August 2, 1978
Page 23849
UP AMENDMENT NO. 1565
(Purpose: To amend the fiscal year 1979 authorization levels for SBA)
Mr. MUSKIE. Mr. President, in behalf of myself and Senator BELLMON I send an amendment to the desk and ask for its immediate consideration.
The ACTING PRESIDENT pro tempore. The amendment will be stated.
The assistant legislative clerk read as follows:
The Senator from Maine (Mr. MUSKIE) for himself and Mr. BELLMON, proposes an unprinted amendment No. 1565.
Mr. MUSKIE. Mr. President, I ask unanimous consent that further reading be dispensed with.
The ACTING PRESIDENT pro tempore. Without objection, it is so ordered. The amendment is as follows:
On page 26, strike line 18 and insert in lieu thereof the following: "$50,000,000, in direct and immediate".
On page 26, strike line 19 and insert in lieu thereof the following : "and $4,000,000,000 in deferred".
On page 26, line 23, strike the figure "$33,000,000" and insert in lieu thereof the figure "$16,000,000".
On page 26, line 24, strike the figure "$22,000,000" and insert in lieu thereof the figure "$6,000,000".
On page 27, line 2, strike the figure "$66,000,000" and insert in lieu thereof the figure "$64,000,000".
On page 27, line 3, strike the figure "$89,000,000" and insert in lieu thereof the figure "$64,000,000".
On page 27, line 6, strike the figure "$49,000,000" and insert in lieu thereof the figure "$45,000,000".
On page 27, line 14, strike the figure "$198,000,000" and insert in lieu thereof the figure "$125,000,000".
On page 27, strike line 23 and insert in lieu thereof the following: "loans and loan guarantees".
On page 28, line 10, strike the figure "$2,294,000,000" and insert in lieu thereof the figure "$1,735,280.000".
On page 28, line 12, strike the figure "$879,500,000" and insert in lieu thereof the figure "$368,780,000".
On page 28, line 14, strike the figure "$72,100,000" and insert in lieu thereof the figure "$43,000,000".
On page 28, line 16, strike the figure "$4,400,000" and insert in lieu thereof the figure "$4,000,000".
On page 28, line 21, strike the figure "$223,000,000"and insert in lieu thereof the figure "$200,000,000".
Mr. MUSKIE. Mr. President, this amendment is offered by my good friend from Oklahoma (Mr. BELLMON) and me. It will reduce the authorizations for SBA business loans to the levels included in the Senate-reported State-Justice appropriation bill, H.R. 12934.
I want to emphasize that I do not offer this amendment as an endorsement of those appropriation levels. In fact, I am troubled by some of them, although in total, they are consistent with the first budget resolution. For example, I note that the appropriations bill would provide a substantial increase in loan guarantees above the levels requested by the President. Yet, I am convinced that the Congress should be very reluctant to expand loan guarantees in such a manner until we have adequate means to review and control guarantee programs and to judge their impact on the economy.
Mr. President, the authorizations in the bill now before us are far too high. They are considerably above the appropriations provided in the Senate version of the State-Justice appropriation bill. If these authorizations were fully funded in later supplementals, the spending targets for the first budget resolution would be greatly exceeded. Therefore, I propose this amendment in order to place a firm cap on SBA spending in fiscal 1979. This is the only sure way I know to protect congressionally approved spending targets.
Mr. President, I am pleased to be able to say that the distinguished floor manager of the bill has agreed to accept this amendment. I thank him for his understanding and assistance in protecting the budget resolution targets.
Mr. NELSON. Mr. President, when establishing amended fiscal year 1979 authorization levels for SBA, the Small Business Committee provided for a 15-percent appropriated reserve for SBA's loan guarantee programs. The loan program ceiling levels provided in H.R. 11445, account for several hundred million dollars in authorized budget authority for SBA.
The Senate Budget Committee and the administration changed to a different accounting procedure whereby only 1.5 percent of new guaranteed loans is reserved for bad debts, or, that is, those loans that SBA will have to purchase under its guarantee authority. The committee is prepared to accept the Budget Committee's amendment to lower SBA's authorization levels. But we do so with the understanding that next year SBA's authorization will have to be substantially increased without taking into account any increase in SBA's loan level activity. The reason is that SBA will have to purchase a much larger percentage of outstanding loans made in fiscal year 1979 as most losses historically occur in the second and third years of the life of the loan.
