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NYT: Small Business Incentives Face a Hard Road in Congress

By ROBB MANDELBAUM
February 12, 2010, 6:39 pm
New York Times

President Obama’s incentives for small business to create jobs appear to be foundering at the other end of Pennsylvania Avenue. Those proposals — tax credits for hiring and investment and initiatives to spur lending to small firms — all face strong resistance, and not all of it comes from the Senate. Each chamber has embraced separate elements of the administration’s agenda, and, for the moment, none of those elements overlap.

In the Senate, a jobs bill drafted by the top Democrat and Republican of the Finance Committee that included some — though hardly all — of what the Obama administration wanted has been drastically pared back by Harry Reid, the majority leader. Reid’s runt jobs bill does include a hiring tax credit, proposed by Democrat Charles Schumer and Republican Orrin Hatch, though it is neither aimed at small business like the administration’s nor otherwise as tidy.* It also would extend the 2009 stimulus’s more generous expensing limits under Section 179, of the tax code, which allows a small business to immediately deduct certain kinds of property that would otherwise be depreciated over several years.

It does not, however, extend the stimulus provisions that sweetened Small Business Administration loan programs with lower fees and higher guaranties for banks. Those provisions, endorsed by the Finance committee bill, expire at the end of February and are widely credited with prodding banks to restart S.B.A. lending after 2008’s credit freeze.

“Senator Reid wanted to simplify the process to fully paid measures that would create jobs this year and have bipartisan support,” said a spokeswoman, Regan LaChapelle. “There were several provisions that were important, including unemployment insurance, Cobra, and tax extenders, and we still intend to address those issues. This is just the first bill of what will be many bills.”

Ms. LaChapelle would not say whether Mr. Reid thought the S.B.A. measures lacked Republican support. But the proposal is striking for its absence, since one of its chief backers is Senator Olympia Snowe of Maine, ranking Republican on the Small Business Committee. As one of the last moderates in her caucus, she is perhaps the most likely to vote for a Democratic bill. Ms. Snowe’s office did not respond to requests for comment.

But the upper chamber, wouldn’t you know, is only half the problem for the administration. Before adjourning in December, the House passed a $155 billion jobs bill that extended the S.B.A. loan provisions through the end of September but included none of the administration’s other small-business measures.

Leading House Democrats appear to be in no mood to revisit those measures. In a Tuesday meeting at the White House with the president and top Congressional leaders from both parties, House Speaker Nancy Pelosi shot down the idea of a tax credit for job creation altogether, saying, as Politico put it, “no one she’s consulted believes that the plan will actually lead to the creation of new jobs.” To judge by the comments received in this space, many Agenda readers would agree.

Then, last week, after President Obama announced his latest S.B.A. initiatives — temporary measures to raise the cap on S.B.A. Express loans to $1 million, from $250,000, and separately allow conventional real estate mortgages to be financed under the 504 program — he faced unusually strong criticism from the Democratic chair of the House Small Business Committee. “S.B.A. Express has acted as nothing more than a giveaway to big banks and expanding it will neither further economic recovery, nor create new jobs,” said Rep. Nydia Velázquez of New York. As for the mortgage proposal, Ms. Velázquez said, “The refinancing of commercial real estate debt does not create jobs and, in fact, may dilute the program, drawing resources away from projects that do have job creation potential.”

The Agenda is sympathetic to Ms. Velázquez’s view of the Express loan. The program allows banks to make and approve loans with their own application forms and less documentation than the S.B.A. normally requires in exchange for a lower guarantee, and while Express has brought new banks into the S.B.A. fold, it has never been clear that the borrowers are unable to get loans otherwise — what is known as the S.B.A.’s “credit elsewhere” test. And, as Ms. Velázquez points out, the sketchy documentation and immediate self-approvals have led to the highest default rate of any S.B.A. program. (An S.B.A. spokeswoman, Hayley Matz, said that, in recent years at least, it is only the smaller Express loans that perform so poorly. Express loans over $100,000, she said, outperformed regular 7(a) loans.)

However, there is a case to be made for Obama’s plan to adjust the 504 program, which offers small businesses long-term mortgages for real estate and equipment. As commercial real estate mortgages mature, most small-business borrowers face a potentially crippling balloon payment, according to Steven Roth, an executive vice president of Grubb & Ellis, the commercial real estate brokerage. Normally these would simply be refinanced, said Mr. Roth, but now “banks’ ability to provide lending to the marketplace is very constricted. Anything that provides liquidity in the banking sector, especially in today’s environment, is a positive thing.” At the very least then, allowing the 504 program to refinance commercial mortgages could preserve jobs. Moreover, the administration’s proposal would have its own separate funding, so it would not siphon off money from other borrowers.

Neither chamber has so far contemplated raising other S.B.A. loan limits, as the administration has proposed, or taken up calls to increase lending by community banks.

The Senate is in recess all next week, so the earliest the Senate will consider the jobs bill is Monday, Feb. 22, when Mr. Reid has scheduled a preliminary vote that could pave the way for final passage. But even if the Senate passes the bill, it would still have to clear the House. Immediate relief for small businesses remains a long way off, if it ever comes at all.

The Obama proposal limits the total credit any one business can take to $500,000, which means that most of $30 billion allocated to the credit would go to smaller firms. Nor does the Senate version appear to include many of the measures the White House wanted to prevent companies from using sleights of hand to take advantage of the credit without actually hiring any new people.

http://boss.blogs.nytimes.com/2010/02/12/small-business-incentives-face-a-hard-road-in-congress/