Mike Klein Online

As White House Pushes SBA Loans, Bad Debt Piles Up All Around

Mike Klein

This week President Barack Obama traveled through important Midwest primary states to carry the message that he’s doing something about jobs.  Or, he will soon, probably next month, after his smart people think about it a few weeks longer.  The White House website already features a Small Business Administration section and what it says are 100 SBA success stories.

SBA is neither Republican nor Democrat and it definitely is not Tea.  It has been used by White Houses of both stripes, and it has been praised and condemned.  The White House budget director under President Ronald Reagan wanted to abolish it.  SBA survived because politicians recognized that receiving money from politicians made folks feel good about politicians.

The Small Business Administration is a Dwight Eisenhower-era invention.  It has been around since 1953.  It came into vogue after World War II and the Korean War when Americans were on a mission to create consumerism.   Folks wanted to buy things and folks who wanted to sell things were starting businesses by the millions.  SBA money helped start some of those shops.  Less important were cumbersome philosophical issues about whether government should fund business start-ups.

The White House is holding up the Small Business Administration as one resource to help put Americans back to work – which will put taxpaying Americans in hock because SBA loans have to be paid back.  It ain’t free money.

In pursuit of transparency, here’s what the White House would rather you didn’t know:  Taxpayers are on the hook for nearly $70 billion in SBA loans to start-up businesses that failed, especially during the last ten years.  When that happens the largest portion of the bill goes to taxpayers.  That is not a message politicians are eager to share.

A new CATO Institute report from Veronique de Rugy and Tad DeHaven even makes their case to abolish the Small Business Administration because, “The SBA benefits a relatively tiny number of small businesses at the expense of the vast majority of small business that do not receive government assistance. SBA subsidies also represent a form of corporate welfare for the banking industry.”  SBA loans are made by banks.  Taxpayers are on the hook for 85 percent when loans default and the banks are owed.  Banks are willing and even eager government partners.

The CATO report states:  “The SBA will cost taxpayers about $6.2 billion in 2011.  Annual outlays are typically closer to $1 billion, but the SBA has suffered higher than usual losses on its guaranteed loans in recent years, so the costs imposed on taxpayers have soared. The SBA will guarantee almost $24 billion in new loans in 2011. The share of guaranteed loans outstanding that the SBA — and ultimately federal taxpayers — are on the hook for is about $70 billion.”

Using data from the Federal Reserve Board, the National Federation of Independent Business, the Government Accountability Office and academic and government sources, CATO said 19.4 percent of SBA loans made to the top 15 industries that received them failed between 2001 and 2010.  One in four restaurants failed, two in ten beauty salons failed, one in four miscellaneous retail sales stores failed and so forth.  Dentists and physicians had the lowest failure rates.

In their analysis de Rugy and DeHaven noted that President Dwight Eisenhower initially opposed creating the Small Business Administration but he eventually relented.  In 1958 the White House Budget Office said SBA was “an uncontrollable program.”  The agency grew into its own dynasty over several decades.

SBA loans were used by President Ronald Reagan during his first term to support federal set-asides to minority firms.  During Reagan’s second term his budget director, the often controversial David Stockman, described SBA as “a billion dollar waste – a rat hole” and Reagan supported trying to abolish SBA.  That didn’t happen. Presidents Bill Clinton and George W. Bush both supported expansion of SBA loan programs.

Two years ago President Obama used SBA loans as part of the American Recovery and Reinvestment Act and this week SBA loans and success stories are being showcased again, as if there is no possible downside.  This is happening, de Rugy and DeHaven point out, even though SBA’s recent track record continues to get worse.  Bad loans increased from $1 billion in 2006 and 2007 to $3.9 billion in 2009 and $4.8 billion in 2010.

Beware whenever someone says, “I’m from the government and I’m here to help.”

(Mike Klein is Editor at the Georgia Public Policy Foundation)

August 17, 2011 Posted by | Uncategorized | , , , , , , , , , , , , | Leave a comment

Georgia Early Vote Should Pass 800,000; Far Less Than 2008 Election

Georgia early voting seems certain to pass 800,000 ballots cast, a sizable number by its own merits, but still down from nearly 2.1 million in the presidential election two years ago.

More than three-quarter million early ballots have been cast, according to the Georgia Secretary of State’s elections division.   Total ballots cast were 761,042 with 643,936 voted in person, 117,106 mail-in ballots and 58,606 mail-in ballots outstanding.  General voters can return mail-in ballots through Tuesday.  Military personnel ballots will be counted through Friday.

This is the second general election and the first mid-term in which all eligible Georgians are permitted to vote early in-person or by mail-in without having to provide a reason or excuse.

Two years ago the state recorded 2,084,1279 early ballots and that represented 53% of total ballots, said Matt Carrothers, director of media relations for the Secretary of State’s office.

