Small Business Lending Fund Act of 2010

Floor Speech

BREAK IN TRANSCRIPT

Mr. THUNE. Mr. President, the legislation before us is the small business bill, which includes a number of provisions. I have stated before in comments on the floor that there are a number of concerns I have about the $30 billion lending fund that is included in what is now the Baucus-Landrieu substitute amendment to the small business bill.

I simply say, in reaction to the comments of the Senator from Illinois, because a suggestion was made that somehow Republicans were trying to block this bill, I think everybody should know this is being debated under a procedure that is very unique. The Democratic leader filled the tree, which blocks Republicans from offering amendments. So it should come as no surprise that the minority party would react negatively to not being able to have any of their amendments considered or voted on in a debate about legislation such as a small business bill, which we happen to think is very important.

The suggestion was made by the Senator from Illinois that, again, somehow Republicans are being resistant to or blocking this, I think, misses the broader point, which is that there are a number of us who have amendments we would like to offer to try to improve the bill and make it better. But the majority party has filled the tree, and that means, in layman's terms, that they are not going to allow any amendments. This is being considered under a procedure that doesn't allow us to offer amendments, and I have a couple that are filed at the desk. If I were permitted to do so, I would offer them. I think they address what are some of the fundamental shortcomings in this underlying legislation.

I don't think we ought to be using taxpayer dollars to establish this new fund--this $30 billion lending fund or what I like to refer to as ``TARP III''--and there is a section 103 of the substitute amendment that creates this small business lending fund. Part of that section allows a bank that received TARP funds to refinance into the newly created small business lending fund. Obviously, there are advantages to this refinancing because this new lending fund was created specifically to avoid the negative association with TARP.

While I have serious concerns with allowing these banks to refinance into this new program, at least the legislation prevents those banks that are behind in dividend payments from refinancing into this new fund. I would give the underlying legislation credit in that regard. What the legislation fails to do, however, is provide a similar prohibition on those banks that are behind in their TARP payments from applying to receive even more capital from the Treasury to this new fund. They can't refinance, but they can get more funds from the Treasury, even though they are delinquent in their payments already to the TARP fund.

According to the most recent report, on July 21, 2010, there were 105 TARP recipients who took funds through the Capital Purchase Program that missed their scheduled dividend payment. That is $157.7 million in outstanding obligations to the Treasury through TARP.

Keep in mind, there were over 70 banks under $10 billion in assets that have received TARP funds through the Capital Purchase Program. Of the six largest banks over $10 billion, all but one have paid back their obligation. Of the 701 banks under $10 billion in assets, there are 625 banks with outstanding investments.

If you are a bank that took money from TARP and are behind in what you owe the taxpayers, you should not be allowed to take more money from the Treasury. This is a major loophole in this legislation.

My amendment, No. 4614, would make sure those banks that are nonpaying TARP recipients would not have access to more capital through this fund.

A bank would not extend a second loan to a customer who is behind in
their first loan. Why wouldn't we, as the American taxpayers, provide the same restrictions when it comes to a loan through the Treasury? It seems to me that is a fairly straightforward understanding that we ought to have. If you are delinquent on your first loan, you should not be able to get a second one. As I said before, that is a shortcoming in this legislation.

My amendment would correct that. I think this is an important safeguard that ought to be included. Having said that, that is not enough to make this legislation stronger and better.

At the end of the day, I still believe the small business lending fund will be a reincarnation of TARP. This is not something I can support.

While I am opposed to the inclusion of this fund in this small business bill, I am particularly concerned that we are not adequately measuring the cost of this provision. When I say that, I point out that the CBO, Congressional Budget Office, scored the small business lending fund, and when they did that, the analysts produced two estimates, which is a rare departure from their standard procedure.

One cost estimate was based on a cash-basis method of cost accounting. The other was based on fair market value. The former estimated that the small business lending fund would save taxpayers $1.1 billion over 10 years. That is using the cash-basis accounting method that I mentioned earlier. The fair market value estimate suggested this fund would result in a $6.2 billion net loss in taxpayer money over that same period.

You have a $7.3 billion difference on a $30 billion fund, and I think that is due to the inadequacies in the cash-basis method of accounting, which does not include adjustments for market risk. That is why I think the CBO submitted two different cost estimates, which, as I said, is a sort of departure from their common practice.

To quote the Congressional Budget Office--and this is important:

..... cost estimates made under the Federal Credit Reform Act [which is what we use in terms of making estimates of what things will cost] do not provide a comprehensive measure of the cost to taxpayers primarily because the Federal Credit Reform Act methodology does not include costs that stem from certain risks in lending--risks that private investors would require compensation to bear.

CBO goes on to say:

In particular ..... it does not recognize a cost for the risk that losses from defaults will be higher during periods of market stress when resources are scarce and most valuable.

That is from the Congressional Budget Office pointing out the flaws in the traditional way in which the cost of a program such as this would be accounted for.

