Small Business Lending Fund Act of 2010--Resumed

Floor Speech

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Mr. THUNE. I do appreciate the effort that is being made by the Senator from Louisiana to assist small businesses around this country. Frankly, there are many provisions in this bill I think people on both sides agree with.

I have, as a member of the Small Business Committee, a number of these provisions that I have supported in the past. I think many of my colleagues probably have as well. So to suggest for a minute that the Republicans are somehow standing in the way of passing this small business bill is just wrong. There is clearly a lot of Republican support for many of the provisions that are included in this bill.

In fact, I will mention the increased loan size and guarantees for SBA (7)(A) and 504 loans; temporary fee reductions for (7)(A) and 504 loans, updates to SBA's outdated size standards, and much needed tax relief through measures such as bonus depreciation, section 179 expensing, and allowing business credits against the alternative minimum tax, those are all things that there will probably be large bipartisan support for in the Senate. The issue we are having a debate about now is whether the Senator from Louisiana should be able to amend the underlying bill with a provision that would create a small business lending fund.

The point has been made by the Senator from Louisiana that somehow it is just Republicans who are opposed. The fact is, there were objections to that provision on both sides. That is the reason it is not in the base bill. It was originally in the base bill. It was dropped from the base bill at the request of the majority leader and the chairman of the Finance Committee, it is my understanding. This particular provision is not only objected to by Republicans; there is Democratic opposition as well, which is why it was once in the base bill and is now no longer in the base bill and is being offered as an amendment to the bill by the Senator from Louisiana.

I rise in opposition to the amendment. I, in all likelihood, depending on how it plays out, may very well end up supporting the bill. There are many provisions in here with which I agree. This particular provision, however, is going to make a lot of Members uncomfortable. We can say this isn't TARP, but if it walks like a duck, talks like a duck, and acts like a duck, it is a duck. This is TARP. Anybody who thinks for a minute they are voting for something that isn't TARP when they vote for this is, again, flat wrong. This is structured precisely the way TARP was structured. It is designed to avoid that label to encourage participation by banks, which I understand. I don't think there are many banks that would want to participate if they knew they were getting into TARP. But this is essentially TARP. It has been relabeled and renamed, but we can't get away from the basic fact that it continues to be an extension of TARP simply to small businesses or to smaller lending institutions, the assumption for which the TARP was made available.

As to the capital purchase program under TARP, reading from the quarterly report of the special inspector general for TARP, it says that of the 707 lending institutions that participated in the original TARP, 625 had assets of less than $100 million. I realize $100 million is still a lot of money. There are a lot of banks in my State that have nowhere close to that amount of assets. But if we take the total number of lending institutions that participated in TARP, which is 707, 625 of those or more than 80 percent were banks with less than $100 million in assets. There was participation by smaller banks. It wasn't only the big multibanks that were participating in the program. It was a lot of these $100 million and smaller banks that were participating originally in TARP.

The other point that has been made is that somehow this is different in the sense that this is going to actually raise revenue for the Federal Government. The TARP, projections are, will cost Federal taxpayers $127 billion when it is all said and done. We hope that is not the case. We hope that number is smaller, but that is what the estimates are with regard to how much TARP will cost Federal taxpayers. This particular $30 billion reincarnation of TARP, created specifically for smaller lending institutions, it has been estimated by the CBO, will actually generate a budget savings of $1 billion. How do they come at that? CBO, at the request in the House of Representatives, where this originally passed, used a different accounting method in determining the cost or the budgetary impact of this version of TARP versus the original version.

The CBO also noted that if the accounting conventions that were used to consider the budgetary impact of the original TARP were applied to this $30 billion TARP carve-out, it would cost Federal taxpayers or would score $6 billion. Again, it is because this scored differently. If this fund were scored as they scored TARP, which was on a fair market basis adjusted for a market-risk basis, then it would cost $6 billion. This is being scored on a cash basis as raising over $1 billion. That is what the CBO is saying. If they used the same accounting conventions applied to the original TARP, this program would have a budgetary impact of $6 billion, rather than the $1 billion savings being reported by the proponents of the legislation.

I make that observation to point out that when people who are voting for this think there may not be any consequence with regard to the fiscal impact this could have, they are not taking into consideration the full picture. There was a change made in the way CBO scored the original TARP and the way they have scored this particular program. If we use the same convention or the same accounting conventions applied to the original TARP to this TARP, we would be talking about a $6 billion cost to taxpayers as opposed to $1 billion in savings.

It strikes me that there is great effort being made to convince people this is not a TARP program. I wish to point to the White House's talking points that admit that the ``program would be separate and distinct from TARP to encourage participation'' and that ``the Administration's proposal would encourage broader participation by banks, as they would not face TARP restrictions.''

