[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]
EXAMINING REAUTHORIZATION OF THE
EXPORT-IMPORT BANK: CORPORATE
NECESSITY OR CORPORATE WELFARE?
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
SECOND SESSION
__________
JUNE 25, 2014
__________
Printed for the use of the Committee on Financial Services
Serial No. 113-87
______
U.S. GOVERNMENT PUBLISHING OFFICE
91-151 PDF WASHINGTON : 2015
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HOUSE COMMITTEE ON FINANCIAL SERVICES
JEB HENSARLING, Texas, Chairman
GARY G. MILLER, California, Vice MAXINE WATERS, California, Ranking
Chairman Member
SPENCER BACHUS, Alabama, Chairman CAROLYN B. MALONEY, New York
Emeritus NYDIA M. VELAAZQUEZ, New York
PETER T. KING, New York BRAD SHERMAN, California
EDWARD R. ROYCE, California GREGORY W. MEEKS, New York
FRANK D. LUCAS, Oklahoma MICHAEL E. CAPUANO, Massachusetts
SHELLEY MOORE CAPITO, West Virginia RUBEEN HINOJOSA, Texas
SCOTT GARRETT, New Jersey WM. LACY CLAY, Missouri
RANDY NEUGEBAUER, Texas CAROLYN McCARTHY, New York
PATRICK T. McHENRY, North Carolina STEPHEN F. LYNCH, Massachusetts
JOHN CAMPBELL, California DAVID SCOTT, Georgia
MICHELE BACHMANN, Minnesota AL GREEN, Texas
KEVIN McCARTHY, California EMANUEL CLEAVER, Missouri
STEVAN PEARCE, New Mexico GWEN MOORE, Wisconsin
BILL POSEY, Florida KEITH ELLISON, Minnesota
MICHAEL G. FITZPATRICK, ED PERLMUTTER, Colorado
Pennsylvania JAMES A. HIMES, Connecticut
LYNN A. WESTMORELAND, Georgia GARY C. PETERS, Michigan
BLAINE LUETKEMEYER, Missouri JOHN C. CARNEY, Jr., Delaware
BILL HUIZENGA, Michigan TERRI A. SEWELL, Alabama
SEAN P. DUFFY, Wisconsin BILL FOSTER, Illinois
ROBERT HURT, Virginia DANIEL T. KILDEE, Michigan
STEVE STIVERS, Ohio PATRICK MURPHY, Florida
STEPHEN LEE FINCHER, Tennessee JOHN K. DELANEY, Maryland
MARLIN A. STUTZMAN, Indiana KYRSTEN SINEMA, Arizona
MICK MULVANEY, South Carolina JOYCE BEATTY, Ohio
RANDY HULTGREN, Illinois DENNY HECK, Washington
DENNIS A. ROSS, Florida STEVEN HORSFORD, Nevada
ROBERT PITTENGER, North Carolina
ANN WAGNER, Missouri
ANDY BARR, Kentucky
TOM COTTON, Arkansas
KEITH J. ROTHFUS, Pennsylvania
LUKE MESSER, Indiana
Shannon McGahn, Staff Director
James H. Clinger, Chief Counsel
C O N T E N T S
----------
Page
Hearing held on:
June 25, 2014................................................ 1
Appendix:
June 25, 2014................................................ 115
WITNESSES
Wednesday, June 25, 2014
Anderson, Richard H., Chief Executive Officer, Delta Air Lines... 10
de Rugy, Veronique, Senior Research Fellow, Mercatus Center,
George Mason University........................................ 12
Elmendorf, Douglas W., Director, Congressional Budget Office
(CBO).......................................................... 72
Gratacos, Hon. Osvaldo Luis, Inspector General, Export-Import
Bank of the United States...................................... 69
Hochberg, Hon. Fred P., President and Chairman, Export-Import
Bank of the United States...................................... 68
Moak, Lee, President, Air Line Pilots Association, International. 13
Scire, Mathew J., Director, Financial Markets and Community
Investment, U.S. Government Accountability Office.............. 71
Wilburn, Steven P., Founder, Chief Executive Officer, and
President, FirmGreen, Inc...................................... 15
APPENDIX
Prepared statements:
Anderson, Richard H.......................................... 116
de Rugy, Veronique........................................... 131
Elmendorf, Douglas W......................................... 146
Gratacos, Hon. Osvaldo Luis.................................. 159
Hochberg, Hon. Fred P........................................ 167
Moak, Lee.................................................... 174
Scire, Mathew J.............................................. 182
Wilburn, Steven P............................................ 194
Additional Material Submitted for the Record
Hensarling, Hon. Jeb:
Written statement of Air Liquide Advanced Technologies US LLC 201
Written statement of the American Conservative Union......... 202
Written statement of Cliffs Natural Resources, Inc........... 203
30 Groups to Congress: Let the Export-Import Bank Expire..... 207
Written statement of the National Taxpayers Union............ 210
Article from The Wall Street Journal entitled, ``End
Corporate Welfare? Start With the Ex-Im Bank,'' dated June
15, 2014................................................... 211
Campbell, Hon. John:
Discussion Draft to reauthorize the Export-Import Bank of the
United States for 3 years, and for other purposes.......... 213
Green, Hon. Al:
Written statement of Export Import Strategies................ 233
Written statement of the Greater Houston Partnership......... 234
Written statement of the Hallmark Sales Corporation.......... 235
Editorial from the Houston Chronicle entitled, ``No time for
games: Export-Import Bank loans support American jobs,
including Houston-area jobs,'' dated June 25, 2014......... 236
Written statement of Manufacturers of Valves and Strainers... 238
Written statement of Grafitec................................ 239
Written statement of South Coast Products.................... 240
Maloney, Hon. Carolyn:
Written statement of the National Association of
Manufacturers.............................................. 241
Written statement of the National Conference of State
Legislatures............................................... 243
Written statement of 865 organizations urging support of
reauthorization of the Export-Import Bank.................. 245
Written statement of various organizations which support
swift reauthorization of the Export-Import Bank............ 255
Written statement of the U.S. Chamber of Commerce............ 257
McCarthy, Hon. Carolyn:
Written statement of the International Association of
Machinists and Aerospace Workers........................... 264
Written statement of the International Federation of
Professional & Technical Engineers......................... 267
Written statement of the American Federation of Labor and
Congress of Industrial Organizations (AFL-CIO)............. 268
Written statement of the Maritime Trades Department.......... 269
Pittenger, Hon. Robert:
Written statement of The Babcock & Wilcox Company............ 270
Stivers, Hon. Steve:
Written statement of the Nuclear Energy Institute............ 272
Written statement of PPG Industries.......................... 276
Waters, Hon. Maxine:
Written statement of Air Tractor, Inc........................ 277
Written statement of Fritz-Pak Corporation................... 278
Written statement of Greenergy Solutions Inc................. 280
Elmendorf, Douglas W.:
Written responses to questions for the record submitted by
Representative Royce....................................... 281
Hochberg, Hon. Fred P.:
Written responses to questions for the record submitted by
Chairman Hensarling........................................ 284
EXAMINING REAUTHORIZATION OF THE
EXPORT-IMPORT BANK: CORPORATE
NECESSITY OR CORPORATE WELFARE?
----------
Wednesday, June 25, 2014
U.S. House of Representatives,
Committee on Financial Services,
Washington, D.C.
The committee met, pursuant to notice, at 10:06 a.m., in
room 2128, Rayburn House Office Building, Hon. Jeb Hensarling
[chairman of the committee] presiding.
Members present: Representatives Hensarling, Bachus, King,
Royce, Capito, Garrett, Neugebauer, McHenry, Campbell,
Bachmann, Pearce, Posey, Fitzpatrick, Westmoreland,
Luetkemeyer, Huizenga, Duffy, Hurt, Stivers, Fincher, Stutzman,
Mulvaney, Hultgren, Ross, Barr, Cotton, Rothfus, Messer;
Waters, Maloney, Sherman, Meeks, Capuano, Hinojosa, Clay,
McCarthy of New York, Lynch, Scott, Green, Cleaver, Moore,
Ellison, Himes, Peters, Sewell, Foster, Kildee, Murphy,
Delaney, Sinema, Beatty, Heck, and Horsford.
Chairman Hensarling. The committee will come to order.
Without objection, the Chair is authorized to declare a
recess of the committee at any time.
This hearing is entitled, ``Examining the Reauthorization
of the Export-Import Bank: Corporate Necessity or Corporate
Welfare?''
I now recognize myself for 6 minutes to give an opening
statement.
Today, we will examine the Obama Administration's request
to reauthorize the Export-Import Bank (Ex-Im or the Bank).
First, we should examine where the money comes from to
finance Ex-Im. Whose money is it? Obviously, it is taxpayers'
money--the cashier at the corner grocery store, the cop on the
beat, your children's teachers, the small business owner
struggling to keep the doors open in a tough economy.
And where does the money go? It goes to foreign countries
and foreign companies in the way of direct loans and credit
guarantees. The taxpayer money goes overseas to China and
Russia, nations that openly challenge our economic and security
interests. Taxpayer money goes to oil-rich countries like Saudi
Arabia and the United Arab Emirates. The taxpayer money even
goes to countries with a demonstrated history of atrocious
human rights abuses like the Congo and the Sudan.
So, who benefits? Overwhelmingly and indisputably, it is
some of the largest, richest, most politically connected
corporations in the world, like Boeing, General Electric,
Bechtel, and Caterpillar. In fact, in 2013 over half of Ex-Im's
financing went to a handful of Fortune 500 companies. And big
Wall Street Banks apparently benefit, as well. As reported in
the press recently, one former JPMorgan and Citigroup banker
said of Ex-Im's credit guarantees, ``It is free money.''
So if you are a politically connected bank or company that
benefits from Ex-Im, no doubt you would like it to continue.
After all, it is a sweetheart deal for you. Taxpayers shoulder
the risk; you get the reward. But if you work at a small
business or another American company competing in the global
marketplace, it is unfair. Ex-Im effectively taxes you, while
subsidizing your foreign competitors.
We hear a lot from powerful voices on K Street and Wall
Street about the Bank, but we also should listen carefully to
some voices from Main Street, like Hal Richards of Terrell,
Texas, in my district. Quote: ``As a small business owner who
exports, I think it is outrageous that my own government puts
my business and other small businesses at a competitive
disadvantage through the Export-Import Bank. How is that
fair?''
Now, Ex-Im tells us sending taxpayer money to foreign
interests supports jobs for Americans. But the government's
chief auditor reported that programs like Ex-Im ``largely shift
production among sectors within the economy, rather than raise
the overall level of employment in the economy.''
Delta Air Lines, whose CEO will testify shortly, points out
that Ex-Im's loans to foreign airlines have killed as many as
7,500 domestic airline jobs because the Bank will subsidize
Delta's foreign competitors.
Caterpillar was a recent beneficiary of Ex-Im's taxpayer
financing that went to an iron ore mining project controlled by
Australia's richest citizen. An American iron ore company
called Cliffs Natural Resources said it will no longer be able
to effectively compete with its Australian competitors due to
the subsidy, and they are now having to cut employees' hours.
Another American competitor feeling the sting of Ex-Im is
Valero Energy in my native Texas. Ex-Im is lending $641 million
to a Turkish company to build a new petroleum refinery.
Valero's CEO stated that Ex-Im's actions ``jeopardize U.S.
refining jobs and undermine the strength of the U.S. refining
infrastructure.''
Professor Donald Boudreau of George Mason University summed
it up neatly when he stated, ``At best, the Ex-Im Bank creates
jobs in export industries by destroying jobs in non-export
industries.''
Now, the Bank tells us it is essential to U.S. exports, but
over 98 percent of all U.S. exports occur without risking
taxpayer dollars--again, over 98 percent. And most of the
others who take advantage of Ex-Im could certainly do it
without taxpayer support. Even Boeing, the Bank's biggest
beneficiary, has admitted it doesn't really need Ex-Im and
could ``arrange alternative financing'' without it.
The Bank has also told us it doesn't cost taxpayers a dime.
The Congressional Budget Office respectfully disagrees and
tells us if the Bank were to use fair-value accounting, the
accepted accounting method for almost every bank and private
company in America, Ex-Im's ledger would actually show a net
loss to taxpayers in the neighborhood of $200 million a year.
That is the difference between Washington accounting and Main
Street accounting.
Perhaps what is most disturbing about the Ex-Im Bank is its
ideological and crony-based lending practices. It has a green
energy quota. It permits no assistance for coal projects. It
has a mandate to specifically support exports going to Sub-
Saharan Africa.
Last year, more than 60 percent of Ex-Im's financing
benefited just 10 mega-corporations that clearly have a strong
political and lobbying presence in this town. Recently, a
Spanish multinational corporation received a $33-million Ex-Im
loan while former Energy Secretary Bill Richardson
simultaneously sat on its advisory board and Ex-Im's as well.
Ex-Im guaranteed $10 million in loans to benefit the
politically favored Solyndra, which clearly did not favor
taxpayers.
And just yesterday, we woke up to the report in The Wall
Street Journal that, ``The U.S. Export-Import Bank has
suspended or removed four officials in recent months amid
investigations into allegations of gifts and kickbacks as well
as attempts to steer Federal contracts to favored companies.''
Ex-Im may not just be guilty of cronyism; it may be guilty of
corruption, as well.
Now, I will admit that Republicans may disagree on whether
Ex-Im should be reformed or allowed to expire, and I certainly
hope that this hearing will help illuminate that decision. But
we are united in believing that we cannot reauthorize the
status quo. And we are also united in believing that the
smarter and fairer way to promote American exports is by
fundamental tax reform; strong trade agreements, a regulatory
freeze, with the exception of health and safety; and greater
American independence, with projects like the Keystone
pipeline.
I now recognize the ranking member for 5\1/2\ minutes.
Ms. Waters. Thank you, Mr. Chairman.
I would like to thank you for finally holding this hearing
on the reauthorization of the Export-Import Bank, even though
it comes less than 3 months before its charter expires. It has
been over a year since this committee even discussed the Bank
at a subcommittee hearing to assess its progress on reforms.
But let's be serious. This hearing is not going to be a
forthright discussion on the merits of the Bank. Mr. Chairman,
we know your position on the Bank. We know you have made ending
the Bank your top priority, regardless if it is at the expense
of thousands of American companies trying to compete against
businesses in China, Russia, Korea, and countries across
Europe, all of which have their own version of the Ex-Im Bank.
I am dismayed to see that the Republican leader-elect,
Kevin McCarthy, has also changed his view on the Export-Import
Bank. I am saddened that he has followed the lead of the
extremists in an effort to shows his Tea Party credentials.
At one time, programs like the Ex-Im Bank were so
apolitical that they did not even require a vote. Now, policies
that create thousands of jobs and increase American
competitiveness are under constant attack.
I am becoming more and more concerned that the Republican
Party's willingness to work together on issues like flood
insurance, TRIA, and the Export-Import Bank has fallen victim
to fringe elements who put their agenda over the well-being of
our country's workers, manufacturers, business owners, and the
broader economy.
As the extremists celebrate, I have to admit, I mourn it as
a loss for our country. Our new reality is government shutdowns
and debt-ceiling crises. It is constant uncertainty. It is not
knowing whether the government is going to help pick up the
pieces after a major flood or a terrorist attack. It is about
telling businesses, large and small, you are on your own to go
up against competitors who are backed by global superpowers.
And now they have set their sights on ``exiting'' the
Export-Import Bank, an entity that creates or sustains hundreds
of thousands of jobs, and over the past 5 years has supported
$233 billion in U.S. exports.
I would like to take a minute and thank Representatives
Denny Heck and William Lacy Clay, who have just yesterday
introduced a clean Ex-Im reauthorization bill with 200 original
Democratic cosponsors.
Mr. Chairman, I am not an expert at whipping votes, but if
you add these cosponsors to the 41 Republicans who recently
signed a letter in support of Ex-Im's renewal, I believe you
have a majority of the House in support of extending the Bank's
charter for the long term.
Opponents of the Bank like to use the term ``crony
capitalism.'' Over the past few weeks, we have been working
hard to learn more about the so-called crony capitalists that
have been supported by the Bank. Their stories have been
astounding. Mr. Chairman, did you know there are 12 exporters
in your district that I guess are crony capitalists and 11 of
them are small businesses?
Over the course of this hearing, Democratic members of this
committee will share with you the truth about these hardworking
Americans, not cronies, who are assisted by the Bank.
They are companies like SpaceX, an ambitious and
revolutionary firm based in Hawthorne, California, in my
district, that designs, manufactures, and launches rockets and
spacecraft. It is the first private company to build, launch,
and dock spacecraft at the International Space Station. And it
is a company that has been strongly supported by the majority
leader-elect, Kevin McCarthy, who went so far as to call its
founder, Elon Musk, the Wright Brothers of the next generation.
In just a few short years, the Ex-Im Bank has authorized
close to $900 million in support of exports from SpaceX,
creating thousands of quality high-tech jobs across California
and in the United States. I wonder when Mr. McCarthy decided
that he no longer could support his friend, Elon Musk, or
support the Bank that keeps SpaceX innovating and competing,
despite the fact that he has identified himself as a big
supporter of SpaceX.
I, too, believe in SpaceX because I know the pain in my
district that has been felt over the years after losing our
manufacturing base. Supporting companies like SpaceX is
critical because they are bringing manufacturing jobs back and
they ensure the United States will remain a world leader in the
manufacturing economy of the future.
So I thank you, Mr. Chairman. I look forward to this
hearing, and I yield back the balance of my time.
Chairman Hensarling. The Chair now recognizes the
gentlelady from West Virginia, Mrs. Capito, chairwoman of our
Financial Institutions Subcommittee, for 2 minutes.
Mrs. Capito. Thank you, Mr. Chairman. And thank you for
holding today's hearing.
For the last 2 years, the Export-Import Bank has joined the
Obama Administration's assault on our Nation's coal industry.
In December of 2013, the Bank imposed guidance that would
prevent the financing of coal-fired power plants in all but the
world's poorest countries. This guidance, combined with the
EPA's proposed regulations to ban domestic coal-fired power
plants, will irrevocably hinder the development of new clean
coal technologies. This is another example of this
Administration's intent to pick winners and losers in our
economy, and I can no longer support the authorization of the
Ex-Im Bank.
I have expressed my concerns to the Bank to no avail. In a
letter to, and in a meeting with, Chairman Hochberg, I
discussed my opposition to this guidance. I have been
absolutely clear that it is inappropriate to use the Bank's
financing mechanisms to drive an idealogical agenda rather than
promote U.S. exports.
The Administration's policies come at a time when we should
be ensuring the United States is leading the world in
developing new coal plant technologies. We won't see carbon
capture and sequestration developed by U.S. companies if we
choke off the market for coal technology.
The Ex-Im Bank's guidance is bad for our Nation's economy,
bad for the development of future technologies, and bad for the
environment. For these reasons, I do not support the extension
of this charter.
I yield back.
Chairman Hensarling. The gentlelady yields back.
The Chair now recognizes the gentleman from California, Mr.
Sherman, for 2 minutes.
Mr. Sherman. Mr. Chairman, a point of order. We had those
clocks going for the national debt. They are going too slowly.
You are proposing to eliminate the Ex-Im Bank, which will add
billions of dollars to our national debt. And you have been
unwilling, unless you change your mind, to join with me in tax
increase measures that would replace that revenue.
Now, whenever somebody wants to increase the national debt,
they always say, ``Change the accounting system,'' and that Ex-
Im Bank would be costing us money if we used fairytale-value
accounting. I don't think we should. The fact is we should use
GAAP, not GOP, accounting--G-A-A-P, not G-O-P, accounting.
What is the underlying theory of fair-value accounting? It
is that we look not at the profits and losses of the Ex-Im
Bank, properly accounting for the risk they take, but we look
at what their costs would be if they weren't the Ex-Im Bank but
at a higher cost of funds. That is like saying Pizza Hut is
over-reporting its income because they report accurately the
cost they pay to the Bank for the money they borrow, not the
higher amount they would pay if they were Jack's Pizzeria
instead. The fact that Pizza Hut has a lower cost of funds
doesn't mean they should report higher interest costs and
report a loss. But that is what you do under fairytale-value
accounting.
I am also on the Foreign Affairs Committee. I sit there
while Republicans say that Democrats might support unilateral
disarmament, that we would give up our arms and then go into
the arms-limitation talks asking others to follow our lead.
That is what we are doing here.
Germany has an export credit authority that is 3 times as
large, they have total exports 3 times as large per capita, and
they run a trade surplus. And we would go into negotiations
with Germany giving up the Ex-Im Bank. Why don't we give up our
missile--
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from New Jersey, Mr.
Garrett, the chairman of our Capital Markets Subcommittee, for
2 minutes.
Mr. Garrett. First of all, thank you, Mr. Chairman, for
holding this hearing.
Thank you also, Mr. Chairman, for all of your efforts on
fostering not only in this area but also, in general, economic
growth and job creation in this country, including
manufacturing. As the ranking member has bemoaned the fact that
she has lost it in her district, I would just note that the
chairman is encouraging economic growth and manufacturing but
not on the backs of the American taxpayer.
Thank you also, Mr. Chairman, for holding this hearing in a
very timely manner, as well.
And thank you to the panelists.
You know, panelists, I was struck by an article on the
front page of The Wall Street Journal. It was entitled,
``Officials at Ex-Im Bank Face Probes.'' What I found
especially interesting and concerning in this article,
notwithstanding the fact that four Bank employees have been
suspended or removed for allegations of kickbacks, was a
statement of the agency spokesman that, ``The Export-Import
Bank takes seriously its commitment to taxpayers and its
mission to support U.S. jobs.''
Really? To begin with, I would question the Bank's
seriousness to taxpayers, given in this committee we only
learned of the allegations of potential criminal misconduct by
reading the front page of The Wall Street Journal. I guess this
so-called serious commitment to taxpayers did not reach the
level of the requisite seriousness that would result in
Congress being notified of various serious allegations like
this.
While we need to be certain that we have the facts, and
ensure that this committee does not jump to proverbial
conclusions, I do find it curious that these examples of
employee misconduct were withheld against the backdrop of this
debate over the Bank's future as well as the well-funded
lobbying campaign to ensure the Bank's continued existence.
If true, these allegations would go to the heart of the
concern about this Bank, its lending, and of the special
interests of multibillion-dollar corporations. I only need to
look at the lobbying disclosures of some of our largest
businesses to know that when you mix corporations and taxpayer
guarantees, you get something that looks a lot like crony
capitalism.
And, with that, I yield back.
Chairman Hensarling. The Chair now recognizes the
gentlelady from New York, Mrs. McCarthy, for 1\1/2\ minutes.
Mrs. McCarthy of New York. Thank you, Mr. Chairman. And I
appreciate this hearing.
I am a little confused on what I am hearing. This is about
jobs. And I can talk about my district. I work in my district.
I try to bring, certainly, businesses into my district. And I
know in the last several years I have been able to help my
small businesses--$86 million just into my district alone, and
a lot more jobs added over the last 7 years. That is what our
job is, to make sure that we can bring jobs home.
And as the ranking member mentioned, Mr. Hensarling--who,
unfortunately, didn't bring a lot of money into his district,
but maybe he didn't work the district, I don't know. And Mr.
McCarthy, who always supported the Ex-Im Bank, did have over
$69 million that came into his district.
This is about jobs. My colleagues on the other side keep
saying, we are going to do jobs, we are going to do jobs. Where
are they?
People seem to have a very short memory. When we went
through the great crisis, nobody went after the Banks, nobody
went after the insurance companies. And when we look at the Ex-
Im Bank and we hear my colleagues talking about how they found
four employees, can I remind everybody, yes, they found four
employees. They did an investigation, and they let them go.
That is the way the system works. Anybody who understands any
business, there are always going to be people who are going to
try to rig the system.
If we brought this bill up onto the House Floor, we would
get it passed. So stop with this. Let's do jobs and let's--
Chairman Hensarling. The time of the gentlelady has
expired.
The Chair now recognizes the gentleman from Illinois, Mr.
Hultgren, for 1 minute.
Mr. Hultgren. Thank you, Mr. Chairman.
I want to take a hard look at the current structure of the
Export-Import Bank. Protecting taxpayer dollars by keeping
government out of tasks that the private sector can perform
itself is central to a nation based on free enterprise.
An estimated 760 jobs in the 14th District alone rely on
the Bank to ensure their exports reach their customers. Miner
Elastomer in Geneva, Illinois, who exports truck and shovel
parts, has asked me to support the Bank. The Crystal Lake
Matthews Company, a manufacturer of agriculture equipment, has
jobs dependent on the Bank. We can't overlook the 29 smaller
production suppliers who fulfill Boeing orders in my district.
Since 2007, the Bank has supported almost $6 billion in
Illinois exports from 301 exporters, including 204 small
businesses. An outright elimination leaves U.S. jobs in peril.
We must ask the hard questions: Do we know the job impact
of eliminating the Bank without a proper glide path in place?
Have we addressed the worldwide subsidies offered by our
competitors through trade agreements? Can we put a reform plan
on the table to ensure a more limited scope for the Bank?
I am committed to working together to put a viable
alternative forward.
I yield back.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentlelady from Arizona, Ms.
Sinema, for 1 minute.
Ms. Sinema. I strongly support the operation of the Export-
Import Bank, because helping Arizona businesses expand their
manufacturing capacity and exporting ability creates jobs and
grows our economy. The Export-Import Bank fills gaps in private
financing, stepping up where the private sector can't or won't.
Last year, Ex-Im Bank Chairman Fred Hochberg visited my
district to help small and growing businesses increase their
global exports right in our own backyard. From Fiscal Years
2007 to 2014, the agency supported $176 million in exports from
companies in my district.
One of those companies, MarTech, Inc., was reluctant to
sell their semiconductor equipment to customers in Asia. They
were concerned that once the equipment left their building,
there was no guarantee they would get paid. The Ex-Im Bank
offered MarTech a solution. The Bank issued an insurance policy
so MarTech could make sales and have a guarantee they would get
paid. Thanks to the Bank, they now export to companies in Asia,
Europe, and the Americas.
Allowing the Bank's current charter to expire would
threaten the competitiveness of these and many other Arizona
businesses. And that is why I am a cosponsor of legislation to
extend the Bank's authorization and I will continue to work to
reauthorize this important investment in American jobs.
Chairman Hensarling. The Chair now recognizes the gentleman
from Georgia, Mr. Westmoreland, for 1 minute.
Mr. Westmoreland. Thank you, Mr. Chairman.