Phrased differently, with this fund taxpayers are assuming an uncompensated level of risk as lenders of last resort, and this risk is not accounted for in the cash-basis cost estimate.

While I believe the movement of the Federal Government to ownership of private companies in and of itself is a disturbing trend and is one that needs to be stopped and rolled back rather than promoted in advance, it is critically important that these programs include a proper accounting of their costs--something that is lacking in this small business bill.

What my amendment No. 4610 would do is require the Congressional Budget Office to score Federal Government purchases of equity purchases or capital investments on a fair-value basis that considers market risk. In other words, it would use the convention that was used in the original TARP bill that was passed back in 2008. This change would be consistent with what private companies are doing in terms of moving toward a fair-value method of accounting because of its superiority to a cash-basis method of accounting.

This is not the first time this more accurate method of scoring would have been used by the Congressional Budget Office. As I said, when the original TARP program first moved through Congress, it included an important provision that the cost of the bill be calculated using a discount rate adjusted for market risk. Yet, despite all the similarities between this bill we are debating today and TARP, this bill does not have any such provision. Because of this, many Senators and Members of Congress believe this bill will save money for the taxpayers, when, in fact, the opposite is true. If you use the fair-value method of accounting, as I said earlier, according to the Congressional Budget Office, this provision--this $30 billion mini-TARP program--has a net cost of $6.2 billion as opposed to a savings of $1.1 billion if you use the cash method of accounting. The most comprehensive estimate we have from the CBO is that the $6.2 billion will be more reflective of the actual cost, but because the cash-basis method of accounting is used, this cost is not going to be added to the pay-go scorecard.

One of the most important duties we have as Senators and Members of Congress is to be vigilant in watching the taxpayers' money and how it gets spent. This duty has taken on increased importance as the Federal Government and Federal spending has exploded and our national debt has now surpassed $13 trillion.

A quick point on that point. Before I got up to speak, the Senator from Illinois was talking about the Federal debt. Of course, as is typically the case around here, when one of my Democratic colleagues gets up, they think that all that happened is all Bush's fault. Anything bad in America today, it is Bush's fault. What he did not mention, of course, is the fact that on January 2007, the Democrats took control of both the Senate and the House of Representatives. Since that time, they have been writing the budgets. We all know that under the Constitution, the President cannot appropriate a single dime. It is Congress that appropriates money. Since January of 2007, it has been the Democrats who have been writing the budgets around here.

Even if you give them the benefit of the doubt and say when the President came to office in January 2009 and you measure it from that point forward to where we are today, we have added almost $3 trillion to the Federal debt--almost $3 trillion since January of 2009 when this President took office. If you were breaking that down into terms people can understand, if you are a child under the age of 18 in America today, when the President took office in January of 2009, the debt for a young person under the age of 18 was $85,000. Today, it is $114,000. Since this President has taken office, the share of the Federal debt for an average American under the age of 18 has increased by $29,000. By the year 2016, that number will be $196,000. Mr. President, do you want to know why? Because the debt is projected to explode over this next decade. In fact, it took 232 years and 43 Presidents to rack up the first $5.8 trillion in debt. In the next 5 years, we are going to double that and triple it under the President's budget.

I will be the first to admit that Republicans are not perfect, and when we were in charge of the Congress, there were certainly things we should have done better in terms of getting our fiscal house in order in Washington. But to say for a moment, as the Senator from Illinois tried to imply when he was on the floor, that somehow this was a function or a problem that was created by the Republicans or somehow by Bush is just absolutely inconsistent with the facts. As I said, Democrats took control of this Chamber in January 2007. The President became President of the United States in January 2009. Since January 2009, the Federal debt has grown $3 trillion.

There is a whole lot of spending going on around here that is being routinely ignored by Members on the other side when they get up to speak, such as a $1 trillion stimulus bill that was designed to keep unemployment under 8 percent. We all know unemployment today is well north of 9 percent. In fact, with no end in sight, the amount of spending and borrowing that continues today, in my view, puts in jeopardy the opportunity for this economy to recover and begin to create jobs, which is what all of us want to see happen.

But when you spend $1 trillion and borrow it and you hand the bill to your children and grandchildren, when you create a massive new expansion of health care which, when fully implemented, will cost the taxpayers $3.2 trillion and at every turn continue to spend more and more, at some point you have to say, when you are in a hole, you ought to quit digging. That is precisely where we are. We are in a deep, deep hole.

The first rule should be: do no harm. When it comes to spending and the
debt, the administration and the current leadership of this Congress have taken that to a whole new level. That is a comment about this debt and one of the reasons this legislation is so important and why it is important that we get it right in terms of accounting for the true costs of the underlying bill.

It is my belief that the fair-value method of accounting provides a much more accurate, much more transparent, and much more comprehensive way of accounting for the costs and benefits of these programs. To ignore the risks these programs pose to the hard-earned money of American taxpayers is simply to stick our heads in the sand and hope. This is not a responsible strategy for governing, and I hope my colleagues will work with me to update this outdated method of scoring with regard to this $30 billion mini-TARP that is included in the small business bill.