The record should be made clear that the committee believes it is more prudent to budget for all anticipated losses at the outset rather than appropriate for actual outlays for each fiscal year Reduction of this year's authorization gives the false impression that there has been a cost savings when in reality thosecosts will have to be picked up in future years.
Mr. MUSKIE. Mr. President, I gather that the managers of the bill are prepared to accept this amendment and I am prepared to yield back the remainder of my time.
Mr. NELSON. Mr. President, we are prepared to accept the amendment. I have discussed the amendment with the Senator from Maine.
I yield back the remainder of my time.
The ACTING PRESIDENT pro tempore. Is all time yielded back? All time having been yielded back, the question is on agreeing to the amendment.
The amendment was agreed to.
Mr. MUSKIE. Mr. President, I move to reconsider the vote by which the amendment was agreed to.
Mr. LONG. I move to lay that motion on the table.
UP AMENDMENT NO. 1566
(Purpose: To make the interest rate on all disaster loans equal to the cost of money to the government)
Mr. MUSKIE. Mr. President, I send another amendment to the desk and ask for its immediate consideration.
The ACTING PRESIDENT pro tempore. The amendment will be stated.
The assistant legislative clerk read as follows:
The Senator from Maine (Mr. MUSKIE) for himself and Mr. BELLMON, proposes unprinted amendment No. 1566.
Mr. MUSKIE. Mr. President, I ask unanimous consent that further reading of the amendment be dispensed with.
The ACTING PRESIDENT pro tempore. Without objection, it is so ordered.
The amendment is as follows:
On page 32, line 23, strike all through page 33, line 5 and redesignate sections 112 through 117 as sections 111 through 116, respectively.
Mr. MUSKIE. Mr. President, I have discussed this also with Senator NELSON. It is an amendment I offer in behalf of myself and Senator BELLMON. It may prove to be somewhat more controversial than the other, but I think it is a serious and important amendment.
I ask for the yeas and nays on the amendment at this time.
The ACTING PRESIDENT pro tempore. Is there a sufficient second? There is a sufficient second.
The yeas and nays were ordered.
Mr. MUSKIE. Mr. President, H.R. 11445, the bill now before the Senate is intended to substantially increase the attention and assistance given to small business by the Federal Government.
With the distinguished Senators on the Select Committee on Small Business, I share a strong interest in the future of small businesses in this Nation. I am convinced that the strength of small business is necessary to a vibrant, responsive, and innovative national economy. Small business is especially important to my own State of Maine, so, over the years, I have become very aware of the special problems facing an owner of a small business and those who have jobs in a small business. I believe there is a need for effective Federal action to help small businesses overcome the handicaps placed upon them in the modern economy.
I see no reason to differ on the objectives of strengthening small business. However, Mr. President, I am offering two amendments that would reduce the potential budgetary impact of this bill and therefore improve it.
The amendment now before us would strike the provision that continues Federal interest subsidies on physical disaster loans. For fiscal 1979, the bill would set interest rates for damage to homes or personal property at only 1 percent for the first $10,000, and 3 percent for the next $30,000. It would also restrict rates on loans for losses to business property from rising above 5 percent for the first $250,000.
Mr. President, low interest rates for SBA and Farmers Home disaster loans were enacted on an emergency, temporary basis less than a year ago. About that time, crop losses were made eligible for SBA as well as Farmers Home disaster loans. In the intervening months, we took note of these figures: total disaster loan volume under these two agencies shot up from an average annual level of $0.9 billion to an expected level in fiscal 1978 of $5.8 billion, more than a sixfold increase.
That increase was caused partly by a severe drought. But the Nation has had other severe droughts and other bad disaster years without a similar increase in Federal activity. A major cause of the high loan demand in 1978 was the overly generous interest rate subsidies. Deep subsidies create strong incentives for those eligible borrowers who ordinarily use credit to shift as much of their borrowing as possible from private lending sources to the Federal Government. The deeper the subsidy, the greater the incentive for program abuse.