The problem with the Export-Import Bank is the entire
mission and structure. Simply, the Export-Import Bank is
designed to advantage one U.S. industry at the expense of
another. Even if Congress directed the Bank to make changes, as
it did in 2012, we have seen that this massive bureaucracy will
not yield to even modest reforms.
People talk about the cost of jobs that would be lost if it
is not reauthorized. How about the new jobs and the more
capital for growth created by finally being competitive with
foreign competitors?
The Bank has shown it is not able to conduct mandated
economic impact analysis, and the Bank regularly employs fuzzy
math and accounting. Congress mandated the Export-Import Bank
be more transparent, and, quite simply, they have failed to
follow this mandate.
I am happy to join the chairman and the new majority leader
in this effort.
And I yield back the balance of my time.
Chairman Hensarling. The Chair now recognizes the gentleman
from Missouri, Mr. Clay, the ranking member of our Monetary
Policy Subcommittee, for 1 minute.
Mr. Clay. Mr. Chairman, the mission of the Ex-Im Bank is to
support American jobs by facilitating the export of U.S. goods
and services. The Ex-Im Bank does not compete with private
sector lenders but provides export financing that fills gaps in
trade financing. The Bank assumes credit and country risks that
the private sector is unable or unwilling to accept. The Ex-Im
Bank helps to level the playing field for U.S. exporters by
matching the financing that other governments provide to their
exporters.
Refusing to reauthorize the Ex-Im Bank would reduce the
number of ECAs from 60 to 59, hurting only U.S. exporters and
workers that they employ. And in my home State of Missouri, the
Ex-Im Bank supported $1 billion in exports and $339 million in
exports from the district that I represent. Mr. Chairman, those
are American jobs--
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from Washington, Mr.
Heck, for 1 minute.
Mr. Heck. Thank you, Mr. Chairman.
Just because somebody says something that is untrue over
and over and over again doesn't make it one whit less untrue.
Let's start this hearing with the truth.
Here is the truth: The Ex-Im creates jobs, 205,000 last
year. Here is the truth: The Ex-Im supports small businesses.
Ninety percent of its transactions go to small businesses.
And an appalling lack of understanding of how the private
sector works. Even large corporations are dependent on small
businesses. The greatest plane manufacturer in the word is
dependent upon 15,000 suppliers, 6,600 of which are small
businesses which would be put at risk by your position.
Here is the truth: There are no tax dollars involved in
subsidizing the Ex-Im. In fact, the Ex-Im transferred over a
billion dollars to the Treasury. Where is the proof that the
Treasury ever transferred any money to the Ex-Im?
And, finally, here is the truth: If we abandon the Ex-Im,
we will engage in unilateral disarmament--unilateral
disarmament. Every other developed nation in the world has an
export credit authority. Don't render the United States the
only one without one.
Chairman Hensarling. The time of the gentleman has expired.
We will now turn to our first panel of witnesses. And to
introduce our first witness, I will yield to the gentleman from
Georgia, Mr. Westmoreland.
Mr. Westmoreland. Thank you, Mr. Chairman.
It is my pleasure to introduce Richard Anderson, the chief
executive officer of Delta Air Lines. Richard has been the CEO
of Delta since 2007 and has more than 25 years in the aviation
industry.
As you probably know, Delta Air Lines is one, if not the
largest employer in my district and across Georgia. Delta has
been placed at a competitive disadvantage by the actions of the
Export-Import Bank, and the time has come to level the playing
field.
Richard, welcome to you and the members of the Delta family
team who are with you, and I look forward to your testimony.
Chairman Hensarling. Our next panelist, Dr. Veronique de
Rugy, is a senior research fellow at the Mercatus Center at
George Mason University, where her primary research interests
include the U.S. economy, the Federal budget, and various
financial issues.
Captain Lee Moak is the president of the Air Line Pilots
Association, which represents almost 50,000 professional
airline pilots in the United States and Canada. Before becoming
an airline pilot, Captain Moak served as a Marine Corps fighter
pilot.
Last, but not least, Steven Wilburn is the chief executive
officer of FirmGreen, a Newport Beach-based energy company that
participates in virtually all aspects of the global green
energy business.
Before we proceed, Mr. Wilburn, we have one clerical matter
to clean up with you. We received two different copies of your
testimony, one at 6:00 last night. In that testimony, in that
version, when describing why your commercial Bank officer could
not provide financing to a Brazilian company, you said,
``Simply out of the question, given the new TARP regulations
and the then-new Dodd-Frank legislation.'' A couple of hours
later, from the Democratic staff we received a new copy of your
testimony that struck that language and included the reason:
``reluctance of Banks to support small business exports.''
To ensure that we have the correct copy of your written
testimony for the record, which did you intend, the one we
received from you at 6:00 or the one that we received from the
Democratic staff at 8:00?
Mr. Wilburn. Mr. Chairman, I apologize--
Chairman Hensarling. I'm sorry, could you hit the button
there? Just for the record, we need to know which testimony it
is your intention to include?
Mr. Wilburn. My intention is to provide an accurate written
statement. I was flying from California on an airplane WiFi,
trying to respond to your staff. And I was working realtime--
Chairman Hensarling. Well, is it--
Mr. Wilburn. --editing. The last version--
Ms. Waters. Mr. Chairman?
Chairman Hensarling. The last version is the one you intend
to use?
Mr. Wilburn. --is my official written statement.
Chairman Hensarling. Okay. Thank you. Thank you, sir. That
is what we needed to know.
Without objection, each of your written statements will be
made a part of the record.
Not unlike a traffic light, if you are new to this, there
is a green light, a yellow light, and a red light system. The
yellow light will tell you there is 1 minute remaining. The red
light means that it is time to wrap up so we can move on to the
next witness.
Mr. Anderson, you are now recognized for your testimony.
STATEMENT OF RICHARD H. ANDERSON, CHIEF EXECUTIVE OFFICER,
DELTA AIR LINES
Mr. Anderson. Thank you very much for having me here today.
As a private citizen, it is a privilege to be in the halls
of Congress and have the opportunity, regardless of what the
issue is, to participate in the process. And, second, it is a
real privilege to be here on behalf of the 80,000 people that I
serve at Delta Air Lines and the 165 million passengers that
the Delta family serves around the world with over 6,000
flights a day.
I would note that we are one of the largest operators of
Boeing airplanes and GE engines in the world. We currently have
100 Boeing airplanes on order with GE engines, and we are
paying cash for them. And there are not many airlines in the
world that buy 100 Boeing airplanes and pay cash for them. So
let's make sure we put our discussions here in context.
I was pleased to hear that we are talking about jobs,
because I have about 100 Delta employees here with me who have
my back today; they are the pilots and the flight attendants
who provide the best airline service in the world.
I am here to talk about their jobs, because the Ex-Im Bank
takes their jobs. And if that is really what we are serious
about, we should be serious about reforming the Bank. You tried
to reform the Bank in a bipartisan way the last time, and your
reforms were ignored. And it is our jobs that are at risk.
I have a slide up here. The Ex-Im Bank finances the
wealthiest, most profitable airlines in the world with huge
amounts of our Treasury dollars. And you can see on this slide,
we have an example of an Ex-Im Bank financing that was just
done and a market-based financing that was just done. And those
financing numbers show you that a very wealthy airline that
goes in the private market on a regular basis to finance
airplanes gets, over the life of the airplane, about a $20-
million advantage.
And these airlines are also owned by governments and deeply
subsidized by their own government, in addition to being deeply
subsidized by our government.
Our focus here today is on a narrow issue. I am pleased to
hear the job growth. My business depends upon job growth. We
have no objection to anything that anybody does in the halls of
Congress on either side of the aisle that grows jobs in this
country. My business, our business, the Delta family serves
people at work at all the great companies in the United States.
But we shouldn't have a government policy that sacrifices
the jobs of hardworking people at the Delta family in order to
subsidize the wealthiest, most creditworthy airlines in the
world.
I was elected the chairman of the International Air
Transport Association by the CEOs of all the airlines of the
world. In the course of doing that, I have had many
conversations with the CEOs of the most profitable airlines in
the world. And they tell me, look, I don't really need the Ex-
Im Bank financing, but it is so cheap, I might as well take it.
This is effectively a free airplane every eighth airplane.
All I want is a level playing field. The story of Delta Air
Lines is a great American story. We are now the most
successful, profitable airline in the world. But we have to
compete against deeply subsidized government airlines that are,
in turn, deeply subsidized by our government.
And the prime example is Air India, a government-owned,
government-subsidized airline that drove us out of the
marketplace with a billion dollars of Ex-Im Bank financing.
That cost about 1,000 jobs.
So when we talk about creating jobs, why can't we navigate
a policy? And our objection is a narrow objection. It is wide-
body financing for creditworthy, state-owned and state-
subsidized airlines. We have no objection to narrow bodies; we
have no objection to small business. Our focus is on the policy
junction of where U.S. jobs are destroyed by the Bank. So if we
are serious about creating jobs, this Bank needs to be
reformed.
I yield my time.
[The prepared statement of Mr. Anderson can be found on
page 118 of the appendix.]
Chairman Hensarling. Dr. de Rugy, you are now recognized
for your testimony.
STATEMENT OF VERONIQUE DE RUGY, SENIOR RESEARCH FELLOW,
MERCATUS CENTER, GEORGE MASON UNIVERSITY
Ms. de Rugy. Thank you, Chairman Hensarling, Ranking Member
Waters, and members of the committee. It is a pleasure to be
here today.
We don't agree on much in Washington, but I think we can
all agree that the Federal Government shouldn't be sending our
limited resources to the wealthiest and most politically
connected corporations. And, yet, that is what the Ex-Im Bank
does.
Some say that there are good reasons for doing this. They
say that the Ex-Im Bank promotes exports, supports jobs,
returns money to Treasury, and helps taxpayers. None of these
arguments withstand scrutiny, as my written testimony has
shown, and I will briefly address in my statement today.
However, my main focus will be on groups who are affected
by Ex-Im activity that have gone ignored. These people don't
have connections in Washington. They don't have access to press
offices and lobbyists, but they matter, too. It is difficult
but extremely important that we consider the unseen costs of
political privilege, whatever form it takes, whether it is
market distortions, job losses, potential destroyed, or higher
prices.
So, let's start. First, the Bank claims it is essential to
promote U.S. exports. Economists disagree. We have long known
that export-subsidy schemes, like Ex-Im, do not meaningfully
improve national exports, and, in fact, the data prove this
point. Ex-Im backs less than 2 percent of U.S. exports.
Ex-Im likes to tout subsidized firm successes, but they do
not consider the unseen costs imposed on everyone else involved
with the other 98 percent of unsubsidized exports. In these
cases, it is firms' own government, not foreign government,
that puts them at a competitive disadvantage.
For instance, Ex-Im harms these firms' export opportunities
by making it harder for unsubsidized buyers to secure their own
financing. That is because Ex-Im gives lenders an incentive to
shift resources away from unsubsidized projects toward
subsidized projects regardless of the merits of the business.
These capital market distortions have ripple effects.
Subsidized projects attract more private capital, while other
worthy projects are being overlooked. The subsidized get
richer, and the unsubsidized get poorer or, worse, get out of
business. Unfortunately, we will never see the businesses that
could have been. Perhaps they would have been better, more
profitable, and more responsible than the well-connected
subsidized businesses.
Second, the Bank claims to have supported 205,000 jobs in
2013. This number, however, should be taken with a grain of
salt since GAO has criticized the Bank's job calculation
methodology for failing to consider how many jobs would have
been created without Ex-Im, among other flaws.
But even if we accept the Bank's questionable jobs claim,
that means that it only supported 1.8 percent of all export-
related jobs in 2013. The Bank doesn't promote jobs as much as
it promotes jobs for favored companies at the expense of
everyone else.
The other 98.2 percent of unsubsidized export jobs are
placed at a competitive disadvantage by Ex-Im. Unsubsidized
employers may not expand hiring, they may not increase wages,
and they may even have to fire employees because they face
competition from subsidized projects.
Third, the Bank claims that it benefits taxpayers. A recent
CBO report debunks claims of future Ex-Im profitability. Ex-Im
is projected to yield losses for taxpayers over the next
decade.
But taxpayers are unseen victims in other ways. The Ex-Im
Bank transfers risk away from lenders and toward every single
U.S. taxpayer that you represent. This creates what economists
call ``moral hazard.'' Since well-connected lenders like
CitiBank and JPMorgan bear almost no risk when a company
defaults, they have less incentive to apply transaction
oversight. They collect high fees on billion-dollar loans in
good times, but normal taxpaying Americans must pick up the tab
in bad times.
Everyone in this room knows who will benefit if the Bank is
reauthorized, because the beneficiaries are few enough in
number that they can effectively organize and are wealthy
enough to apply significant political pressure. But what about
the forgotten firms, workers, taxpayers, and consumers whose
voices are so easily drowned out by the corporate beneficiaries
of government privilege? They should not matter less than
Boeing, GE, and Caterpillar. This is your opportunity.
Thank you.
[The prepared statement of Dr. de Rugy can be found on page
133 of the appendix.]
Chairman Hensarling. Captain Moak, you are now recognized
for your testimony.
STATEMENT OF LEE MOAK, PRESIDENT, AIR LINE PILOTS ASSOCIATION,
INTERNATIONAL
Captain Moak. Mr. Chairman, Ranking Member Waters, and
members of the committee, I am Captain Lee Moak. I am the
president of the Air Line Pilots Association (ALPA), and it is
an honor to represent our more than 51,000 pilots.
As a labor leader, I believe that airline employees should
work with their companies to better our industry. ALPA's goal
is to make the pie bigger, rather than focusing on getting a
bigger share. Ensuring our company's ability to compete is
essential in safeguarding U.S. jobs and our national economy.
I don't believe in subsidies. If we are going to grow our
economy, it must be based on fair competition. Fair competition
is good. And on a level playing field, I am here to tell you,
U.S. airlines can compete with anyone in the world.
However, we compete in a global economic environment. And
it is one thing to compete with foreign airlines that are
subsidized by their government and I know I can't do anything
about them, but it is an entirely different matter to compete
with foreign airlines that are subsidized by our government. We
need to do something about that.
This is where the Export-Import Bank comes in. I don't take
issue with the historic mission of the Bank, but the Bank has
lost its way. Today, the Bank is being used to provide
subsidies to foreign companies--companies that don't need the
financing but use the advantage to undercut U.S. companies.
Recently, the House of Representatives voted unanimously to
require the U.S. DOT to simply follow the law when it considers
foreign air carrier applications. Why does this matter? Because
Norwegian Air Shuttle is attempting to subvert U.S. law and
international policy to establish a flag-of-convenience
operation. Norwegian has also applied for Ex-Im Bank financing
that it does not need and that will hand it an unfair economic
advantage which threatens U.S. airlines, U.S. jobs, the U.S.
economy, and, I am going to tell you, U.S. national interests.
We thank this committee for recognizing that unfair business
practices such as NAI should be rejected.
International flying is crucial for U.S. airlines. Tens of
thousands of flight crews at the three largest U.S. carriers
fly international operations, so our jobs are directly at risk
from this competitive and inappropriate imbalance.
Since the United States first implemented its open-skies
policy, the U.S. share of international wide-body fleet has
dropped from 45 percent to 17 percent, and the share is now
forecast to be at 5 percent by 2025. And if that doesn't
concern you, well, it should concern you.
The threat affects airports such as Los Angeles
International, where in 2013 American, Delta, and United flew
only about 16 percent of the total international passengers.
International jobs at mainline carriers are in jeopardy, but so
are jobs at the small regional airports that are U.S.
destinations for many of these international passengers.
In 2013, the Ex-Im Bank approved $7.9 billion in financing
for U.S.-made aircraft that will be operated by our foreign
competitors. Ex-Im financing is not available to U.S. airlines,
and, through this financing, the Bank is effectively providing
a subsidy to foreign airlines that operate on routes that are,
have been, and could be served by U.S. airlines.
As a result, U.S. airlines have been forced to withdraw
from or not enter key international routes. One example
mentioned earlier is Air India. Using its Ex-Im Bank-subsidized
airplanes, the state-owned airline flooded the U.S.-India
market. And, in 2008, this excess capacity forced Delta Air
Lines out of the New York-Mumbai route, displacing U.S. workers
due to unfair competition. And that was U.S. jobs that we lost
directly as a result of actions by the Ex-Im Bank.
In 2012, the reauthorization, Congress rightly directed the
Treasury Department to negotiate with the European Union to end
wide-body aircraft financing. ALPA encourages this committee to
seek a full accounting of that effort.
And I am going to say, because I could go on and on, thank
you, and I am looking forward to all your questions, every one
of them. Thanks a lot.
[The prepared statement of Captain Moak can be found on
page 176 of the appendix.]
Chairman Hensarling. Mr. Wilburn, you are now recognized
for your testimony.
STATEMENT OF STEVEN P. WILBURN, FOUNDER, CHIEF EXECUTIVE
OFFICER, AND PRESIDENT, FIRMGREEN, INC.
Mr. Wilburn. Thank you, Chairman Hensarling, Ranking Member
Waters, and the honorable members of this committee, for
allowing me the great honor to be here.
Mr. Chairman, I do apologize. I am a disabled veteran, and
I have post-traumatic stress disorder. I am not using that as
an excuse, but I don't have a staff to write my reports or
anything, or my written statement. So when I got that email
from one of your staff members that said they had to have my
statement right away, I was editing it in realtime on an
airplane coming from California with WiFi.
So I don't want to take up more of my time than that, but I
just thought--hopefully, that clears the record. No one
influences my statement. No one ever will influence my
statement. I guarantee you that, sir.
With that said--
[applause.]
Mr. Wilburn. And that is--I wasn't looking for that, but
thank you.
My name is Steve Wilburn, and I am the CEO of FirmGreen. I
am married to Margaret Wilburn, the proud father of five
children, nine grandchildren, and one great granddaughter. I
won't bother with their names right now because it would take
up too much of my time, but I love them.
I work hard for them. I built this business for my family
first and my employees second. My employees are treated like
family. We are a small company. I want to put a face on small
business today, if I can, okay? It is an awesome burden,
because there are thousands of small businesses out there. I
don't have the authority to speak for all of them; I can only
give you my story.
And Semper Fi to you, sir, and thank you for your service.
I started pursuing the FirmGreen dream 10 years ago. I am a
firm believer in the Lord, my God. And serving as a Marine in
Vietnam, I fought for equal rights for all, for free trade,
limited government. But I do not share, nor do I understand,
the rabid antigovernment animus that seems to be motivating the
current attacks on the Export-Import Bank. Government, in my
view, is simply people working collectively to accomplish
things for the greater good that can't be done by individuals
alone. In combat, I could not have survived without my fellow
Marines. We cooperated. That is the way I thought we acted in
America.
I firmly believe that the Ex-Im Bank delivers enormous
value to Main Street America. It provides small businesses like
mine with the opportunity to grow in a prospering commerce
without borders. We are not limited to domestic markets; we
dare to reach out to the world's markets.
For example, in my award-winning biogas project in Brazil,
my client asked me how we intended to present our ECA-financed
proposal for the project. I was embarrassed. I had to ask him
what ``ECA'' meant. They laughed and said, that meant the
export credit agency, your Ex-Im Bank. That is how I was
introduced to the concept of Ex-Im Bank support. I was that
naive.
I was competing with Air Liquide and Linde Corporations,
billion-dollar companies, much more prepared for that type of
discussion and finance plan than me. But my clients and I went
to the Export-Import Bank of the United States, my clients went
through a very rigorous underwriting, and, thankfully, they
were approved for that financing that I could not obtain
through my private Bank. At that time, it was Wells Fargo, and
they just basically told me that it didn't meet their
underwriting criteria.
I am going to deviate from my prepared remarks a bit more
and just say that, due to the air of uncertainty swirling
around the reauthorization, in large part, I think, by harmful
words uttered by the Bank's opponents in an orchestrated,
unprecedented, nonstop public smear campaign, I feel I lost a
valuable contract in the Philippines.
Words do have consequences, especially when they are
uttered by people in power and position. I am a small man. I
cannot combat the machines that are out there saying what they
are saying. I am not a crony capitalist. I don't receive any
welfare, corporate welfare, whatever you want to call it. We
work hard.
As a result of losing the memorandum of understanding--
because the Korean Bank came in with my Korean competitor who
had lost to me, and they basically came up and said, ``The Bank
is not going to be reauthorized, he is not going to get to
deal''--now my employees, including Ms. Dena Elbayoumy, my
general counsel, are on furlough. We are scrambling.
Please, words have consequences. Be careful.
I will yield back the balance of my time.
[The prepared statement of Mr. Wilburn can be found on page
196 of the appendix.]
Chairman Hensarling. Thank you--
Ms. Waters. Mr. Chairman, if the gentleman needs extra
time, I would request the same time that was allotted to Ms. de
Rugy when she went over her 5 minutes.
Do you need extra time, Mr. Wilburn?
Mr. Wilburn. Not at this time. Hopefully I will have some
adequate time in my answers. Thank you so much.
Ms. Waters. Thank you very much.
Chairman Hensarling. The Chair yields himself 5 minutes for
questions.
First, Mr. Wilburn, thank you very much for your service to
your country, as I thank Captain Moak, as well.
I used to be, prior to coming to Congress, an officer in a
green energy company, myself. I don't know that much about your
particular company, but it is a subject in which I am highly
interested.
But, Mr. Wilburn, I am still a little curious. I understand
that you were on a flight, I guess, when you were sending your
testimony. But I guess my first question is, was it simply a
clerical mistake, or did you change your mind on whether or not
TARP regulations in Dodd-Frank played a role in failing to
finance the Brazilian company that sought your product? So is
it a clerical error, or did you change your mind about
including that in the testimony?
Mr. Wilburn. No, it is not a clerical error. I didn't have
exactly all the facts in hand.
Chairman Hensarling. Okay.
Mr. Wilburn. You will see, the rest of my written
statement, I think it speaks to some of those issues
surrounding that--
Chairman Hensarling. Okay.
Mr. Wilburn, you heard the testimony of others on this
panel. You were very passionate with your testimony, but,
frankly, so was Captain Moak, and Mr. Anderson, as well.
I have spoken to people, particularly those, for example,
at Cliffs Natural Resources, who said that they are having to
cut hours for working people, single parents.
And so I guess my question is one of fairness. Perhaps Ex-
Im is--I have no doubt Ex-Im helps your business, but do you
acknowledge that it can hurt other businesses?
Mr. Wilburn. I can't speak to hurting other businesses
directly unless I had a more specific example, Mr. Chairman,
but I can say this, that it is not my intent to harm anyone.
But if I don't compete through the Export-Import Bank, I know
who is going to be harmed. Because my competitors in foreign
countries, financed by their Banks, will get those deals.
And I believe the same would happen to the aircraft
industry. If Boeing doesn't sell those aircraft, I think--
Chairman Hensarling. Let me, then, ask you this question.
``Fairness'' is a very subjective term, I understand that. But
we seem to have a Federal policy that says, if you create a
product and you want to sell it to foreigners, if you want to
sell it to the Chinese, the Federal Government will step in and
subsidize you, but if you want to sell your product to
hardworking Americans, then, no, no subsidies for you.
And so, I am thinking about small businesses in my own
district. At Annexus Personnel and Business Services in
Mesquite, the owner said: ``My mother and stepfather opened up
the business without any government subsidies. They used their
own retirement, 401(k), other resources to pay for rent. We had
to go to auctions to buy office furniture. Small businesses
like ours can't rely on the government.''
So, again, I guess, by definition, you received the
subsidy, you believe it is necessary to your business model. I
accept that. But how is that fair to the other millions and
millions of small businesses who sell to Americans but don't
get their products subsidized by the Federal Government?
Mr. Wilburn. Sir, I would love to compete on a fair basis
in America with my green technology to take biogas into
methane. I don't get a subsidy. I take exception to your
remark. My point is that 15 percent--
Chairman Hensarling. Does Ex-Im not subsidize the financing
for your product?
Mr. Wilburn. I don't believe that I am subsidized.
Chairman Hensarling. Okay.
Mr. Wilburn. I don't believe that at all--
Chairman Hensarling. Okay.
Mr. Wilburn. --sir. Let me speak to that point, if I may,
Mr. Chairman, with all due respect. And I do respect you from
the bottom of my heart.
My point is that--you asked a question. I can't sell my
technology here because there are barriers to entry to the
market, and the barrier to entry to the market is that the oil
and gas industry is subsidized with a 15-percent oil and gas
depletion allowance. I don't get that, as a biogas producer. I
can't put my biogas into the pipelines in California that is a
pipeline equivalent because--
Chairman Hensarling. Mr. Wilburn, we would be happy to work
with you and try to make you--
Mr. Wilburn. Well--
Chairman Hensarling. --so much more competitive in--
Mr. Wilburn. --I am trying to be responsive, Mr. Chairman.
Chairman Hensarling. --that area. I have limited time.
Dr. de Rugy, the proponents of keeping Ex-Im as the status
quo have painted an apocalyptic vision should the Bank fail to
be reauthorized. Is that an accurate vision, in your opinion?
And if not, why not?
Ms. de Rugy. I don't think it is an accurate version, Mr.
Chairman. For one thing, as I said in my testimony, less than 2
percent of U.S. exports are backed by Ex-Im, and that doesn't
consider the possibility that these exports would happen
independently of the existence, absent the Bank.
More importantly, we have to think about some of what the
other witnesses have said. So, for instance, a large part of
the activity of the Bank is to subsidize big companies, Boeing,
in particular.
In the loan guarantee, 66 percent of the activity of loan
guarantees through Ex-Im benefits Boeing. Boeing is selling
planes to companies that could get access to credit, as we have
heard, without the loan guaranteed.
More importantly, Boeing has a really important and wealthy
financing arm and it could do a lot of things itself, and it
does.
Chairman Hensarling. My time has expired.
The Chair now recognizes the ranking member.
Ms. Waters. Thank you very much, Mr. Chairman.
I would like to explain to those who are wondering why
there are three individuals presenting who all seem to be
opposed to the reauthorization--let me explain the rules. These
three individuals were invited by the opposite side of the
aisle and we only get one witness, and that is Mr. Wilburn, who
is here.
So I don't want you to think that somehow these witnesses
were objectively chosen and that there are more people against
reauthorization than for reauthorization. We just only get one
witness to come here today.
Having said that, I would like to enter this letter into
the record. This is a letter that our witness told us about
where he lost a multi-million-dollar contract because of
uncertainty regarding the future of Ex-Im.
Chairman Hensarling. Without objection, it is so ordered.
