Financial Services Committee

At his event in Seattle tonight, it won’t be surprising if President Obama praises the Export-Import Bank as a “jobs creator” that “doesn’t cost taxpayers anything.”

It’s a far cry from how he used to describe the Export-Import Bank – as “little more than a fund for corporate welfare.”

The President may hope that his audience is unfamiliar with those remarks.  He may also hope they overlook the fact that the Ex-Im Bank has been doing business with Russian companies that his Treasury Department added to its sanctions list.

But here are five important facts about Ex-Im:

1). The Ex-Im Bank doesn’t create jobs.

Government export finance assistance programs like Ex-Im “largely shift production among sectors within the economy rather than raise the overall level of employment in the economy.” - Government Accountability Office, “Export-Import Bank: Key Factors in Considering Ex-Im Bank Reauthorization” 

“[A]t best the Ex-Im Bank creates jobs in export industries by destroying jobs in non-export industries.” – Donald Bodreaux, Ph.D, Professor of Economics at George Mason University\

“By some estimates, the Bank’s loan guarantees have resulted in up to 7,500 lost U.S. carrier jobs, and up to $684 million of lost income for U.S. airline employees annually.” – Delta Airlines

2). The Ex-Im Bank doesn’t return money to the taxpayers.

The Ex-Im Bank’s profits aren’t real.  They are an accounting illusion.  The non-partisan Congressional Budget Office (CBO) reports that if the Bank followed more accurate accounting rules, its ledger would show a cost to taxpayers of $200 million/year, or $2 billion over 10 years.  -- CBO Fair-Value Estimate

3). Less Than 1 Percent of 1 Percent of America’s Small Businesses Benefit From Ex-Im.

Congress requires that 20% of Ex-Im’s authorizations go to small businesses, but Ex-Im consistently fails to meet this statutory requirement.  In reality, just 0.009 percent of America’s small businesses receive any help at all from Ex-Im.

Instead, Ex-Im’s subsidies go overwhelmingly to very large corporations like Boeing, GE and Caterpillar.

4). The Ex-Im Bank uses American taxpayers’ money to help foreign corporations, including  businesses that are owned by the governments of China, Russia, Saudi Arabia, and the United Arab Emirates.

Of the 50 largest loans or guarantees approved by the Ex-Im Bank since FY2007, 46% of the loans have gone to state-owned companies or to a joint-venture that includes a state-owned company.  

5). The Ex-Im Bank financed only 1.6% of total U.S. exports in 2013.

That’s less than 0.18 percent of the total U.S. economy.

With One Hand U.S. Sanctions Russian Companies, But With the Other…    

The Export-Import Bank is financing deals with Russian companies hit
by U.S. sanctions this past week.  

Ex-Im Bank Chairman Fred Hochberg (left) with Vladimir Dmitriev, Chairman, Vnesheconombank

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Ex-Im and the Democratic Republic of the Congo

President Obama and the First Lady pose with Denis Sassou-Nguesso, President of the DRC, and his wife, Mrs. Antoinette Sassou-Nguesso.

Despite these horrific abuses and the DRC’s recent track record of default, the Ex-Im Bank is open for business there, risking more taxpayer money in the process.

Here are the deal details:

Since 2010, the Ex-Im Bank has approved more than $3 million in financing for deals in the DRC, including the financing for many mining projects.  Recently, the Obama Administration forgave $979 million in defaulted DRC government debt, which came from U.S. taxpayer-backed Ex-Im financing to the DRC. In 2010, Kerry Kennedy, founder of the Robert F. Kennedy Memorial Center for Human Rights, argued that it was the “Wrong Time for Congo Debt Forgiveness.”

American taxpayers should be asking why the Ex-Im Bank is back in business in the DRC, providing financing to mining companies in a country with a terrible human rights record and a history of defaulting on hardworking American taxpayers.

Today, the Export-Import Bank’s total exposure to the country is over $2 million.

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$10.3 Million: Ex-Im Acted “Fast” for Crony-Connected Solyndra

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That’s exactly how taxpayers feel after losing money not just once but twice on the crony-connected and now-failed solar panel manufacturer Solyndra.

