subsection: 2 NEW SUBSECTION . 3. When providing for the purchase of food, 3 the director shall give a preference to purchasing dedicated 4 commodities or dedicated products originating from commodities 5 produced by persons certified as qualified small farm operators 6 by the economic development authority pursuant to section 7 15E.378. 8 DIVISION III 9 IOWA STATE UNIVERSITY 10 Sec. 16. NEW SECTION . 266.31 Small farm operations. 11 1. The Iowa cooperative extension service in agriculture 12 and home economics shall develop and publish materials and 13 sponsor events on site or via the internet regarding best 14 methods, practices, and strategies for use by small farm 15 operators qualified to participate in programs created in 16 chapter 15E, division XXVIII, in producing and marketing 17 dedicated commodities or dedicated products originating from 18 commodities. 19 2. The materials and events shall be developed in 20 cooperation with small farm operators as defined in section 21 15E.372. 22 3. The materials and events shall be made available or 23 sponsored at cost. 24 DIVISION IV 25 TAX CREDIT 26 Sec. 17. Section 2.48, subsection 3, paragraph f, Code 2015, 27 is amended to read as follows: 28 f. In 2017 , the : 29 (1) The from small farm operation to school tax credit under 30 chapter 190B, subchapter II. 31 (2) The innovation fund investment tax credit available 32 under section 15E.52 . 33 Sec. 18. NEW SECTION . 190B.201 Definitions. 34 As used in this subchapter, unless the context otherwise 35 -7- LSB 2225YH (9) 86 da/nh 7/ 14

H.F. 427 requires: 1 1. “Dedicated commodity” means the same as defined in 2 section 15E.372. 3 2. “Dedicated product” means the same as defined in section 4 15E.372. 5 3. “Department” means the department of revenue. 6 4. “Small farm operation” means the same as defined in 7 section 15E.372. 8 5. “Tax credit” means the from small farm operation to 9 school tax credit as established in this subchapter. 10 Sec. 19. NEW SECTION . 190B.202 Administration —— rules. 11 1. This subchapter shall be administered by the department 12 of revenue. 13 2. The department of revenue shall adopt all rules necessary 14 to administer this subchapter. 15 3. The department of agriculture and land stewardship, 16 the Iowa department of public health, and the department of 17 education shall cooperate with the department of revenue in 18 developing and administering this subchapter. 19 Sec. 20. NEW SECTION . 190B.203 From small farm operation to 20 school tax credit. 21 A from small farm operation to school tax credit is allowed 22 against the taxes imposed in chapter 422, divisions II and III, 23 as provided in this subchapter. 24 Sec. 21. NEW SECTION . 190B.204 From small farm operation to 25 school tax credit —— eligibility. 26 In order to qualify for a from small farm operation to school 27 tax credit, all of the following must apply: 28 1. The taxpayer must be a small farm operator qualified 29 to participate in programs created in chapter 15E, division 30 XXVIII. 31 2. The taxpayer must produce dedicated commodities or 32 dedicated products originating from commodities on the 33 taxpayer’s small farm operation. 34 3. The taxpayer must transfer title to the dedicated 35 -8- LSB 2225YH (9) 86 da/nh 8/ 14

H.F. 427 commodities or dedicated products originating from commodities 1 to a school district or accredited nonpublic school in this 2 state. 3 4. The dedicated commodities or dedicated products 4 originating from commodities shall not be damaged or 5 out-of-condition or declared to be unfit for human consumption 6 by a federal, state, or local health official. The condition 7 of the dedicated commodities or dedicated products originating 8 from commodities must be at least the same as allowed for 9 charitable contributions of food under section 170(e)(3)(C) 10 of the Internal Revenue Code. However, the department may 11 require that the dedicated commodities or dedicated products 12 originating from commodities comply with higher quality 13 standards. 14 5. The dedicated commodities or dedicated products 15 originating from commodities must be used by the school 16 district or school to supplement the diet of its students. 17 Sec. 22. NEW SECTION . 190B.205 From small farm operation 18 to school tax credit —— claims. 19 1. A certificate issued by the economic development 20 authority under section 15E.378 must be attached to the 21 taxpayer’s tax return for the tax year for which the tax 22 credit under this subchapter is claimed. The department of 23 revenue must review and approve an application for a tax credit 24 certificate as provided by rules adopted by the department of 25 revenue. 26 2. The department of revenue may require that the taxpayer 27 attach proof of the sale of dedicated commodities or dedicated 28 products originating from commodities to the department 29 supporting the tax credit claim in a form and manner prescribed 30 by the department. 31 3. An individual may claim a from small farm operation to 32 school tax credit of a general partnership, limited liability 33 company, S corporation, or estate electing to have income 34 taxed directly to the individual. The amount claimed by the 35 -9- LSB 2225YH (9) 86 da/nh 9/ 14