Ms. Waters. The letter reads, ``Dear Mr. Wilburn, In view
of the uncertainty of the reauthorization of the Ex-Im Bank and
project finance structure you propose have become problematic,
we have made the decision in May this year not to proceed with
your project offering. Our previous partner developer has
provided us assurance of the certainty of obtaining
satisfactory finance from the Export-Import Bank of Korea for
our carbon biomass waste-to-energy project. With previous
discussions with you, we had the impression that your company,
FirmGreen, can provide the best technology for our project, but
without terms similar to that being offered by the Ex-Im Bank
of Korea, it would be impossible for our company to conclude a
transaction.''
Thank you for entering that.
I have other letters that I would like to read and share
with you.
This is from your district, Mr. Chairman, from Mr. Gabriel
Ojeda, who is the president of the Fritz-Pak Corporation. I
will read an excerpt:
``During the past 5 years, we have grown our international
sales from 15 percent to over 35 percent of our business. We
now have major trading partners in over 30 different countries
including Brazil, Russia, India, and Taiwan. Most recently, we
exhibited our products at the BAUMA International Trade Fair in
Munich, Germany. In addition, our products were used in the
construction of the Sochi Winter Olympics in Russia.
``So what is Fritz-Pak Corporation today? We are an
American manufacturer of the best concrete admixtures in the
world, and we sell them as far north as Yellowknife, Canada,
and as far south as Wellington, New Zealand. We may be small,
but we think big. In an age where everything seems to be made
someplace else, we are thriving here in the United States. And
it is in no small part due to the services provided by Ex-Im
Bank.''
Mr. Neugebauer, we also have a letter from your district,
from Air Tractor, Inc., and I will read an excerpt:
``As a small business that employs 265 people, 25 percent
of those employees are supported by the Ex-Im Bank. We use Ex-
Im Bank to create jobs in rural America. Ex-Im Bank levels the
playing field so that small businesses can grow.
``Ex-Im Bank is a self-sustaining operation that has a
solid history of making money for U.S. taxpayers. It has
created millions of new jobs in the United States.
Reauthorization of the Ex-Im Bank is a simple issue. Ex-Im
creates and sustains jobs, strengthens the brand of American-
made goods, and reduces our national deficit. If Ex-Im Bank
ceases to exist, the deficit will increase, and we will lose
jobs in Olney, Texas.''
Mr. Chairman and Members, you are going to hear a lot from
small business here today because we have received any number
of letters from all over America, many of them from small
businesses talking about the importance of the Ex-Im Bank.
Jobs, jobs, jobs. As was said earlier, we all talk about
jobs. We have been through a recession. We almost went into a
Depression. We still have high unemployment in many of our
areas, and we are all saying to our constituents that we are
going to do everything that we can to provide jobs.
But when we look at how we lost our manufacturing base in
this country and how Ex-Im is helping us to re-create and
develop and sustain manufacturing, which creates jobs, we say
that is what we want. But here we are talking about not
reauthorizing Ex-Im, which is responsible for these jobs and
job creation.
And so I submit to you these letters. I would ask my
colleagues here on this side of the aisle--if you have letters
or information from your businesses in your district, now is
the time to share them.
And, with that, Mr. Chairman, I won't use up all of the
time that you allotted me because you used extra time. I just
think the message is clear. Jobs, jobs, jobs.
I yield back the balance of my time.
Chairman Hensarling. The Chair now recognizes the gentleman
from California, Mr. Campbell, chairman of our Monetary Policy
Subcommittee.
Mr. Campbell. Thank you, Mr. Chairman.
You know, I sat in this very room however many years ago it
was--I guess 3 or 4 or whatever--when the Ex-Im Bank was
reauthorized for its current reauthorization, and there were
about 6 people sitting out there.
The vast majority of the American people never heard of the
Ex-Im Bank. This American had never heard of the Ex-Im Bank
before being elected to Congress.
I doubt that the Ex-Im Bank's footprint on the American
economy has grown or contracted since that time. But, yet, this
room is full, and I understand there is an anteroom that is
also full.
And it seems that the debate over this Bank has become a
proxy for a bunch of other things. But amongst the things that
it has become a proxy for, in my view, is how we operate around
here and how we operate in this place.
And it seems there are only two options that are being
discussed. One is the complete elimination of the Ex-Im Bank,
and the other is the complete reauthorization of it as it is.
But you know what? I think there is a third option. I think
there is another way to do this that doesn't involve complete
elimination and doesn't involve assuming that the Bank has
nothing wrong with it and that it is absolutely perfect the way
it is.
Some months ago I formed--as the subcommittee chairman of
the relevant subcommittee, I formed a working group to work on
reforms for the Ex-Im Bank.
Regrettably, none of my friends on the other side of the
aisle--that is my fault, not theirs--were in that working
group. But amongst the Republicans on our side of the aisle, we
had a broad spectrum of Republicans.
It included people who were and probably are still opposed
to the Ex-Im Bank and its reauthorization and others who came
in favoring it, and we did develop a work product, which until
now, I have not released to anyone.
But, Mr. Chairman, I have a discussion draft. This is the
work product of that working group, which I would request be
entered into the record.
Chairman Hensarling. Without objection, it is so ordered.
Mr. Campbell. And for those of you out there, this will be
up on my Web site very soon, and I will be issuing a press
release on the same as well.
Now, this is a discussion draft. It is in bill form. It has
about 20 different reforms to the Ex-Im Bank. Certainly I
don't, and I don't believe the members of the working group,
think that this is the final answer or the only way or
whatever.
But it is an idea and I believe an idea that we need to
have not only about this subject, but perhaps about other
subjects as well, where we need to--rather than we are going to
do this over here or this over here, that perhaps there is
something where we can agree that there are some problems we
need to fix.
But maybe we can fix them and maybe this thing can do what
it was originally intended to do, what we all would like it to
do, which is support American jobs and American export and
enable us to compete against all those other export-import
banks around the world and do so in a more objective, a more--
just a better manner than it is right now.
And in my last little bit of time, Mr. Anderson, I heard
you say that you felt the Bank should be reformed. I didn't
hear you say that it should be eliminated. Is that correct?
Mr. Anderson. That is correct. And our position, by the
way, the last time around when we were here, the reason there
were only 6 people in the room, we have been working on this
for 5 years because it has hurt us. And we got reforms and they
were ignored.
So that is why our position the second time around is, if
it is not reformed, it needs to be abolished. Because we got
all the reforms, and they were totally ignored. I can read you
the language, but it is very--the language was strong, and the
Bank has totally ignored it.
Mr. Campbell. Okay. Mr. Anderson--and I don't know whether
the reforms--this working group, we didn't have you, we didn't
have Boeing, we didn't have anybody in the room. It was just us
working on what we felt was right.
Mr. Anderson. That was probably good.
Mr. Campbell. And so--and what we felt was right. And we
did something which we believe begins to address your issue. It
doesn't necessarily eliminate your issue, but we believe it
begins to address it. But that is what we tried to do.
Mr. Wilburn, just picking someone on the other side of the
issue, do you have--you obviously are supportive of the Bank.
Do you have any objection to looking at things we can do to
reduce the taxpayer risk, but perhaps continue its mission?
Mr. Wilburn. Helping businesses compete, whether they are
small or large on the global stage, I am all for that. I am a
free market guy.
Basically, I agree with 95 percent of what has been said
here today. So, I applaud the Delta chairman and the other
Members for stating that they don't want to abolish the Bank.
Mr. Campbell. Thank you. I yield back.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentlelady from New York, Mrs.
Maloney, ranking member of our Capital Markets Subcommittee.
Mrs. Maloney. I thank the chairman and all the panelists
and the ranking member.
I believe we live in a very inconvenient truth right now,
especially in global capitalism, and as much as we like to
think that American businesses may not need any help, but what
they are competing against is that total support, in some
cases, subsidy, in some cases, is even owned by the foreign
government.
And if we were not, we would be unilaterally disarming in
the international stage, putting American jobs and exporters at
risk.
Oftentimes what we hear in Congress is, ``We are not
exporting enough. Why isn't America exporting enough?''
Our number one exporter is Boeing. Boeing exports a lot of
planes, but they are competing against Airbus that is
subsidized, financed, and even owned by a government.
And a lot of the areas where we are exporting and
competing, the subsidies from their governments are far deeper
and stronger than ours.
I fail to understand why we would in any way want to
disrupt an agency that is helping export American goods, create
American jobs, and is not costing taxpayers any money. I think
this is something that we should expand.
I was at one export meeting where, literally, a company in
New York was exporting clothing to China. I thought that was a
great thing. Why in the world would I want to stop an agency
that is helping them to do that?
Therefore, I ask unanimous consent to place in the record a
document that has been signed by 865 organizations and
businesses in America supporting the Ex-Im Bank, including the
Chamber of Commerce and, also, the National Association of
Manufacturers.
Chairman Hensarling. Without objection, it is so ordered.
Mrs. Maloney. I have to think that 865 organizations and
businesses can't be wrong, I tell you.
And I just wanted to ask Mr. Wilburn: The opponents of the
Bank claim that trade finance should be left to the private
sector. What has been your experience with finding commercial
lenders willing to extend credit to foreign buyers who want to
purchase your company's services?
Mr. Wilburn. Recently, I just obtained some private finance
for my three works in progress in Brazil. The problem is that I
had to pledge my house, my intellectual property, my inventory,
everything I own.
I am a risk-taker. I am willing to do that. But I can only
do that once, because once I pledge that collateral for those
three, I can't take care of the next six, seven that we are
working on.
And if there are those sources out there and the committee
members know them, the chairman or anybody--or anybody hearing
these words today--if you know these sources of private
finance, please get in contact with me and the other small
business people. I know they desperately would like to have
that as a solution.
Thank you.
Mrs. Maloney. I have all these stacks of letters from
businesses in support of the Ex-Im Bank. I would also like to
ask unanimous consent to put it in the record and, also, one
from labor. Labor is supporting it on the basis that this
creates jobs in America.
I ask unanimous consent to place this in the record.
Chairman Hensarling. Without objection, it is so ordered.
Mrs. Maloney. And in response to Mr. Anderson, I am a big
fan of Delta. I fly it about once a week. I love the airline.
Mr. Anderson. Thank you.
Mrs. Maloney. And I was pleased to vote for the support for
the bailout by the Federal Government after September 11th.
I think we voted to transfer the pilots' pension
obligations to the Federal Pension Benefit Corporation. So, we
have provided that help. And that is a subsidy, I would say,
and we needed to do that. And I supported it. I voted for it.
And I think, also, that to this day, we have passed bills
that restrict and prohibit foreign air carriers from competing
with Delta by flying routes within the United States, that we
are trying, in our own way, to help the private sector compete
and win in a world economy and provide the wonderful service
that you do.
But I, for one, am going to be writing Boeing and asking
them to write in their own words whether they think the Ex-Im
Bank has been helpful in allowing them to compete and win and
who are their competitors and compare how much they are
subsidized, if they are, to their foreign competitors in Asia
and in Europe and, also, to GE and to every small company that
is getting any help from the Ex-Im Bank.
And all of our Members should do the same. And let's create
our own--
Chairman Hensarling. The time of the gentlelady has
expired.
Mrs. Maloney. --report on what we are hearing from American
workers and businesses.
Chairman Hensarling. The Chair now recognizes the gentleman
from Alabama, the chairman emeritus of the committee, Mr.
Bachus, for 5 minutes.
Mr. Bachus. I thank the chairman.
And I would say to all Members, Mr. Anderson, what he is
saying is identical to what he and the Air Line Pilots
Association and the union representatives were saying when we
reauthorized this bill in May of 2012.
And I met with Chairman Hochberg in March. In fact, several
Members on both sides expressed the same concern that Mr.
Anderson had. And I was told at that time that they would sit
down with Delta, and I was also told that Boeing would take a
look at it.
We then put in the language of the reauthorization,
directing the Treasury Secretary to initiate and pursue
multilateral negotiations for reducing and eliminating
government export subsidies for aircraft.
We specifically told them that we were concerned about
wide-body aircraft, two companies that had government-owned
subsidies, rich companies, as Mr. Anderson said, and everybody
expressed a great sensitivity to this. And we documented losses
by American air carriers on overseas routes.
And that is what we are talking about. We are not talking
about routes within the United States. That has nothing to do
with this. Our American Airlines used to lead the world in
these overseas routes.
From the time that we reauthorize this, which, really, I
say it is strong language, but it turned out it wasn't that
strong because it didn't forbid these sales. And I could tell
you that they are going to--as long as we don't just forbid
them, they are going to have them.
Because when Mr. Hochberg met with my office--and I am
going to later--when he testifies, I am going to show you my
letter to him and his response, which was a nonresponse. We
have always gotten those.
Members also expressed to me some great concern on the
Australian loan, but there were Members on both sides. I wrote
Chairman Hochberg about that on behalf of several Members on
August the 2nd. We then inquired about the status of our
letter, and we were told they were going to respond.
On December the 20th, I woke up to read in The Wall Street
Journal that the loan had been approved after my August letter.
No response.
Finally, on February the 19th, 2 months after the loan was
approved and announced, and the iron ore industry, the miners;
there were all sorts of union groups that were expressing
concern--he wrote me back and he said, ``We approved it.''
In my letter, I asked him to get with us and we wanted--
there was no detailed analysis of the financing request or how
it would affect U.S. jobs, and I asked him to share that
information with me.
And I know Mr. Hochberg is here. I look forward to maybe
some explanation. But no one from Ex-Im gave us any of this
information.
They didn't even give it to us--he just said, if I have
questions, I should call him. This is for a loan that had
already been made.
I had what I considered a commitment from Ex-Im Bank and so
did Mr. Anderson on a directed prohibition that was costing
probably 10,000 U.S. jobs. These jobs have been being
eliminated since 1978, when they started doing this.
There are estimates that this one mine produces more iron
ore than our entire U.S. production, and it shut down iron ore
production in this country as a result, a lot of it.
But we got a lot of promises and then we reauthorized and
then--and even the Treasury Department, when I asked them--and
I will say, if I could have 30 seconds, I asked them, ``What
are you going to do about these negotiations?'', they basically
told us, ``What are you going to do? Are you negotiating?''
``Well, we formed a talking group.'' And they basically just
blew us off, the staff.
Thank you, Mr. Chairman.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from California, Mr.
Sherman.
Mr. Sherman. The ranking member notes that only Mr. Wilburn
here is outnumbered three to one, but I will point out his
arguments are 3 times as good; and, therefore, I think it is
fair.
It has been noted that Ex-Im Bank is financing the sale of
airplanes to airlines that could get credit from somewhere
else. That is entirely true.
Every one of those airlines could get credit from the
export credit agencies of Germany and France. There is only one
catch. They would have to buy an Airbus.
So the question here is not whether the buyer could make
the purchase. The question here is whether the buyer will
purchase the U.S.-made product.
And we are told that only 2 percent of American exports are
at stake here. America is running the largest trade deficit in
the history of the world. We can't afford to give up 2 percent
of our exports. We can't afford to give up half a percent of
our exports.
We are told that there has been a scandal involving some
officers of Ex-Im Bank. There has also been a scandal involving
officers of the United States Navy dealing with the repair of
our ships in the Pacific. Yet, no one is proposing that we
deauthorize the United States Navy.
I look forward to working, hopefully, with the chairman,
and perhaps the gentleman from California, to improve Ex-Im
because I don't think our position is that everything is
perfect and none of these criticisms deserve any attention.
One of those reforms would be to have language and even
more clear language to say that they can't make a loan or
guarantee a loan without looking at the total effect on U.S.
jobs.
One particular area is airplanes. We are supposed to have
an Ex-Im Bank to finance exports. If you're talking about a
power plant being built in India, the turbine is an export. If
the power plant is in Indiana, it is not an export. It doesn't
matter whether the company that owns the plant is in Germany or
the United States or India.
Planes are different. They fly. And whether a plane has
been exported or not doesn't or shouldn't depend upon the
headquarter's building of the buyer. It should depend upon
where the airplane will be used.
There are two approaches we could take.
One is to allow U.S. airlines to consider an export and,
therefore, get Ex-Im financing on a plane that they are going
to use in international routes in competition with foreign
airlines that are also eligible for Ex-Im financing, should
they buy American planes.
The second approach is to deny Ex-Im financing to those
foreign airlines when they are buying a plane that is going to
be used to fly to and from the United States.
But these are things to explore. I think to throw out 2
percent of our total exports because of one issue affecting
flights to Asia and the Middle East would be a mistake.
Now, Mr. Anderson, you have financial statements that you
send to shareholders and maybe you really have a choice. You
could use GAAP accounting--generally accepted accounting
principles--or some have suggested that we use fairytale-value
accounting.
When you produce a P&L statement, one of the biggest items
on it is your interest expense. Do you report the interest
expense you have based on the deals that you have made with
your Banks and bondholders or do you instead report the
interest expense you would have had if you lived in a fair
world?
When I read your income statement, do I see as interest
expense what you are actually going to pay your lenders or some
notion of fairness as to what you would be paying if only the
world were fair? It is an easy question.
Mr. Anderson. No, it is not.
Generally accepted accounting principles have various
methods for how you account for different--
Mr. Sherman. Do any of them involve you reporting as your
interest expense what the interest expense would be in a fair
world?
Mr. Anderson. Yes. In some instances, in the case of a
merger where you have to go back to fresh-start accounting--
Mr. Sherman. Okay. In some limited--
Mr. Anderson. No. It is not limited. We have a--
Mr. Sherman. You just had a merger.
Mr. Anderson. We have a lot of interest expense on our
balance sheet that is not the actual interest we pay because
the generally accepted accounting principles require you to
market-to-market.
Mr. Sherman. That may be. But you don't do it and say, in a
fair world, interest rates would be the same for you as they
are for the Emirates.
You don't say Pizza Hut should report the same interest
cost as the local pizzeria or the Pellicola Pizzeria reports
the same interest cost as Pizza Hut.
You report--you just had a merger. I know you are an expert
on merger accounting--or at least you have had a big experience
with it.
In the ordinary case and without a merger--I don't think
Ex-Im Bank is going to do a merger with its German competitor--
you report interest expense based on the deal you negotiated,
not based on an imaginary fair world.
Mr. Anderson. Look, I am not trying to obfuscate.
In some instances, you do. In some instances, you have to
come to a fair accounting standard. I wish it were that simple.
Mr. Sherman. None of those reflect a really fair world.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentlelady from West Virginia,
Mrs. Capito, chairwoman of our Financial Institutions
Subcommittee.
Mrs. Capito. Thank you, Mr. Chairman.
Mr. Anderson, how many employees does Delta Air Lines have
in the United States?
Mr. Anderson. We have about 78,000 employees in the United
States and probably a quarter of a million retirees.
Mrs. Capito. Is that up or down or pretty steady?
Mr. Anderson. Actually, we are hiring quite a bit right
now. We are hiring about 600 pilots a year and over 1,000
flight attendants a year. So we are growing our employment
without any government aid, by the way.
Mrs. Capito. And you made a mention in your comments that
with the Ex-Im Bank's behavior in financing wide-bodies around
the world, you kind of quantified it as to maybe 1,000 jobs it
might have cost you.
Could you expand on that a little bit?
Mr. Anderson. Well, that was a specific instance of Air
India.
And when I hear the notion of this arms battle, what the
Ex-Im is doing is putting our employees in the crossfire
because it is U.S. airline jobs that are lost when heavily
subsidized foreign-owned airlines are able to then also get a
subsidy from our Treasury.
And it has reduced the growth of our company. This is the
first year we will actually have any real growth in the last 5
years. And we see it in the marketplace by the entry of
carriers with Ex-Im Bank finance below-market financing.
Mrs. Capito. So the argument to either relook and reshape,
like Mr. Campbell is saying, or deauthorize, as I was--it is
small business jobs, but it is businesses that have 75,000
employees at the same time.
Mr. Anderson. Exactly. And the point is I don't understand
why we don't have the same view about jobs that are hurt by the
Bank as we do about small business jobs. These are all really
important jobs.
And the small business part of what Ex-Im does is actually
really small and is pretty new to the Bank because, after the
last reauthorization fight, the Bank went into a really
aggressive marketing mode to small business so that it would
have constituents in every congressional district.
Mrs. Capito. Right.
Mr. Anderson. Let's set that aside.
The real issue is 90 percent of this goes to the top 10
biggest companies in the United States that are well-funded and
well-capitalized. And that is what we are focused on.
Mrs. Capito. Thank you.
Mr. Wilburn, I don't know if you remember, but in my
opening comments I commented about the Administration--the Ex-
Im Bank's policy of not funding coal-fired power facilities,
including coal technologies, except in developing countries.
You are a green energy company developer, and I love green
energy jobs. We love our coal jobs. They are just as important
to us as a green energy job is to you.
Do you think, in thinking about this, that it is proper for
an entity such as the Ex-Im Bank, because it has a certain
environmental belief, to disenfranchise one American job over,
say, one of the jobs in your company as a green energy company?
Don't you think those jobs should be treated equally if we are
going to be looking at financing exporting across the globe?
Mr. Wilburn. Let me respond that, basically, I am very
supportive of technologies that are good for the environment,
and I think the coal industry--particularly my family has a
background in that and were affected by it.
I think the point here is, though, that the Bank is looking
at an environmental policy. Okay? And I am not an expert on it.
I serve on the advisory committee of the Ex-Im Bank on the
environmental and renewable energy committee.
And what I have tried to advise them of is to be cautious
when we are taking a look at the environmental impact, make
sure they have the data, make sure that they have the studies
and the reports; don't just make arbitrary decisions.
And I think, for the most part, they have been listening to
me, but I understand your argument. And all I can say is that I
want an environmentally sound policy by Ex-Im Bank that creates
and protects American jobs.
Mrs. Capito. Thank you.
I looked at your list of your vendors and you are in and
around in the State of Virginia. You just need to slip over the
border there and bring a few over to West Virginia. Importing
those jobs into West Virginia will be--
Mr. Wilburn. Give me the names and the addresses. I will be
happy to talk to them.
Mrs. Capito. All right. Thank you so much.
Chairman Hensarling. The gentlelady yields back.
The Chair now recognizes the gentleman from New York, Mr.
Meeks, ranking member of our Financial Institutions
Subcommittee, for 5 minutes.
Mr. Meeks. Thank you, Mr. Chairman.
And I thank the ranking member.
First, I want to just say thank you to Mr. Anderson. Delta
Air Lines is one of the largest employers in our district, and
we really appreciate what you have been doing at JFK airport,
the expansion there and the folks that you have been adding.
So, we want to thank you for that.
And, as a result, I have made sure that I was reading your
testimony very, very carefully because we do want to create
jobs and I think that is tremendously important.
But in looking at it, I just wanted to double-check,
because I would just like to ask first outright, and I will
start--I think I know where Mr. Wilburn is in reference to the
reauthorization of Ex-Im.
But I just was wondering, to, first, Captain Moak, do you
think that we should do away with Ex-Im or should Ex-Im be
reauthorized? I just want to know ``yes'' or ``no'' before we
get into--what do you think about Ex-Im?
Captain Moak. First, I want to thank the Congressman. I fly
out of Kennedy. You have done an incredible job up there.
I have been there since 1994, flying a Boeing airplane 767.
Great airplane. I want to thank you and what you have done for
my members. We have thousands of our members up there.
The Ex-Im Bank needs to be reformed because we have lost
jobs at John F. Kennedy Airport because of actions by the Ex-Im
Bank. It needs to be reformed, period.
Mr. Meeks. So do you think that it would be okay if Ex-Im
was not reauthorizing all of the jobs that are created by Ex-
Im?
I know we have to figure this out, but Ex-Im was not there.
Because one of the things that concerns me--I am one of the
largest supporters of trade. And the reason why I support trade
is because I want to export our goods to other places.
And then, when I hear an example--for example--and trying
to level the playing field. There is an example that I know
took place in 2011, for example.
Brazil had the largest landline telephone company and the
Republic chose to purchase the network equipment with China's
technology because of access to China Development Bank's $30
billion credit line, which came with a 2-year grace period on
payments and an interest rate of 2 percentage points below the
market rate.
Now, that is just one example that I could give on how
China has used its Banks to win new exports. This is our
competition. And there are hundreds of other examples which I
could give from all over the world.
So my concern is and--to all of you--so wouldn't you agree
that several industries and export jobs throughout, which would
devastate America?
I wish I could just say I am focused only on JFK, but I
have to think bigger than JFK in this one.
I have to think about how I am a Member of the United
States Congress who represents--I represent my district, but,
also, my first--when I took--swore in is the overall benefit.
And sometimes you have to figure out on a balance that--
wouldn't we be really jeopardizing export jobs without Ex-Im
Bank?
Captain Moak. Sir, just to follow, we are here because we
need your help to level the playing field. Right now, we are
not able to compete, and we are losing jobs out of Kennedy. So
we need leadership to reform the Bank. The Bank hasn't followed
the will of the Congress.
Mr. Meeks. But what I am getting at is this--and, as I
said--and Mr. Anderson, I will go to you, also.
See, because what I have to weigh here is the overwhelming
balance of companies that come to me because I am a pro-trader
that say this is absolutely important to them.
And if I would show you the number of companies that have
come to me and the jobs that they represent--because it
absolutely would be devastating to them compared to one company
that I like who have done something like, I have to say good,
but compared to one company, then I have a decision to make, as
a Member of Congress, especially me because I have to defend my
own record of wanting to export things all over the world and
making it easier so we can compete.
And when I look at, for example--I know that there are
other ECAs, almost upwards of 60 export credit agencies (ECAs)
that exist in all of the other foreign countries, many of whom
who do not even comply with international export credit
standards established by OECD, and that such countries as China
and Brazil and India offer below-market and concessionary
financing alternatives.
So I would think that--wouldn't you agree that is what we
need to look at so we can level those playing fields and, if we
don't level those, then we are putting at risk hundreds of
thousands of American jobs because we cannot export to these
other countries because there is no level playing field here?
I see I am out of time.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from New Jersey, Mr.
Garrett, chairman of our Capital Markets Subcommittee.
Mr. Garrett. And I thank the chairman.
There are a number of different areas that we can talk
about here, and I think the gentlelady to the right of me may
go into this in more detail.
But just as a beginning, I will just do the highlight, and
that is the fact that although there is a statement from the
other side of the aisle saying that Ex-Im has never lost money,
I think we have some documents to show that has not been the
case over its somewhat sordid history of mismanagement, severe
losses, and a past history of having to have been bailed out
and recapitalized by the American taxpayer in the past.
But I will let the gentlelady address that, if she chooses,
later on.
Secondly, to a technical point, Mr. Anderson, with regard
to accounting and all those sort of things, GAAP accounting,
under FASB rules--I think it is 157 because we have been in
this on other hearings before. Fair value accounting. Right?
