to provide credit on reasonable and competitive terms in the future; (5) virtually all plaintiffs enjoyed increased loan volume in 1988, and none has asserted any significant loss of borrowers; (6) the ratios of plaintiffs' URE to their total assets as of December 31, 1988 compare favorably with ratios of most other System institutions; (7) plaintiffs significantly exceed FCA's new minimum capital adequacy requirements; and (8) plaintiffs are able to obtain the funds necessary to meet their borrowers' credit needs from their respective banks.
Plaintiffs rely principally on the declaration of J. Bruce Bullock in an effort to show that defendants' measures of financial health are fundamentally flawed and that the assessments have had a significant impact on their businesses. Mr. Bullock contends that the only way to determine economic viability is to examine a business' profitability over time; and he, therefore, argues that the proper method for determining the viability of the PCAs is to examine the present value of the institution's income stream over a five-year period. Bullock Decl., para. 17.
The Court, however, has already accepted defendants' arguments that URE reflect the resources of an institution available to absorb losses prior to the impairment of capital stock and thus are relevant indicators of an institution's financial health. The other two measures of financial strength that Mr. Bullock also dismisses as having no necessary relation to the ability of a PCA to generate income are net interest margin and the ratio of risk funds to gross loan volume. Bullock Decl., paras. 12, 24-25. The Court agrees with defendants, however, that other portions of Mr. Bullock's own declaration refute his criticism of these two measures. In fact, Mr. Bullock's "benefit index" -- an index designed to demonstrate that the assessed PCAs are the least likely institutions to require or receive direct financial assistance -- is based solely on these two indicators. See Bullock Decl., paras. 12, 37-42.
It is interesting to observe that plaintiffs have also received numerous benefits from the 1987 Act. First, by materially increasing investor confidence in the System, the 1987 Act caused a significant reduction in interest on Systemwide debt from the rates that would have been imposed had the 1987 legislation not been enacted. The 1987 Act also greatly reduced the risk that the PCAs largest single asset -- their investments in the FCBs -- would be diminished or lost because of the System's problems. Further, the 1987 Act enables all System institutions, including the plaintiffs, to apply for direct federal financial assistance, to be funded by FAC, in the event of stock impairment. 12 U.S.C. § 2278a-4. Finally, the banks of plaintiffs Colorado Springs, Sikeston, and Chattanooga were paid $ 16.5 million, $ 18.4 million, and $ 39.7 million, respectively, for prior Capital Preservation Agreement accruals.
Plaintiffs recognize that the 1987 Act "has made a positive contribution to the future economic viability of the Farm Credit System" (Bullock Decl. para. 29), but they summarily dismiss the benefits they have received because such benefits have also been enjoyed by other System institutions. The Court cannot accept this contention. Benefits actually inuring to plaintiffs in the present case would not be irrelevant merely because they are not unique to them. Balancing the conceded economic impact on plaintiffs against the mitigating factors codified in the 1987 Act, the Court finds that plaintiffs cannot show economic harm sufficient to support a determination that a taking has occurred.
2. Investment-Backed Expectations
The second inquiry the Court must make in determining whether the assessment under section 6.29 constitutes a taking is whether the legislation interfered with plaintiffs' reasonable investment-backed expectations. In Connolly, the Supreme Court noted that there is no interference with investment-backed expectations if plaintiffs have been on notice for a reasonable time that Congress may take action affecting the use of their property. As the Supreme Court explained, "'Legislation readjusting rights and burdens is not unlawful solely because it upsets otherwise settled expectations. . . . This is true even though the effect of the legislation is to impose a new duty or liability based on past acts.'" Connolly, 475 U.S. at 223 (quoting Usery v. Turner Elkhorn Mining Co., 428 U.S. 1, 16, 49 L. Ed. 2d 752, 96 S. Ct. 2882 (1976)).
Defendants contend that plaintiffs were on notice that in the event of financial stress threatening the very existence of the Farm Credit System, they might be called upon to bear additional financial obligations for the benefit of the System as a whole. In contrast, plaintiffs contend that they could not have expected to have been assessed for the losses of other System institutions.
The extensive supervision and control of the PCAs and the interdependent structure of System lends support for defendants' arguments. The Supreme Court has suggested that one factor relevant to a determination that plaintiffs were on notice is whether the industry of which they are a part is regulated. As stated in Connolly, "'Those who do business in the regulated field cannot object if the legislative scheme is buttressed by subsequent Amendments to achieve the legislative end.'" 475 U.S. at 227 (quoting FHA v. Darlington, Inc., 358 U.S. 84, 91, 3 L. Ed. 2d 132, 79 S. Ct. 141 (1958)). Here, the plaintiff PCAs are an integral part of the Farm Credit System lending structure. As such, they are extensively regulated by the FCA and supervised by the district banks. 12 U.S.C. § 2073.
The fact that the PCAs are part of an interdependent structure lends further support for the position that plaintiffs could have expected to have been assessed for the benefit of the System as a whole. As the Court of Appeals for the Eighth Circuit suggested, "Each PCA is not an independent, autonomous venture entitled to operate as it pleases under the terms most favorable to its own borrowers regardless of the interests of the whole system." Bailey v. Federal Intermediate Credit Bank, 788 F.2d 498, 502 (8th Cir.), cert. denied, 479 U.S. 915, 93 L. Ed. 2d 290, 107 S. Ct. 317 (1986). Similarly, the Court of Appeals for the Fifth Circuit recently recognized the inter-relatedness of PCAs in the System as a PCA was prohibited from unilaterally withdrawing from the System. As the Court there noted:
The statutory scheme was based on the recognition that the System members, as private institutions, comprised an interdependent network and could be required to make payments for the common good. . . . A unilateral right of withdrawal is directly contrary to the functioning of the 1985 Amendments since the enactments would have been meaningless if the financially sound institutions could remove their assets without contributing in accordance with the Amendments.