[Senate Report 114-266]
[From the U.S. Government Publishing Office]
Calendar No. 107
114th Congress } { Report
SENATE
2d Session } { 114-266
======================================================================
THE COMMERCIAL REAL ESTATE AND ECONOMIC DEVELOPMENT ACT OF 2015
_______
May 26, 2016.--Ordered to be printed
_______
Mr. Vitter, from the Committee on Small Business and Entrepreneurship,
submitted the following
R E P O R T
[To accompany S. 966]
The Committee on Small Business and Entrepreneurship, to
which was referred the bill (S. 966) to extend the low-interest
refinancing provisions under the Local Development Business
Loan Program of the Small Business Administration, having
considered the same, reports favorably thereon with an
amendment and recommends that the bill, as amended, do pass.
I. INTRODUCTION
The CREED Act (S. 966) was introduced by the Committee's
Ranking Member, Senator Jeanne Shaheen, for herself and Senator
Johnny Isakson, on April 15, 2015. The bill's other co-sponsors
as include: Senators Ayotte, Cantwell, Casey, Coons, Fischer,
Franken and Hirono.
The bipartisan bill extends a provision allowing small
business owners to refinance existing commercial debt using the
Small Business Administration's (SBA) 504 loan program for any
fiscal year during which the 504 base program is operating at
zero subsidy. By doing so, the program lowers small businesses'
monthly mortgage payments at no cost to taxpayers, thus putting
more capital in the hands of America's job creators.
S. 966 as introduced would have extended the 504 Loan
Refinance (504 Refi) program for five years. During markup of
the bill, Chairman Vitter put forward a substitute amendment to
the bill which made two changes. The first change eliminated
the five-year sunset and made the refinance authority available
permanently. The second change allows the program to operate
only during fiscal years in which the regular 504 loan program
is operating at zero subsidy. The bill, as amended, was
approved unanimously by voice vote.
The provisions of this bill later became law as part of the
Fiscal Year 2016 Consolidated Appropriations Act, H.R. 2029
(Public Law No. 114-113).
II. HISTORY (PURPOSE & NEED FOR LEGISLATION)
The purpose of the CREED Act is to permanently re-instate a
version of the Small Business Administration's 504 Refi, a two-
year initiative that permitted refinancing of existing
qualified commercial real estate debt through the SBA's local
economic development business loan guaranty program, also known
as the 504 loan program. When the 504 Refi program was active,
more than 2,300 small firms refinanced more than $5 billion.
The 504 Refi program expired on September 27, 2012, but
small businesses continued to desire access to the capital
invested in their businesses. On the last day of the trial
period, more than 400 businesses applied. While the economy is
better today than when the program ended, and lending to small
businesses is starting to recover, many banks today cannot or
will not finance additional commercial real estate. Those that
do often will not refinance small business equipment or
commercial real estate with a long-term or low fixed-rate.
The Committee believes that extending the availability of
low-interest refinancing will lower small businesses' monthly
mortgage payments, putting more working capital in the hands of
America's job creators.
The Small Business Administration's 504 Refi program is a
long-term financing tool for economic development that provides
small businesses with long-term, fixed-rate loans to help them
acquire fixed assets and real estate for expansion or
modernization. The loans are intended to foster local economic
development and to create or preserve jobs. A 504 loan project
consists of three elements: a loan from a private sector lender
covering 50 percent of the principal; a second mortgage from an
SBA Certified Development Company backed by a 100 percent
government guaranteed debenture, covering 40 percent of the
principal; and an equity contribution from the small business
owner to cover the remaining 10 percent.
The ability to refinance owner-occupied commercial real
estate debt through the 504 loan program was first created as
part of the American Recovery and Reinvestment Act of 2009
(P.L. 111-5) on February 17, 2009. Congress added additional
refinance authority in the Small Business Jobs Act of 2010
(P.L. 111-240), which was signed into law by President Barack
Obama on September 27, 2010. Section 1122 of the law allowed
small businesses to use 504 loans to refinance eligible fixed
assets not involving expansions for two years after enactment,
with program authorization capped at $7.5 billion each year.
The refinance authority, paid for entirely by program fees, was
a zero-cost way to help small businesses access their own
equity that they had built up over the years in order to hire
additional employees or retain those currently employed.
It took some time for the SBA to create a regulation
implementing the 504 refinance authority, and the initial
regulation, finalized on February 17, 2011, was not fully
consistent with legislative intent. The SBA revised its
regulations on October 12, 2011. The revised rule was more in
line with legislative intent and allowed more businesses with a
commercial mortgage to refinance. Participation in the 504 Refi
program took off shortly thereafter, and as a result, the 504
refinance program supported $5.5 billion in total lending to
small businesses. However, on September 27, 2012 just as the
program was accelerating and the lending community began to
utilize it to its full capacity, the program expired.