That is part and parcel of your process, isn't it?
Mr. Anderson. Absolutely. I think most companies in America
would love to have the government's accounting system.
Mr. Garrett. Yes, exactly.
The next point is on reform. And maybe I will throw it back
to Mr. Anderson or anybody else.
So, the idea is maybe we can just reform this. But as some
of you indicated before, we have been down this road before. We
reformed it before, passed legislation just a few years ago. We
instructed Treasury to do something, and we instructed Ex-Im to
do something.
We instructed Treasury to try to enter into new
negotiations and we tried agreements and we tried to have Ex-Im
do cost-benefit analysis.
Neither of those things were completed. Correct? You are
nodding your--
Mr. Anderson. You were totally ignored.
Mr. Garrett. Okay. So the question I have is: Before I
think about re-re-re-re-reforming something, if we do that--and
you don't have to answer this--I am wondering why I will not
anticipate being here 2 or 3 years from now after this re-
reform has not been--or has been ignored again.
Mr. Anderson. That is why we thought this problem was fixed
last time and then we worked over the course of the last 2
years to try to get the reforms that both sides of the aisle
agreed to enacted.
Mr. Garrett. Right.
Mr. Anderson. Lael Brainard told me they were not going to
negotiate with the Europeans over Ex-Im Bank subsidies right
across the table in the Treasury Department.
Mr. Garrett. And, in the meantime, while we wait for the
re-reform to be implemented and find out that it is not
implemented, how many jobs will we lose in the interim?
Mr. Anderson. We are going to lose thousands. And that is
why our position now has changed. Last time we tried to--we
thought we had it fixed.
Now our position is, if there is not a hard stop on wide-
body financing for state-owned, creditworthy airlines, the Bank
should be ended.
Mr. Garrett. And I appreciate it.
Our small business guy at the end, Mr. Wilburn, for what
you are doing, I appreciate your service as well, and I
appreciate your entrepreneurial spirit.
I just have one bone to pick with you. I know you say you
are a free market type of guy. And I think you said, ``I
pledged my collateral. I can only pledge that once.'' And I get
that, but I guess that is the way the free markets work.
If I have an idea or a product or a business and I have
capital, I can only pledge it once. And I guess the industry in
front of us, they can only pledge it once. That is the rule
whether you are a big guy or a little guy. You can only pledge
it once.
And even though--I have had lots of great business ideas
but nobody wanted to invest in them. That doesn't mean they
weren't great business ideas.
But just because you have a great business idea and a great
business model doesn't mean that you can look to somebody else
to finance it. You can try to seek somebody else to finance it.
And that is what you're trying to do, and it is great that
you are on TV today, maybe. So maybe it will help you out
there. But--
Mr. Wilburn. That is not the reason I am here, with all due
respect.
Mr. Garrett. My point is we should not be asking the
American public to step in and be the one to ultimately finance
once any business, big or small, pledges their collateral once.
Independent investors should be the ones who are responsible
for doing that. We should not ask the taxpayer to step in.
And I will close, then, with Dr. de Rugy. Can you quantify
any of what we are talking about here--Mr. Anderson has tried
to--as far as, without a cost-benefit analysis being done like
Ex-Im should have done, what we are really looking at when we
continue down this road or path of picking winners and losers
in this current system that we have as far as job losses. Do
you want to talk about that?
Ms. de Rugy. It is very--it is very hard to know exactly
how many jobs are lost. One of the things that we know is who
the beneficiaries are. We also know that the Ex-Im Bank picks
winners and losers and that is very different from the free
market.
And, also, we have 200 years of economic literature which
explains that free market is the way to go and protectionism
isn't because it hurts consumers by raising prices. And with
the Ex-Im Bank, it is not free market. It is protectionism.
Chairman Hensarling. The time of the gentleman has expired.
Ms. Waters. Mr. Chairman, I would request unanimous consent
for Mr. Wilburn to have an opportunity to respond to the
teaching that he just received from Mr. Garrett on oil and gas
subsidies that he mentioned in response to Mr. Garrett's claim
that the government should not be subsidizing anything or
anybody.
Chairman Hensarling. I am sure there are many Members on
your side of the aisle who would be happy to yield more time to
Mr. Wilburn.
The Chair now recognizes the gentleman from Massachusetts,
the ranking member of our Housing and Insurance Subcommittee,
Mr. Capuano, for 5 minutes.
Mr. Capuano. Thank you, Mr. Chairman.
And I thank the panel for being here.
Mr. Wilburn, I just want to thank you for your commonsense
approach. It amazes me that people can disagree on substance,
but you deserve more respect than you have received here today,
and I regret that approach, as one member.
Mr. Anderson and Captain Moak, I think you raise
interesting and very good points. I have actually worked with
the ALPA in the past on a similar issue just in Massachusetts
using taxpayer dollars to help encourage wealthy foreign
airlines. I am more than happy to look at this. And Mr.
Campbell and others have suggested that.
However, I am not willing to shut down the Bank because,
very simply, Ms. de Rugy, I have to tell you, I don't live in
the ivory tower. In the ivory tower, what you say makes sense.
And if every country in the world would legitimately shut
down their ex-im bank or their comparable one to it, I would
consider it because I don't disagree. This should be
unnecessary.
But I don't live in that world. I live in the real world of
fair competition. And when France has 4,600 people working for
their ex-im bank and we have 400, if we want to compete, we
need to do this.
Ms. de Rugy. But we have 200--
Mr. Capuano. So, for me, that is part of the problem.
With that, I would like to yield the remainder of my time
to Mr. Heck, who knows a lot more about the Ex-Im Bank than I
do.
Mr. Heck. Thank you, Congressman.
First, I want to thank especially Mr. Wilburn and Captain
Moak for their service. It is deeply appreciated.
Mr. Wilburn, I am interested, as a small businessperson out
there trying to build something for his family and his
employees kind of one day at a time, one contract at a time,
whether or not you would be surprised that the company to your
right, which has claimed such material damage and is
represented by its own spokespeople, is now the most profitable
airline in the United States, and arguably the world, and
indeed made $2.7 billion in profits last year, for which I am
grateful. I think that is a good thing. I am really glad.
I am not asking the question of you, Mr. Anderson.
Would it surprise you that the company has paid no Federal
income taxes for the last 6 years and is projected not to for
the next 3 years?
Mr. Anderson. Are you talking--
Mr. Heck. Mr. Chairman, it is my time, not Mr. Anderson's.
Would it surprise you, Mr. Wilburn?
Mr. Wilburn. I don't know if I'm surprised. I can't
characterize it as surprise. It is new information to me I was
not aware of.
Mr. Heck. Mr. Wilburn, I am wondering if you would consider
what the gentleman to your right has repeatedly said.
Again, I want to interject here my gratitude for living in
a Nation that builds the greatest airplanes in the world, which
are flown by the most competent pilots.
I did 150,000 miles last year and I didn't lose one wink of
sleep about my personal safety. And I thank you all for that,
quite genuinely.
But, Mr. Wilburn, the gentleman to your right said
repeatedly in his opening testimony--I want to make sure I get
it exactly right--``I don't believe in subsidies.''
Mr. Wilburn, would you consider it a subsidy that the
Federal Government, through its Pension Benefit Guaranty
Corporation, took over the pension liabilities of Delta and, at
the point at which Captain Moak collects his, will, in fact, be
provided by the taxpayers of the United States? Would you
consider that a subsidy?
Mr. Wilburn. Again, with all due respect, I don't think I
am really qualified to answer that, but I understand your
point.
Subsidies exist in a variety of different ways, and I am
faced with that unlevel playing field every day. And I would
have to have some more information on that, but you have piqued
my interest.
Mr. Heck. So, lastly, then, I am wondering whether or not
you would consider it at least inconsistent that the company
has argued that the existence of the Export-Import Bank to loan
money to their competitors--will you consider it inconsistent
that they have that view when, in fact, that same company
borrowed from the Canadian export credit authority to buy what
I deem short-hop airplanes?
Mr. Wilburn. Again, I am not familiar with those facts, and
I am learning a lot of things today in realtime and, as a small
business guy, I am more focused on my issues.
But I can tell you this. There are a number of issues
raised here today, including the ones you mentioned, that lead
us to a broader discussion.
And the broader discussion is: What role does the Ex-Im
Bank really play? These gentleman have opined and they have
given their opinion.
I can tell you just from my perspective, without the
Export-Import Bank of the United States, people are going to
buy in the Philippines, not my goods, but they are going to buy
Korean goods, and they are going to buy that because it is
financed by the Korean Export-Import Bank.
So I think we need to get to their reasonable position and
do some reforms, but get and save the Export-Import Bank of the
United States.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from Texas, Mr.
Neugebauer, chairman of our Housing and Insurance Subcommittee.
Mr. Neugebauer. Thank you, Mr. Chairman.
Mr. Anderson, I detected that you might want to respond to
some of the questions that were raised awhile ago. Would you
like to--
Mr. Anderson. I would start by saying Boeing got a refund,
didn't pay any taxes. But Delta accrues its taxes at the full
Federal tax rate. We don't have any offshore subsidiaries.
The reason why we are not a cash taxpayer is because we
went through a very painful Bankruptcy and restructured our
company without any subsidies from the government.
We paid our premiums into the insurance--into the Pension
Benefit Guaranty Corporation and, unfortunately for our pilots,
we had to terminate their pension plan. And so Captain Lee
Moak, I would correct the record, doesn't have a pension
because his pension was terminated.
We were able, with the help of this committee, to pass the
Pension Protection Act in 2006 and save the pensions by getting
an amendment to the law so that Delta can pay out over a
billion dollars of pensions to our retirees today, and we are
overfunding those pensions.
So you hit a raw nerve when you look back at these people
who went through a really tough restructuring--and we are a
full taxpayer in this country--and these people bore the brunt
of a tough Bankruptcy and a lot of them lost their pensions.
Mr. Neugebauer. I thank you.
And, I want to expand on something that has been brought
up, but I don't think people realize the scope of that, and
that is I was shocked to learn that 14 of the largest 20 state-
owned or state-supported airlines receive Ex-Im funding.
And so, just to put that in perspective, these countries--
many of whom have fairly substantial sovereign wealth funds,
are able to get financing backed by the U.S. taxpayers to
compete with U.S. companies.
Mr. Anderson, you mentioned, I think, a couple--India,
Emirates, China. There is a long list of airlines that American
taxpayers are subsidizing to compete with your airline, and
that puts you at a disadvantage.
Mr. Anderson. That is exactly right. The prime examples
would be Singapore Airlines, which is owned by Temasek, the
largest sovereign wealth fund in the world. Our government
finances the airplanes.
The largest oil-owning company in the world is Abu Dhabi.
It has the largest oil reserves in the world and it owns and
operates a government airline, and we, our Treasury, finances
their airplanes well below market to fly into our markets.
Mr. Neugebauer. Now, one of the things that you mentioned
in your testimony, too, is that--you said that you did not
support reauthorization of Ex-Im Bank because you kind of felt
like you got double-crossed on the last reauthorization, but
you would support possibly a reauthorization that had some
reforms.
Do you want to elaborate a little bit on that?
Mr. Anderson. Absolutely. Our position has been consistent.
It was consistent at the last reauthorization. Language was put
in the bill to fix these issues that hurt American jobs, and it
was ignored.
So we have taken a harder-line position this time, along
with all the employees I have here and the 3,000 employees we
have in Seattle, Washington, to require that there be real
reform this time.
We aren't talking about small businesses. I respect small
businesses. I want him to be successful. We want all small
businesses to be successful. And this isn't about small
business.
This is about 90 percent--95 percent of the money that this
Bank uses are for the top 10 corporations. So, let's not
confuse the small business issue.
This is about putting safeguards in place so that you, as
Members of Congress, are not picking and choosing which
companies win and which companies lose.
I think these jobs are just as important as the
manufacturing jobs. If they aren't, I would invite any
Congressman here to just tell my employees that their jobs are
not as important.
Mr. Neugebauer. I thank you.
I had a question for Mr. Wilburn.
Mr. Wilburn, has your firm ever received any Federal
grants, loans, guarantees?
Mr. Wilburn. No, sir.
Mr. Neugebauer. Okay. Thank you.
And Dr. de Rugy, you have done some analysis on Ex-Im and
their financing and their structure. I will have to--I see my
time has expired, so I will submit it to you in writing.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from Missouri, Mr.
Clay, ranking member of our Monetary Policy Subcommittee.
Mr. Clay. Thank you, Mr. Chairman.
Dr. de Rugy, do you believe that there is an appropriate
role for government to make sure financing is available for
U.S. businesses in cases where the private sector is unable or
unwilling to provide financing to legitimate business ventures?
For example, what about commercial exports for nuclear
power projects? I understand that these deals are often
untenable for commercial Banks. Is it appropriate for the
government to help finance such deals?
Ms. de Rugy. I don't think the government should be in the
capital market business because the way government allocates
monies is based on politics and not on sound economics.
And, more importantly, you have to understand that when the
capital market does not allocate funds to someone because they
are cash-poor, it is a feature of the capital market, not a
bug, and it is unfair for Congress to demand that taxpayers be
the one footing the bill because some people want to borrow
money and are not able to find lenders to actually lend them
that money because they don't think it is a worthy or a safe
enough bet.
Mr. Clay. Well, Doctor, isn't it true that Congress picks
winners and losers every year as far as through our Tax Code?
Ms. de Rugy. I agree. And I am against that, too.
Mr. Clay. Oh. You are against that, too?
Ms. de Rugy. I am against the government picking winners
and losers. I think the general rule should apply.
Mr. Clay. And you have lobbied your Members of Congress on
that, I assume?
Ms. de Rugy. I don't lobby. I write research papers.
Mr. Clay. Well, at least you talk to them.
Ms. de Rugy. Yes. I specialize mostly on the budget. But
when I have talked about tax reforms, I have talked about
leveling the playing field.
I don't believe in giving tax credit to some companies and
not others, or to taxpayers based on the fact that they are
buying a house rather than renting. I believe in the general
rule. I believe in a flat tax, for instance, rather than the
system that we have today.
Yes, I am against the government picking winners and losers
across-the-board, whether it is through taxes, through
government funding, or through loan guarantees.
Mr. Clay. Thank you.
Mr. Anderson, a review of U.S. airline purchases by U.S.
carriers between 2012 and 2014 reveals that all of the recent
capital market deals have been on more affordable terms and
would have been available if the carriers had used the export
credit that is made available to foreign purchasers of U.S.
aircraft.
Given this, how do you defend the claim that the United
States is providing below-market rates to our foreign
competitors?
Mr. Anderson. This is a competitive business and, depending
upon what your interest rates are--your interest rates are
determined by your capital structure.
And when the government gets involved and takes that market
component out, we are no longer competing on who is the best at
managing capital. You have distorted the market.
Just because we have lower interest rates, that just means
we pay our debts better, and we should have lower interest
rates. And if a competitor gets lower rates for an artificial
reason, they are getting a subsidy.
Mr. Clay. You don't think it--
Mr. Anderson. They should be in the marketplace--
Mr. Clay. Okay.
Mr. Anderson. They should be in the marketplace raising
capital the way we raise capital and having to pay a market-
based interest rate and compete on that basis.
Mr. Clay. You don't think France or England--
Mr. Anderson. Pardon?
Mr. Clay. You don't think France or England uses their
ability to level the playing field for their airline-makers
like Airbus?
Mr. Anderson. No. Because there is something called the
gentleman's agreement between Airbus and Boeing. It is an oral
understanding that creates something called the ``home market
rule.'' So the United States, Britain, Germany, France, and
Spain do not use and are not allowed to use export credit.
Mr. Clay. Okay. Thank you.
I am going to yield the remainder of my time to my
colleague from Missouri, Mr. Cleaver.
Mr. Cleaver. Thank you.
Mr. Anderson, some of your points I actually think are
good. I hate that everything becomes partisan here. Let me ask
you one question. You were talking about the employees behind
you and what you would say to them. What would you say to the
16 exporters in Kansas City, Missouri, my congressional
district, which supports--because Ex-Im Bank supports about $84
million in exports each year. What do I say to them when I say
that the Ex-Im Bank is closed?
Mr. Anderson. I think we should put both our employees and
your employees and say we are going to preserve and grow both
of their jobs, and that is the reform that needs to take place.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from Georgia, Mr.
Westmoreland.
Mr. Westmoreland. Mr. Anderson, thank you, again, for being
here and for bringing the crowd with you.
So I guess to put it in just really simple terms, if a
European government-subsidized or any government-subsidized
airline buys a plane from Boeing, and you buy a plane from
Boeing, you compete with them on some of the same routes. Is
that not true?
Mr. Anderson. We compete on virtually--in a global network,
you complete on virtually all of the routes internationally in
some form or fashion over the hub system.
Mr. Westmoreland. And it is so if you were buying 60 planes
from Boeing. Is that not correct?
Mr. Anderson. Right now, we have about 100 airplanes on
order from Boeing.
Mr. Westmoreland. A hundred airplanes. If you had some of
the same--even though you said you were paying cash, if you had
some of the financing options that some of your competitors
had, you may even buy more planes from Boeing and give Boeing
more work to do. Is that true?
Mr. Anderson. The market needs to dictate how many
airplanes we own. I am not in favor of opening up export
financing for U.S. carriers because I don't think that is a
free market.
Mr. Westmoreland. Thank you.
Ms. de Rugy, could you please tell me why it is misleading
for the Export-Import Bank to claim that 90 percent of its
loans actually go to small businesses?
Ms. de Rugy. That number is only correct if you look at
the--it is actually not 90 percent. It is a little less than
that, but when you look at the number of transactions, when you
look at the money, what you see is that roughly 19 percent of
the money goes to small businesses, and that is less than even
the Bank's charter asks. What it means is that--and by the way,
they have a very expensive definition of small business. When
you talk about small business, people think about mom-and-pop
stores or 10/50 companies. The definition of Ex-Im for
``small'' can go to a company of at least 1,700 employees.
These are big businesses in my book.
But what it means is that really over 80 percent of the
money goes to very big companies. And we know that they go to
leading manufacturers, the number one U.S. exporter, Boeing is
obviously leading the pack.
Mr. Westmoreland. Thank you.
Mr. Moak?
Captain Moak. Congressman, I just wanted to add one other
thing that might have gotten missed a little earlier. If you
want to have apples to apples, airlines manufacture seats. That
is essentially what we do, and we are actually getting impacted
twice, not only by what the U.S. Ex-Im Bank does by financing
airlines below market rates, but what happens since we don't
have the ability to access that along with a few other
countries that manufacture airplanes, countries like the Middle
Eastern companies, not only are they using Ex-Im Bank financing
and putting them on routes and costing us jobs, they are also
using European credit agency Airbus airplanes overlaying our
routes at a number like $3 million per year, per airplane, so
you start out at the beginning of the year $3 million behind.
It is hard to catch up. We have to pull out of markets, and we
lose jobs, so we are getting hit not just by Ex-Im Bank
practices but also by ECA practices, and that is why we came
before this group to ask them to negotiate taking that down
because the Middle Eastern countries are taking advantage of
it.
Mr. Westmoreland. So, Mr. Moak, would it be true that when
the other side of the aisle says that labor is for the
reauthorization of the Ex-Im Bank, that would not be entirely
true?
Captain Moak. Labor is for reform, fair practices,
competing in the world. We have the best workers in the world.
We need to be given the opportunity to compete because when we
have a fair opportunity to compete, we win, and we are coming
to this place because government policy matters. We need your
help or we wouldn't be here.
Mr. Westmoreland. And, Mr. Anderson, just one last thing.
You had made an attempt at the last reauthorization to do the
right thing. You are back here today because it didn't work,
and they did not do the things that were promised. Is that not
true?
Mr. Anderson. Correct.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentlelady from New York, Mrs.
McCarthy, for 5 minutes.
Mrs. McCarthy of New York. Thank you, Mr. Chairman, and I
appreciate the opportunity.
Number one, I think it should be noted that we are not
against any of the unions. We are not against any of our
American airlines. We certainly support them, and I think I
would like to ask Mr. Anderson one quick question, are there
any other American airlines that are experiencing the same
problems as you?
Mr. Anderson. Yes.
Mrs. McCarthy of New York. Captain?
Captain Moak. I represent 51,000 pilots, 31 different
properties, all the major U.S. airlines, and the answer to that
is absolutely yes, we are getting hit by this. We need reform.
Mrs. McCarthy of New York. Let me go back to Mr. Anderson.
We did negotiate 2 years ago, which we thought was a fair
agreement. So here we are at this point. What do you think
would be a fair agreement? Where would you want to change the
language? Is it only enforcing Ex-Im Bank? Is it something
different?
Mr. Anderson. It needs to be mandatory. The language that
was prefatory last time needs to be made mandatory. And it is
specific in our business. We have tried to be narrow because
there is plenty of merit to what happens with small business.
There is no question. And we have tried to be targeted to try
to just go at the very issues that hurt our employment. And the
issue that hurts is our government further subsidizing deeply
subsidized foreign airlines?
Mrs. McCarthy of New York. Let me say something. Number
one, I doubt very much whether you would ever get language that
was mandatory. It is just not going to happen. People here,
myself included, don't like to use the word ``mandatory.'' So
if we don't get the language in as mandatory and you are
basically saying that we should abolish the Bank, then, to be
very honest with you, your union, all the other unions, are
going to have a problem. A lot of my constituents will have a
problem, so we have to come up with some sort of solution to
that.
But with that being said, too, I know that you are probably
the most profitable airline. That is great. We want to see
that, and I know you had your ups and downs, especially when
you had to go through the Bankruptcy. But wasn't going through
the Bankruptcy more because of what was going on in the world
that day--that year, as far as oil prices and everything else
like that and you had to reconstruct?
Mr. Anderson. The terrible tragedy of 9/11, and I sat in
one of these rooms in September 15, 2001, representing the
industry, so we lived through that. And it dealt a devastating
blow to our industry. Our capacity fell off 25 percent. It has
taken 10 years to get back. So I would have to say that between
very high oil prices--and we could have another discussion on
the depletion allowance--and the 9/11 tragedy, and then the
aftermath of that really wreaked havoc on our industry.
Mrs. McCarthy of New York. I am only trying to bring out
that unfortunately whether small businesses or large
corporations, we really want to support them because that is
jobs, but sometimes we, even in the government, can't do
everything.
I want to also say that as someone who has been always
supporting my unions, I would like to insert in the record, Mr.
Chairman, statements from four other labor unions.
Chairman Hensarling. Without objection, it is so ordered.
Mrs. McCarthy of New York. Thank you.
So I think one of the things that fascinates me about this,
as it did 2 years ago, is trying to find that common ground,
which is really difficult around here. It seems all or nothing
the last several years. And so I hope we can come to an
understanding because I do believe in the Ex-Im Bank. I do
believe that it helps an awful lot of our people in this
country. I do believe it brings good jobs and keeps good jobs
here in this country. But with that being said, I want to turn
over the rest of my time to my colleague. You wanted extra
time?
Mr. Heck. Are you pointing at me?
Mrs. McCarthy of New York. Yes, I am.
Mr. Heck. Thank you very much.
Mr. Chairman, I would seek unanimous consent to enter into
the record verified excerpts of the speech given by former Vice
President Richard Cheney.
Chairman Hensarling. Without objection, it is so ordered.
Mr. Heck. And with your permission, I would like to just
quote him briefly. There are those who say that the Bank is
just some form of so-called corporate welfare. They obviously
don't know that for every dollar appropriated in the last 5
years, Ex-Im has returned approximately $20 worth of export.
That is the kind of successful government program that even a
fiscal conservative such as me can embrace.
Thank you, Mr. Chairman.
Chairman Hensarling. The time of the gentlelady has
expired.
The Chair now recognizes the gentleman from New York, Mr.
King.
Mr. King. Thank you, Mr. Chairman.
Thank you for holding today's hearing. It is a vital issue,
and I want to thank all the witnesses. I want to thank Mr.
Anderson. Certainly, Delta is a good employer in my district.
In fact, I just got my flight confirmed for tomorrow on Delta,
so I want to thank you for that.
Dr. de Rugy, besides your testimony today, I want to thank
you for the work you have done on Homeland Security, and I have
sometimes plagiarized some of your words without giving you
credit, so let me do that now. Okay?
Also, Captain Moak, I have had a very good relationship
with the airline pilots.
And, Mr. Wilburn, you do, I believe, represent an American
success story.
So, with all of that, I think I am trying to find a way we
can all be on the same page. I was impressed by what Mr.
Campbell said about trying to find reforms.
Mr. Anderson, you believe that reform is necessary. I
believe we have to find a way to reauthorize the Export-Import
Bank. I know we hear of crony capitalism, and that may happen
in some cases, but certainly the businesses in my district are
small businesses. We have a musical string instrument
manufacturer, a woodworking tool manufacturer, and a seafood
distributor. I believe there are 10 companies in my district. I
know Mrs. McCarthy mentioned a number in her district, which is
next to mine. And in downstate New York, our districts are one
on top of the other, so probably within adjacent four or five
districts, there already hundreds of employees in each of our
districts who work in businesses in adjacent districts. So, it
is important.
I have also voted for every free trade agreement that has
come before Congress in the 22 years I have been here. I
believe in free trade. I also don't like the idea of
unnecessary government intervention. But I also know that
countries such as Germany, France, China, Brazil, India, and
Korea provide up to 7 times the support that Export-Import
does. And to me, that is not a level playing field. What we
have to do, I believe, is find a way to level the playing
field. And with our Export-Import Bank, I believe we are
definitely giving advantage to our foreign competitors. I think
of former CBO Director Douglas Holtz-Eakin, who is, if I can
use the partisan term, a Republican economist. And he said,
``The reality is you would like to live in a world and I would
love to live in a world that does not have a need for an
Export-Import Bank, one where international transactions were
done on a level playing field. That is just not the reality.
Many other countries, notably China, have an export credit
agency. They are all out there trying to gain market shares.
The West simply has to not disarm.''
Jim Nussle, who was a former Republican Congressman--I
served with him on this committee--and ended up being the
Director of OMB said, ``Export-Import is self-funding and has
generated income for the Treasury since 1992.''
I bring these arguments out not just to make the appeal to
authority, which they taught us in law school is one of the
easiest things you can do; find somebody who agrees with you
who supposedly is on the other side and if it sounds good. I
just feel what Mr. Campbell said is important. I don't see how
we can just end our involvement with Export-Import now. I don't
know if we should end it, but obviously, reforms are necessary.