These restrictions include executive compensation rules, warrant requirements, and a variety of other things. But my point is, this is the same flawed structure. This is the same basic mechanism used to create the TARP. Most people here, Members on both sides, have great apprehension about how TARP was used. Again, to Members who will be voting for this particular reincarnation of TARP, if they didn't like voting for TARP the first time, they probably should not be voting for this. We are essentially doing the same thing, but we are purposely removing some of the very safeguards created under the TARP.

There are better ways of helping small businesses. We have 9.5 percent unemployment. We are trying to encourage small businesses to create jobs. Yet here we are talking about going back to the old playbook and trying to somehow make this look better and sound better and put different lipstick on it and say this is a new program, when it is essentially something we are all familiar with. If we want to help small businesses, we should get our foot off their throats. Let's get Washington's foot off the throats of small businesses.

Everything being done here in terms of public policy in the last year or year and a half is going to make it more difficult for small businesses to create jobs. We have passed a $1 trillion expansion of health care which imposes new mandates and taxes on small businesses. We have passed a $1 trillion stimulus bill which has done very little to help small businesses. If we had been having this debate when the stimulus debate occurred, there might have been more support. But at the time, a very small fraction of the total amount, about one-third of 1 percent of the amount that was spent under the stimulus bill to try and grow the economy and create jobs, was actually directed at small businesses. It was a nonfactor in the debate during the stimulus. We spent $1 trillion, most of which has been used to create jobs in Washington, DC, in the Federal bureaucracy. We haven't done anything to provide the incentive for small businesses to create jobs.

It is going to get worse because, as we all know, next year, the 2001 and 2003 income tax cuts expire, at which time, if no steps are taken, the rates are going to go up on small businesses. The other side will argue that we will insulate and protect people under $250,000 from these tax increases, $250,000 for a married couple and $200,000 if one is single. The point Members of this body need to remember is, 50 percent of small business income is taxed at those top two marginal income tax rates. When we raise those top marginal income tax rates--the 35 percent rate up to 39.6 percent and the 33 percent rate up to 36 percent--we are imposing tax increases on small businesses. That is what small businesses have to look forward to next year. It is no wonder small businesses are not creating jobs. We continue to pile these new mandates, new taxes, new compliance and regulatory burdens on them. We expect them to go out and create jobs.

Look at the proposal for energy, the cap-and-trade proposal. It would put a punishing new energy tax on small businesses. At every turn what we see is Washington, DC, and the Congress taking steps detrimental to job creation and making it more difficult for the very small businesses that are the economic engine of our society to create jobs.

There are some things in this legislation that are good. There are some tax incentives for small businesses. We are talking about a provision now, an amendment that would be added to this bill, a $30 billion mini TARP which we have all seen work in the past. I don't think anybody here would want to go down that path again, if they knew that is what they were voting for. That is why this incredible effort is being made to relabel what this is. That is why they are changing the language in describing this. But the fact is, we are talking about the same thing.

I wish to read some quotes from the TARP congressional oversight panel, which is headed by the administration's rumored choice to head the new Consumer Financial Protection Agency, and that is Elizabeth Warren. She has expressed skepticism that it will be effective in increasing small business lending, the fund we are currently debating. She says:

The small business lending fund looks uncomfortably similar to TARP. Like the capital purchase program under TARP, the small business lending fund injects capital into banks assuming that an improved capital position will increase lending, despite the lack of evidence that the capital purchase program did.

That is a direct quote from this report by the congressional oversight panel. She goes on to say that ``such a fund runs the risk of creating moral hazard by encouraging banks to make loans to borrowers who are not creditworthy.''

We have a lot of folks who have followed very closely what happened with TARP who are expressing reservations about this particular lending program and how it might impact the Federal budget. If we use the same scoring conventions applied to the original TARP, it comes in at a cost of $6 billion as opposed to a savings of $1 billion. When we completely throw away the accounting manual and use a different accounting convention, we get a different result. But the risk still exists. The CBO has made that clear in their analysis. When we look at what the congressional oversight panel says with regard to how this will resemble TARP, the risk they recognize inherent in that, as well as the limited effectiveness of the original program in encouraging banks to participate, this is a path down which we should not go.

There are things in this bill that are good. There are things that will attract bipartisan support in the Senate that Members on both sides are in favor of. But the reason this provision was stripped out wasn't because Republicans alone objected. There were Democratic objections as well. It was taken out of the base bill. It is now being offered as an amendment for that reason. It is not Republicans who are trying to stop us from doing things that will help small business. The best thing the Senate can do to help small business is to quit putting new mandates, new taxes, and new regulations on them. Then they will see the kind of certainty they need to create jobs and get the economy growing again.

I yield the floor.

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Mr. THUNE. Thank you, Madam President.