The Senate has considered an extension of the 504 Refi
program many times since 2012, as free-standing bills and
amendments. The following information describes the various
efforts.
During the 112th Congress, on April 25, 2012, Small
Business Committee Ranking Member Olympia Snowe introduced, S.
2364, a bill to extend the 504 refi program for an additional
year. Senator Snowe introduced S. 2364 on behalf of herself,
Chair Mary Landrieu and Senator Jeanne Shaheen, along with
Senators Isakson, Thune, Klobuchar, Tim Johnson, and Pryor. The
bill was referred to the Committee but not acted upon further
during the 112th Congress.
Senate Amendment 1833 (S. Amdt. 1833), an amendment in the
nature of a substitute to the Jumpstart Our Business Startups
(JOBS) Act of 2012 (H.R. 3606), contained a provision to extend
the 504 loan refinance program for an additional year past
September 27, 2012. S. Amdt. 1833, the Invigorate New Ventures
and Entrepreneurs to Succeed Today (INVEST) in America Act of
2012, was introduced on March 15, 2012, by Senator Jack Reed
along with Chair Landrieu and Senators Levin, Scott Brown,
Merkley, Akaka, Whitehouse, Franken, Harkin, and Durbin. S.
Amdt. 1833 was ultimately not included in the final version of
H.R. 3606.
Additionally, Senator Landrieu included a 504 refinance
provision in Senate Amendment 2521 (S. Amdt. 2521), which she
filed to S. 2237, the Small Business Jobs and Tax Relief Act of
2012 on July 11, 2012. Division B of S. Amdt. 2521, entitled
the Success Ultimately Comes from Capital, Contracting,
Education, Strategic Partnerships, and Smart Regulations
(SUCCESS) Act of 2012, contained language to extend the 504
refinance program for an additional year and a half past its
scheduled expiration. Although it came up short of the 60 votes
needed to end debate, the amendment received a strong 57 bi-
partisan vote, including five Republicans, when it received a
vote on the Senate floor on July 12, 2012. Shortly thereafter,
Chair Landrieu filed the SUCCESS Act as a standalone bill. On
July 25, 2012, Chair Landrieu introduced S. 3442, the SUCCESS
Act of 2012, with eight co-sponsors including Committee members
Senator Cardin and Senator Shaheen, as well as Senators
Blumenthal, Boxer, Gillibrand, Lieberman, Merkley, and
Whitehouse.
Chair Landrieu also offered 504 refinance language as an
amendment to S. 3457, the Veterans Jobs Corps Act of 2012.
Senate Amendment 2837, offered by Chair Landrieu, Ranking
Member Snowe, and Senator Shaheen on September 13, 2012, would
have extended the 504 refinance program for an additional year
and a half past its scheduled expiration. Ultimately, however,
none of the bills or amendments made it to the President's desk
during the 112th Congress.
During the 113th Congress, the Administration requested
authority to reinstate the 504 Loan Guaranty Refinance program
as part of its FY2015 Budget Request.
On February 12, 2013, Chair Landrieu introduced S. 289, the
Commercial Real Estate and Economic Development (CREED) Act of
2013, which was identical to S. 966 that is the subject of this
report. Specifically, S. 289 sought to restore for five years
the 504 Refi program that was enacted by Section 1122 of the
Small Business Jobs Act of 2010 and had expired on September
27, 2012. The bill was marked up on September 10, 2013, with a
Risch-Landrieu amendment that would have allowed the program to
operate only during fiscal years in which the SBA's base 504
program operated at zero subsidy. The bill, as amended, was
approved unanimously by voice vote.
Also during the 113th Congress, language to extend the 504
Refi program was voted on favorably two times during the
appropriations process. On July 25, 2013, the Senate
Appropriations Subcommittee on Financial Services and General
Government reported S. 1371, its Fiscal Year 2014
appropriations bill, with a provision to reinstate the 504 Refi
program under the Business Loans Program Account. On July 24,
2014, the Senate Appropriations Subcommittee on Financial
Services and General Government reported its Fiscal Year 2015
appropriations bill with a provision to reinstate the 504 Refi
program under the Business Loans Program Account. No bill
number exists. The bill as reported is only available on the
Appropriations website.