We have seen the stories of corruption that are there, and
obviously, that has to be changed. But on the other hand, I
think the blow to our economy by suddenly ending Export-Import,
putting small businesses and also larger businesses at risk is,
especially at this time, when we still have not fully recovered
from the crash of 2008, at a time when there is the increased
burdens of Obamacare, of EPA, of regulations, of burdens, that
it is just not appropriate, and it is not the responsible thing
to do to end the authorization of Export-Import.
At the same time, I believe reforms are necessary. If a way
can be found before the expiration date to bring that about, I
would strongly support that, work with that. I think the
chairman has raised some important issues, but I think we go
too far if we just say that we are going to end it.
And as we saw today, there is always some government
involvement in the company. Bankruptcy is the government
involvement. I support that fully, but that is the government
getting involved in the economy to help businesses get back
together. So we use that. Protections given to labor unions
that are in our economy. We have veterans. We have senior
citizens. Everyone has some government involvement. My goal is
to keep that to a minimum, but I think we would be going too
far if we do not reauthorize Export-Import, but we should do
it, I believe, with reforms.
I certainly look forward to looking at the work and paper
of the gentleman from California, Mr. Campbell, and I thank him
for his efforts.
And, Mr. Anderson, if nothing else, you have certainly
forced Congress to pay more attention to you now maybe than was
done 2 years ago.
With that, I yield back the balance of my time.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from Massachusetts,
Mr. Lynch.
Mr. Lynch. Thank you, Mr. Chairman.
I want to thank the witnesses for their willingness to come
before the committee and help us with our work. I have been
involved on the Oversight Committee and this committee in
dealing with some of our trade agreements and just trying to
rebalance our Export-Import imbalance with a number of
countries. I spent a little time in China recently, as well as
South Korea, India, France, and Germany. I travelled to South
Korea for a few days in connection with the South Korean trade
agreement, and I couldn't help but notice that--this is just
anecdotal, but I was there for several days. And the only U.S.
cars--now South Korea is a booming economy, very modern, big
highways, and the only U.S. cars I saw there on the days that I
was there was the one I was riding in and the one that had my
security detail from the Embassy, so no U.S. cars. In Japan,
same thing. You need a detective to find an American car in
Japan.
So those companies obviously have closed markets in order
to boost their domestic car production. I walk outside this
door here, and I can't spit without hitting a Japanese or a
Korean car, so they are doing massive investments and highly
protective structures to protect their domestic markets so that
they can export goods. And as Mr. King pointed out just
recently, they are pumping in about 7 times what we are doing
in terms of credit assistance through their versions of their
ex-im banks.
In addition, in my State of Massachusetts, the French
government just came in and took over one of our rail systems,
a commuter rail system. They backed one of their companies,
Alstom. France's idea is they want to become the world's rail
company. They want to manufacture the rails. They want to go
out into other countries and dominate those markets, kind of
like what Boeing is trying to do in the aircraft industry on
behalf of American machinists and American workers.
Spain is gobbling up a lot of the construction firms. It
has become a globalized strategy, and they are there to push
their workers, and I understand the theoretical arguments I am
hearing today about it would be nice--we want a level playing
field. The playing field is going to become much less level if
we exit the battlefield, which is what you are suggesting that
we do right now.
I wish that our exit from the Ex-Im Bank--let's make no
mistake. We are not talking about reforming the Export-Import
Bank here. It is going away. So it is going to increase the
imbalance here, but it will tip it drastically in favor of
foreign competition. We are opening up our markets. We are
walking off the battlefield. We will no longer try to protect
our workers in this iteration the way we have been doing, and
it hasn't been smooth. It hasn't been fair to smaller
businesses. I will agree with that. We are protecting a whole
boatload of workers right here. The reality I am dealing with
is if you succeed, if the Ex-Im Bank goes away--and it looks
like that will happen, because no other nation is going to
disarm--we are going to be at a huge disadvantage. And foreign
manufacturers will be handed a huge advantage, and I think it
will be a very, very good day for Airbus. I think you will see
their stock go right up. It will be a great day for them.
But at the end of the day, when the Ex-Im Bank goes away,
government will still be picking winners and losers. It just
won't be the U.S. Government. And the governments that are
picking the winners and losers will be the foreign governments,
and those winners, you have to be kidding me if you don't
believe those foreign governments are going to pick their own
companies, their own workers--you see what China's doing, you
see what South Korea and India, all these other countries. It
is a nice theoretical argument you have here, but when this
goes away, it will be a bad day for America, a bad day for the
American worker.
Chairman Hensarling. The time of the gentleman has expired.
Dr. de Rugy, I think I have been informed that you have
asked to be excused from the panel at this time because you
have a prior commitment. Is this correct?
Ms. de Rugy. Yes, I have a plane to catch.
Chairman Hensarling. In that case, Members--I won't ask
which plane, and I won't even ask which airline--will have 5
legislative days to submit questions to Dr. de Rugy. We would
ask that you respond as quickly as possible.
Ms. de Rugy. Can I add just one thing?
Chairman Hensarling. Not substantively. Process-wise, yes.
Substantively, no. In which case, we will excuse you at this
time.
The Chair now recognizes the gentlelady from Minnesota,
Mrs. Bachmann, for 5 minutes.
Mrs. Bachmann. Thank you, Mr. Chairman.
And if Ms. de Rugy would like to make her comment right
now, I would be more than happy to let her make her comment. If
you would like to make your comment, Ms. de Rugy, that you
wanted to make, make your comment right now during the course
of my time.
Ms. de Rugy. Thank you. Based on the discussion, I think it
is important to remember that the Bank itself only justifies 30
percent of its activity based on the need to countervail
foreign subsidies, so the idea that everything that the Bank
does is to compete with foreign government is not accurate,
based on the Bank's data itself.
And finally, I will say that we are talking a lot about
jobs. We are talking a lot about businesses, but we are
forgetting consumers. Protectionism, which is what the Ex-IM
Bank is doing, hurts consumers in the form of higher prices,
and economists care about producers and consumers, too. We have
many years of economic studies which show that basically
protectionism tends to the benefit--even for the beneficiary of
the protectionism does not outweigh the cost to all the unseen
victims.
Mrs. Bachmann. Thank you so much.
That goes to my point. A lot of what I have heard here
today is that we need to continue to provide subsidies and stay
on the subsidy train because the rest of the world is on the
subsidy train. And to continue that logic means that nations of
the world have to continue one-upmanship on subsidy, so it is
subsidy versus subsidy, and it is a complete rejection of the
free market.
I don't think that is the direction we want to go. The free
market has built up the most magnificent economies of this
world. I remain a defender of the free economy. One of our
former Presidents said that nothing is more representative of
eternal life than a government program. And I think we heard
the defenders here today of this program, despite the
mismanagement, despite the fraud, despite the failures, we have
an executive summary in front of me that says, as a matter of
fact, that Export-Import Bank operated at a loss every year
from 1982 to 1995. And when reform was passed, the FCRA, that
meant the losses were backfilled by the taxpayer, and Ex-Im
Bank received $9.92 billion in direct appropriations from the
government between 1992 and 1996.
When we talk about free economies, the United States used
to be considered under the category of a free economy. We are
not the freest economy in the world. We are not the fifth
freest economy in the world. We are not even the 10th freest
economy in the world. We have actually fallen out of the status
called free economy. We have now dropped out of the top 10. We
are considered a mostly free economy. And while the fault isn't
at the foot of the Ex-Im Bank, it is death by a thousand cuts.
This is just one example.
I think that Congress needs to look at itself in the mirror
and to see what we have done to contribute to a less free
economy. I think there are four areas. One is we have the
highest--look at the tax code in the United States. We have the
highest corporate tax rate in the world, bar none, 35 percent.
Then you add on to that the Obama new tax rate, the 3.8
percent, various state--corporate tax rates, and you see how
uncompetitive the United States is. We need massive tax reform.
Then you look at the next factor, regulatory burden. The
Dodd-Frank Act was brought up today. Obamacare was brought up
today. The new EPA rules are new regulations. We have heaped
upon American businesses the uncompetitive factor of a tax rate
you might say through increased regulatory burden. That is
number two.
Number three is the United States Government, which has
exceeded growth beyond the taxpayers' ability to pay for
government services. We are growing the cost of government.
And number four, the lack of sound money. We have seen
through what the Federal Reserve has been doing, the increased
inefficiency with sound money.
Those four reasons alone aren't your fault. Those are the
fault of the United States Congress and this Government. We are
the ones who need to look in the mirror at how we have made
this a less free economy.
Regarding the Ex-Im Bank and the 4 firings that just
occurred, that also doesn't include the 74 cases since April of
2009, when Bank officials were forced to act on the basis of
integrity investigations by the Office of Inspector General.
There are dozens of other fraud cases involving the Ex-Im
beneficiaries that have now been referred to the Department of
Justice for prosecution. I see that my time is gone, but I ask
unanimous consent to enter into the record several recent
stories about the fraud that is going on at this Bank.
Chairman Hensarling. Without objection, it is so ordered.
Mrs. Bachmann. I want to stand on record that I oppose the
continuation of this Bank because reform hasn't worked. We have
been ignored.
Chairman Hensarling. The time of the gentlelady has
expired.
The Chair now recognizes the gentleman from Georgia, Mr.
Scott.
Mr. Scott. Thank you very much.
Mr. Chairman, this has, indeed, been a very, very
interesting hearing, a very important one. Let me say at the
outset that Atlanta is the world's busiest airport. And I
always like to tell people that whenever you land at the
airport in Atlanta, you land in Congressman Scott's district.
So I say welcome to that. Certainly welcome to you, Mr.
Anderson. I have listened to this discussion with a very
jaundiced ear, and I don't see where the success and the
movement forward of the Ex-Im Bank is not mutually--is mutually
exclusive to addressing the concerns of our airlines. I would
like to see the committee, Mr. Chairman, give some very
thoughtful--we have a very talented, we have a very skillful
committee, and it seems to me that we ought to be able to
address these concerns narrowly focused on what Mr. Anderson
and what Captain Moak are saying without interfering with the
forward progress and the very basic need the Ex-Im Bank has
provided for small businesses that Mr. Wilburn has done. There
may be some on this committee who want to do away with the Ex-
Im Bank altogether. I am not one of those because it has been
very beneficial. But I think we would be very derelict in our
duty as a legislative body to ignore the very pointed concerns
that have been raised by Mr. Anderson and Mr. Moak. I think we
can have some folks from both sides go to work to try to put
some language into this Ex-Im extension that will address those
concerns.
So, with that, Captain Moak and Mr. Anderson, let's narrow
in specifically. I think what concerns you most is the
competition with the wide-body or the Boeing 777. What can we
do to put in some language that could address that? It could be
a trigger mechanism. It could be an assessment, as Mrs.
McCarthy said, mandating things that are rather difficult. What
could we do to address those concerns and move this thing
forward?
Captain Moak. Thank you, Congressman Scott.
First, I just want to thank you. I don't know if you
remember, but you stood by my side in front of 1,000 Delta
pilots in ``Keep Delta My Delta,'' and your speech is still
viewed in that light when you stood up and said this is truly a
David and Goliath, and when David was walking back and said, Is
there a cause? There is a cause. He turned around and went
back. The cause here is Ex-Im Bank reform. And I commit all our
resources, everything, to work on that narrow part of the
reform that we need so that we meet a fellow veteran's needs,
small business needs, but we meet our needs so that we stop
losing jobs. I would be happy to help. Our team will help.
Anything we can do. Thank you again for that day. You know
where we have come from there.
Mr. Scott. Absolutely. And I certainly understand.
Mr. Anderson, what would be the narrowest scope of language
that we could add that would address your problem as we move
the Ex-Im Bank forward?
Mr. Anderson. The Bank would not finance below market wide-
body airplanes for state-owned, state-subsidized airlines that
are otherwise creditworthy. There won't be a need, and that
would solve the competitive issue, because what we are dealing
with is a much broader competitive issue. And I think both
sides of the aisle have addressed this. We don't compete in my
business against other companies. In our business, we compete
against government. So my big competitors, our big competitors
internationally are governments that happen to have a
department that is an airline. They get huge, huge subsidies,
and it really hurts us when our government gives them a subsidy
on top of the huge subsidy they already collect.
Mr. Scott. My time is running out.
Mr. Chairman, I think it might be wise that we could make a
point of order that as we move forward with this, that we could
develop some language--I would be delighted to work with your
side on that--that I think could accomplish that as we move
this forward.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from New Mexico, Mr.
Pearce.
Mr. Pearce. Thank you. I appreciate each one of you making
the appearance here today.
Mr. Wilburn, you had mentioned barriers to entry in
subsidies to oil and gas as being one of the problems that you
have as a business unit. Could you tell me a little bit more
about those obstacles?
Mr. Wilburn. I'm sorry, Congressman. Could you repeat your
question? I didn't quite catch it.
Mr. Pearce. I was asking if you could go a little bit
deeper into the obstacles that you face as a small business.
You had mentioned the barriers to entry and the subsidies to
oil and gas, and I think you specified the depletion allowance.
How is it those keep you out of the domestic market or make it
less available to you?
Mr. Wilburn. They make it less available to me because I am
basically competing with the price of natural gas. Trust me, I
am an advocate of strong natural gas resources here. But I go
to landfills and I go to pollution sources, and I take that
organic material, and I make methane. That methane has a cost,
but it also has some benefits to it. It doesn't go to a
landfill. Oil and gas has a subsidy if you want to call it
that, that allows an advantage over my product. I don't have
access to that, so I have to go to markets where I have a
chance to compete, and those markets are where there is not
natural gas reserves, and they don't receive those subsidies.
That is the barrier entry of which I was speaking.
Mr. Pearce. The oil and gas company has to pay for that.
They don't just get the oil and gas for free. They have to pay
for it, and so, basically, all that is is a depreciation of
what they have paid.
Mr. Wilburn. --the same benefit.
Mr. Pearce. When you go to a landfill, do you have to pay
to get the right to harvest that gas?
Mr. Wilburn. Absolutely.
Mr. Pearce. And so you don't get a writeoff for creating
that gas? You don't get a writeoff?
Mr. Wilburn. No.
Mr. Pearce. That is probably something that we should
consider. But in contrast, it is not the major producers that
would provide a barrier to entry that don't get the depletion
allowance. It is just the independents, the small producers.
That is about 12 percent of the market.
Mr. Chairman, we have talked today about the catastrophic
effects that we are going to have on the job market if we don't
take action one way or another, and there have been all sorts
of suggestions here. But I don't think what we do here is going
to affect jobs nearly as much as other things. And the
gentlelady from Minnesota had gotten this covered pretty well.
The corporate tax rate the President has set is probably one of
the biggest impediments to business in America, and I sent him
a letter personally saying I will work with you on that, sir,
across party lines, across any other lines, because I agree
that one of the greatest impediments to manufacturing in this
country is the corporate tax, but I have yet to hear from the
President, and that has been 4 years ago. But the regulations
are where we really are killing the job market. For instance,
the timber industry: 85 percent of timber jobs are now gone
from America; 123 mills in New Mexico closed because of a
government regulation, one government regulation that said the
spotted owl is going extinct because of logging, and the
government came back this last year and said, oops, logging
wasn't the problem, so not only do we have a government that
intervenes, but we have a stupid government that intervenes;
23,000 agriculture jobs in the San Joaquin Valley went begging
because of a 2-inch Delta smelt, another regulation. Now we are
importing 80 percent of our vegetables from areas that spray
things that we could not spray before, and that has hurt the
job market in America more than what we do on the Ex-Im Bank.
We, in 2007, passed a bill through this Congress that
outlawed incandescent light bulbs. That killed the incandescent
light bulb industry. That last manufacturing facility closed
down, and China is able to produce the small curly bulbs that
require more labor because of actions like this; and that was
not an Ex-Im problem. We have continually put the consumers at
risk by driving the price of electricity up, and the President
has said, yes, electricity is going to be necessarily higher
because of our regulations. And we are a 70 percent retail
economy, and yet I hear no one on this committee who is
defending the job creation of the Ex-Im Bank addressing that.
We are killing the consumer market by higher electricity. It is
the government that is at fault. The government is not the
solution.
I yield back.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from Texas, Mr.
Green, ranking member of our Oversight and Investigations
Subcommittee.
Mr. Green. Thank you, Mr. Chairman.
I thank the witnesses for appearing, and I especially thank
our two veterans who are part of this panel.
And, Mr. Wilburn, I thank you because you indicated that
you may be impacted by PTSD, and that says to me that you have
had some experiences that are less than pleasant, and my
prayers are with you.
I am reminded of Chairman Barney Frank, who, on the topic
of reality versus desires, would often say he wished that he
could eat more and lose weight. I wish that I had options other
than end it or extend it. I would dearly like to have options
other than end it or extend it. But these are the options that
we seem to be confronting, and I am a person who believes in
compromise, and I am willing to work across lines to do
something other than end or extend.
But given that these are the options, let me just share
some of the comments associated with the options that are
before us. A Houston Chronicle editorial published on June 25,
2014, that would be today: ``No time for games. Export-Import
Bank loans support American jobs, including Houston area
jobs.'' Apparently, Mr. Hochberg was interviewed by the
Chronicle and gave his commentary. The Chronicle goes on to
indicate large or small Export-Import Bank loans support
American jobs, including jobs in the Houston area. Bank
officials told the Chronicle that its financing has supported
$11 billion in export sales from the area since 2009 with $3.5
billion of that attributable to small businesses. The Bank also
cost taxpayers nothing. It supports itself through the fees and
interest it charges and regularly sends money to the U.S.
Treasury to reduce the debt. This is from the Houston
Chronicle.
I concur with the ranking member with reference to there
being persons of note who were not here to testify today. And
if they were here to testify, I believe they would say, some of
them, what the Greater Houston Partnership says. The Greater
Houston Partnership indicates, and this is an excerpt: ``Small
and medium-sized businesses in our region also benefit directly
from Export-Import. Small businesses account for nearly 85
percent of Ex-Im Bank's transactions. Further, these
transaction figures do not include the tens of thousands of
small and medium-sized businesses that support goods and
services to large exporters using the Bank. We trust--this is
addressed to me--you will carefully consider the impact Ex-Im
Bank has on our region and our position as a global economic
leader.''
Now this letter, while sent from the Greater Houston
Partnership, appears to be supported by the Bay Area Houston
Economic Partnership, the Baytown Chamber of Commerce, the
Brenham Washington County Chamber of Commerce, the Clear Lake
Chamber of Commerce, the Greater Beaumont Chamber of Commerce,
the Greater Houston Partnership, the Greater Tomball Area
Chamber of Commerce, the Houston East End Chamber of Commerce,
the Houston Northwest Chamber of Commerce, the Lake Houston
Area Chamber of Commerce, the League City Chamber of Commerce,
the Pearland Chamber of Commerce, the West Chambers County
Chamber of Commerce, and the Wharton Chamber of Commerce.
Finally, there are some small businesses in the Houston
area which, if they were given the opportunity to testify,
would indicate that they are supportive of the Ex-Im Bank as
well. This would include the South Coast Products business. It
would also include the Hallmark Sales Corporation in Houston--
this is not the card company--and the Everest Valve Company in
Houston and others.
Thank you, Mr. Chairman. I will yield back.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from Missouri, Mr.
Luetkemeyer.
Mr. Luetkemeyer. Thank you, Mr. Chairman.
And I thank the witnesses for being here today. I certainly
appreciate your testimony.
Mr. Anderson and Captain Moak, thank you for your comments
and concerns. I appreciate the fact that you have brought some
issues to light with regards to the aircraft manufacturing
sales portion or financing portion of the Bank. I think those
need to be addressed, but I congratulate Mr. Wilburn also on
being here and thank you for your testimony from the standpoint
that we have several different things to look at and discuss
here today, and that is the small business portion of this as
well.
In 2013, aircraft manufacturing made up only 40 percent of
Ex-Im's financing; 40 percent went to other manufacturing; and
20 percent went to oil and gas, base telecommunication
services, and mining. So it does have a lot of other financing
interests that it takes care of and works with. I think the
statement has been made many times this afternoon and this
morning that about 3,400 of the 3,800 loans it made were to
small businesses, and so I think that at the end of the day, it
is something that we need to consider, how we can find a way to
reform it, make it work for everybody.
I get this crony capitalism comment, and it kind of sticks
in my craw a little bit from the standpoint that crony
capitalism is truly when you hand out favors for somebody as a
favor for them having done something for you. And yet the
Federal Government helps with SBA loans. Is that crony
capitalism? It helps with VA loans, helps a veteran own a home.
Is that crony capitalism? We have in our treaties and in our
export and trade tariffs and all sorts of treaty protections
with regards to everything from automobile manufacturing, to
agricultural products, to intellectual property to be able to
protect and incentivize businesses here in this country to be
able compete internationally and protect their products so they
can compete and provide jobs here.
Dr. de Rugy a while ago made the comment that she would
like to see it all go away. Well, that would be great. If we
lived in a perfect world, that would be fine. But if that would
happen and none of the rest of the world disarmed, as the
comment has been made before a couple of times, what would
happen? Let's stop and think about that for a second. What
would happen if we did away with all our tariffs, all the
intellectual property protections, and the rest of the world
could really come in and rape and pillage our industries
through the this country. We would have no ability to protect
them. They could compete, subsidize, and take all of our jobs
away. Yes, we would lower the price of products at the
supermarket and the hardware stores and whatever, but our jobs
would certainly be gone, wouldn't they? And we would suffer.
Quality of life would go down, and some things would be a
national security problem for us because we would lose the
ability to be able to build things, provide services for things
that are of national importance to ourselves. In my district
alone, we had the last lead smelter in this country, and it
went out of business because of the EPA in the beginning of
January. You know what we do with the lead that is mined in my
district? We send it to China. You know what we do when we want
to build a bullet? We have to go to China and buy our lead
back. That is what would happen if you continue down this path
of forgetting about how to protect the ability of our
industries to compete.
Is it a perfect world? No, it is not. It is not what I
would like to have either. But at the end of the day, I think
that we have to find a way to come together to realize that
there has to be a way to find a middle ground on this, to
reform this thing. I am a banker. I can tell you there are a
half dozen things I would love to see changed about this thing.
I am working with Congressman Campbell on trying to do that
because I believe that this can be done. I believe that there
is enough good about this thing, this entity that we can use it
for the good of our people, our country and our industries.
Does it need to be reformed, absolutely. There are a few things
in there that drive me up a wall.
And I am glad, Mr. Anderson and Mr. Moak, that you brought
those to light today.
Mr. Wilburn, you also make a great point from the
standpoint of the importance of how this Bank can help small
businesses compete, can grow, can market a product that may not
be able to even be marketed here in this country but can be in
other countries around the world. And by enabling our markets,
our entrepreneurs in this country to be able to build that
product, can market it and bring revenue to our country instead
of sending it out.
Mr. Chairman, I yield back the balance of my time. I
appreciate the opportunity today.
Chairman Hensarling. The gentleman yields back.
The Chair now recognizes the gentlelady from Wisconsin, Ms.
Moore.
I'm sorry, if the gentlelady would suspend, I will
recognize the gentleman from Texas briefly for unanimous
consent.
Mr. Green. Thank you, Mr. Chairman. I ask unanimous consent
that the letters and documents that I referenced be submitted
for the record.
Chairman Hensarling. Without objection, it is so ordered.
Now, I recognize the gentlelady from Wisconsin.
Ms. Moore. Thank you so much, Mr. Chairman, for having this
hearing. I think it is extremely important to everyone.
I do want to raise a bit of caution to Captain Moak and to
Mr. Anderson here. I have heard you say continuously that you
want the Bank to be reformed and not dismantled. I have clearly
heard that, but I want you to be clear that this hearing is
about whether or not we are going to reauthorize this Bank, and
the authorization is going to expire in 90 days or so. And
there are not many days left in this session.
Our chairman has been very articulate in indicating that he
does not believe in this kind of government activity. We had a
very passionate witness, Dr. de Rugy. I am sorry that she had
to leave before I had a chance to ask her some questions. Very,
very passionate, given her economic view that this is bad.
So I want you to be clear that you are sitting on the side
of people who do not want this to be extended.
I also want to associate myself with many of the excellent
questions and comments that have been made by my colleagues on
both sides of the aisle and just really want to remind people
that we are not talking about just Boeing or the airline
industry here. I represent an area that is home to six Fortune
1,000 companies, manufacturers like Johnson Control, Rockwell,
and Harley-Davidson. We are second in the country in
manufacturing, and we are dominated by small to medium-sized
metal fabricators that export all over the world and really
need the Ex-Im Bank, so we are not just talking about one group
of employees, and I am very, very sympathetic and empathetic to
them, but there are hundreds of thousands of other employees
who rely on these activities.
And, indeed, Delta got a $45.5 million subsidy from the
Export-Import Bank for their engine maintenance services, 400
jobs that rely on the Export-Import Bank in order to do
maintenance, I believe for Brazil. I see you shaking your head
over there. Maybe I will give you a chance to answer.
I have a chart up here because there are a couple of things
that I really want to point out. We have heard a lot of
testimony about how the Export-Import Bank creates competition,
and that green line below shows the last nine brand new
airplanes that were built by Boeing. That is the interest rate
and the price that they paid as compared to the commercial Bank
financing rate in the red, and the blue line there is the OECD
agreement, the gentleman's agreement that we have heard so much
about, with regard to what export credit agencies can provide.
So Delta is buying planes at that green level. We are not
squeezing out the private sector.
One other thing that I continue to hear over and over again
was about the Cliff Mine in Michigan and how the Export-Import
Bank was creating an uncompetitive situation. And I am
disturbed because Caterpillar is headquartered in the Midwest,
and they have a huge operation in Mr. Ryan's district right
across the street from my district. Many of my constituents
work at Caterpillar. And the iron ore that was coming out of
the mine in Australia and the one coming out in Michigan were
two different iron ores, two different applications. Apples and
oranges are both fruit, but they are not the same. That was not
the truth.
I don't have much time, so I will yield the rest of my time
to Mr. Heck.
Mr. Heck. I would just like to make the point that the
threat to the American manufacturing base is existential. It is
very real. As we sit here, the Chinese, at considerable state
investment, are developing an airplane to complete with both
Airbus and Boeing--the C919, I believe. They have an export
credit authority that is larger than ours, that is a larger
percentage of their GDP than ours, and be assured that when
they successfully complete development of their airplane, they
will compete with us on the open market. More to say later.
Chairman Hensarling. The time of the gentlelady has
expired.
The Chair now recognizes the gentleman from Tennessee, Mr.
Fincher.
Mr. Fincher. Thank you, Mr. Chairman.