Presidential election years generate more voters than mid-term elections.  Georgia turnout in the three most recent presidential elections was 69% in 2000 when Texas Governor George W. Bush defeated Vice President Al Gore, 77% four years later when President Bush defeated Massachusetts Sen.  John Kerry and 76% two years ago when Illinois Sen.  Barack Obama defeated Arizona Sen. John McCain.

Fewer Georgians vote in mid-term election years.  Governor Sonny Perdue upset incumbent Governor Roy Barnes in 2002 with 54% of eligible Georgians voting.  The total voter percentage declined to 48% when Perdue won re-election over Democratic challenger Mark Taylor in 2006.

Election history dating to 1988 is available on the Secretary of State website, www.sos.ga.gov/elections.

Mike Klein is Editor at the Georgia Public Policy Foundation.

November 1, 2010 Posted by | Uncategorized | , , , , , , , , , , , | Leave a comment

Georgia Palette Likely To Become Redder; Deal – Barnes No Sure Thing

This Georgia election preview was written for the Franklin Center for Government.

Georgia’s political palette will likely become deeper Red after next Tuesday, but whether that includes the Republican Party winning its third consecutive Governor’s Office election is uncertain.

Two national organizations released polls this week that show Republican Nathan Deal up 10% over Democrat Roy Barnes but should those vote projections become vote percentages, they would not be enough to avert a late November run-off on the Tuesday after Thanksgiving.

The Rasmussen Reports 2010 Gubernatorial Scorecard and SurveyUSA produced identical results with Deal leading Barnes 49% to 39%.  A majority vote – 50% plus one vote — is required to win statewide office in Georgia.  Deal is a retired nine-term congressmen and Barnes served one term as Governor from 1999 to 2003 after eleven terms as a state senator or representative.

Rasmussen moved Georgia from “Leans GOP” to “Solid GOP” after a Sunday, October 24 telephone poll of 750 likely voters statewide.   Libertarian Party candidate John Monds received 5%.  The remainder indicated preference for another candidate or said they are undecided.

The SurveyUSA sample was larger, 1,100 persons interviewed by telephone over four days, Thursday, October 21 through Sunday, October 24.   The SurveyUSA outcome was identical to Rasmussen, 49% for Deal and 39% for Barnes, but Libertarian candidate Monds polled 8%.  Some analysts believe the likelihood of a November 30 gubernatorial run-off would increase if the Monds vote exceeds 5%.

The Deal campaign strategy has been to criticize nearly everything about the first Barnes administration.  It has tried to portray Barnes as an over-the-top President Barack Obama style liberal Democrat.   The Barnes strategy has been to question Deal’s personal and business ethics.  Lately, Barnes has attacked Deal for his position on a Georgia rape shield law during Deal’s tenure in the state Senate.

Down the ballot, Republicans are poised to turn an already Red state an even deeper shade of Red.   U.S. Senator Johnny Isakson is heavily favored over Democrat Michael Thurmond whose candidacy has not generated traction.  SurveyUSA shows Isakson ahead by 24% and Rasmussen has Isakson ahead by 15%. The incumbent Isakson raised some $9.1 million and Thurmond raised less than $300,000.

Republicans currently hold seven of the state’s 13 congressional seats.  Three Republican incumbents are unopposed and Republicans are favored to retain the other four seats.  Two incumbent Democrats are also in the GOP sights, Jim Marshall in central Georgia and Sanford Bishop in southwest Georgia.

The 62-year-old Marshall is running an 8th Congressional District toss-up race against 40-year-old Republican state legislator Austin Scott.  Marshall is a four-term economic conservative who supports extension of the George W. Bush tax cuts.  The former Macon mayor also has strong military credentials and he has been a strong advocate for Robins Air Force Base but all of that aside, Marshall might be swept away by anti-Democrat, anti-incumbent sentiment.

Republicans also believe they can prevail in southwest Georgia’s 2nd Congressional District where state legislator Mike Keown will try to unseat nine-term Democrat Bishop.   The congressman might be hurt by recent reports that Bishop steered congressional caucus scholarship money to his own family.

Republicans will continue to hold solid state Senate and House voting majorities after next Tuesday.   The party fielded strong candidates in eight other contested statewide office races.  Democratic incumbents are not seeking re-election in three of those eight races.

Much less certain is how Georgia voters will respond to a ballot measure that would fund statewide trauma care expansion by imposing a new $10 annual fee on nearly all privately owned vehicles.

The business community, the hospital industry and a wide range of Republican and Democratic leaders support the new fee.  But some recent sentiment suggests voters are not much interested in new fees and taxes, even though large sections of Georgia have little or no available trauma health care.  Business leaders launched Yes2SaveLives.Com to support the trauma care measure.

Mike Klein is Editor at the Georgia Public Policy Foundation.

October 26, 2010 Posted by | Uncategorized | , , , , , , , , , , , , , , | Leave a comment