Mr. President, while actual appropriations for this program depend primarily upon the incidence and severity of new disasters, deep interest subsidies, such as would be continued by H.R. 11445, tend to boost spending and therefore increase the risk that Congressional Budget targets will be exceeded. For example, the Congressional Budget Office estimates that even if fiscal 1979 proves to be just an average year for disasters, the continuation of disaster loan interest subsidies would cause the first budget resolution's spending targets for disaster relief and insurance to be exceeded by roughly $0.3 billion in budget authority and outlays.
However, if fiscal 1979 is another high disaster year like fiscal 1978, then this would again be a budget busting program with much higher levels of budget authority and outlays. The runaway costs of disaster loans during fiscal 1978 should cause us to be extremely careful with new legislation affecting this program.
With market interest rates at their current levels, enactment of the SBA bill's disaster loan provisions would provide eligible borrowers with benefits that are extremely high in comparison with traditional Federal disaster loan policy. Yet, I remind the Senate that under the traditional policy which my amendment would reestablish, with interest rates set at the Government's cost of borrowing, the Government was already providing substantial benefits to disaster victims. With interest rates at the Government's cost of borrowing, however, program activity could be held to reasonable and fiscally responsible levels.
In addition, Mr. President, we must keep in mind that disaster loan interest subsidies are not free. They must be borne directly by the taxpayers. For example, it is estimated that the disaster loans granted in fiscal 1978 alone will require subsidies totaling about $1.4 billion, or $0.2 billion each year for at least the next 7 years. I do not believe the taxpayers should be expected to continue bearing such unreasonably high costs.
Mr. President, I am sure no one in this Chamber would argue against providing Federal assistance to help needy victims recover from the effects of unforeseeable natural disasters. However, I am convinced that deeply subsidized interest rates are precisely the wrong way to offer that aid. Further, there is a viable alternative.
I understand that the administration is proposing adoption of a policy in which SBA and Farmers Home Disaster Loans would carry comparable terms, and only Farmers Home would make loans for crop damage. Under the administration's proposal, loans to repair or replace damaged homes or personal property would be made at 5 percent with no "credit elsewhere" test. Loans for income producing property would be made only to borrowers who do not have access to credit elsewhere, and they would be made at a rate equal to the Government's own cost of money. That proposal would treat all disaster victims equally. The proposal, it seems to me, is reasonable and should hold the costs of the disaster loan programs to levels which can be accommodated by the budget resolution targets.
Until a full review and revision of disaster loan programs can be completed along the lines proposed by the administration, I believe we should allow the interest rates on SBA disaster loans to revert to the Government's average borrowing costs, the policy in effect prior to last August. Under existing law, that will occur at the start of fiscal 1979.
The amendment which I offered, which is pending, would simply permit that to happen.
Mr. President, I have discussed this amendment with the distinguished chairman of the Small Business Committee (Mr. NELSON) and I hope it will be possible for him to accept it.
Mr. BELLMON. Mr. President, would the Senator yield me 5 minutes?
Mr. MUSKIE. Yes, I yield 5 minutes to the Senator.
Mr. BELLMON. Mr. President, I rise in support of the amendment offered by my colleague Senator MUSKIE which would strike the low disaster loan interest rate provisions from this bill and allow these rates to revert to the Government's cost of borrowing in fiscal year 1979, as would be the case under current law.
We are all aware that the SBA disaster loan program has been a true budget buster this fiscal year. We have acted on two supplementals already as program costs have soared from the $115 million level anticipated to well over $2 billion — this is an increase of almost tenfold — and a third supplemental could be necessary before year's end. A number of factors have combined to drive up costs under this program. These include the deeply subsidized 3 percent interest rate we enacted in 1976, the large number of disaster occurrences in fiscal year 1978, and the first-time eligibility of farmers experiencing crop loss due to drought for physical disaster loans under this program.
I do not support this amendment as a total means of preventing a reoccurrence of the fiscal 1978 experience, but I do consider it to be a positive step in that direction. I believe our ultimate goal should be to eliminate the differences which exist between the SBA disaster loan and the Farmers' Home emergency loan programs so that small business people whether rural or urban may be served fairly and equally. As you will recall, farmers were made eligible for assistance under the SBA disaster loan program because of the program's more liberal standards for payment and coverage. It did not seem fair for a farmer experiencing a loss due to disaster to have to meet a "credit elsewhere" test and prove that a major loss has been sustained, as required under the Farmers' Home program, while other businessmen do not have to meet such tests under the SBA disaster loan program.