I am going to give Mr. Anderson briefly a chance to
respond. I also have the question that you guys did receive
financing from a Canadian import-export.
Mr. Anderson. I am glad you asked the question about GOL
Airways. First of all, Delta is a huge manufacturing company.
We have 7,000 manufacturing jobs, and we are one of the largest
engine overhaul companies in the United States. We run the
largest shop in the United States. And GOL is a terrible
example for the Ex-Im Bank, and I think it was something they
contrived to try to say it created jobs at Delta, as we are an
opponent of the Bank. In 2010, we won a worldwide competition
to overhaul engines at GOL Airways in Brazil. It had nothing to
do--the Ex-Im Bank wasn't involved, and we won it against
Lufthansa and against GE to overhaul their engines in Atlanta.
Two years later, the Bank went down to Brazil and gave them a
loan for .622 percent--and I know about this because we own
part of that airline--and then issued a press release saying it
created 40 jobs at Delta. That is just false.
Mr. Fincher. Okay. Mr. Anderson, let me start by saying, as
someone who lives 60 miles north of Memphis, I love Delta Air
Lines. And the pilots and the airline, the flight attendants,
you do a great job, so please don't hold anything I say against
me today as we fly in the future. I was born at night but not
last night.
I didn't support reauthorization last time of Ex-Im Bank
because I felt that reforms that needed to be made were not
made. But today, listening to the testimony from all three of
you--and the doctor is gone--reforming Ex-Im Bank with reforms,
I think you all would support reauthorization. Correct?
Mr. Anderson. With reforms.
Mr. Fincher. With reforms. As we have been talking, and I
have a whole package of reforms here that we have been working
on for the last 6 weeks, 2 months. A thousand jobs in the
Eighth Congressional District of Tennessee, my district, are
supported by the investment of Ex-Im Bank. This is not about--I
have heard some people today talk about 10 big companies or
whatever. This is not about leadership and our party. I think,
as Republicans, we are all trying to get to the same place of
having a government that is more accountable and more
transparent and more responsible with taxpayer dollars. This is
about, for me, the jobs in my district.
And it is going to be hard for me to go back home, Mr.
Anderson and Captain Moak and Mr. Wilburn, and have my
constituents ask, ``Congressman, have you balanced the
budget?'' And I am going to say, ``Well, we are working on
it.'' And they are going to ask, ``Congressman, did you get rid
of Fannie Mae and Freddie Mac?'' And I am going to say, ``Well,
we are working on it with the PATH Act.'' ``Well, Congressman,
the only thing that you have done is you have gotten rid of an
investment that was creating a thousand jobs in our district,
and now I am on unemployment. I don't have a job.''
I have a paper right here: ``U.S. economy shrank at steep
at 2.9 percent rate in quarter one.'' The Commerce Department
says the first quarter contraction was even more severe than
the 1 percent annual decline it estimated a month ago. Another
major factor was a bigger trade deficit than initially
estimated.
Again, if we don't reform Ex-Im Bank, then we will have
some real problems. And as a lot has been said today about the
way that Ex-Im Bank is being operated, Mr. Hochberg, if they
won't respond to the changes that we are trying to make, maybe
Ex-Im Bank needs to be--maybe we will need to clean house
there. But please, let's not overreact. Let's try to fix this
investment. Let's make it better. Let's get back to the
original mission of Ex-Im Bank, and don't hurt jobs in our
districts.
I am going to have a hard time, I am just going to tell
you, going back home to my district and telling my people, my
folks, that the only thing I have done is kill jobs for my
district. Let's try to work this out. I think we can.
Again, I have a whole list of reforms here I will be glad
to talk to anybody about. I appreciate Mr. Campbell and the
work he has done.
And I appreciate all of you gentleman, and we are going to
reform this hopefully and make it better.
And with that, I yield back, Mr. Chairman.
Chairman Hensarling. The gentleman yields back.
The Chair now recognizes the gentleman from Maryland, Mr.
Delaney.
Mr. Delaney. Thank you, Mr. Chairman.
I want to thank all the witnesses for joining us here
today.
Mr. Wilburn and Captain Moak, thank you.
And, Mr. Anderson, I want to thank you, in particular, for
joining us and for bringing so many of your colleagues. Delta
is an important and iconic company. I think you all should be
congratulated for the great work you have done positioning this
airline as such a successful business. And the fact that all
your colleagues joined you here today is a reflection of the
good culture of the airline and your good leadership. So I just
want to make it clear that I think what you are doing is
terrific.
Mr. Anderson. Thank you.
Mr. Delaney. My question is actually more of a factual
question. And perhaps, unlike some of my colleagues, I don't
actually know the answer to my question before I ask it.
But I was struck by this page when you put it up, and I was
very concerned by it because, as I think many of my colleagues
know, I care deeply about free markets and believe that market
pricing should dictate all of, kind of, government financing.
And when I saw this, I was very concerned about that, because
it said that the government is making a loan at 3.4 percent and
the same loan in the market would be made at 6.1 percent, and
that is obviously a very big subsidy.
But, as someone who is used to reading footnotes, I did
read the footnote, and it said that the private-market example
is something called Doric Nimrod Air Finance Alpha. I looked
that up. And that is a special-purpose entity based in Ireland
that owns 58 airplanes and leases those 58 airplanes to about a
dozen carriers, including the Emirates. And it leases those
airplanes on an operating lease basis, not a capital lease
basis, which means the risk of ownerships and the benefit of
ownerships are not fully transferred to the lessee.
And so, when I saw this, recalling my days in the credit
business, I said, well, this strikes me as a worse credit,
because I would much rather lend directly to Emirates and have
their full faith and credit saying that they are going to pay
back every penny of the loan on a fixed amortization, which is
what Ex-Im finances, versus the loan to a special-purpose
entity that has, structurally and contractually, certain
limited recourse.
Now, I may be wrong about this, because, again, I am just
reading the footnotes and I just did some searching on my
little Google device here. But my question is, first, is that
accurate?
And, second, do you think, as the CEO of Delta, if you were
to borrow directly from a Bank and put the--and I recognize you
didn't have to borrow to buy your planes, which is great. But
if you were to put the full faith and credit of Delta Air Lines
on the line, as well as a lien on the aircraft you purchased,
wouldn't you expect to borrow at a lower rate than if you were
to set up an unrelated company that purchases the airlines and
signs a lease to you with certain limited recourse and then you
were to get a loan for that special-purpose entity?
So I am really just trying to figure out what the apples-
to-apples pricing comparison is.
Mr. Anderson. What we were to do here is make it apples-to-
apples. Okay? And if you go down through the footnotes,
obviously, the coupon--these were both public market
financings.
Mr. Delaney. Right.
Mr. Anderson. The one on the left had an Ex-Im Bank
guarantee attached. Right? And you can see the collateral. The
coupon is beyond question--
Mr. Delaney. Yes, that is obvious.
Mr. Anderson. The coupon was obvious. The loan-to-value
ratio--with the Ex-Im, you get a higher loan-to-value ratio
because you don't need as much equity. And what you have
approximated here is that this is the Emirates credit, and--
Mr. Delaney. But isn't it true that it is actually not the
Emirates credit?
Mr. Anderson. No. But it is the Emirates credit, based on
what Moody's said. I can give you--
Mr. Delaney. I read the Moody's credit report on my device
here, and it talked about how the lessor had risk of the value
of the asset at the end of the term and that it wasn't fully
recoursed to the Emirates.
Mr. Anderson. Pardon?
Mr. Delaney. That it wasn't really recoursed to Emirates?
Mr. Anderson. No, this is an apples-to-apples, because they
were both issued at the same time and both of them were public
financings.
Mr. Delaney. Right, but--
Mr. Anderson. And one of them decided they were going to
lease, so I think the market-based financing was a lease-based
financing on the A380s.
Mr. Delaney. Right. But at the end of the lease term, the
lessor takes back that airplane if the lessee doesn't--like, if
you leased a plane, at the end of 10 years, if you didn't want
the plane, you would give it back. And if--
Mr. Anderson. Correct.
Mr. Delaney. --someone had a loan on that plane, that loan
won't be your obligation.
Mr. Anderson. But airlines lease--we tend to want to own,
right, because you get the residual value. But part of what the
market is reflecting here is that they are going to return--
they want the option to be able to return the airplane in 5.7
years, because that is the average life of the lease.
Mr. Delaney. So, just a quick question. Do you think you
should pay less for the direct Delta credit in the market
secured by assets than you do for a lease?
Mr. Anderson. Well, yes. You will--I think you are better
off--well, it depends on the airplane. And that is probably
what they are doing here. They probably want to own the 777s,
but they probably only want to lease A380s.
Chairman Hensarling. Time--
Mr. Anderson. And this is what a lease looks like for
Emirates at their credit.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from South Carolina,
Mr. Mulvaney.
Mr. Mulvaney. Thank you, Mr. Chairman.
When we started today, I believe it was somebody on the
other side--in fact, I know it was somebody on the other side,
I believe it was Mr. Heck; I wish he was still here--who
challenged us not to believe false statements regardless of the
number of times they are repeated. And I think that is always
good advice.
I would think it is similarly good advice to not believe
statements that you can't prove. And one of the things that I
think he said--and I don't want to put words in his mouth, but
I couldn't find the transcript--was that the Export-Import Bank
had created 255,000 jobs last year. If I have that number
wrong, I apologize. If I got the exact verbiage wrong, I
apologize. But that was the general extent of things. Nobody
can prove that number.
And I want to explore that a little bit. I want to explore
the weaknesses in these job numbers. Mr. Fincher talked about
1,000 jobs in his district. Nobody can prove that number.
Mr. Anderson, you have mentioned in your testimony that the
Export-Import financing in the aviation sector has cost you all
7,500 jobs. Ex-Im says that its Boeing-related activities
created 51,000 jobs. Who am I supposed to believe between those
two?
Mr. Anderson. Me.
Mr. Mulvaney. Why?
Mr. Anderson. In the instance of Delta, in the example that
we used with Air India, that actually happened. We went through
a reduction in force. Fortunately, we were able to get enough
employees to take voluntary early retirement. But when we
pulled all that flying out of India--we had a very successful
business flying to Mumbai. And we bought, by the way, two 777s
and financed them ourselves to be able to do that service. And
so, I know those jobs are there.
I think you make a correct intellectual point on both sides
of the debate, honestly, in that it is very difficult to put a
precise number, for you or for any of us here.
And so I guess what I rely back on is, I see what goes on
in the marketplace. We have one going on right now in JFK to
Milan, Italy, with Emirates Airlines, which has financed
airplanes from the Ex-Im Bank. And they have dumped 65--they
have increased the capacity in Milan to JFK 65 percent. That is
going to have an impact on jobs in the United States over time.
And they are deeply subsidized, which probably really gets to
the deeper point of trade subsidies.
But, look, you make the right intellectual point. These are
estimates; they are estimates by everyone. And they are a best
judgment. I will tell you, the Air India numbers are right,
because I was involved in pulling it down and having to do the
reductions in force.
Mr. Mulvaney. And if you do scratch a little bit deeper at
the Export-Import Bank numbers, what you will see is they are
using formulas that use information from 2002.
If Ms. de Rugy was here, I would talk to her about the
foreign components. Boeing advertises that 30 percent of the
787 is made overseas. And it is unclear how many of those
255,000 jobs, Mr. Heck, are actually jobs overseas. In fact,
when the GAO asked the Export-Import Bank about that in its May
report, it said that Ex-Im officials told us they had not
assessed the extent to which this limitation affects the
overall jobs estimate.
``Supported'' versus ``created'' is another little twist of
the language. ``Supported'' and ``created'' are not the same
thing. Just because a job is supported, doesn't mean it is
going away if the Export-Import Bank financing goes away at the
same time.
I think it is important to recognize one thing as we deal
with these things and we start using these numbers when we talk
about jobs: The only reason the Export-Import Bank counts jobs
is because of us. That is it. That is the only reason they
count jobs, is so they can come in here and try and justify
their existence.
I am not making this up myself. I am looking at the GAO
report, and it says, ``Export-Import officials told us they use
the results of its jobs calculations for reporting purposes
only. According to the Ex-Im officials, Ex-Im calculates the
number of jobs supported for the transactions reviewed by the
board of directors at the request of one of its board members.
Ex-Im board members stated that the purpose of reporting these
numbers is to give Congress a sense of the employment effects
of Ex-Im activities. They do not use them for decision-
making.''
The only reason they are giving you the 255,000 number is
because they want--excuse me--255,000 jobs is because they want
to continue to exist. And at some point we have to decide which
numbers are real and which numbers are fake.
And I would suggest to friends of mine on both sides of the
aisle that, as between a government agency and bureaucracy that
is trying to make an argument for getting more money and
continuing to exist and a private sector company that is simply
saying, please leave us alone so that we can compete, it is the
latter that is the more reliable number. And the 255,000 is not
a real number. But the 7,500 jobs that Delta lost are real, and
that is what we should be focusing on.
Chairman Hensarling. The time of the gentleman has expired.
The Chair recognizes the gentleman from Washington, Mr.
Heck.
Mr. Heck. Thank you, Mr. Chairman.
And to clarify the record, it is 205,000 jobs for 2013. I
believe it was 255,000 in 2012, as reported by the industry,
actually, to the Export-Import Bank.
Mr. Anderson, I want to ask you a question to which I
suspect I know the answer. Would you favor continuation of the
Small Business Administration?
Mr. Anderson. I don't know anything about the Small
Business Administration. I am a large business. I could
certainly go learn about it, but I--
Mr. Heck. Please don't.
Mr. Anderson. --don't know. I just don't know. I have never
done any studies. I have never had anything to do with the
Small Business--I don't even really know what it does.
Mr. Heck. I asked because I thought I knew the answer,
which I did, and I thought you would have said ``yes.'' And I
was--
Mr. Anderson. I can say ``yes'' if you want me to.
Mr. Heck. It is nice to know what kind of thought you give
to your testimony here today, sir.
Mr. Anderson. Well, no, I am just totally--if you think
that it is--
Mr. Heck. No, I--
Mr. Anderson. --a worthwhile program, I am happy to--
Mr. Heck. Time out. Time out.
Mr. Anderson. --support it.
Mr. Heck. I--
Mr. Anderson. I didn't come here to testify about the Small
Business Administration.
Mr. Heck. Admittedly.
And I wanted to make the analogous point that the SBA, in
some ways, functions as the Export-Import credit does. The SBA
enjoys an enormous amount of public support and is kind of a
given. And I wanted to give color to your earlier remarks that
it was a reformed Ex-Im going forward you were seeking, not
elimination of it. That was my only motivation.
I do want to make the point that those of you who are
aggressively seeking reforms, which may or may not enable the
continued existence of Ex-Im in any kind of meaningful way, are
playing with fire. You are playing with fire.
I want to go back to how I ended up, in my brief time that
the gentlelady from Wisconsin gave--we could wake up in 20
years and still have a duopoly in terms of airplane production
in this world, but unfortunately it would be Airbus and the
state of China and their C919. I don't think America would be
better off for that. I think America would be worse off.
It is the broader point I seek to make, however, which is
the importance of aerospace production, which is one of the
important beneficiaries of the Export-Import Bank, and the
domestic industrial base of this great Nation. We don't want to
lose it.
We have lost really key components of our industrial base
over the last several decades, and most of us have lived to
regret it. But the difference is this is not one we can
reconstitute very easily. And, in fact, it is not unrelated to
this Nation's security. The hundreds of thousands of people who
put together those great airplanes and, frankly, those national
security products are a part of keeping this Nation safe.
And, again, I think we are playing with fire if we think
that we can do away with the Export-Import Bank and not have
that critical part of our industrial base decline. I think we
are playing with fire if we think we can be as aggressive about
certain kinds of reforms that would have that effect and not
acknowledge it.
I was delighted to hear my friend, Mr. Campbell, indicate
that he had come up with a bill. I respect him a great deal.
This institution is going to miss him. Frankly, I am going to
miss him. This committee is going to miss him. And I thought it
was an act of considerable integrity that he accepted
responsibility for the development of that which he presented
today, having been just done on that side.
He knows that I talked to him on the Floor months ago and
asked that our side be a party to those conversations. But we
are where we are. And Mr. Campbell has taken the constructive
step to put a bill on the Floor, which--or a bill on the table,
which none of us have had the opportunity to read, so we know
not what its impacts will be.
But here would be my point about that, and granting him
credit for that work, which I know was hard: The exact number
is 97. Ninety-eight days from now, the doors of the Export-
Import Bank will shutter, and America will be worse off for it.
And the alternative is that we have a hearing on an actual
bill that Mr. Campbell has developed and begin the give-and-
take about what the path forward might be. Because, in fact, we
only have 97 days.
And I don't want to wake up in 20 or 30 years, should I
have the great blessing to still be around, and look back and
rue that we were the ones that allowed another enormous
degradation of our Nation's domestic industrial base, as we
have in so many other sectors. This Nation cannot afford it.
Our quality of life cannot afford it, our standard of life
cannot afford it, and the health of our economy cannot afford
it.
Thank you, Mr. Chairman.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from Kentucky, Mr.
Barr.
Mr. Barr. Thank you, Mr. Chairman.
Thanks to the witnesses for your patience and for your
persistent testimony here today.
First, for Mr. Wilburn, I appreciate that you are a small
business owner and you are an entrepreneur. You mentioned that
you were ``a free-market guy.''
Are there other means that you could identify making your
company more competitive in the global marketplace besides
reauthorization of the Ex-Im Bank? For example, lowering the
highest corporate tax rate in the developed world? Ending the
war on domestic energy production to make sure that we have an
affordable and reliable supply of industrial energy costs?
Repealing Obamacare, for example? Promoting free trade?
Lessening the regulatory burden on U.S. companies, which is
estimated to cost the American economy $1.8 trillion annually?
Do you see some of these policies, which produce
impairments to our competitiveness, as equally or even more
important than reauthorization of the Ex-Im Bank to your bottom
line?
Mr. Wilburn. Speaking to my bottom line, I think all these
things that you mentioned need to be considered in the argument
that they are going to have in the next couple of days here
really.
And it is important, I think, to give you a number, if I
may just diverge from the question for a moment. There were 165
jobs that we created. We audited those. We will be happy to
share that with the committee. But--with our project in Brazil.
But, to your point, without the Export-Import Bank existing
in a form that would allow me to compete with the ECAs of the
world, for my products to get there, I can't imagine my company
surviving.
But I also think, as a free-market person, that a lot of
the reforms that you are talking about and a lot of the
policies you are talking about need to be debated, need to be
debated civilly. We don't need to use words like ``crony
capitalist'' and insult some of my people and small business
people with that. We need to get into the productive words like
you just mentioned, have a discourse.
Mr. Barr. Just to conclude, you would agree, then, that
there are many, many ways to make the United States and our
businesses here, including yours, much more competitive
independent of the Ex-Im Bank issue?
Mr. Wilburn. Absolutely.
Mr. Barr. Okay.
Let me just ask the other witnesses to comment on that, as
well, just very, very briefly.
Captain Moak. The one thing I would focus on is, it is one
thing competing in a free marketplace, and it is another when
our government subsidizes our competitor.
That is what we are here about. We are not here about all
these other things that people are bringing in. We have
somebody, our own government, government policy subsidizing
someone, putting a piece of equipment on top of us. We are
losing jobs. That is what we are about.
Mr. Barr. Thank you, Captain Moak.
And, Mr. Anderson, when you answer the question, I would
also put something else out there for you to comment on. In
response to my colleague Mr. Capuano's argument earlier in the
hearing today--and I will summarize his argument: Since
everybody else is doing it, we should, too. And we have heard
that in some form or fashion from a number of my colleagues
here today.
Is that the right attitude? That because everybody else is
doing it, we should do it? And how would you respond to that?
Mr. Anderson. In our specific instance, it is not everybody
else; it is three countries. It is England, France, and
Germany, our three closest allies and trading partners. So, in
terms of aircraft finance, this is--and everything else we do
with those three countries, this is something that is
immediately solvable with respect to financing.
On the broader question, I think the really broader
question is, I don't think we are very good at negotiating
trade agreements in our country. And while we all support, I
think on both sides of the aisle, the free trade, what ends up
happening is we all--in our industry, we don't have free-trade
agreements. We have unfair-trade agreements.
And I think the biggest thing we could do as a country is
make sure our trade agreements are, in reality, free-trade
agreements and that U.S. companies are not put at a
disadvantage.
Mr. Barr. Mr. Anderson, in my remaining time, I will note
that I appreciated your comments about lost pensions at your
company. In my congressional district and just outside of my
congressional district, my constituents in the coal industry
have not only lost their pensions, they have lost their jobs.
And what the Export-Import Bank looks to do is to harmonize
their policies with the Administration's job-killing policies
that have put those people out of work.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from Michigan, Mr.
Huizenga.
Mr. Huizenga. Thank you, Mr. Chairman. I appreciate that.
Mr. Anderson, I know you were being quizzed about the Small
Business Administration. I won't ask you about the EPA, I won't
ask you about NLRB, I won't ask you about a lot of other things
that have been going on in the Administration. But it does
strike me, after doing a little basic Internet research here,
that we might be talking about the ``big business
administration'' here, with Ex-Im.
General Electric has $656.6 billion in assets on their
balance sheet, which includes a financing arm, GE Capital, with
$517 billion in total assets. That makes them the eighth-
largest Bank holding company in the United States. The Boeing
Company, with $92.7 billion in assets on their balance sheet,
with their finance arm with $3.9 billion in total assets.
Caterpillar--I am familiar with heavy equipment. I own a small
sand and gravel operation, and have owned Caterpillar products
in the past. Their assets are $89.9 billion on their balance
sheet.
I guess maybe my question is, companies--and you are very
familiar with how you finance large companies. And as you are
going through--and you said earlier you paid cash, or will be
paying cash--I am not sure exactly how that works, if it is up
front or afterwards--but you are purchasing 100 airplanes. How
does financing of these large companies work?
Mr. Anderson. Typically, financing in the large companies
work through public markets in the United States. So those big
firms will go to the public bond markets. The Bank markets have
really dried up after Dodd-Frank and the economic reforms. So
there is still some Bank financing, but, by and large, it is
both public market equity financing, public market secured
financings, and public market financings.
I will note that GECAS and the Bank compete all the time.
So we own a stake in a company called Aeromexico, and
Aeromexico bought some Boeing airplanes. And after it was over
with, General Electric was competing against the Ex-Im Bank to
finance the fleet. So GE kind of has a foot in both camps. They
are the largest aircraft--
Mr. Huizenga. Hey, if you can have your cake and eat it,
too, that is a pretty good spot to be in.
Mr. Anderson. They are the largest aircraft financier in
the world, with GECAS, and at the same time they make engines
and they are a participant in Ex-Im Bank financing. But then
they compete all the time against the Ex-Im Bank financing arm
to see if they can get the airline business around the world.
Mr. Huizenga. I guess my question is, couldn't these
companies find traditional financing?
And, you had put up the Emirates Air situation. I think it
is a $100-billion sovereign wealth fund that they have. And the
number that we have heard is 98.4 percent of all exports don't
use Ex-Im financing; they are done the traditional way. That
means about 1.6 percent that do, of which about a third
probably could not get that kind of traditional financing.
I know, Mr. Wilburn, you might fall into that. But if I
were you, frankly, sir, I would be a little concerned that you
have major companies like that literally sopping up any
opportunity that you have and other small business owners might
have to access some of these programs. And yet you get trotted
around as the showpiece of why we need to keep this, when, in
fact, it is clearly going to these massive, massive companies.
I don't know if you care to comment.
Mr. Wilburn. With all due respect, nobody trots me around--
Mr. Huizenga. Okay.
Mr. Wilburn. --except me.
Mr. Huizenga. I'm sorry. I did not mean specifically you,
but--
Mr. Wilburn. No, I understand that, sir, and I--
Mr. Huizenga. --I have a number of companies that come in.
Mr. Wilburn. I understand.
Mr. Huizenga. I can tell you this. They don't come in with
the big companies. They come in trying--
Mr. Wilburn. I will give you my--
Mr. Huizenga. --to play the small.
Mr. Wilburn. I will give you my balance sheet. I am a
private company. To put it in perspective, it is $5 million
right now. Okay? So you are right, I am competing with
billionaires. Okay?
But there is a lot in common with these billionaires that I
am hearing today that encourages me. Because if I can get these
types of executives to give this kind of focus to small
business and say that they are willing to work and negotiate to
keep to the Export-Import Bank alive, I am all for that. I want
to sit down with these gentlemen again.
Mr. Huizenga. That is great. In my last 10 seconds, I guess
I would express to you I am not concerned that is the focus of
the Ex-Im.
And, Mr. Anderson, I will gently remind you that, actually,
Canada is our largest--as Chair of the Inter-Parliamentary
Group with Canada, I have to point that out they are our
largest trading partner.
Chairman Hensarling. Time--
Mr. Huizenga. Thank you.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from Ohio, Mr.
Stivers.
Mr. Stivers. Thank you, Mr. Chairman.
Before I begin my remarks, I would ask unanimous consent to
submit a letter from PPG, which is a company that has 200
employees in my district. I would like to submit their letter
for the record.
Chairman Hensarling. Without objection, it is so ordered.
Mr. Stivers. Thank you.
Thank you for being here. I would like to thank all the
witnesses for being here. I guess Ms. de Rugy could not stay. I
am sorry to hear that.
I actually care what the panel thinks. I am not going to
make a 5-minute statement. I am going to ask you some questions
because I came to learn from you. And I appreciate the chairman
putting this panel together.
So you have all spoken earlier. Could you please raise your
hand if you could support Ex-Im Bank reauthorization with
meaningful mandatory reforms? With meaningful mandatory
reforms, could you support reauthorization?
Mr. Anderson. Provided it addresses the issues that I have
laid out--
Mr. Stivers. Sure.
Mr. Anderson. --and we stop--
Mr. Stivers. You have passionately laid those out.
Mr. Anderson. Yes.
Mr. Stivers. Let's assume it addresses your issues with
mandatory reforms.
Could we see that again? Could you raise your hand?
Captain Moak. Could I just say--
Mr. Stivers. Mr. Wilburn, are you for reauthorization
with--
Captain Moak. Could I say, reforms, accountability, and
compliance?
Mr. Stivers. Sure. Okay. Reforms, accountability, and
compliance.
Could you please raise your hand if you are for
reauthorization of the Ex-Im Bank with reforms, accountability,
and compliance is mandatory, that sticks, and that addresses
the issues you--
Mr. Anderson. That stop wide-body financing--
Mr. Stivers. So did everybody raise their hand? Okay.
