December 19, 1979
Page 37075
Mr. MUSKIE. Mr. President, last Friday the Senate adopted Senate Resolution 303 to waive section 402(a) of the Budget Act with respect to consideration of S. 2094, the Chrysler Corporation Loan Guarantee Act of 1979. This 402(a) waiver, which had been favorably reported by the Budget Committee, was required because the bill provides fiscal year 1980 authorizations to carry out a loan guarantee program for the Chrysler Corp., but was reported after the May 15, 1979 deadline for such authorizations.
In favorably reporting the waiver, the Budget Committee did not address the substantive merits of this legislation, nor did the favorable recommendation reflect any particular committee view on the issue of Federal aid for Chrysler or the provisions in S. 2094. Rather, it reflected our understanding that the reporting committee could not have met the May 15, 1979 deadline because of the timing of the Chrysler situation and the administration request. The Budget Committee's recommendation reflects our concern that the Senate be given the opportunity to consider the issue of Chrysler aid in time to provide timely help to the corporation if the Congress decides to approve it.
I, like each of the other members of the committee, have my own views on the legislation. But I want to speak at this time as chairman of the Budget Committee to point out the potential budgetary impact of a Chrysler loan guarantee program.
The costs of a Chrysler loan guarantee program would fall in function 370, Commerce and Housing Credit. If the program is fully successful, no payments under the loan guarantee need be made, and the administrative costs of the program will fit within the second budget resolution approved by Congress on November 28. That budget, however, does not contemplate any funding to cover the cost of any significant default by Chrysler under the guarantee program.
Mr. President, this bill, S. 2094, authorizes the appropriation, beginning October 1, 1979, of "such sums as may be necessary" to carry out the provisions of the loan guarantee.
The administration has transmitted to the Congress an appropriation request based on its version of the legislation, S. 1965. The administration's appropriation request would appropriate $1.5 million in fiscal year 1980 for administration of the program and "such sums as may be necessary" to pay principal and interest in the event of default on any loan guarantee made under the program.
Should the Congress enact such an appropriation, the effect on the fiscal year 1980 budget would be as follows:
First, budget authority and outlays would be increased $1.5 million to administer the program.
Second, budget authority would be increased by an amount equal to the total guarantee ceiling stated in the appropriation plus an estimate of defaulted interest. No outlays would occur unless a default actually occurred during fiscal year 1980.
Budget authority to cover potential defaults would be created at the outset under any appropriation which provides advance authority to pay off possible defaults without any further action by Congress.
If the Congress does not enact an appropriation at the outset to pay off potential defaults, but merely limits the level of the guarantees, thus requiring further Congressional appropriation action at a later date if and when a default occurs, budget authority for that purpose would be created at that later point in time rather than now.
Therefore, Mr. President, the budget impact in fiscal year 1980 could still be as little as $1.5 million in budget authority and outlays to administer the program. But, the budget authority total could rise to between $1 and $2 billion if the administration were given full authority to pay off any defaults without further action by Congress.
And outlays up to the total budget authority provided could occur in the event of a default.
If the guarantee program proves a success and all loans carrying the Federal guarantee are repaid in full, the Government could receive around $9 million in guarantee-fee receipts in fiscal year 1980 and $125 million in receipts over the 1980 to 1985 period, while outlaying only approximately $7 million in administrative costs during that time.
Mr. President, leaving aside the Chrysler program, the budget for fiscal year 1980 is already oversubscribed.
Presently, taking into account action to date and foreseeable supplemental requirements, the second budget resolution budget authority ceiling could be reached by as much as $1.3 billion and the outlay ceiling by as much as $2.4 billion.
Of course, these amounts may change as Congress completes action on the remaining regulation appropriation bills and the supplemental next spring, especially if further legislative savings are enacted.
I hope that all Senators will continue to search for possible budget savings.
I hope that legislative actions by the Congress will keep us within the budget totals.
But there is no avoiding the fact that the fiscal year 1980 Congressional Budget is tight as a drum.
While an appropriation to administer the Chrysler program is small and would not add significantly to the budget problem, an appropriation now or during 1980 to pay off potential loan defaults would increase the potential overage in budget authority to a level of $2.5 to $3 billion.
While actual appropriations action is not a part of the bill before us, we need to assess carefully the administration's request for an appropriation now to pay off potential defaults.
Is it really needed to make the program work? If not, we should not enact it.
If it is enacted, we will have to determine where savings can be made in other programs in order to stay within the second budget resolution budget authority ceiling for fiscal year 1980.
I cannot project the outcome of the Chrysler situation if loan guarantees are provided to support the company. But the Senate must be aware that appropriations to pay off a Chrysler loan default would breach the budget.
Each Senator must make a careful and thorough analysis of the factors involved in the Chrysler issue. The budget issue is one key factor which must be fully understood.
Mr. President, many laws now on the books provide financial assistance in various forms to rescue failing businesses. The Federal Government annually provides loans, grants, loan guarantees, tax credits, tax obligation rollovers and a variety of other mechanisms to reduce the likelihood that individual businesses will fail.
