The decision by Republican leaders in the U.S. House to reauthorize the federal Export-Import Bank's charter only until June, leaving the institution in limbo until another vote is taken, spells big trouble for Illinois exporters, large and small.
Since 1934 the bank has created and sustained U.S. jobs and reduced trade deficits by financing and insuring foreign purchases of American goods for customers unwilling or unable to accept credit risk. Yet some in Congress, mostly small-government conservatives led by tea party Republicans, argue that the bank's costs and the risks it poses to taxpayers are unjustified; and that commercial banks, many with international operations of their own, should be financing the sales of American exports, not the federal government. They see the Ex-Im Bank as an egregious example of crony capitalism that undermines our free-market economy by subsidizing politically connected companies, and they vow to abolish it.
IT'S NOT CORPORATE WELFARE
But the Ex-Im Bank isn't an instrument of corporate welfare. Fully funded through interest and fees on loans and other assistance, it receives no tax dollars at all. In fact, the bank consistently returns a profit to the Treasury, generating more than $1 billion for U.S. taxpayers in fiscal 2013 while supporting about $37 billion in U.S. export sales and roughly 205,000 American jobs.
Nor is the bank crowding out private-sector financial institutions. They simply don't have the competency or interest to assess the political and commercial risks in guaranteeing working capital loans and insuring receivables for most businesses seeking to hedge their bets against losses in foreign markets. Smaller banks lack the expertise and balance sheets to finance overseas sales, and the big banks aren't eager to support the international transactions of less profitable customers. That's exactly what Ex-Im does, helping over 300 companies in Illinois since 2007, most of them small and midsized firms.
Illinois is a major stakeholder in the Ex-Im debate. The state's exports totaled nearly $66 billion in 2013, representing about 10 percent of our gross state product. More than 1,700 exporters and foreign-owned firms employ more than 270,000 people here.
If the bank's charter is not reauthorized for the long term, companies that rely on Ex-Im financing in Illinois and throughout the nation no longer will be able to compete head-to-head with foreign firms backed by their countries' export credit agencies. Jobs and business opportunities will be lost, and America's economic might in key growth markets around the world will be compromised for years to come.
If cooler heads prevail, the eventual vote on Ex-Im ought not be a tough call for Congress. Let's urge our senators and representatives to stand their ground and fight to renew the bank's charter.
The world's first social impact bond, or SIB, was introduced in 2010 to fund innovative social programs that realistically might reduce recidivism by ex-offenders in Peterborough, England, and, with it, the public costs of housing and feeding repeat offenders. Prudently building on the strengths of that initiative, Illinois Gov. Pat Quinn is rolling out SIBs to help solve some of the state's most vexing social problems.
A SIB isn't a traditional bond where investors are guaranteed a fixed return but a contract among a government agency that agrees to pay for improved social outcomes, a private financing intermediary and private investors. SIBs shift the risk of experimenting with promising but untested intervention strategies from government to private capital markets, with public funds expended only after targeted social benefits have been achieved.
Peterborough's problem was daunting: Sixty percent of prisoners serving short-term sentences historically had gone on to re-offend within a year after their release. But policymakers were confident that a solution was within their reach. They attracted private investment to pay experienced social service agencies to provide intensive, multidisciplinary support to short-term prisoners, preparing them to re-enter society and succeed outside the penal system.
The government decided which goals would be supported, but exactly how those goals would be achieved was left to the private sector. It was the investors, through a bond-issuing organization, who ultimately endorsed the allocation of investment proceeds — how much would be invested in job training, drug rehabilitation and other interventions.
If the Peterborough plan eventually shrinks recidivism rates by 7.5 percent or more, the government will repay the investors' capital and share the taxpayers' savings with them, delivering up to a 13 percent return. If the target isn't hit, the investment will have failed and the government will owe the investors nothing.
Illinois' SIB effort was spearheaded by the state's Task Force on Social Innovation, Entrepreneurship and Enterprise — the governor's think tank on social issues, which I am privileged to chair — with support from Harvard University's John F. Kennedy School of Government, the Rockefeller Foundation and the Aurora-based Dunham Fund. A request for information issued by the Office of Management and Budget on May 13 yielded responses from service providers eager not only to reduce recidivism here but also to create jobs, revitalize communities, improve public health outcomes, curb youth violence, cut high school dropout rates and alleviate poverty.
Now the governor has issued a request for proposals intended to spur better outcomes for Illinois' most at-risk youth — by increasing placement stability and reducing re-arrests for youth in the state's Department of Children and Family Services, and by improving educational achievement and living-wage employment opportunities justice-involved youth most likely to re-offend upon returning to their communities.
Kudos to Mr. Quinn for bringing SIBs to Illinois. May they soon start delivering on their promise.- See more at: http://www.chicagobusiness.com/article/20131007/OPINION/131009850/a-new-kind-of-futures-contract-for-illinois#sthash.ThgxeiFt.dpuf
Marc J. Lane is a Chicago-based business and tax attorney and financial adviser.
Reprinted from Marc Lane's November 19, 2014 editorial which appeared in Crain's Chicago Business. Crain Communication Inc.'s permission is gratefully acknowledged. Copyright © 2014 by Crain’s Communications Inc.
The Law Offices of Marc J. Lane, A Professional Corporation
180 North La Salle Street
Chicago, Illinois 60601-2701
Nationwide: (800) 372-1040
Facsimile (312) 346-1040