During the 114th Congress, the Administration requested
authority to reinstate the 504 Loan Guaranty Refinance program
as part of its FY2016 Budget Request. The budget justification
reflects that the cost of this program has a zero subsidy, and
that is because it is covered entirely through fees paid by the
borrowers and lenders. Further, the budget tables, on Page 1197
of the Budget for Fiscal Year 2016, provided information that
the loans from the Commercial Real Estate Refinance Program are
performing better than budget analysts estimated. The budget
projects a negative re-estimate for the 504 Loan Guaranty
Refinance program of $101 million in FY15.
The CREED Act of 2015 received letters of support from the
National Association of Development Companies; Small Business
Majority; U.S. Chamber of Commerce; National Small Business
Association; Smaller Business Association of New England; Women
Impacting Public Policy; Association of Women Business Centers;
Consumer Bankers Association; American Bankers Association;
Independent Community Bankers of America; National Association
of Development Companies; Granite State Development Corporation
in New Hampshire; Northeast Economic Development Company in
Pennsylvania; The Pennsylvania Community Development and
Finance Corporation; DelVal Business Finance Corp in
Pennsylvania; SEDA-COG Local Development Corporation in
Pennsylvania; Regional Development Funding Corporation in
Pennsylvania; Bridgeway Capital CDC in Pennsylvania; EDC
Finance Corporation CDC in Pennsylvania; California Association
for Micro Enterprise Opportunity; Tulsa Economic Development
Corporation in Oklahoma; Small Business Capital Corporation in
Oklahoma; REI Oklahoma; CSRA Business Lending in Georgia; Small
Business Access Partners in Georgia; Capital Partners in
Georgia; Georgia Small Business Capital; Small Business
Assistance Corporation in Georgia; Southern Georgia Area
Development Corporation; Georgia Small Business Lender; Coastal
Area District Development Authority in Georgia; Georgia
Certified Development Corporation; and North Georgia Certified
Development Corporation.
Previous efforts to reinstate the 504 Refi program were
supported by a number of groups, including the: U.S. Chamber of
Commerce, International Franchise Association, Consumer Bankers
Association, Independent Community Bankers of America, National
Small Business Association, Association for Corporate Growth
and the National Association of Women Business Owners.
The CREED Act provisions were enacted as part of the Fiscal
Year 2016 Consolidated Appropriations Act, H.R. 2029 (Public
Law No. 114-113).
III. HEARINGS & ROUNDTABLES
In preparing to draft and introduce the CREED Act, the
Committee held a number of hearings and roundtables analyzing
the SBA's 504 Refi program and heard from small businesses,
lenders, and government officials on the effectiveness of the
program and the need for extension.
In the 112th Congress:
On November 29, 2012, the Committee held a hearing
entitled, ``Creating Jobs and Growing the Economy: Legislative
Proposals to Strengthen the Entrepreneurial Ecosystem.'' The
purpose of the hearing was to discuss the legislative proposals
included in the ``Success Ultimately Comes from Capital,
Contracting, Education, Strategic Partnerships, and Smart
Regulation (SUCCESS) Act of 2012'' (S. 3442), which was the
result of recommendations gathered during a series of three
Committee roundtables examining the entrepreneurial ecosystem
during the 112th Congress. Among the provisions in the SUCCESS
Act that the Committee examined during the hearing was the
extension of the 504 loan refinancing program. The Committee
heard testimony from a variety of small businesses,
stakeholders, and Administration officials including the SBA's
Associate Administrator for Investment & Special Advisor of
Innovation and the Executive Vice President of a regional
Certified Development Company (CDC). Witnesses testified on the
effectiveness of the 504 loan refinancing program and the need
for its extension, given the continued tight market for
conventional real estate mortgages.
In the 113th Congress:
On March 14, 2013, the Committee held a roundtable entitled
``Helping Small Businesses Weather Economic Challenges &
Natural Disasters: Review of Legislative Proposals on Access to
Capital and Disaster Recovery.'' The purpose of the roundtable
was to discuss four legislative proposals on small business
access to capital and disaster recover on which the Committee
would focus during the beginning of the 113th Congress,
including the CREED Act. Participants included a wide range of
small business owners, investors, and stakeholders, and SBA
representatives, including the Associate Administrator for the
SBA's Office of Capital Access, which oversees the 504 loan
program. The roundtable followed up on previous Committee
roundtables and legislative hearings held during the 112th
Congress and provided an opportunity for Committee members to
highlight their relevant priorities ahead of an upcoming markup
on access to capital and disaster recovery legislation.
On April 17, 2013, the Committee held a hearing entitled
``The FY2014 Budget Request for the Small Business
Administration.'' The purpose of the hearing was to review the
President's Fiscal Year 2014 Budget Request for the SBA.
Testifying on behalf of the Administration were SBA
Administrator Karen Mills, SBA Inspector General Peggy
Gustafson, and Dr. Winslow Sargeant, Chief Counsel of the SBA's
Office of Advocacy. In its budget request, the SBA requested
the ability to extend the 504 loan refinance program, to which
there is zero subsidy cost attached.