Interestingly, both projects for Solyndra were dealt with rather quickly by the Obama Administration.  Ex-Im boasts in its press release that the Solyndra project benefited from “fast due-diligence” and the Washington Post reports “the White House pushed loan reviewers to make a quick financing decision” on Solyndra’s loan guarantee.

Here are the deal details:

Not only were taxpayers on the hook for the $535 million in failed “stimulus” money Solyndra received  through a loan guarantee and then went bankrupt two years later, but taxpayers also financed a deal in 2011 when the Ex-Im Bank guaranteed a $10.3 million loan provided by KBC Bank NV – whose parent company is one of the top three financial institutions in Belgium.  The loan guarantee went to finance the sale of politically-connected Solyndra’s products to provide energy for a distribution center of Delhaize, a Belgian supermarket chain that posted $28 billion in revenues last year.

“Bank of Washington,” indeed.

President Obama tours Solyndra in May, 2010.

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Hensarling on yesterday’s committee hearing with Federal Reserve Chair Janet Yellen and the Federal Reserve Accountability Act:

“Earlier in her career as a central banker, in referring to one monetary policy rule in particular -- the Taylor rule -- she said ‘that's what sensible, central bankers do.’  So I suppose she has the right to reverse herself, but there's been ongoing studies for many years about where does the Fed do the best job of promoting long-term price stability and maximum employment. I think the overwhelming weight of the evidence is with a rules-based policy, and the Act that you talked about is very simple.”

“The Fed has absolute discretion, absolute discretion, on setting monetary policy. They can change it. They can deviate from it. They just need to explain to the rest of us what they're doing and holding it up to public scrutiny. So it's really about transparency and accountability.”

Hensarling on the fourth anniversary of the Dodd-Frank Act:

“…I think there's a growing consensus, including the consensus of the President of the United States of America, that Dodd-Frank did not end too big to fail and too small to matter. So before this Congress is over, our committee has done a lot of work on that, but at the end of the day Dodd-Frank has ensured that the big banks have gotten bigger, the small banks have gotten fewer, the taxpayers have gotten poorer, and our economy is less robust.”

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Why Are American Taxpayers Financing an Aquarium in Brazil? A rendering of the Acquario Aquarium in Fortaleza, Brazil (Ex-Im Release)

Brazilians still embarrassed by their team’s stunning loss to Germany in the World Cup will soon be able to seek refuge in this “spectacular aquarium on the beach in Fortaleza,” in the words of Export-Import Bank Chairman Fred Hochberg.  American taxpayers will be financing the project through a direct loan approved by the Export-Import Bank to the Brazilian state of Ceará. 

Two questions come to mind:

1.    Will the aquarium be the home for the next psychic octopus?

2.    Why should American taxpayers be put on the hook for this?

Here are the deal details:

In October 2012, the Ex-Im Bank approved $105 million in financing to the Brazilian state of Ceará for an aquarium there.  According to the Ex-Im Bank: “An anticipated tourist attraction, the aquarium will boast four floors housing 25 large tanks containing approximately 15 million liters of water and showcasing 500 marine species and 35,000 individual specimens. The aquarium will also feature interactive exhibits, two 4D cinemas, one 3D cinema, and an educational platform dedicated to the research and preservation of aquatic life along the Brazilian coastal regions. When completed, Acquario will rank as the largest aquarium in the Southern Hemisphere and the third largest in the world.”  – Ex-Im Release

It pays to have cronies in high places, especially at the Export-Import Bank it seems.

The Ex-Im Bank gave millions in taxpayer-backed loans for Spanish green energy company Abengoa International – while former Gov. Bill Richardson (D-NM) sat on the advisory boards for both.

Here are the deal details:

Richardson joined Ex-Im’s advisory board near the end of 2012, around the same time that two Ex-Im Bank loans benefitting Abengoa were issued.  Those taxpayer-backed loans totaled around $150 million.

As one newspaper noted, “critics say Richardson’s holding a seat on both Abengoa and the Export-Import Bank’s advisory boards is just another example of cronyism at the bank.”

Inaccuracy #1: “When the U.S. Consumer Financial Protection Bureau opened in 2011, the best available government office space large enough to accommodate its thousand-plus employees was a run-down concrete building on G Street near the White House that once housed the now-defunct Office of Thrift Supervision.”