The Small Business Committee has been aware of these SBA-FmHA differences and the effect that heavily subsidized interest rates have had on loan demand. In fact, last year the Small Business Committees of the House and Senate stated their intent to study and investigate the interaction of all Federal disaster assistance programs in the conference report on H.R. 692, the Small Business Amendments of 1977. The report on the bill before us today clearly recognizes the eligibility of farmers under the physical disaster loan program and the "heavily subsidized" 3 percent interest rate as underlying causes of the unprecedented loan volume in fiscal year1978.
I am disappointed that the Small Business and Agriculture Committees, both of which have recognized the existence of these problems for over a year, have not made a good faith effort to reduce the program overlap and costs of Federal disaster loan programs.
The administration has proposed Federal crop insurance as one solution and favors rates for both SBA business and Farmers' Home emergency loans fixed at the current cost of Treasury borrowing and other comparable program provisions so that authority to make emergency farm disaster loans can be limited to the Farmers' Home Administration. I too support comparable provisions for both programs. Hopefully, we will turn our attention to such proposals so that we can remedy this situation in full next year.
For now, I urge my colleagues to support this amendment to allow the interest rates to revert to the Government's cost of borrowing so that we can at least put an end to the Federal subsidy and its attendant high costs to the Government.
Mr. President, it would be quite difficult to overestimate the role of small businesses in the development and perpetuation of our Nation's economic strength. Throughout our history, the ability of industrious, ambitious citizens to establish and sustain business ventures of untold variety has made the United States unique, and has led to a worldwide reputation as a country where one can make a job, not just take a job.
Even today, when the economic landscape seems so dominated by billion-dollar corporations — themselves once small concerns struggling to gain a foot hold in the competitive environment of free enterprise — small businesses are an integral part of our complex society. Not only do they provide a living for millions of Americans, they also symbolize the promise of continued progress and innovation for future generations.
The Congress has long recognized the necessity of insuring the ability of small businesses to survive and prosper in the face of the many difficulties that they are bound to confront. In the quarter century since the establishment of the Small Business Administration, as the problems of the small business owner have changed and grown more complicated, Congress has responded by expanding and generally improving SBA assistance to these entrepreneurs.
Unfortunately, as has been true of many congressional efforts to aid particular groups, we have not always been as judicious as we might be in assessing the broader impact of the actions we take. While it is imperative that we protect small businesses, we should not allow our enthusiasm for doing so to draw our attention from other important considerations.
Mr. President, I fear that the bill now before us, H.R. 11445, contains several provisions that might not ultimately be in the best interests of either small business owners or the American people at large. Therefore, I support the amendments offered by my distinguished colleagues, Senators BARTLETT and MUSKIE, which largely correct the bill's most serious problems.
Senator BARTLETT's amendments are directed, quite correctly I believe, at preventing the expansion of the Federal bureaucracy that title III of this bill would cause, and at redirecting our attention to the real needs of small business owners. Chief among those needs is a social and economic climate that encourages entrepreneurial activity, innovation and competition.
I believe we can best help small business, and thus, best insure our ongoing economic vitality, by providing small businesses with a fair, decent opportunity to thrive. But I do not think we will be successful in this pursuit if we merely insulate small businesses with several new layers of Federal red tape, such as would result from an unamended title III.
I would especially like to recognize Senator BARTLETT's proposal to provide most very small businesses with an exemption from the Occupational Safety and Health Act. OSHA is a prime example of how a supposed solution to a legitimate problem has fostered serious problems of its own. By relieving most very small concerns from this intrusive and extravagant form of Federal regulation, we will be taking a significant step toward allowing them the breathing room they need to survive, without compromising our essential interests in health and safety.
Less enthusiastic is my support for Senator MUSKIE's amendments, primarily because pragmatic considerations make it difficult to fully correct the problems in this bill.
Regarding the distinguished Senator from Maine's proposed reductions in the authorization levels for fiscal year 1979, I believe this is the best we can do under the circumstances. At the very least, this amendment reduces SBA funding to levels consistent with the first budget resolution targets, and would prevent supplemental appropriations in these areas without further examination of the needs of the Small Business Administration.