I thank the Senator from Alabama for his eloquent remarks as a key member and the ranking Republican member of the Banking Committee, as someone who is very knowledgeable of the impacts these decisions we make here in Washington have on our financial institutions across this country. I think he is someone who has gone through, as many of us have, this experience with TARP, and his comments are particularly on point. So I thank him for being here and for speaking to this issue.

As my colleague from Maine also noted earlier today, I think there is pretty broad opposition to this particular amendment, notwithstanding the support many of us have for the underlying bill. As I said before, there are tax incentives in the underlying bill, along with some other changes that are being made in some of the Small Business Administration lending programs, that I think will get widespread support in the Senate. But I believe this particular provision, for many of the reasons I have mentioned and others have mentioned on the floor, is going to find a considerable amount of opposition, and I would expect that to be bipartisan opposition.

In the few minutes I have remaining, what I would like to do, if I could, is wrap up with a couple of basic observations.

I know the Senator from Louisiana and others have talked about the discussion they have had with lenders in their

States and some of the various associations that represent their States. I also had the opportunity a couple days ago to visit with a number of my bankers in South Dakota, most of whom believe this legislation is unnecessary because they think it is not an issue of having funds to lend, that there are funds to lend out there, and the question really is trying to find the types of deals, the types of borrowers who could make payment in a timely way. Hopefully, there will be more borrowers who are qualified.

One of the reasons I think they do not qualify is because there is so much uncertainty about what the rules of the game are going to be going forward. If you are a small business in America today, you do not know what is going to happen on the estate tax, the death tax. I hear that all the time from farmers and ranchers and small businesses. You do not know what is going to happen with regard to taxes on income, on capital gains, on dividends. All those things are set to go up next year if steps are not taken by Congress to prevent that from happening. You have the new health care mandates which many of the small businesses are still trying to react to and figure out--when this gets implemented, what impact is this going to have on my small business and my cost structure? You have the prospect looming out there of a new energy tax under some sort of cap-and-trade or climate change proposal that continues to be discussed here in Washington, DC. So there is this cloud of uncertainty surrounding businesses in this country and I think also lenders who are looking at businesses in this country and wondering whether these businesses are going to be viable in the future if they are hit with all these new taxes, new regulations, and new mandates.

So I think the better course for us to take is to look at ways we can liberate small businesses from regulations and taxes and mandates and enable them to go out and do what they do best; that is, create jobs. But, frankly, I do not believe, notwithstanding the arguments that are being made by the other side, that going down the path toward another TARP--again, $30 billion is a significant amount of money. It is tax dollars we put at risk.

Again, the reason the CBO scored this at a $1 billion savings is because they did not take into consideration, with the methodology they used in scoring it this time, market risk. They did when they scored the original TARP. If they used the same accounting conventions in making their analysis of the budgetary impact of this particular provision as they did with the original TARP, it would not result in a $1 billion savings; rather, it would result in a $6 billion cost to the Federal taxpayers. I think that is important to point out in this debate going forward.

Let me, I guess just to close, at least temporarily, while other speakers perhaps come down to talk about this, say that the White House's talking points, as I mentioned earlier, make it abundantly clear that this really is a TARP. They are trying to disguise it and call it something else because they want bankers to participate and they know bankers will not participate if they think they are getting into a TARP.

These are the talking points from the White House which admit, again, that the ``program would be separate and distinct from TARP to encourage participation.'' It goes on to say that ``the Administration's proposal would encourage broader participation by banks, as they would not face TARP restrictions.'' Again, as I said, these restrictions the White House is referring to include restrictions on executive compensation and warrant requirements, to name a couple.

So this really is--if you look at the way this breaks down and you compare it side by side with how TARP was structured, it very much is the same thing.

We can call it something different. We can label it something different. We can disguise it. We can try to make people feel better about voting for it. But what you see is what you get, and what you get and what you see here is TARP by another name.

So I do not think it is necessary for us to be going down this path again. We have tried that once. When we did try it the last time, of the total number of banks--707--that participated in the capital purchase program under TARP, 625 had assets of less than $100 million. So this is something that has been tried, and it certainly does not seem, in my view, something we ought to be trying again. There are a lot of other ways to provide incentives for small businesses to create jobs. Some of them are in this bill, and for that I congratulate the Senator from Louisiana. I worked with her as a member of the Small Business Committee on some of those provisions. But this one really is a bridge too far. It is not something we need to be doing. It is not something the taxpayers of America need us to be doing. I would argue, as well--and this is based, again, on conversations I have had with lenders in my State of South Dakota--this is not something they think is necessary when it comes to making more credit available to small businesses in this country.

So I would, with that, reserve whatever time we have. I guess I yield back the remainder of my time--I assume it is about gone--and will wait for some other speakers to come down.