H.F. 427 individual shall be based upon the pro rata share of the 1 individual’s earnings from the partnership, limited liability 2 company, S corporation, or estate. 3 Sec. 23. NEW SECTION . 190B.206 From small farm operation to 4 school tax credit —— limits on claims. 5 A from small farm operation to school tax credit is subject 6 to all of the following limitations: 7 1. The tax credit shall not exceed a qualifying amount for 8 the tax year that the tax credit is claimed. The qualifying 9 amount is the lesser of the following: 10 a. Fifty percent of the total purchase price paid by all 11 school districts or schools to which the dedicated commodities 12 or dedicated products originating from commodities were sold. 13 b. Ten thousand dollars. 14 2. A tax credit in excess of the taxpayer’s liability for 15 the tax year is not refundable but may be credited to the tax 16 liability for the following five years or until depleted, 17 whichever is earlier. 18 3. If a tax credit is allowed, the amount of the sale for 19 which the tax credit is claimed shall not be deductible in 20 determining taxable income for state tax purposes. 21 4. A tax credit shall not be carried back to a tax year 22 prior to the tax year in which the taxpayer claims the tax 23 credit. 24 Sec. 24. NEW SECTION . 190B.207 Tax credit certificates —— 25 availability. 26 1. The amount of tax credits that may be issued to support 27 the from small farm operation to school tax credit shall not 28 exceed five million dollars in the aggregate in any year. 29 2. The department of revenue shall issue tax credit 30 certificates to support the from small farm operation to school 31 tax credit on a first-come, first-served basis. 32 Sec. 25. NEW SECTION . 422.11K From small farm operation to 33 school tax credit. 34 The taxes imposed under this division, less the credits 35 -10- LSB 2225YH (9) 86 da/nh 10/ 14

H.F. 427 allowed under section 422.12, shall be reduced by a from 1 small farm operation to school tax credit under chapter 190B, 2 subchapter II. 3 Sec. 26. Section 422.33, Code 2015, is amended by adding the 4 following new subsection: 5 NEW SUBSECTION . 22. The taxes imposed under this division 6 shall be reduced by a from small farm operation to school tax 7 credit under chapter 190B, subchapter II. 8 Sec. 27. CODIFICATION. The Code editor shall organize 9 the provisions of this division of this Act enacting sections 10 190B.201 through 190B.207 as a new subchapter in chapter 190B. 11 Sec. 28. APPLICABILITY. This division of this Act applies 12 to tax years beginning on or after January 1, 2016. 13 DIVISION V 14 PROPERTY TAX EXEMPTION 15 Sec. 29. Section 427.1, Code 2015, is amended by adding the 16 following new subsection: 17 NEW SUBSECTION . 25. Small farm operation. Land which 18 is a small farm operation owned or leased by a small farm 19 operator certified by the economic development authority 20 pursuant to section 15E.378 as qualified to participate in 21 programs under chapter 15E, division XXVIII. The economic 22 development authority shall send a copy of the certificate 23 to the appropriate assessor not later than February 1 of the 24 assessment year for which the exemption is requested. The 25 economic development authority may subsequently withdraw the 26 certificate if the small farm operator no longer qualifies to 27 participate in programs under chapter 15E, division XXVIII. In 28 that case, the economic development authority shall provide the 29 assessor with written notice of the decertification. 30 Sec. 30. APPLICABILITY. This division of this Act applies 31 to assessment years beginning on or after January 1, 2016. 32 EXPLANATION 33 The inclusion of this explanation does not constitute agreement with 34 the explanation’s substance by the members of the general assembly. 35 -11- LSB 2225YH (9) 86 da/nh 11/ 14