However, the amendment alone is not sufficient to correct a problem that has caused both Senator MUSKIE and me great concern — the dramatic shift in the emphasis of SBA business loan programs from direct to guaranteed loans. While I understand quite well the attractiveness of guaranteed loans to Members of Congress, I believe that there are a number of questions we should answer before we endorse such a massive expansion of Federal loan guarantees: Who are the real beneficiaries of these guarantees? What are the risks to the Federal Government in providing them? What are the effects of Federal loan guarantees on credit markets and the American economy as a whole? Furthermore, I believe it is imperative that we establish procedures for bringing local guarantees within the scope of budgetary review and control.
Unfortunately, Mr. President, present circumstances do not afford us the opportunity either to answer these important questions or to gain real control over loan guarantee activity. I hope that we will be more circumspect the next time programs of this nature are considered.
As I have indicated in a separate statement, I also support Senator MUSKIE's efforts to abolish the low-interest-rate subsidies for SBA physical disaster loans. In this context, however, I wish to emphasize my hope that all Federal disaster loan programs will be examined and coordinated as soon as possible, and to reiterate my disappointment over the failure of the Small Business Committee to undertake this task as promised a year ago.
The PRESIDING OFFICER. Who yields time?
Mr. NELSON addressed the Chair.
The PRESIDING OFFICER (Mr. MOYNIHAN). The Senator from Wisconsin.
Mr. NELSON. I have discussed this amendment with the distinguished Senator from Maine, Mr. President.
I must say I would have preferred a 5-percent rate on disaster loans on housing, rather than the cost of money.
But I am concerned about the issues raised by the Senator from Maine. I know the Senator from Maine is aware that of the total $1,924 million disbursed to date, only $179 million has been for homeowner loans. So homeowner loans have not been a large part of the problem addressed by the Senator from Maine.
Mr. President, the Senate Budget Committee and the administration have raised concerns about the budgetary impact of subsidized interest rates for SBA's physical disaster loan program. While no one can determine precisely the impact of subsidized rates on the demand for SBA's disaster loans, it is clear that some demand increase results when the interest rates are low. I, therefore, accede to the request of the chairman of the Budget Committee to strike the language in H.R. 11445 and thus to permit interest rates on SBA disaster loans to rise to the cost of money to the Federal Government effective October 1, 1978.
Mr. LONG. Will the Senator yield at that point?
Mr. NELSON. Mr. President, who has the floor?
The PRESIDING OFFICER. The Senator from Wisconsin.
Mr. LONG. Can the Senator inform us more about this amendment? Does this amendment increase the loan rate on disaster loans?
Mr. NELSON. Yes.
Mr. LONG. What is the rationale for the loan rate on disaster
Mr. NELSON. The increase will not apply to current, outstanding loans. Disaster loan interest rates would be at the cost of money to the Government only for disasters occurring after September 30, 1978.
Mr. LONG. What would the difference be between the cost for a disaster loan under existing law and under this amendment?
Mr. NELSON. Existing law states: Notwithstanding any other provision of law. the interest rate on the Administration's share of any loan made pursuant to paragraph (1) of this subsection to repair or replace a primary residence and/or replace or repair damaged or destroyed personal property, less the amount of compensation by insurance or otherwise, with respect to a disaster occurring on or after July 1, 1976, and prior to October 1, 1978, shall be: 1 per centum on the amount of such loan not exceeding $10,000, and 3 per centum on the amount of such loan over $10,000 but not exceeding $40,000. The interest rate on the Administration's share of the first $250,000 of all other loans made pursuant to paragraph (1) of this subsection, with respect to a disaster occurring on or after July 1, 1976, and prior to October 1, 1978, shall be 3 per centum.
Mr. LONG. Mr. President, it always has seemed to me that the Senator from Maine had a heart that was tilted toward those who were less fortunate, and the Senator from Wisconsin never has been known as a man who is unsympathetic to the less fortunate.
I do not think we should have a disaster loan for people who do not suffer a genuine disaster, and I do not think the program should be abused. I would like to tighten it up if it is being abused.
I ask the Senators: Are we really justified in making it more difficult on those who really have a rather pitiful situation of being pretty well wiped out by the type of disaster that is defined by law?
Mr. MUSKIE. I remind the Senator, first, that the amendment we are now considering would put the law back to where it was prior to a year ago. A year ago, because of the disasters which hit primarily the agriculture sector, we enacted temporary reductions in interest rates. Those temporary reductions in interest rates resulted in a surge of loans from $900 million to $5.8 billion.