All these national policies are premised on the assumption that a business failure is more than just the loss of investment of a family or a few stockholders.
We assume that people suffer, communities suffer, the regional and often the national economy suffer from precipitous business closure.
We recognize that public policies or the absence of public policies can exacerbate business problems. We have molded national policy to provide what we all perceive as a legitimate service of Government.
The Federal Government already has loan guarantees totaling $240 billion to businesses large and small. Loans are guaranteed not only by the economic development, small business, Federal Housing and Farmers Home Administration, but also by EPA, NASA, the Maritime Administration, and the Export-Import Bank. We guarantee loans for railroads, subways, airplanes and satellites; homes, jobs, and community services.
Federal loan guarantees are in fact an accepted approach to the formation of risk capital. There is nothing inherent in the Chrysler plan which makes this approach unacceptable. Judged by the magnitude of outstanding guarantees, a $1.4 billion guarantee does not constitute a massive new risk. And if there were no risk, there would be no need for Federal assistance.
Yet we are asked to deny assistance to Chrysler.
As Senators know, I have been concerned for some time about the increased use of loan guarantees and off-budget financing. It may well be time for serious reconsideration of our approach to federally supported financing. Perhaps Government ought to withdraw altogether from capital markets, or scale down its loan and guarantee programs. Senators who wish to debate these questions separately will find me a willing participant.
But that is not the question before us. The question is, given our traditional use of loan guarantees, and given the emergency which Chrysler faces, should the Federal Government participate in a program of assistance, in partnership with others?
I believe the answer is yes.
The bill before us does set some other precedents concerning the participation of other entities in the assistance plan. These precedents should not be a fundamental concern. The bill is admittedly an experiment. If it succeeds, we may conclude we set a wise precedent. If it fails, at least some imaginative approaches would have been tried.
What would happen if we say no? In the first place, the 10th largest manufacturing corporation in the world would certainly go bankrupt. There is nothing inherently unacceptable in that course. Businesses go bankrupt every day, often despite Federal assistance. No company is absolutely immune from failure, just as no company is barred from success.
But the implications of a failure in this case go far beyond the future of the company itself. The state of our economy; the demands on our budget; our energy problems; the stability of our currency on world markets; and the fundamental mandate of our Government to act with compassion and sensitivity to the needs of people, are all involved.
Chrysler is not just a $30 billion company. It is 113,000 workers, many of them in inner cities. It is 4,500 independent suppliers, who employ an estimated 250,000 people just on Chrysler contracts. It is a corporation which directly or indirectly affects people in literally thousands of communities in this country. So this is truly an issue of national policy and one from which none of us is insulated.
It is also an issue on which the potential for a purely political judgment is very real. The issue could be made a partisan one by those who see an opportunity to place the burden of rescue on the majority party and therefore feel free to take an ideological position. But this is not the time for a political judgment. It is the time for some cold-blooded analysis.
Let us look at the figures. If this corporation, under the most likely outcome, fails, the cost to the Federal Treasury will be at least $2.75 billion in 1980 and 1981 alone in lost taxes and increased unemployment-related costs.
The cost to State and local governments will be another $307 million in corporate property and payroll taxes in the first year alone. In addition, State income taxes and sales tax revenues are certain to decline. In 1978, Chrysler's State and local income tax withholding totaled $126 million. Unemployment trust funds, many of them still heavily in debt to the Federal Treasury, would be burdened with substantial new payments. One "ballpark" estimate put the total at $520 million.
Beyond these estimates there is the question of $1.1 billion in unfunded pension benefits for Chrysler employees, which the Federal Government almost certainly would be asked to finance. Those are real dollars, and they are compared to the potential risk to the Federal Treasury in this legislation of $1.5 billion. These are the cold, hard economic facts. If the only result of this legislation is to keep this corporation alive for 1 year, the benefits at least equal the cost, in cold, hard, budgetary terms.
Mr. President, a recession in our economy is widely predicted next year. By most accounts, the recession will be a mild one. But another round of oil price increases, global instability, even an especially severe winter, or another cause now unforeseen could well tip a mild recession into a deeper trough. In my judgment, the collapse of Chrysler next year could well provoke unmanageable pressure on the economy. The auto industry is already in decline. Denying aid to Chrysler would allow the situation to go from bad to much worse.
This is one risk on the other side of the Chrysler question. We must choose which risk to accept.
There are those who say that Chrysler is so financially weak that collapse is inevitable. But even if we only buy 1 year, the impact of Chrysler's reorganization would not be felt until the economy was back on its way to health.
That year would buy us a degree of economic stability, and it would buy Chrysler time to at least make it a more attractive merger or purchase candidate at year's end.