Chairman Hensarling. I am not sure your microphone is on,
Mr. Wilburn.
Mr. Stivers. Okay. He wants to know what the mandatory
reforms are.
But you could support it--
Mr. Wilburn. The concept? Yes. There needs to be--
Mr. Stivers. --with reforms?
So I just want to show everybody who happens to be watching
that the panel unanimously--I'm sorry Ms. de Rugy could not
stay. The irony is that she is from France--
Mr. Anderson. She would probably vote ``no.''
Mr. Stivers. She might vote ``no,'' but she didn't stay, so
the panel is unanimous in supporting reauthorization with
meaningful mandatory reforms.
Many of my colleagues, I think, do very well in the
theoretical world, but I live in the real world. And 41
countries have export finance agencies. And, I think Mr.
Sherman from California talked about unilaterally disarming. I
think that is a bad idea. But I think there is a way forward
here.
Mr. Anderson, you passionately argued for some meaningful
reforms. And you talked about the handshake agreement between
Boeing and Airbus of France, and they now agree to exclude some
things and not cover certain things.
If the United States completely walked away and did not
reauthorize the Ex-Im Bank, do you believe Airbus would hold
firm to the handshake agreement? It is kind of like--the
handshake agreement is like mutually assured destruction,
right? So they each have something, and they agree not to use
it. If Boeing didn't have it, do you think Airbus would stick
with the handshake agreement?
Mr. Anderson. The commercial leader, John Leahy, at Airbus
has said yes, that if the United States--and you hear this from
both sides. I have heard it from Boeing, and I have heard it
from Airbus: ``If the other side stops using Ex-Im Bank
financing, we will stop using it.'' And I have that from the
chief commercial officer of Airbus, and I have had it from
Boeing executives.
Mr. Stivers. I hope that is right.
And I will tell you that I believe that--and I am sending a
letter to the U.S. Trade Representative and trying to get some
of my colleagues to support it, to ask that we immediately
enter into negotiations with the OEDC and with all the
countries around the world, the 41 countries that have export
finance agencies to end them simultaneously.
But I think if we end ours with the hope of goodwill that
they might do the same thing, that might be a little
shortsighted. I am sure that Ms. de Rugy and the academic world
thinks that is a great idea, but I am not sure it works in the
real world.
Yes?
Captain Moak. I just have one point of clarification--
Mr. Stivers. Yes, Captain?
Captain Moak. --Congressman. Thank you.
This unilateral-disarmament talking point that people use
all the time that I hear, the buzz word, the reality is, this
government policy here, we are arming our competitors.
Mr. Stivers. No, I--
Captain Moak. Right now, our competitors are--
Mr. Stivers. I recognize the need for reform.
Captain Moak. We need that to come out.
Mr. Stivers. I recognize the need for reform. But if we
completely walk away from the entire thing--90 percent of these
transactions are small business, like our other witness, Mr.
Wilburn.
And I have one last question. Did anybody read the
Financial Times today?
Mr. Anderson. No. I was getting ready to do this.
Mr. Stivers. Okay. I am sure you were.
So Mr. Luetkemeyer from Missouri mentioned earlier that 40
percent of our finance transactions globally were covered by
the OEDC rules. This year, it is down to 34 percent.
The real risk is the rise of transactions that are not
covered by the OEDC rules. That is why it is so important for
us to engage in negotiations to fix this simultaneously across
the world.
Thank you.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from Wisconsin, Mr.
Duffy.
Mr. Duffy. Thank you, Mr. Chairman.
Listen, on our side of the aisle, we oftentimes like to
talk about free markets and free enterprise, how we are big
advocates of that. But oftentimes we advocate that in theory,
and sometimes in practice we are not so great at it.
I think this has been a fascinating debate and conversation
about Ex-Im reauthorization and, kind of, how we fall into the
debate. None of us wants to see us lose American jobs. No one
wants to see Ex-Im go away and Boeing see some substantial job
losses. And we don't like to see the American taxpayer arm our
competitors, which causes Delta to lose 7,500 jobs or more.
I was sensitive to Mr. Fincher's comments about all of us
who talk about balanced budgets and cutting spending, and one
of the big first things we do is we cut Ex-Im Bank, and he has
to go home and explain why he has lost a thousand jobs as the
one big cost-cutting measure that he has done in Congress. That
is a tough one.
I think it brings us back to the budget debates we had at
the start of this year, where we talked about cutting spending
all over the place, but the first place we go is to cut the
cost-of-living benefit increases to our retired veterans. Our
veterans would all be onboard to cut spending, but if they are
to say, listen, we are the first place you are going to go? You
are going to cut us first? There are a lot of places you can
cut. We will do our part, like we always have, but don't come
to us first.
Just a comment on our debate that we always have in the
House.
I appreciate Mr. Stivers' comments about the panel's
commitment to--or, reserved commitment to reauthorization of
Ex-Im.
Mr. Anderson, what kind of reform do you think is
necessary?
And I know that, Mr. Moak, you talked about reform
compliance and accountability.
But what is needed on the reform front? Not just window-
dressing, what is the real reform that is necessary to make Ex-
Im work and get you to buy in?
Mr. Anderson. Stop arming my competitors and taking my jobs
away.
Mr. Duffy. Throw me some specifics. You are advising the
committee.
Mr. Anderson. The specifics were the ones that were ignored
the last time we did this and the Bank thumbed its nose at this
committee.
Mr. Duffy. Okay.
Mr. Anderson. And it was very specific. We have to stop
providing U.S. Government subsidies to foreign-flag,
government-owned airlines that are usually subsidized on their
own and have enormous creditworthy balance sheets.
Mr. Duffy. No, no, I--you have made that point for 3 hours.
Mr. Anderson. Let me be very blunt about this.
Mr. Duffy. Sure.
Mr. Anderson. Let's be very clear what happens with this
financing. It improves the profit margins of the top 10
companies in the United States that use it all the time. Okay?
That is really what it does.
Mr. Duffy. Mr. Wilburn?
Mr. Wilburn. I have one reform that I would like to
suggest--
Mr. Duffy. Sure.
Mr. Wilburn. --to the committee and to the Ex-Im Bank. Put
more focus on small business job growth. It is as simple as
that. Set not some kind of specious goals but some real goals.
That is what I would like to see. I would like to really see it
become the Bank of small business.
Mr. Duffy. Just, I want to go to the gentlemen's agreement
because I find that fascinating, that those countries who are
providing the financing--oh, I'm sorry.
Mr. Moak?
Captain Moak. I just want to make that point. It is getting
missed here because we are here, but over in Europe, British
Airways, Lufthansa, and Air France want this to come down also
because they can't access it. Okay? Airbus shouldn't be allowed
to access ECA subsidies. They are getting--
Mr. Duffy. Right.
Captain Moak. --killed the same way Delta Air Lines is.
Mr. Duffy. Well, in a sense--
Captain Moak. So we need that reform there also. That is
what is missed here.
Mr. Duffy. And on the gentlemen's agreement, I find it
interesting that the countries that provide the subsidy, if you
want to call it a subsidy, are the very countries who are hurt.
Where if you said, listen, we are going to allow the United
States, Delta Air Lines, to say, well, listen, we are--all
things being equal, I would say that Boeing makes a better
plane, but if Boeing and Airbus were equal--
Mr. Anderson. Not always.
Mr. Duffy. --you could say--we will debate that later--you
could say, listen, I am not buying any Boeing airplanes,
because I am going to go buy Airbus, and I am going to get
subsidized just like the rest of the world gets subsidized.
But you don't have that option, right?
Mr. Anderson. Well, no, you don't get--we don't get
subsidized.
Mr. Duffy. I know you don't, because you can't get--because
of the gentlemen's agreement?
Mr. Anderson. There is the gentlemen's agreement between--
it is between Airbus and Boeing. It is the gentlemen's
understanding--
Ms. Duffy. Okay.
Mr. Anderson. --that Ex-Im Bank financing won't be used in
the United States, England, France, Germany, or Spain, because
those are home-market countries where Airbus and Boeing
airplanes--it will be an interesting question when Airbus
starts making them in Alabama.
Mr. Duffy. Fair enough.
I yield back.
Chairman Hensarling. The gentleman yields back.
The Chair now recognizes the gentleman from Indiana, Mr.
Stutzman.
Mr. Stutzman. Thank you, Mr. Chairman.
And thank you, gentlemen, for being here today. I have
enjoyed the testimony and your comments so far.
Obviously, this is something that is a big concern to a lot
of us and especially those of us who want to see the private
sector handle as much capacity as possible, especially when you
are hearing a lot of discussion about Banks having plenty of
capital, that people are looking to help.
One of the folks that I spoke with in Indiana used to be a
customer of Ex-Im Bank, and because of just the volatility
around it and also his particular interest in finding another
solution, he was able to.
And so I guess maybe my first question would be directed to
you, Mr. Wilburn, because I am a small business owner, as well.
I understand the difficulties, the pressures that are on small
businesses trying to make things work and trying to find new
markets.
Can you tell us a little bit, what else did you look at to
see if there was another replacement besides Ex-Im, whether it
was financing through a bank and some sort of insurance in
executing transactions, anything like that you would have
looked at before Ex-Im?
Mr. Wilburn. I looked at all of those options with,
primarily, my Bank, Wells Fargo, which was gracious enough to
give me that working capital loan we talked about, where I had
to leverage everything to support those export activities. But
I am always, always constantly searching for those types of, I
will call them, private solutions with Banks. And they are
responsive, they will listen to me, but they don't respond with
the funding.
And, again, it is not my credit that is really called into
question. When I am exporting my product to those exporting
countries, I am relying on their credit and their
creditworthiness. And it is difficult for my Banks to get that
collateral and seize it, if you know what I mean--
Mr. Stutzman. How long have you been in business?
Mr. Wilburn. Ten years.
Mr. Stutzman. Ten years. So did you see any difference
before the Banking collapse? Was there better access to credit?
When did you start using Ex-Im?
Mr. Wilburn. I had a partner--my partner was one of the
major investment Banks that was the last--I am underneath a
nondisparagement agreement, so I have to be cautious. But, yes,
they went Bankrupt. I didn't. My company was strong. It cost me
$11 million to unwind that and 3 years to unwind that
relationship.
Mr. Stutzman. And that was before you started using Ex-Im?
Mr. Wilburn. Yes, absolutely.
Mr. Stutzman. So do you think--
Mr. Wilburn. I was funded with a $25-million revolving
credit line by that particular agency.
Mr. Stutzman. So do you think the pressure today on Banks,
whether through just the regulatory environment, Dodd-Frank, do
you think that is putting more pressure on Banks and their
ability to lend to small businesses and helping them in
situations like yours?
Mr. Wilburn. I tried to understand it and I have tried to
address it in my remarks, and I was a little clumsy at it doing
my research, but all I can say is that I think there are some
barriers to entry for small business guys like me. And we have
to take a look at the rules and the risk profiles to make it a
more level playing field for us to have access to those capital
markets.
Mr. Stutzman. Mr. Anderson or even Captain Moak, would you
have any information regarding that and just your experience
around Ex-Im? And I know you are focused more on the bigger
side, but smaller business, are there other opportunities and
other solutions for smaller businesses to work outside?
And would you make any comments about just the difficulty
with credit today and the regulatory environment in which we
live?
Mr. Anderson. I can talk generally, that the credit
environment is a much, much tighter credit environment. And
with the mark-to-market rules, a lot of the Bank lending that
we used to rely on, particularly in Europe, to finance
airplanes is gone.
So the number of sources for large structured finance,
particularly given the Basel II requirements and the mark-to-
market requirements, have really tightened up credit quite a
bit in our industry. And a number of sources we used to have,
where you could get a mortgage on an airplane, you can still
get it, it just takes what Fannie Mae requires for a home, a
bigger downpayment, a better credit rating--
Mr. Stutzman. Yes.
Mr. Anderson. --a better FICO score.
Mr. Stutzman. And those are all the hard things with which
small businesses have to deal.
Captain Moak, you wanted to make a comment?
Captain Moak. Yes. The only thing I would add is, we are
going back to 2008 with the collapse. Okay? The U.S. Congress
over a few days in 2008 was able to deal with that and come out
with legislation. I am confident this body can address reform
in less than 90 days on this issue.
Mr. Stutzman. And, Mr. Chairman, if I could just make the
comment, I think that we are focusing on something here that is
a symptom with the regulatory environment that we live in, and
we are trying to reauthorize a Bank that isn't part of the
solution. We should be focusing on the--
Chairman Hensarling. Time--
Mr. Stutzman. --regulatory environment that we have.
Thank you. I yield back.
Chairman Hensarling. The time of the gentleman has expired.
There are no other Members in the queue. So, Mr. Anderson,
Captain Moak, Mr. Wilburn, we thank you for your testimony.
We will excuse the first panel at this time.
We would invite the members of our second panel to please
make their way to the witness table.
The committee will come to order.
We will now turn to our second panel of witnesses, many of
whom are familiar faces to this committee, so my introductions
will be brief.
If staff can be instructed to shut the hearing room doors.
First, the Honorable Fred Hochberg currently serves as
Chairman of the Export-Import Bank, a position he has held
since 2009. The Honorable Osvaldo Gratacos currently serves as
the Inspector General of the Ex-Im Bank. He has served in this
capacity since 2010. Matthew Scire is the Director of Financial
Markets and Community Investment at the GAO. Finally, Dr. Doug
Elmendorf is the Director of the nonpartisan Congressional
Budget Office.
We welcome you each to the committee today.
Without objection, your written statements will be made a
part of the record.
I believe all of you, hopefully, have testified before the
committee before. You know the lighting system, so I will not
go into that.
Chairman Hochberg, at this time you are recognized for your
testimony.
STATEMENTS OF THE HONORABLE FRED P. HOCHBERG, PRESIDENT AND
CHAIRMAN, EXPORT-IMPORT BANK OF THE UNITED STATES
Mr. Hochberg. Thank you.
Chairman Hensarling, Ranking Member Waters, and committee
members, thank you for inviting me to testify before you as the
committee considers our reauthorization and progress that Ex-Im
Bank has made in supporting U.S. jobs through exports.
Since our last reauthorization just 2 short years ago, Ex-
Im has supported nearly half-a-million American jobs while
generating nearly $2 billion for the taxpayers. Ex-Im Bank has
met all of the reporting requirements set forth in our
reauthorization bill and has implemented several other reforms.
At Ex-Im Bank, we are committed to continuous improvement and
effective risk management.
When I testified before this committee last June, I
committed to hiring a chief risk officer before years end, and
we completed that on time. Under his leadership, the Enterprise
Risk Committee assesses comprehensive risk issues, reports
semiannually to the Bank's audit committee, and provides me as
well as our other directors with a monthly update.
We have implemented a number of other reforms making Ex-Im
more transparent and accountable, including: we post in the
Federal Register all transactions of $100 million or more; we
reviewed, revised, and posted our economic impact procedures on
our Web site; we have implemented enhanced Iran sanctions
provisions; we have added a textile industry member to our
advisory committee; and we have implemented portfolio stress-
testing and reported that to Congress. Frankly, the list goes
on and on. The longer list is included in my written testimony.
At the height of the financial crisis in 2008, our default
rate was 1.1 percent. And today, in our most recent report of
March of this year, which we issue to Congress as part of those
reforms every 90 days, it is 0.211 percent, or less than a
quarter of a percentage point.
Customers who use the Bank pay a service fee, which covers
all of our reserves and operating costs. We make no grants.
Money is not given away; it is loaned and repaid. And Ex-Im
Bank does not engage in corporate welfare.
Since I last appeared before you, we have accomplished much
in our efforts to support small businesses. In 2013, the Bank
financed a record 3,413 small businesses, nearly 90 percent of
Ex-Im's transactions. That amounted to about $6 billion for
small business financing, of which $5.2 billion was direct.
The Bank supports tens of thousands of additional small
businesses, whose goods are incorporated into larger exports.
We are critical to small businesses exporting directly and
indirectly across the world. These businesses are operating in
an extremely competitive environment.
This morning, we are releasing Ex-Im Bank's Competitive
Report. In 1999, just 15 years ago, nearly 100 percent of
export credit financing globally was done within an agreed-upon
framework and it was transparent. As this report shows, it is
down to one-third, and it continues to drop. In other words,
two-thirds of all official government support for exports today
is opaque and unregulated.
Countries like China and Russia frequently engage in
market-distorting financing that threatens U.S. workers and
their jobs. This is deeply concerning to me and should be to
every American worker. U.S. businesses are not competing
against Chinese companies on a level playing field; they are
competing against ``China, Inc.''
In 1999, official Chinese financing was almost nonexistent.
Today, it is well over $100 billion, dwarfing what Ex-Im Bank
does. South Korea, an economy less than one-tenth our size, now
finances $100 billion, nearly 4 times the $27 billion that we
refinanced last year.
Other ECAs, such as South Korea, are using the uncertainty
surrounding Ex-Im's reauthorization to steal contracts. You
heard that clearly on panel 1 from Steve Wilburn, about how
this is harming his business.
In closing, I want to thank Inspector General Osvaldo
Gratacos for his years of service at Ex-Im as he heads to new
endeavors. He has helped us, without question, to run a better
Bank. We have worked cooperatively with GAO and accepted all of
their recommendations since the last reauthorization.
Lastly, I also want to commend the outstanding professional
work of our 400-plus employees.
We live in an extremely competitive world, and the playing
field is not level. I wish everyone played by the rules, but,
as our competitiveness report starkly points out, they do not.
The stakes could not be higher. We should not cede American
jobs to China, Russia, or other countries. That is why I ask
for your support in reauthorizing Ex-Im Bank for 5 years with a
lending cap of $160 billion.
Thank you for your support, and I look forward to answering
your questions and working with you on reauthorization.
[The prepared statement of Mr. Hochberg can be found on
page 169 of the appendix.]
Chairman Hensarling. Mr. Gratacos, we welcome your
testimony now.
STATEMENT OF THE HONORABLE OSVALDO LUIS GRATACOS, INSPECTOR
GENERAL, EXPORT-IMPORT BANK OF THE UNITED STATES
Mr. Gratacos. Good afternoon, Mr. Chairman, Ranking Member
Waters, and the distinguished members of this committee.
And I thank Chairman Hochberg for his kind words.
Thank you for the invitation and opportunity to testify
before you about the Office of Inspector General (OIG) and Ex-
Im Bank oversight as it relates to its lending reauthorization.
Before I continue, I would like to thank the Almighty for
the opportunity, and my family, and the members of the Ex-Im
Bank OIG staff for their hard work.
Last year, I testified before this committee about the need
for Ex-Im Bank to enhance its risk management framework. Back
then, we stated that Ex-Im Bank should proactively manage the
risk of its growing portfolio in line with common practices of
commercial and multilateral development Banks.
Specifically, we recommended that Ex-Im Bank should
establish a chief risk officer or create a risk management
office with independent reporting requirements to the Chairman;
assign qualified and experienced staff to that office; conduct
periodic stress-testing on its entire portfolio reflecting
different market industry and microeconomic scenarios; and
actively monitor industry, geographic, and obligor exposure
levels.
As of today, Ex-Im Bank has taken steps towards improving
its risk management framework, some of them described by
Chairman Hochberg in his statement. However, we think the
opportunity for improvement still exists.
For example, Ex-Im Bank established and hired a CRO and
restructured reporting lines to separate origination functions
from risk management functions. However, the CRO was
established with additional management responsibility,
supervising the legal and administrative functions of the Bank,
which could dilute the focus of the position on credit risk
issues.
In addition, Ex-Im Bank has initiated some stress testing
for its portfolio utilizing a top-down analysis of the
portfolio as well as a bottom-up approach on some obligors. The
results of the first stress-testing process were conveyed to
Congress in the default report dated September 2013. The Bank
has also established an Enterprise Risk Committee and recently
provided documentation on its activities to the OIG.
Finally, Ex-Im Bank commenced the use of several
qualitative factors in its re-estimate process to account for
the impact of such factors in the portfolio. The application of
such factors in the re-estimate process commenced in the fall
of 2012 and resulted in an upward revision of its loss
reserves.
Lastly, let me address some recent press reporting on
employee integrity investigations. I cannot confirm or deny
particular investigations or comment on specific personnel
matters. What I can say is that we have a number of active
investigations involving also an external participant or Ex-Im
Bank, and they are being reported in the semiannual report to
Congress and we have had a fully cooperative working
relationship with Bank management on these matters.
Bank management employees have referred issues to us for
review, and the Bank has taken employment actions based on
information we have referred to them. Some of these matters are
nearing conclusion, and I expect to be able to share some
information on them in the coming months, while others are in
early stages and may or may not be substantiated. We work
closely with the Justice Department on these issues, and I hope
you understand that I am not in a position to comment further
at this time on these matters.
Mr. Chairman, Ranking Member Waters, and members of this
committee, thank you once again for the opportunity to testify
before you today. I would be pleased to respond to any
questions you may have. Thank you.
[The prepared statement of Mr. Gratacos can be found on
page 161 of the appendix.]
Chairman Hensarling. Mr. Scire, you are now recognized for
your testimony.
STATEMENT OF MATHEW J. SCIRE, DIRECTOR, FINANCIAL MARKETS AND
COMMUNITY INVESTMENT, U.S. GOVERNMENT ACCOUNTABILITY OFFICE
Mr. Scire. Mr. Chairman, Ranking Member Waters, and members
of the committee, thank you for the opportunity to be here
today to discuss the actions Ex-Im has taken in response to
recommendations we made last year.
Our reports were completed in response to the Export-Import
Reauthorization Act of 2012. We reported that Ex-Im's business
volume had grown dramatically in recent years and that this
rapid growth posed challenges to Ex-Im. Outstanding financial
commitments were about $114 billion in 2013, nearly double the
level of 2008 when Ex-Im began to experience rapid growth.
Among the challenges we cited is understanding the risk of
loss. This is particularly challenging for Ex-Im because of the
need to anticipate losses far into the future and because of
weaknesses in its data. To improve its loss modeling, the Bank
added certain qualitative factors. These include minimum loss
rates, global economic risk, and portfolio concentration risks,
whether by region, industry, or obligor.
These should help Ex-Im better capture risks that may be
different than historical experience might suggest, but we
found that its technique for assessing global economic risk
could be improved by considering longer-term default forecasts.
We, therefore, recommended that Ex-Im consider whether it is
using the best available data for adjusting loss estimates for
longer-term transactions to account for global economic risk.
In response, in November Ex-Im replaced its 1-year forecast
with a 5-year forecast.
We also found that Ex-Im had not maintained historical data
on defaults that might be used in evaluating the performance
and loss potential of the current portfolio. That is, Ex-Im had
not maintained records that would permit comparing the
performance of a transaction with that of a like transaction at
a similar age. We, therefore, recommended that Ex-Im retain
point-in-time historical data on credit performance. Ex-Im has
since begun retaining such data.
Ultimately, loss estimates can never be certain. For this
reason, it is useful to conduct stress tests to better
understand and inform the Congress of the potential outcomes of
alternate scenarios. Ex-Im planned to conduct such stress
tests, and we recommended that it report to the Congress their
content and results. Ex-Im has since begun to include such
information it its quarterly default rate reports.
Another challenge facing the Bank is understanding what to
expect in terms of future activity. In this regard, we found
the methods used by Ex-Im to forecast its total exposure for
2013 and 2014 had certain weaknesses. Specifically, Ex-Im had
not reassessed its assumptions to reflect changing conditions
or conducted a sensitivity analysis to assess and report the
range of potential outcomes. We, therefore, recommended that
Ex-Im do so. In response, in its 2015 budget justification Ex-
Im has incorporated historical experience into the forecast and
prepared a range of authorization and exposure estimates.
Another challenge facing Ex-Im is the sufficiency of its
resources. We noted that the rapid growth in business volume
coupled with the more modest growth in staff levels created
potential operational risks for Ex-Im. And Ex-Im recognizes
this risk, but it had not formally determined the level of
business it can prudently manage, either agency-wide or within
specific functional areas, with a given level of resources.
Likewise, we reported that Ex-Im's business plan had not
sufficiently assessed the adequacy of resources for meeting
certain congressional mandates to support small business and
renewable energy.
We recommended that Ex-Im develop benchmarks to monitor and
manage workload levels and provide Congress with more
information on resources associated with meeting the mandates.
In response, Ex-Im hired a contractor to develop workload
benchmarks and a workload modeling tool. This effort is
ongoing.
Going forward, it will be important for Ex-Im to sustain a
commitment to improving its understanding of factors that drive
demand for its programs, the performance of its products, and
the potential operational risks it may face.
This concludes my opening remarks. Thank you again for the
chance to speak today. I would be glad to take any questions
you may have.
[The prepared statement of Mr. Scire can be found on page
184 of the appendix.]
Chairman Hensarling. Dr. Elmendorf, you are now recognized
for your testimony.
STATEMENT OF DOUGLAS W. ELMENDORF, DIRECTOR, CONGRESSIONAL
BUDGET OFFICE (CBO)
Mr. Elmendorf. Thank you, Mr. Chairman, Ranking Member
Waters, and members of the committee. I am pleased to be here
to discuss CBO's estimates of the budgetary costs of the
Export-Import Bank's credit programs.
I want to emphasize that CBO has not analyzed the
operations of the Bank or the economic impact of its programs.
Our analysis has been limited to the direct effects of the Bank
on the Federal budget.
As you may know, CBO uses two different approaches to
estimate the budgetary costs of Federal credit programs. One
approach reflects the procedures currently used in the budget
under the Federal Credit Reform Act of 1990, or FCRA. The other
approach, known as fair value, reflects the market value of the
government's credit assistance.
For Fiscal Years 2015 to 2024, CBO found that Ex-Im Bank's
six largest credit programs would generate budgetary savings of
about $14 billion under FCRA accounting but cost about $2
billion under fair-value accounting.
Both estimates are based on Ex-Im Bank's projections of
cash flows for those credit programs, as reported in the
Federal credit supplement to the Administration's 2015 budget.
Thus, both estimates reflect the amount of lending, fees, and
default rates that are expected to prevail under the current
structure of the programs and the President's budget request.
The difference between the two estimates lies in the
treatment of the cost of market risk, which is one component of
financial risk.
Much of the risk of financial investments can be avoided by
diversifying a portfolio. Market risk is the component that
remains even after a portfolio has been diversified as much as
possible. It arises because most investments perform relatively
poorly when the economy is weak and relatively well when the
economy is strong.