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Mr. THUNE. I appreciate the comments of the Senator from Tennessee. I couldn't agree with him more that this amendment should not be adopted, should not be added to the small business bill. We have had a number of people coming to the floor to speak on the amendment. The Senator from Louisiana made a couple of observations after I spoke in opposition to the amendment, one of which was that Republicans have evidently some newfound affection for Elizabeth Warren. I don't think that is the case. In fact, she is the rumored choice of the administration to head the new Consumer Financial Protection Agency. The observation I was making was that she, who most of us perceive to be somewhat more on the liberal side, had made strong statements about this particular small business lending finance program and compared it to TARP. She also pointed out that the capital purchase program under TARP had very mixed results with regard to whether it encouraged banks to participate and lend. It also carries with it, as TARP did, an inherent risk that taxpayers may be left on the hook.

It has been that this will be a revenue raiser, that this, the $30 billion TARP, is going to actually generate a $1 billion budget surplus. The Congressional Budget Office was directed to score this differently than they were the original TARP. If the same accounting conventions were used and applied to this particular program and the calculation including market risk, we would have a $6 billion cost attached to this $30 billion TARP rather than a $1 billion budget savings.

There was the suggestion that there isn't any risk to taxpayers. Anytime we are putting $30 billion out there, granted, it may be well intended, but we all saw what happened with TARP. The expectation with TARP is that it will lose about $127 billion for taxpayers. We hope it is less, but that is the estimate today. It is fair to point out again that people who come into the Chamber and believe they are voting for something other than TARP are misleading themselves. If we line this up with the way the TARP was structured, side by side, it is check, check, check, right down the line. This is the same essential thing. To call it something else is all fine and good, but that is what it is. This is a TARP. It is a reincarnation of TARP, intended for small businesses and smaller banks, which is all fine and good, but make no mistake. If we vote for this, we are voting for a TARP. That poses risk to taxpayers.

There was the suggestion that somehow I don't know what my bankers in South Dakota think. I think most of us who represent our States try to stay informed about the views of our constituents. I sat down with a number of my bankers 2 days ago. They were clear this is not something they are advocating for nor do they need. They had other issues they wanted to talk about. We have not had contacts in our office advocating for this. Most of us represent our States in a way that we have a pretty good idea of what the views of our various constituencies are. At least where South Dakota is concerned, this is not something South Dakota bankers are asking me to do for them. They do have concerns about the financial services reform bill passed last week and signed into law. That is something they have deep concerns about. But this is certainly not something they are advocating for.

Inasmuch as we all want to do the right thing for small businesses, the best thing we can do for them is get off their backs, quit putting taxes and mandates and regulations on them. They are looking at the prospect next year of a huge tax increase, when tax rates go up. They are looking at a potential new energy tax, if a cap-and-trade bill were to pass. They are trying to figure out what is going to happen with the estate tax. They already have a new health care mandate that will put no cost burdens on them and raise the cost of doing business. Those are the types of things that will impact small businesses' ability to create jobs. Those are the things we ought to be focused on. Creating a new TARP is not going to be the answer that many of my colleagues who support this amendment think it is.

I urge colleagues to vote against this. I suggest we look at the things we can do that do impact small businesses. Most of what we are doing in Washington right now is detrimental to economic growth and job creation.

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Mr. THUNE. Mr. President, to the Senator's point about this perhaps acting as an encouragement for lenders to get money out the door quickly, perhaps with assuming more risk than perhaps they should, I wish to point out, again--and because I am quoting Elizabeth Warren, somehow there was an implication earlier that Republicans have a newfound affection for her, but she is someone whom the Democrats look to extensively when it comes to advice on these issues. As the head of the congressional oversight panel, in their assessment of TARP, particularly with regard to this specific program, the small business lending fund, they said it ``runs the risk of creating moral hazard by encouraging banks to make loans to borrowers who are not creditworthy.''

This is not something that many of us are making up. Clearly, there are those who are very concerned that this could become not unlike what we saw with the original TARP, which there are still a lot of concerns about. Many of us who voted for that the first time around thought it was going to end up as something different than it was. I don't think we need to go down that path again.

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Mr. THUNE. I hope we will defeat this today because there is moral hazard associated with it. We want to do the right thing by small businesses. I have named several things small businesses are concerned about--cap and trade, more government takeovers, more Federal spending and debt and higher taxes and more mandates through the health care bill passed earlier this year. It is important to keep in mind in this debate the taxpayers. Anytime we talk about a program such as this, there are inherent risks. Again, to use the accounting methodology that CBO used when they scored the original TARP, if they used that accounting convention which takes into consideration market risk, this program would be a $6 billion cost rather than a $1 billion savings, as proponents of the amendment advocate.

This is about taxpayers as well as small businesses and small banks. This is not the correct way to help them. I hope our colleagues in the Senate will reject the amendment.

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