If we allow Chrysler to fail, we risk serious international repercussions as well as serious problems at home. World money markets, which run as much on hints and innuendo as on economic evidence, would surely react to the collapse of this American giant. Added to that would be an increase in our balance of payments deficit as foreign auto manufacturers rush to fill the void in auto markets. Just how great this might be is a matter of speculation. If foreign automakers took only half of the small car market now occupied by Chrysler, it would amount to perhaps $800 million next year. Left undocumented by this figure is the extent of foreign participation in U.S. auto markets. In an uncertain world, is it healthy for 1 new car in 4 in America to be provided by a foreign manufacturer? It is a question I leave to your judgment. For myself, I prefer an American car.
It is true that U.S. auto companies were slow to understand the dramatic shift in public demand for a smaller automobile, despite early and frequent encouragement from the Government to make the shift. Chrysler is paying today for that mistake. It plans a massive $13.5 billion investment program to modernize its facilities and improve its ability to make small cars.
As a Congress we have mandated improved gasoline mileage. As a Congress we have mandated an environmentally clean auto. Smaller, more efficient automobiles can meet both mandates more easily than larger, heavier vehicles.
As a Congress we now have an opportunity to participate directly in a relatively minor but extremely important way to the accomplishment of both clean air and fuel economy goals. In that sense, a loan guarantee for Chrysler is not so different from a loan guarantee for a gasohol plant or a guaranteed bond to finance pollution cleanup. In both cases, despite inherent risks, the public policy goal is more important. The investment will improve our chances of reaching the goal.
So there are persuasive budgetary, economic, and social policy arguments in favor of the loan guarantee program. There is a powerful human argument as well.
Chase Econometric Associates was asked recently to determine what the most likely result might be of our failure to approve the Chrysler legislation. The study was released last month and is conservative by the standards of other analyses. It anticipates that by 1982 a smaller company could recapture 10 percent of the small car market, and 7 percent of light trucks. Even this analysis contemplates 176,000 layoffs next year at Chrysler facilities and among suppliers.
By early 1982, 2 years from now, an estimated 90,000 workers would remain unemployed. About half the current Chrysler share of the small car market — 160,000 units — would be taken up by foreign imports.
At the national level, governmental revenues would be down, the gross national product would be down, business fixed investment would be down, consumer spending would decline, the cost to other businesses wishing to raise money through bonds would be a little higher next year.
These are the macroeconomic estimates. They tell us that Chrysler's failure will be felt not only by Chrysler employees, dealers and suppliers, but by thousands of businesses and hundreds of thousands of families nationwide.
The implications on the smaller scale are much more serious. Chrysler employs 9 percent of all manufacturing workers in the city of Detroit, nearly 7 percent in Huntsville, Ala., and more than 7 percent in Newark, Del. Chrysler employs 5.5 percent of all manufacturing workers in Syracuse, N.Y., and more than 9 percent in Belvedere, Ill. These communities would be injured by a Chrysler collapse. They would be crippled.
Michigan, Delaware, Illinois and New York still owe nearly $2 billion borrowed from the Treasury to pay earlier unemployment compensation claims. Either the Federal Government or other businesses in the State would be asked to make a substantial new contribution to these trust funds.
Mr. President, in my State alone, there are 800 employees of Chrysler dealerships. They will be the first to feel the impact of bankruptcy. There will be no cars to sell. Those which are financially viable may be able to quickly switch to another franchise. Few are.
Particularly in more rural areas, the result will more likely be simply to close the doors on the business. Particularly in rural areas, there will be no new business, and no new jobs to take their place. In the first place, the initial cost of a new franchise can be enormous. Chrysler Corp. estimates that the average net worth of its dealers is $220,000. That includes the value of property and equipment. Even if a dealer could avoid a forced sale, financing a new venture would be difficult at best in many cases. In California, auto franchise territories are actually set in law, perhaps precluding some Chrysler dealers from reentering the auto business.
For these family businesses which do not survive, for the workers they employ, for the families of the 90,000 people who will spend as much as 2 years out of work, this is not a debate about macroeconomics. It is not a debate about international economics, or a debate about the state of Federal loan guarantee programs. For them it is a debate about success or failure, hope or hopelessness, work or welfare, a promising future or no future at all.
We can argue, if we wish, that Chrysler might fail anyway. We can discuss the macroeconomic effects of failure in 1982. The concern of the black worker in Detroit, or the auto mechanic in rural Maine is about tomorrow, and next month.
A company can reorganize its business much more easily than a family can reorganize its life.
If Chrysler succeeds, there will actually be a net profit to the Federal Treasury. If it fails despite our help, at least what will be left will be much more attractive to other, better managed, more stable corporations. And the impact of reorganization should be much less severe. Perhaps with this year of warning, those who depend so heavily on Chrysler will diversify so that the next time around, if there is one, and I hope there is not, the potential shock will not be so severe.
Our choice should thus be an easy one. We can help Chrysler to success, and earn a tidy profit for the Government. Or we can delay collapse and buy time for a more hopeful reorganization.
I choose to vote in favor of the Chrysler guarantees.