Facts: 
The House Financial Services Committee has investigated whether 1700 G Street was in fact the “best available” office space for the CFPB at the time the Bureau opened.  Earlier this year, the Committee requested that the CFPB produce “copies of all documents prepared by the Bureau, the General Services Administration or any private contractor or consultant prior to February 17, 2012 that reference or evaluate the Bureau’s commercial real estate lease or purchase opportunities.”  The CFPB responded that, “in regard to the documents requested, the Bureau has not, to date, found documents that can be responsive to this request.”  

It therefore appears that the CFPB conducted no due diligence before selecting 1700 G Street, so it could not possibly know whether the facility was the “best available.”

Additionally, in 2010, the Securities and Exchange Commission (SEC) had leased approximately 900,000 square feet of office space in Washington, DC at 400 Seventh Street, SW, known as Constitution Center, and, as was widely reported, soon found that it had overcommitted itself by roughly 600,000 square feet (See, e.g., https://www.sec.gov/foia/docs/oig-553.pdf). The SEC and the building owner then solicited other government agencies to sublease the newly-renovated, Class A space.  Several agencies ultimately moved into the building, including the Office of the Comptroller of the Currency (OCC) and the Federal Housing Finance Agency (FHFA).  Prior to February 18, 2011, the date when Elizabeth Warren announced the selection of 1700 G Street as the CFPB’s headquarters (see http://www.consumerfinance.gov/newsroom/treasury-department-announces-permanent-headquarters-of-consumer-financial-protection-bureau/), approximately 350,000 contiguous square feet was apparently still available for rent at the Constitution Center site.  This amount exceeds the 312,000 rentable square feet the CFPB ultimately rented in 1700 G Street, and thus would appear to be “large enough” for the agency’s needs.  Two CFPB employees toured the Constitution Center facility, but for reasons unknown, CFPB leadership agreed to rent the 1700 G Street location “as-is” (which Director Cordray has described as “a white elephant” and “a dump”) rather than pursue available space in Constitution Center.  On March 21, 2014, the Committee sought documents from the OCC, SEC and CFPB that might shed light on this decision.  The SEC and OCC have produced all requested records in full, whereas the CFPB has not replied or provided records at all.  

So on what basis and with what support does Bloomberg Businessweek make the claim that the building on G Street was the “best available” real estate option for the CFPB?

Inaccuracy #2: “The U.S. General Services Administration is managing the project.”

Facts: 
The Memorandum of Understanding (MOU) between the GSA and the CFPB specifically states:

“CFPB has overall responsibility and approval authority for all aspects of the renovation project, including determining requirements associated with the renovation needs, project scope, schedule and budget.  Subject to the provisions of this MOU, all bridging design considerations decision-making authority (including aesthetic and artistic), shall be vested with the CFPB.”

Under normal circumstances, the GSA manages facility renovation and construction projects for federal real estate in its inventory, but in the case of the CFPB renovation, neither the CFPB nor the GSA own the building that the CFPB has decided to renovate.  The 1700 G Street building is owned by the OCC.  Additionally, the renovation is structured as a design-build bridging project, meaning that CFPB retains full control over the design, engineering, scope and the cost of the renovation.  The CFPB hired Skidmore, Owings & Merrill as its architecture/engineering design firm, and it is this firm that has prepared the bridging design documents for the project.  The CFPB controls the project, not the GSA.  The GSA’s role is to procure and manage a contractor to perform the demolition and construction in accordance with the CFPB’s designs. 

In a pre-proposal conference for potential construction contractors held by the GSA on March 21, 2014, Tyrone Anderson, the GSA’s project executive, said that the CFPB renovation project is “unique for us” because “we don’t own the building, and we don’t control design.”  Additionally, several construction tasks fall outside the scope of the GSA’s contract with the CPFB, and thus will not be undertaken by the contractor procured by the GSA.  For instance, the CFPB plans to replace the building’s data and telecommunications system and furniture, fixtures & equipment (FF&E), but these projects will be handled by the CFPB through separate procurements, not the GSA.

Inaccuracy #3: “The GOP members say their calculations show the renovation will cost $215.8 million.”

Facts:
This figure comes not from Republican members but from an independent report by the Inspector General for the Federal Reserve Board released on June 30, 2014.  This report states in pertinent part:

“Based on the CFPB’s assessed requirements as of June 5, 2014, we currently estimate all-in costs to total approximately $215.8 million.”

