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<br />~'---'.. <br /> <br />4 <br /> <br />1 J ~),i' <br /> <br />Reclamation Instructions <br /> <br />" <br /> <br />Part 116 Economic fnveslip;arions <br /> <br />Series 1 10 Planning <br /> <br />116.5.2A<41-1 <br /> <br />CHAPTER 5 COST SHARING <br /> <br />difference between gross farm income and farm expenses. For "without" project <br />farm budgets, net (arm income consisrs of the return to the farm family's labar and <br />management including income (or the accumulation of equity in permanent farm <br />capital investment. In the "with" project farm budgets, net farm income includes <br />returns to these factors plus the return to project-supplied water. <br /> <br />(a) Interest and Depredation Costs of Farm Investment. Farm investment <br />consists of: (1) the (ull current market value of land for agricultural purposes <br />without project-supplied water and without capital improvements; (2) the cur- <br />rent added cost of permanent improvements such as clearing and leveling to <br />prepare land for irrigation not otherwise included in the land values; (3) the <br />average inventory value of breeding herds., livestock feeds, small tools, and <br />supplies; and (4) the original cost of investment in depreciable capital such as <br />irrigation systems, buildings, fences, and machinery. <br /> <br />(aa) Imerest. The cost of interest payments on the debt share of farm <br />iiiVe5iment is calculated as an expense in payment capacity budgets <br />using current normalized interest rates applicable to each type of credit; <br />(ong term, intermediate, and short term. The procedure for estimating <br />interest expenSE! involves the following steps; <br /> <br />(i) Estimate debt/equity relationships based on State or local dala <br />for real ~tate and nonreal estate farm investment. <br /> <br />(ii) Calculate inter"'t on long-term debt by applying the current, <br />composite (wefghted averase) rate for all outstanding farm real <br />estate debt to the debt portion (determined in the Federal Land <br />Bank District in which the project is located in (i) above) of the <br />farm investment in land and impro....ements. <br /> <br />) <br />, <br /> <br />(iii) Calculate interest on intermediate-term debt by applying the <br />current normalized intermediate-term farm loan rate to [he debt <br />portion (i.e., "onreal estate debt determined in (i) above) of the <br />farm investment in equipment. <br /> <br />(iv) Calculate interest on operating capital by applying the short. <br />term current normalized interest rale against the borrowed ~r- <br />tion of variable production cost using the nonreal estate <br />debt/eqUity relationship. <br /> <br />Because of recent wide fluctuations in interest rates and a steady <br />upward trend, the "current normalized" interest rate will be defined as <br />_ the most recent 3-year average. <br /> <br />This procedure. for (he most part, uses readily available published data <br />on debt/equity relationships and interest rates. The data needed are <br />available on a State-by-State basis in published form. More localized <br /> <br />116-4- 1/12/82 ISupersed", 10/15/80) <br /> <br />j <br />