H.F. 427 GENERAL. This bill provides assistance to a person 1 classified as a small farm operator who owns or leases not more 2 than a total number of acres that does not exceed 30 percent 3 of the median farm size in the state to produce a dedicated 4 commodity which is a commodity produced at a small farm 5 operation or a dedicated product that is a commodity produced 6 at a small farm operation that is processed into a product fit 7 for human consumption. In order to receive assistance, the 8 small farm operator must comply with certain requirements. 9 The person must be in business as an individual or an equity 10 holder in an entity, including a general partnership, a family 11 farm corporation, or a family farm limited liability company 12 (Code chapter 9H). The individual or all equity holders in an 13 entity must be actively engaged in the small farm operation, 14 must be Iowa residents, must demonstrate sufficient education, 15 training, or experience in farming, and will materially and 16 substantially participate in the small farm operation. The 17 small farm operation must have access to adequate working 18 capital and production items, and meet low or moderate net 19 worth requirements applicable to a beginning farmer under the 20 beginning farmer loan program (Code chapter 16). 21 ASSISTANCE PROGRAMS. The bill creates two small farm 22 operation assistance programs administered by the economic 23 development authority (authority). The first is a small farm 24 operator financial assistance program to provide financial 25 assistance to small farm operators for the improvement or 26 expansion of an existing farm operation or for engaging in 27 a cooperative processing or marketing venture among several 28 small farm operators. The assistance may be in the form 29 of an interest loan, low-interest loan, no-interest loan, 30 forgivable loan, loan guarantee, grant, letter of credit, 31 equity financing, principal buy-down, or interest buy-down. 32 The second is a small farm operator processing and marketing 33 program to expand processing and promote new markets for 34 dedicated commodities and dedicated products originating from 35 -12- LSB 2225YH (9) 86 da/nh 12/ 14

H.F. 427 commodities produced by small farm operators. The bill also 1 creates a small farm operations fund to support the programs. 2 Finally, the bill requires the authority to certify that 3 a small farm operator is eligible to participate in other 4 programs created in the bill. 5 PREFERENCE REQUIRED BY STATE ENTITIES PURCHASING FOOD. 6 The bill requires that certain governmental entities provide 7 a preference to a certified small farm operator when the 8 government entity purchases food. The entities include the 9 department of administrative services, commission for the 10 blind, merged area schools, board of regents institutions, 11 the state department of transportation, and the department of 12 corrections. 13 IOWA STATE UNIVERSITY. The bill requires that the Iowa 14 cooperative extension service in agriculture and home economics 15 at Iowa state university develop and publish materials and 16 sponsor events to assist small farm operators in increasing 17 profitability. 18 INCOME TAX CREDIT. The bill requires the department of 19 revenue to establish a tax credit for certified small farm 20 operators selling dedicated commodities or dedicated products 21 originating from commodities to schools. The amount of the tax 22 credit cannot exceed 50 percent of the purchase price paid by 23 the school or $10,000, whichever is less. The bill provides 24 for a five-year carryover period. There is no carryback 25 provision and the tax credit is nontransferable. The bill 26 imposes a maximum limit of $5 million that can be used to 27 support the tax credit during any year. The tax credit applies 28 to tax years beginning on and after January 1, 2016. 29 PROPERTY TAX EXEMPTION. The bill provides that land which 30 is a small farm operation owned or leased by a certified small 31 farm operator is exempt from property taxes. The authority 32 must send a copy of the certificate to the appropriate county 33 assessor. The authority may decertify the small farm operator 34 and send that notice to the county assessor as well. The tax 35 -13- LSB 2225YH (9) 86 da/nh 13/ 14