(See http://oig.federalreserve.gov/reports/cfpb-congressional-request-headquarters-renovation-project-jun2014.pdf)

Inaccuracy #4: “The [Inspector General’s] report said the renovation covers 512,000 sq.ft.”

Facts:
The Inspector General’s report cites two square footage estimates, one (350,000 square feet) prepared by the CFPB’s Chief Financial Officer, and the other (512,000 square feet) prepared by the GSA.  But the GSA estimate is for gross square feet (GSF), which in this case covers the total square footage for the entire property.  However, not all of the property will be renovated.  Suzanne Tosini, the CFPB’s Chief Administrative Officer, confirmed in a briefing for Committee staff members on April 16, 2014 that the two underground parking garage levels will not be renovated, stating: “It’s not like we’re renovating the parking garage.” 

Her statement is supported by the bridging design documents created by Skidmore, Owings & Merrill, which show proposed floor plans for every level in the building except the two garage levels, and by the presentation slides the GSA provided to potential contractors, which also show renovation plans for every floor of the building except the two underground parking garage levels. 

Additionally, the OCC has confirmed in letters sent to its ground-level retail tenants that the building’s retail space will not be renovated by the CFPB.  Using square foot figures appearing in documents provided by the CFPB pursuant to Committee document requests, the actual total square footage being renovated by the CFPB appears to be 365,199 square feet, which is significantly less than the GSA’s gross figure, but tracks closely with the initial estimate of 350,000 square feet from the CFPB’s CFO. 

Inaccuracy #5: “The Republican figures inflate the total price by tacking on $70.7 million for costs such as hiring movers and renting temporary offices to use during the construction.”

Facts:
Because the CFPB has chosen to completely renovate 1700 G Street, it must relocate approximately 1,000 employees and rent another 306,000 rentable square feet from the GSA in a separate building for the entirety of the renovation, which is expected to last three years.  These costs, which include the costs of moving, transportation, rent, utilities and security, would never have been incurred by the CFPB but for the Bureau’s decision to renovate a building it does not own.  These costs incurred by the agency are every bit as relevant as costs associated with demolition and construction, and were included by the Federal Reserve Inspector General in determining the all-in renovation costs.

The Committee calculated the renovation cost per square foot by dividing the total renovation costs estimated by the Inspector General – $215.8 million – by the estimated square footage actually being renovated – 365,199 square feet.  This figure amounts to approximately $590/square foot.

Inaccuracy #6: “Republicans have cast the project as a misuse of public dollars in a time of tight budgets…But the Federal Reserve is self-financed, largely with income on securities such as government bonds, so the amount Congress needs to set aside for the office redo is precisely zero.”

Facts:
Federal Reserve profits are remitted to the U.S. Treasury, so every dollar the CFPB demands from the Fed to renovate its headquarters is one less dollar that could be used to pay down federal budget deficits.  And the only reason Congress is not involved in setting aside taxpayer dollars for the CFPB’s renovation is because the CFPB is, by design, unaccountable to Congress.  Unlike virtually every other agency of government, including those whose mission is consumer protection, the CFPB is exempt from the congressional appropriations process.  Four-story glass staircases, wisteria-covered pergolas, two-story waterfalls and sunken gardens are not the best use of taxpayer funds, whether or not they come directly from Congress.

Bottom Line From the Inspector General’s Report: “A Sound Business Case Is Not Available to Support” the CFPB’s Renovation

The Financial Services Committee will continue to investigate why CFPB leadership decided to commit the Bureau to a quarter billion dollars in long-term lease payments without performing any due diligence, and why it has decided to spend an additional $215.8 million to renovate a building it doesn’t own, an amount that is more than $70 million higher than the building’s appraised value.

The Inspector General points out all this money is being spent by the CFPB even though it “was unable to locate any documentation of the decision to fully renovate the building” and even though it failed to comply with its procedures for obtaining internal approval for the renovation.  Therefore, “a sound business case is not available to support the funding of the renovation,” the Inspector General reports.

The CFPB’s building renovation is not a wise use of public funds, and this lavish spending does nothing to support the CFPB’s core mission of protecting consumers.

[*Click here for July 10 Article Regarding the CFPB’s Building Renovations]