There was no credit elsewhere test. We reduced the rate to 3 percent. So there was a strong incentive for people who had credit elsewhere, who usually turned to credit elsewhere, to turn to this cheap Government credit to supply their credit needs when it was not necessary.
All I am seeking to do is to restore the policy to what it was. Congress always has found the heart to respond not to unanticipated disasters or disasters that might occur in the future but to actual disasters. Last year's experience is surely an illustration of that, and I expect that Congress will respond in the future. But I do not think it is wise public policy to write into permanent law a subsidy of the nature that we wrote in temporarily to meet a disaster which was temporary.
If we are hit with another disaster, of whatever magnitude, Congress, I am sure, is capable of responding to it with whatever commonsense and the heart require.
I think it would be a mistake, under the stimulus of a disaster that is now behind us, to write a permanent policy into law that is demonstrably so costly in budgetary terms.
The second point I make is that one of the problems that stimulated last year's legislation was the fact that it appeared to farmers that small businessmen were being treated in a preference way under the SBA program as compared with the way farmers were being treated under FHA.
I think those differences should be eliminated, and the administration is going to send up proposals to do just that. When we get that proposed legislation, we can consider that problem and eliminate it, so that we do not have that kind of competition against discrimination.
But I am not worried about Congress responding, as all Americans do, to real disasters. I simply am responding to what I think became an abuse last year, because our heart led us to write excessively generous subsidy terms into our interest rate policy. I am seeking to correct it, so that we can make a correct start if another disaster strikes.
Mr. LONG. If we adopt the amendment, I hope we can have the assurance of the chairman of the Budget Committee and the chairman of the Small Business Committee that they will look with a sympathetic eye to the next major disaster that might befall us. I am sure that their purposes are worthy. Never in the past have they been known to be unsympathetic or unkind to those who were true victims of major disasters. I hope that if we have another of these disasters, with considerable loss of life and property damage running into a billion dollars plus, the Senator from Maine and the Senator from Wisconsin will be sympathetic to those who might come in and ask that we take another look at their problem.
Mr. MUSKIE. I am sure we will be.
I think the budget process always should be flexible enough to prompt us to respond to emergencies, to unanticipated disasters. It always has been, and I believe it always will be.
If the Senator from Maine happens to be stony-hearted at the moment, the experience of last year demonstrates that the Senate is fully capable of rolling over the Senator from Maine in such instances.
What we try to do here is to establish an ongoing policy, and we hope further to eliminate other inequities or discriminatory features of our programs before we are through.
There is always the understanding that the Congress of the United States, as a representative of generous people, will respond to disasters experienced by others.
Mr. NELSON. Mr. President, I yield back the remainder of my time.
Mr. MUSKIE. I yield back the remainder of my time.
The PRESIDING OFFICER. The question is on agreeing to the amendment of the Senator from Maine.
Mr. FORD. Mr. President, a parliamentary inquiry.
The PRESIDING OFFICER. The Senator will state it.
Mr. FORD. Have the yeas and nays been ordered?
The PRESIDING OFFICER. The yeas and nays have been ordered, and the clerk will call the roll.
The legislative clerk proceeded to call the roll.
(During the call of the roll the following occurred: )
Mr. GOLDWATER. Regular order, Mr. President.
Mr. WEICKER. Regular order.
The PRESIDING OFFICER. The regular order is for the clerk to tally the vote.
Mr. MAGNUSON. Regular order, Mr. President.
Mr. WEICKER. Regular order.
The PRESIDING OFFICER. The regular order is for Senators on the floor who have not voted to vote.
The legislative clerk resumed the call of the roll.
Mr. GOLDWATER. Mr. President, parliamentary inquiry.
The PRESIDING OFFICER. The Senator will state it.
Mr. GOLDWATER. How long is this vote supposed to last?
The PRESIDING OFFICER. The rollcall is in progress. The clerk is tallying the vote at this moment.
Mr. GOLDWATER. That was not my question. How long was it supposed to last?
The PRESIDING OFFICER. The Chair regrets to say that debate is not in order while a rollcall is in progress.
The legislative clerk resumed and concluded the call of the roll.
The result was announced — yeas 54, nays 41, as follows:
[Vote tally omitted]