WASHINGTON, D.C. – U.S. Senator Olympia J. Snowe (R-Maine), Ranking Member of the Senate Committee on Small Business and Entrepreneurship, released the following statement today after opposing passage of legislation that prioritized partisan politics over meaningful assistance to small business owners:
“As someone who has worked tirelessly in a bipartisan manner to promote policies that empower entrepreneurs to start and grow their businesses while creating jobs, I am pleased that the legislation that just passed the Senate includes a number of provisions adopted from numerous bills I have introduced over the course of this Congress. These measures will: increase Small Business Administration (SBA) loan limits so that small businesses can access larger loans; appropriate funds to reinstate vastly successful SBA fee reductions and increased guarantee rates; improve SBA exporting assistance; end the unfair practice of contract bundling to help small businesses access the Federal marketplace; implement parity for Federal small business contracting programs; provide $50 million for Small Business Development Centers (SBDCs) to support and expand technical assistance for small firms; allow the SBA to temporarily waive a matching funds requirement for Women’s Business Centers and Microloan Intermediaries; provide regulatory relief to small businesses; and enact critical tax relief for small firms, including an extension of bonus depreciation and 100 percent exclusion of small business capital gains. Had the majority only adhered to these common principles, which I support along with families and small businesses in my home state of Maine and across the nation, I would have cast my vote in support of this legislation.
“Unfortunately, I must oppose final passage of this bill because it includes a $30 billion Treasury lending fund that has not been fully vetted, is potentially very costly to the American taxpayer, and could damage the stability of our financial system. Rather than initiating a new, unknown program that could cost taxpayers billions, we should utilize existing, proven Federal resources, including SBA loan programs – which experienced an increase in lending of 236 percent in Maine and 90 percent nationally after the passage of critical fee relief and increased guarantee rates for which I previously fought.
“I have serious concerns about whether the true cost of the Small Business Lending Fund, and its potential burden on taxpayers, has been taken into consideration when evaluating the program and its effect on our budget, particularly given its inclusion in the legislation without being subject to a single Senate hearing on the matter. The Congressional Budget Office (CBO) initially prepared a cost estimate of the lending fund’s burden on the Federal budget for the House version of this bill, which listed the cost at $1.4 billion. However, the House altered language requiring the funds to be repaid, which drastically altered how this program appears on the Federal balance sheet. While proponents of this fund have been quick to point out that the updated CBO score indicated the fund would raise $1.1 billion over ten years, they have been less forthcoming about CBO’s assertion – in the same score – that a more accurate analysis, considering fair market value and the risks involved, could result in a price tag of $6.2 billion.
“Furthermore, the structure of this lending fund is completely counter to the measures we have taken over the past two years to improve the quality of assets and underwriting in the financial market. The Treasury Department proposes to lend funds to banks, at a five percent dividend rate, which can then be reduced or increased based on the amount of small business loans made by the bank. By rewarding participating banks for issuing a high volume, rather than a high quality of new loans to small businesses, this fund introduces significant moral hazard into the marketplace where some banks would make risky loans to avoid more punitive rates. Even the bipartisan Congressional Oversight Panel (COP) for TARP has also expressed concerns about the Lending Fund’s moral hazard. In a recent report, COP stated that: ‘A capital infusion program that provides financial institutions with cheap capital and a penalty for banks that do not increase lending runs the risk of creating moral hazard by encouraging banks to make loans to borrowers who are not creditworthy. Although, in the legislation, the carrot – an up to four percent decrease – is arguably stronger than the stick – a two percent increase – the stick nonetheless increases the incentive. The stronger the incentive, the greater the likelihood that the program will spur some amount of imprudent lending activity. As evidenced by recent events, imprudent lending activity may in turn inflate a small lending and commercial loan bubble, a result of using an increasing supply of money for transactions of diminishing credit quality.’ In the final analysis, the possibility that this program could lead to poor lending decisions is something that, in the long run, would not help borrowers, lenders, or our overall financial system.
“Moreover, I find it absolutely unconscionable that the Senate failed to repeal the 1099 form-filing mandate contained in the health reform legislation that the Democrats passed earlier this year requiring every business in America to report to the IRS on business purchases that exceed a threshold of only $600 per vendor or supplier. This new requirement, which will end up costing small businesses, states and local government entities more than $190 billion in new administrative expenses alone and was also the top concern I heard from small business owners throughout Maine during numerous street tours during August, was imposed in the health reform law, yet has nothing to do with health insurance reform. Worse yet, in addition to failing to rectify this issue, this legislation is paid for in part by raising the fees on businesses who fail to fulfill this new requirement.”