IV. DESCRIPTION OF BILL
S. 966, the Commercial Real Estate and Economic Development
Act of 2015, extends the availability of a low-interest
commercial real estate refinance program through the Small
Business Administration's 504/CDC loan guaranty program. The
bill restores the program enacted by Section 1122 of the Small
Business Jobs Act of 2010, which expired on September 27, 2012.
As amended by the Vitter substitute amendment, the bill allows
small businesses to refinance eligible existing commercial debt
only during fiscal years in which the SBA's base 504 program
operates at zero subsidy.
V. COMMITTEE VOTE
In compliance with rule XXVI (7)(b) of the Standing Rules
of the Senate, the following vote was recorded on April 23,
2015.
A motion to report the Commercial Real Estate and Economic
Development Act of 2015, to extend the availability of low-
interest refinancing provisions under the Local Development
Business Loan Program of the Small Business Administration, as
amended, was agreed to by voice vote as part of a manager's
package that included seven additional bills. The following
Senators were present: Vitter, Risch, Fischer, Gardner, Ernst,
Ayotte, Enzi, Shaheen, Cantwell, Cardin, Heitkamp, Booker,
Coons, Hirono, and Peters. Senator Paul requested that he be
recorded in opposition to the bill.
VI. COST ESTIMATE
In compliance with rule XXVI (11)(a)(1) of the Standing
Rules of the Senate, the Committee estimates the cost of the
legislation will be equal to the amounts discussed in the
following letter from the Congressional Budget Office:
June 3, 2015.
Hon. David Vitter,
Chairman, Committee on Small Business and Entrepreneurship,
U.S. Senate, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for S. 966, the Commercial
Real Estate and Economic Development Act of 2015.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Susan Willie.
Sincerely,
Keith Hall.
Enclosure.
S. 966--Commercial Real Estate and Economic Development Act of 2015
In 2010, the Small Business Jobs Act (Public Law 111-240)
authorized the Small Business Administration (SBA), through the
Certified Development Company (CDC) Loan Program, to
temporarily guarantee loans issued to refinance existing debt
without requiring an expansion of the business by the borrower.
(The CDC loan program is designed to provide small businesses
with long-term loans at fixed rates to purchase major assets,
such as commercial real estate.) That temporary authority ended
in 2012. S. 966 would authorize the program to operate during
any fiscal year that the CDC loan program operates at no cost
to the federal government. If the zero-cost condition is not
met, then the refinance option would not be authorized that
year.
In 2015, SBA received an appropriation of $45 million for
the CDC program, allowing the agency to guarantee $7.5 billion
in debt at an estimated subsidy rate of 0.6 percent; over the
2010-2014 period, the subsidy rate for the CDC loan guarantee
program ranged from zero to 2.02 percent. (The subsidy cost is
the estimated long-term cost to the government of a loan
guarantee, calculated on a net-present-value basis.)
Because those subsidy rates can fluctuate CBO cannot
predict the years in which the refinance program would be
authorized to operate. However, CBO estimates that implementing
S. 966 would not affect discretionary spending, because in the
years the agency would be authorized to operate the program, it
also would be authorized to collect fees sufficient to offset
the subsidy cost. Enacting S. 966 would not affect direct
spending or revenues; therefore, pay-as-you-go procedures do
not apply.
S. 966 contains no intergovernmental or private-sector
mandates as defined in the Unfunded Mandates Reform Act and
would not affect the budgets of state, local, or tribal
governments.
The CBO staff contact for this estimate is Susan Willie.
The estimate was approved by H. Samuel Papenfuss, Deputy
Assistant Director for Budget Analysis.
VII. EVALUATION OF REGULATORY IMPACT
In compliance with rule XXVI(11)(b) of the Standing Rules
of the Senate, it is the opinion of the Committee that no
significant additional regulatory impact will be incurred in
carrying out the provisions of this legislation. There will be
no additional impact on the personal privacy of companies or
individuals who utilize the services provided.
VIII. SECTION-BY-SECTION ANALYSIS
Section 1. Title
This section provides the title of the bill. This Act may
be cited as the ``Commercial Real Estate and Economic
Development Act of 2015'' or the ``CREED Act of 2015.''
Section 2. Low-interest refinancing under the local development
business loan program
This section restores the low-interest commercial real
estate refinance program through the SBA's 504/CDC loan program
during any fiscal year in which the base 504 program operates
at zero subsidy. The program was originally established by the
Small Business Jobs Act of 2010 and expired on September 27,
2012.
[all]