While I have many concerns with this bill, some of which I just outlined, we are debating what I think was a well-intended bill with a lot of good provisions and many I support. There are a number of provisions in this bill which, left to themselves, I think will be good. I am a member of the Small Business Committee. We made adjustments in the small business lending program, increasing loan sizes and guarantees for SBA 7(a) and 504 loans and temporarily reducing the fees for some of those loans. It updates SBA's very outdated size standards and provides much needed tax relief through bonus depreciation, section 179 expensing, and allowing business credits against the alternative minimum tax.

There are provisions in this bill that I think do get at providing assistance to small businesses, but I cannot support a new program that puts more taxpayer dollars at risk. The American taxpayer is expected today--this is with the most recent estimate--to lose $66 billion thanks to the original Troubled Asset Relief Program, the TARP, and this current legislation reincarnates that TARP through a $30 billion Treasury fund that will be used to inject capital into banks that are then directed to lend to small businesses.

Treasury and the administration have tried various programs through TARP to increase small business lending without any success, mostly because of a lack of interest on the part of the banks. Again, this lack of interest is likely attributed to the fact that many banks recognize the negative stigma that accompanies accepting TARP money, and that is why I think the Democrats and the administration are trying to create a new fund and call it something other than TARP. The actual language in this amendment provides assurance to banks that by accepting this money, they would not be TARP recipients. That is actually specified in here because they want to get rid of the original stigma that comes with the original TARP. In their talking points, even the White House admits the ``program would be separate and distinct from TARP to encourage participation.'' Essentially, what they are saying is, We are not going to call it TARP. We are going to call it something different. If we call it TARP, banks will not participate, and we want to encourage banks to participate.

The administration goes on to say that ``the administration's proposal would encourage broader participation by banks, as they would not face TARP restrictions.'' These ``restrictions'' the White House is referring to include limits on executive compensation and warrant requirements--many of the restrictions included in the original TARP program.

I wish to point out for the benefit of my colleagues that Elizabeth Warren, who serves as the chairwoman of the Congressional Oversight Panel, has criticized the manner in which TARP funds have been provided to smaller banks--15 percent of which cannot even make payments to the Treasury regarding TARP funding they received. The new fund relies on the same problematic lending structure that has been deemed a failure under TARP.

I wish to quote what this Congressional Oversight Panel said about the Small Business Lending Fund.

The small business lending fund prospects are far from certain.

The small business lending fund also raises questions about whether, in light of the Capital Purchase Program's--

That was the program under the main TARP--

poor performance in improving credit access, any capital infusion program can successfully jump-start small business lending.

It goes on to say:

Banks are subject to a stigma for accepting government money no matter the name of the program.

The small business lending fund looks uncomfortably similar to the TARP.

Like the Capital Purchase Program--

In the original TARP--I continue to quote from the Congressional Oversight Panel's report--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--

Again, the original TARP--did so.

This lending fund does not affect the capital issues affecting banks ``nor any of the issues affecting small business credit demand.'' It 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.''

That is all from the Congressional Oversight Panel's report about the very Small Business Lending Fund--the concept we are debating as part of the small business bill.

I am ready to close, but the point I am trying to underscore with this amendment is that the same flawed structure for repayment that is not working for small banks under the current TARP is included in the legislation before the Senate. Knowing this, we are purposefully removing some of the safeguards created through the original TARP, allowing TARP recipients who are behind in their payments--people who are delinquent in their payments--to participate in the new program and get even more funding under this new mini-TARP program.

I believe there are more responsible methods to support our small businesses than through a $30 billion Treasury line of credit for banks. Let's focus on the programs we know work. As I said, some of them are included in this bill, such as the SBA 7(a) and 504 loan programs. Let's not create a new Treasury fund and hope somehow in the end it is going to pay off. History has proven otherwise.

We all know small businesses are the economic growth engine in our economy. They are what keeps this economy growing. Two-thirds or three-quarters of the jobs in our economy are created by small businesses. Despite spending hundreds of billions of dollars on a stimulus bill, the Nation's unemployment rate is still at 9.5 percent. How many more billions are we going to have to spend before we realize that might not be the correct solution to this problem?

Let's pass a good bill that helps small businesses grow and prosper, not another version of a failed TARP program. I think we, as Members, ought to be able, in the context of this legislation, to offer amendments. These two amendments I have spoken to this morning are examples of amendments that would make this bill stronger and that we are being blocked from offering because of the procedure under which the leader has determined this bill ought to be considered.

That is unfortunate. It goes against the very nature of the Senate, which is a place that tends to be free-flowing and open to debate and where all Members have an opportunity to speak to legislation and to get their amendments voted on. That has not been the case here.

And I regret that, but we are where we are. We are going to have a vote later, and I hope my colleagues will vote to defeat this bill.

I thank the Presiding Officer.

BREAK IN TRANSCRIPT

Source