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Dems Moving on Jobs Legislation

July 23, 2010 - by Donny Shaw

After passing the unemployment relief bill, the Senate this week finally made some progress on what will probably be the final job-creation measure to be considered this year — the Small Business Jobs and Credit Act of 2010.

The bill includes a number of tax breaks for small business and and an extension/tweaking of the Small Business Administration’s lending programs, but it’s biggest item is a $30 billion fund designed to provide small businesses — via small banks — money to use for expansion and hiring. Bloomberg Businessweek’s John Tozzi explains how it would work:

The fund would invest in small banks—those with less than $10 billion in assets—by purchasing preferred stock, which would pay the government a dividend of 5 percent. The cost of that money would decrease to a dividend as small as 1 percent if banks boost their small business loans over 2009 levels by 10 percent. For banks that do not increase their small business lending, the capital would become more expensive, with the dividend rising to 7 percent.

The Congressional Budget Office, a non-partisan agency that estimates the impacts of legislation, expects the full $30 billion fund to be dispersed within 1 year and about $20 billion of it to be paid back to the Treasury by 2015. By 2020, they estimate that the fund will actually wind up creating a net gain of $1.1 billion for the federal government.

Senate Republicans have been opposed to the fund because they say it’s too similar to the unpopular Bush Administration TARP bailout program. But on Thursday, Democrats, with the help of Republicans Sen. George LeMieux [R, FL] and Sen. George Voinovich [R, OH], voted 60-37 to break a Republican filibuster on re-inserting the fund to the bill. Earlier in the week, Majority Leader Sen. Harry Reid [D, NV] offered a substitute amendment to the bill that would have stripped out the fund in order to pick up Republican support, but, on Thursday, after it become clear that Dems had in fact rounded up the votes to pass it, he pushed the amendment to re-insert it. Thursday’s vote sets up a final vote on passage of the Reid substitute amendment plus the fund some time next week. At this point, with some Republican support for the fund, passage of the bill is looking pretty good, but it’s definitely not asured.

Now, on the question of whether the fund will actually work to create jobs, lets go back to Tozzi, who spoke with Raj Date on the subject:

Analysts like Raj Date question whether the money will be effective, however. Date, a former managing director at Deutsche Bank who now runs the Washington research group Cambridge Winter Center, calls the program “well-intentioned” but says it won’t work as well as lawmakers claim. While the bill’s authors say the $30 billion in federal money invested in banks would spur $300 billion in private lending to businesses, Date estimates that the Small Business Lending Fund would support only $70 billion in new credit. Banks will use most of the money to cover losses on existing commercial real estate loans, he says.

“The amount of help is relatively small to the size of the problem,” he says in an interview with Bloomberg Businessweek. Date also says that taking government money will be most attractive to the banks in the most trouble. Originally conceived as a part of the Troubled Asset Relief Program, the Small Business Lending Fund was separated from TARP to avoid discouraging banks from participating because of restrictions and the stigma associated with the bailout.

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