People value income from investments more when the economy
is weak and incomes are relatively low, and so assign a higher
cost to losses that occur during economic downturns. The higher
cost of losses in bad times as well as lower costs in good
times is captured in the cost of market risk. The government is
exposed to market risk through its credit programs because when
the economy is weak, borrowers default on their debts more
frequently, and recoveries from defaulting borrowers are
smaller. That market risk is effectively passed along to
taxpayers and beneficiaries of government programs because they
bear the consequences of the government's financial losses.
Moreover, that risk is costly to those taxpayers and
beneficiaries because they tend to value resources more highly
when the economy is weak.
Under the FCRA approach to accounting for Federal credit
programs, Treasury borrowing rates are used to discount
expected future cash flows, that is to translate future cash
flows into current dollars. That approach essentially treats
future cash flows subject to market risk as having the same
value as Treasury securities that promise the same average
payments with no risk. This means that the market risk of
Federal credit assistance is treated implicitly as having no
cost to the Federal Government.
That has important consequences. For example, the cost of
Federal credit programs reported in the budget is generally
lower than the cost to private financial institutions for
providing credit on the same terms. Also, the budgetary costs,
the Federal credit programs are generally lower than those of
grants for similar purposes that involve equivalent economic
costs.
In addition, purchases of loans and loan guarantees at
market prices appear to make money for the government and
conversely sales at market prices appear to result in losses.
To incorporate the cost of market risk, the fair-value approach
generally entails using the discount rates on expected future
cash flows that private financial institutions would use. That
approach effectively uses market prices to measure the cost to
the public of the lower returns on Federal loans and loan
guarantees when the economy is weak and incomes are relatively
low. In CBO's view, therefore, fair-value estimates provide a
more comprehensive measure of the cost of Federal programs.
Some analysts have expressed concern about potential
drawbacks of using the fair-value approach in Federal
budgeting. They argue, for example, that fair-value estimates
include costs that will not be paid directly by the Federal
Government if actual cash flows turn out to match expected cash
flows and that including those costs makes comparisons with
some non-credit programs more difficult. These analysts note
that fair-value estimates are somewhat more volatile than FCRA
estimates and more complex to produce, and they worry that
communicating the basis for fair-value estimates to
policymakers and the public is more difficult than doing so for
FCRA estimates.
Proponents of the fair-value approach respond to those
concerns by arguing that decisions about spending the public's
money should take into account how the public assesses
financial risks as expressed through market prices; that by
taking those prices into account, fair-value estimates are
unbiased estimates of the expected costs of loans and loan
guarantees when they are offered and that other concerns can be
mitigated through established accounting practices. Thank you.
I am happy to take your questions.
[The prepared statement of Dr. Elmendorf can be found on
page 148 of the appendix.]
Chairman Hensarling. The Chair now yields himself 5 minutes
for questions.
Mr. Hochberg, my background is not in accounting. I have a
degree in economics and a degree, a J.D., but I do know the
difference between single-entry accounting and double-entry
accounting. So, I just heard your latest jobs claim that seems
to increase every time that I see you. I trust you did hear the
testimony of the earlier panel. Is that correct?
Mr. Hochberg. Yes, I did.
Chairman Hensarling. Okay. In the claims that you make, is
that a net number, or is that a gross number, because we are
having testimony of job loss caused by your Bank, so is the
number that you posit a gross number or a net number?
Mr. Hochberg. It is a gross number. It is the number we
use--
Chairman Hensarling. That answered the question, Mr.
Hochberg. I appreciate that. Also, I assume since we have a
witness from GAO here, you are familiar with their May 2013
report that criticized the Bank for concealing methodological
weaknesses in the jobs claim, including the fact that you do
not distinguish between full-time, part-time and seasonal
employment. You do not control for selection effects between
supported firms and industries that may depart from the
average. And, again, as I just posited, GAO criticized the Bank
for not considering the unseen counterfactual of how many jobs
would have existed without any intervention at all. Are you
familiar with GAO's work regarding your jobs claim?
Mr. Scire. Yes, and we pointed out a number of weaknesses
with the methodology and recommended that Ex-Im do more to
disclose the weaknesses with the methodology, and since, they
have done so.
Chairman Hensarling. Thank you.
Dr. Elmendorf, FCRA applies--well, I have seen a report
that there are roughly 10,000 Federal agencies, programs.
Frankly, I have been here for a number of years, and I still
can't figure out how many there are. But how many are subject
to FCRA? How many programs or agencies?
Mr. Elmendorf. I don't know what the count is, Mr.
Chairman.
As you know, there are several trillion dollars of
outstanding Federal loans and loan guarantees that are recorded
in the budget on a FCRA basis. The exceptions to FCRA among
credit programs that I am aware of are the TARP program,
because Congress wrote into the law that we should do estimates
of that program, adjusting for market risk, and for Fannie Mae
and Freddie Mac, because that is something that is specified in
law, and we do those on a fair-value basis.
Chairman Hensarling. This is probably outside your area of
expertise, and I think we had some testimony earlier today.
Certainly, I have seen evidence. Doesn't almost every other
private Bank or private company that is subject to GAAP use
fair-value accounting?
Mr. Elmendorf. Private financial institutions generally use
fair-value accounting, yes, Mr. Chairman.
Chairman Hensarling. Mr. Hochberg, we had a gentleman here
on the earlier panel, as you well know, one of the recipients
of an Ex-Im credit guarantee. I think your latest figure is
that you are supporting roughly 3,000 or 3,500 small
businesses. Is that correct?
Mr. Hochberg. Correct.
Chairman Hensarling. The earlier witness takes exception to
your definition. We will accept the definition for the moment.
I have information from the SBA; by their definition, and I
don't know the definitional differences, there are roughly 30
million small businesses across America. So if I am doing the
math right, you are in some way, shape or form providing credit
services to roughly 1 in 10,000.
And I am still trying to figure out--I am struggling with
this, Mr. Hochberg, and that is I have a number of small
businesses in my district, including CATCO Catalytic Heater
Company in Terrell, Texas. They export. They don't use your
services. And I quoted this gentleman earlier who said, ``As a
small business owner who exports, I think it is outrageous that
my own government puts my business and other small businesses
at a competitive disadvantage through the Export-Import Bank.''
I see my time is starting to run out, but I say that, Mr.
Hochberg, because I think it is important that we hear from the
small businesses that actually have to pay for what your Bank
does and whose balance sheets you put at risk. Those voices, I
believe, are underrepresented in this hearing room today. I
will posit that all 3,000 or 3,500 small businesses that
receive your credit services would want them extended. I would
posit that, and I know that you have traveled all around the
Nation. I think somewhat reminiscent of Fannie and Freddie, I
have no doubt that you have come close to finding a customer in
every congressional district in America today. But I do think
it is important that these other voices be heard. I noticed you
said that roughly 90 percent of your transactions, but isn't it
roughly 18 percent of your exposure is small businesses? Is
that correct, Mr. Hochberg?
Mr. Hochberg. Actually, this year we are in the 23, 24
percent range. We have had greater use of small business and
little Banks have come back and so some of our larger--
Chairman Hensarling. I will just say for the record that
the 90 percent is fairly misleading. I see that I am out of
time. The Chair now recognizes the gentlelady from New York,
Mrs. Maloney, the ranking member of our Capital Markets
Subcommittee.
Mrs. Maloney. Thank you, Mr. Chairman, and welcome to all
of the panelists.
Mr. Hochberg, some people on this panel today have
suggested that we could let the Export-Import Bank's charter
expire and that the economy would be fine, that the private
sector would just step in and take over, and there would be no
impact on the U.S. exporters or small businesses. Can you walk
us through what the impact would be?
Mr. Hochberg. Thank you. Thank you for giving me an
opportunity to talk about our small businesses. One, we
actually do, 90 percent of our clients are small businesses;
and that is small business as defined by the SBA. We don't make
our own definition. You heard on panel one, Steve Wilburn of
FirmGreen made a clear articulation of the loss and harm to his
business and employment from even just the threat of Ex-Im not
being here. We had some folks in the audience from a company
that I think the chairman has sometimes cited, Jenny's Pickles,
a woman from North Carolina who is exporting her food products
to China, Britain, and is looking to expand to Germany and the
Mideast. We provide credit insurance the way that other
businesses get fire insurance or theft insurance and credit
insurance she cannot obtain in the private sector. So though
there are many small businesses that can't get--
Mrs. Maloney. How do you know these businesses cannot
obtain the financing in the private market?
Mr. Hochberg. First of all, they have to state that they
needed us, and they were not able to obtain this privately.
Second of all, we survey the private sector all the time, and
many times, they will not make loans or insurance for smaller
businesses. The good news is I will tell you the private sector
has come back, and the private insurers are doing a better job
than they did during the crisis, but I will also tell you that
the word is out that you probably should not get insurance from
the Ex-Im Bank because we may not be here after September 30th.
So brokers are telling their clients, I think we have to
either get you more expensive insurance or I can't insure you
because I don't know if you want to take the risk of having a
policy that will have a 90-day term.
Mrs. Maloney. You raised a point that there are people
really concerned whether or not you will be there, and they are
not providing the insurance. The statute gives Ex-Im the
authority to facilitate an orderly liquidation if its charter
expires, and a recent memo from the Congressional Research
Service noted that Ex-Im would have considerable discretion in
deciding how to manage this liquidation.
Mr. Hochberg. If the Bank is not reauthorized on September
30th, we would not make any new loans. We would not support any
new businesses. I would add that small businesses in particular
would probably be hit first, and we would simply hold--I don't
see a reason, and I hope Congress would not want to liquidate
the portfolio which implies selling it off, often at a
discount, but let the loans mature to term. We have a well-
performing portfolio. Liquidation is often used for a failed
Bank. The only reason we would be not operating is because of a
political decision not to reauthorize us, not because of a
failure at the Bank.
Mrs. Maloney. There is a lot of debate this morning about
exporting planes, basically exporting Boeing. If the United
States decided to stop providing any support or assistance for
the export of U.S.-made planes unilaterally, what would happen?
Who would stand to benefit?
Mr. Hochberg. I think that the makers of Airbus would be
quite excited by this. They would be cheering because, frankly,
it will not change the amount of airplanes coming into the
United States carrying passengers. It will simply change
whether it is made in the United States by Boeing and their
15,000 suppliers--6,600 are small businesses--versus being made
in Toulouse, Hamburg, and other places, so I think that we have
a very real competitive threat. And frankly, the threat of
China is coming up. They are building a plane to compete with
737s, which is the single-aisle general commercial plane used,
and that is coming on stream in the next few years.
Mrs. Maloney. We are often criticized for not exporting
enough, that we have an export deficit. Have you done any work
on how much of the American export is because of the Ex-Im
Bank?
Mr. Hochberg. The very rough cut number is around 2
percent, but that includes everything that is exported. Many
things are not products, are not financed. I can give you some
specifics. It may be 2 percent globally, but if we look in
places in Sub-Saharan Africa, for example; in Cameroon, it is
more than 55 percent of the exports. Senegal is almost 50
percent. India, it was 30 percent in the last 12 months, so
there is a large percentage above the 2 percent, depending on
what country you are looking at.
Chairman Hensarling. The time of the gentlelady has
expired.
The Chair now recognizes the gentleman from California, Mr.
Campbell, chairman of our Monetary Policy Subcommittee.
Mr. Campbell. Thank, Mr. Chairman.
And, Dr. Elmendorf, Mr. Scire, and Mr. Gratacos--I probably
butchered two out of those three names. First of all, I
apologize for that.
Dr. Elmendorf, I have said your name enough over the years
that I know how not to butcher it.
I hear all of your issues and agree 100 percent with the
issues relative to the Bank's accounting for risk, a chief risk
officer having other responsibilities, and a number of those
other factors, so I would mention that the discussion draft
which I released earlier today contains attempts at least to
deal with all of those issues. I think I agree and believe that
the Bank is not properly accounting for risk and that if there
is a reauthorization, that is something we need to do.
During the remainder of my time, Mr. Hochberg, I would like
to ask you a few questions about some things. You have actually
requested an increase in the authorization of the Bank, even
though the authorizations you are doing as you just stated, the
private sector is back in the game, and the authorizations are
down from what they were in the Bank a few years. Why would you
want an increase in authorization then?
Mr. Hochberg. Congressman, thank you for your comments and
interest in this. We took a look at--again, we are asking for a
5-year reauthorization. We looked at--we are compounding the
increase 3 percent per annum from the $140 billion today. I
took a modest increase. Exports are up close to 45 percent
since 2009. So exports are up. Banks continue to tell us, due
to Basel III, Dodd-Frank, and other regulations, that they have
less of an appetite for small business, less of an appetite for
long-term loans, so factoring in those factors, export markets,
more going to developing nations, I tried to put together a
prudent estimate of what we would need.
Mr. Campbell. Even though that is not your experience right
now?
Mr. Hochberg. We had a--2 years ago, we were in great need.
Right now, there seems to be a slight reduction in need. I am
not looking at only 6 months of making an assessment. I am
trying to take a broader view. I was a businessman for 20
years. You don't look at 6 months at a time.
Mr. Campbell. Okay. Got it. Let me ask you now, in the
previous panel the CEO of Delta and others complained about
things that were in the previous reauthorization that they are
saying you are ignoring, which is the mandate to weigh adverse
effects of transactions on others. What is your response to
that?
Mr. Hochberg. I completely disagree with Mr. Anderson.
Congress asked us to simply review our economic impact
procedures. Those procedures state we should look at the
benefits of the U.S. economy and any potential harm. We
reviewed it. On top of that, instead of just reviewing it, we
actually published new regulations, put them out for comment,
went to the entire industry for comment and adjusted our impact
procedures and put it to a vote of the board. So we complied
fully, and on top of that, every transaction the Bank reviews
gets reviewed for economic impact. We want to make sure the
benefits outweigh any harm.
Mr. Campbell. Okay. My time is limited so I want to get on
to this other question. Obviously, yesterday there was some
news that came out about potentially some accusations of things
going on in the Bank. Now, we know that in any organization,
certainly in any element of government that deals with the
public, there can be corruption and there can be fraud. Guess
what, that has occurred within Congress. I know that is a huge
shock to everyone listening, but that has occurred here as
well.
But the question I have for you is this: There is, I think,
a question, and it is a good one, about you are handing out
loans, guarantees, and other things to the private sector and
that if people have the ability to make that not just for
kickbacks but to their friends to political allies to whatever
it may be, that is a bad thing. So it would seem to me that
there are not enough controls, if you will, within the Ex-Im
Bank to stop that sort of thing from happening. How do you
judge, how do you make the decision of who gets support and who
doesn't?
Mr. Hochberg. You mean, what companies get support?
Mr. Campbell. Yes.
Mr. Hochberg. Well, one is what the need is. We look at the
need, whether there is a need for Ex-Im Bank to be a player in
that or whether the private sector does it by itself.
Frequently, we don't need to engage at all. That is why close
to 98 percent of exports don't need our assistance. You have a
few questions, and I am trying to--
Mr. Campbell. Basically, and we are running out of time,
but the accusation is that some people got support from Ex-Im
in exchange for kickbacks. That means somebody else probably
didn't, or those weren't meritorious, or there was a
competition or something going on. I am trying to determine
what procedures you have in place and you are not going to have
time to answer this, so maybe you can later, but what
procedures you have in place to stop that sort of thing from
happening because that can't happen.
Mr. Hochberg. I agree.
Chairman Hensarling. The time of the gentleman has expired.
The Chair recognizes the gentleman from New York, Mr.
Meeks, the ranking member of our Financial Institutions
Subcommittee.
Mr. Meeks. Thank you, Mr. Chairman.
The latest trade data shows that the United States trade
gap has increased to $47.2 billion in April 2014, as imports
recorded the highest value on record. Purchase of automobiles,
capital goods, food, and consumer goods all hit record highs.
So, in the midst of record trade deficits, we are here today
debating--and I can't believe this--whether or not we need to
reauthorize the Ex-Im Bank. The Chinese and the Europeans and
the Brazilians and the Japanese all must be looking at us and
shaking their heads in complete disbelief that we are actually
debating this issue, that we could actually voluntarily
purposely kill American industries and hundreds of thousands of
American jobs. Its unbelievable to me.
And I know when start talking about other reforms, there is
always the question of uncertainty that keeps coming up, that
people want to know what the rules are in play and whether or
not--certainty was important. Well, here we are now in this
atmosphere of uncertainty.
Chairman Hochberg, what effect is uncertainty creating for
U.S. exports, if any?
Mr. Hochberg. Thank you, Congressman.
First of all, there is an ad in today's Politico that says,
``Meet the Ex-Im Banks of China, Russia and France.'' They are
delighting in this hearing. They are delighting in the U.S.
debate. On panel one, there was a discussion of Steve Wilburn
and the direct impact on his business. I heard that during the
shutdown. I heard that during the potential shutdowns. We
enumerate all of that in this competitiveness report. Again,
two-thirds in the range of about $200 billion of export
financed globally is unregulated, opaque, one-off, and causes
harm to American companies.
When I am in Africa, the Chinese government offers 100
percent financing for anything you will buy, and they will give
you 10, 15, 20, up to 40-year terms. So there is a direct
impact on our debate here and trying to sell U.S. products, and
more importantly, support jobs here in America, small business
jobs as well as at large companies. So we have seen a direct
impact. I hear it from companies. I hear it from their
customers overseas.
One customer in Maryland during the shutdown said he lost a
customer to Germany because he could not take the risk we would
not be around.
Mr. Meeks. I was listening to some of my colleagues on the
other side of the aisle also, and I know at the time that we
had the last reauthorization, there were certain reforms that
were in there. And listening to them I would think maybe Ex-Im
has not implemented any reforms. Is that true? Has Ex-Im
implemented any reforms?
Mr. Hochberg. We have complied with every single reform and
recommendation that the committee made. We have complied or are
in the process of complying of with every single recommendation
that GAO has made. We have agreed with each and every one of
their recommendations.
Mr. Meeks. I want to go--because you mentioned Africa
twice, and you know I just had an event in New York on
energizing Africa, and I want to thank Ex-IM for being there.
And you talk about China, et cetera, being there, but you also
just in your testimony talked about Cameroon. Can you tell us
what opportunities are there for American-made goods and
services on the continent of Africa?
Mr. Hochberg. Africa is the home to, depending on your
estimate, six or seven of the fastest growing economies in the
world. I just returned 2 weeks ago. There are great needs in
power, transportation, water. I was with the President of
Angola, who agreed to buy a billion dollars worth of
locomotives and power units, so there are enormous
opportunities, but we face very intense competition from China,
which will provide financing for any and all exports going to
Africa.
Quickly, I went to meet with Transnet that, as a result,
split their order between the United States and China, and the
CEO told me point blank China offered 10, 15, 20 years; what
terms do you need and what rate do you need to pay, and we will
make it work.
Mr. Meeks. Let me ask this in my little time that I have
left: How does the size of Ex-Im Bank, its particular mission,
and the terms it is able to offer compare with other foreign
export credit agencies?
Mr. Hochberg. China, as I mentioned, is more than 4 times
our size, and that is just their Ex-Im Bank. They have two or
three other policy Banks that support their exports. The
Canadian Bank is about 3 times larger than the United States,
and an economy somewhat smaller than the U.S., Korea, also does
about 3 to 4 times more than we do. We probably have the
smallest footprint of any export credit agency to the size of
our economy in the world.
Mr. Meeks. Thank you, and I see my time has just expired.
Chairman Hensarling. Indeed, it has.
The Chair now recognizes the gentleman from Alabama, the
chairman emeritus of the committee, Mr. Bachus.
Mr. Bachus. Thank you.
Chairman Hochberg, you and I met in my office on March
27th, when we were considering the reauthorization of 2012. At
that meeting, we expressed some concerns to you about
transparency, accountability, and also the mandate requiring
the Bank to review the economic effects of its financing to
take into account, and I am reading statutory language, any
serious adverse effect of any loan or guarantee on the
competitive position of United States industry. And then we had
some follow-up conversations as late as May 9th about Delta's
concerns. We voted that bill out on May 15th, and I have never
had an explanation that the sale of wide-body jets to the
Emirates did not hurt U.S. airlines and their competitive
position. Several times this has come up, even I think as early
as 2003. Have you ever done an analysis and shared it with the
Congress of that particular issue that the president of the
airlines was talking about earlier?
Mr. Hochberg. Again, Congress asked us to review our
economic impact. We not only reviewed it; we decided to revise
it and to publicize it, and it is on our Web site. We also do
an analysis of--
Mr. Bachus. Is that specifically about the effect on--
Mr. Hochberg. We look at every aircraft, and we look at
every aircraft transaction.
Mr. Bachus. I am talking about specifically. Could you
supply that specific analysis that you did? That concern was
directed. It was very refined. It was to address the need to
subsidize loans to the Emirates or rich countries of wide-body
jets, of carriers that directly compete with American carriers
on international routes. Is there an analysis of that and going
back and looking at all of that?
Mr. Hochberg. We did an analysis. We hired an outside firm
to make it unbiased of, is there an oversupply in the aircraft
field globally of wide-bodies?
Mr. Bachus. No. My question was not, were there too many
wide-bodies. My question is the impact on our flag carriers. We
didn't ask for a study of, were there too many wide-body jets
in the world.
Mr. Hochberg. The Bank has had economic impact procedures
for 20, 30-plus years.
Mr. Bachus. You are telling me something I know. I am
asking you something; I know you have had procedures. I know
you have had economic studies. I am asking you specifically,
have you responded to our request and Mr. Anderson's concerns
that we discussed on two different occasions?
Mr. Hochberg. Then the answer to that question is yes, sir.
Mr. Bachus. Okay. Would you supply us with those documents?
Mr. Hochberg. We would be happy to you supply you.
Mr. Bachus. I would like copies of the loan-specific
analysis on any sale to those countries, the effect on the flag
carriers, the United States flag carriers, if you could just
give me that.
Mr. Hochberg. We will provide that.
Mr. Bachus. I would like to tell you something else that I
am very concerned about. You heard what I said earlier. On
August 2nd, I wrote a letter to you all. We, obviously, faxed
it over to you because Scott responded the same day and
promised us, according to his letter, that before the loan was
made, they would refer it to the policy division as well as the
engineering division because there were two different studies,
and they would share the concern with the board prior to a
vote, and they would share with us any analysis. That was never
given to us but what I am saying is, you didn't do that or
supply it to us before the vote. Your response to me was 2
months after the vote, which is not--our committee then
couldn't respond, couldn't analyze, couldn't have any input.
You didn't even advise us when the vote was going to be.
Mr. Hochberg. Can I answer the question?
Mr. Bachus. Yes.
Chairman Hensarling. Briefly.
Mr. Hochberg. Briefly. The board considered it. It comes to
Congress. Congress has 35 days to comment before a final vote
is taken by the board. Any transaction over $100 million comes
to Congress for any Member to comment, and we got a number of
comments on that transaction.
Mr. Bachus. Who does it come to?
Mr. Hochberg. I don't know precisely how it is transmitted,
but every transaction is transmitted to Congress for a 35-day
review.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentlelady from New York, Mrs.
McCarthy.
Mrs. McCarthy of New York. Thank you, Mr. Chairman.
Chairman Hochberg, we only get 5 minutes, and I noticed
that you have always been writing something down. Obviously,
whether it was somebody on this panel, or I understand that you
were in the back listening to the first panel, so I am going to
stop talking. And any questions that you want to answer or
things that you have heard that you want to give a rebuttal to,
I am giving you that opportunity to do that now.
Mr. Hochberg. Thank you very much.
Let me try and answer one or two questions we have. We look
to make sure that any benefit, any export, the benefit to the
U.S. economy outweighs any harm. That is referred to as
economic impact. So if we are financing the export of an
airplane, we are going to make sure the dollar amount to the
U.S. economy could outweigh any potential harm. We look at
every transaction, not just aircraft, to make sure that we are
complying with that because the last thing we want to do, the
400 people at Ex-Im Bank, is hurt the U.S. economy. We are here
to support jobs, not take away jobs. That would be number one.
Two, the committee staff receives every transaction over 35
days, and the committee staff, I presume, forwards it to
members of the committee who would like to review it. Sometimes
we receive many comments, and sometimes no comments, but the
committee has and Congress has a full 35 days to send comments
back to us before any transaction is finally voted on.
There was a question about working with the inspector
general. I have had a great working relationship with our
inspector general. I think together we have made a better Bank.
Our employees are alert to if they see something suspicious or
a suspicious claim or a suspicious loan or something that
doesn't look right, they work directly with the inspector
general. They don't go through me. They work, whether it is in
the General Counsel's Office, the CFOs Office, anybody who sees
something suspicious, and I am very proud of the fact that our
employees are very concerned--they care about their reputation
as well. So, I am pleased with the reputation and the work we
do with the IG. The article that was in yesterday's Wall Street
Journal, in my opinion, is actually a good article because it
says to our staff and it also says to any exporter, if you are
doing any funny business, we are on to you, and we will work
with it. A lot of this has changed since we have an inspector
general, which is 2007. A number of the things discussed
predate the inspector general. We did not have a inspector
general in those early days.
Mrs. McCarthy of New York. One of the things I wish you
would go over one more time, is basically I know you are not
looking to hurt Delta. I know you are not looking to hurt the
pilots and the flight attendants, that you want them to
succeed. Could you go over one more time with their arguments
that you heard today on why the situation is where it is, and
do you see any way to work with them to try to come to some
sort of an agreement so we don't go through this every 2 years?
Mr. Hochberg. We fully complied with Congress' request on
transparency and reforms. There were over a dozen, and we
complied with each and every one of them. We have complied with
everything or at least so far agreed with everything in the GAO
report. Delta Airlines made an assertion that our financing of
planes to Air India caused them to lay off people. If you look
at the facts, they did not ground any aircraft. They have added
employees since, and they even stated at the time it was not
because of competition. They said we have moved this, the size
and scope of Delta's operation at the Atlanta hub are best
suited for the capacity of the 777-200LR in terms of cargo and
passenger. So, for business reasons they moved the flight to
Atlanta. It was not because of competitive issues or the Ex-Im
Bank.
That was a concept they came up with 3 years later. There
was nothing in their press release. They said nothing about the
fact that there was a global recession in 2008. They said
nothing about high jet fuel prices, the H1N1 virus, reduced
demand, and a number of other things that they also talk about
impacting their business.
But somehow this one route, this one route they decided was
only because of Ex-Im Bank, and that doesn't comply with any of
their public messages.
Mrs. McCarthy of New York. Thank you.
And the other thing, too, obviously, when I came on this
committee and I had to learn a lot of new things, one of the
things I did even before you became the chairman was reach out
to the Export-Import Bank to come into my community, bring my
small businesses in to get educated, and you did come out when
you came on. And I am happy to say that in my district by word
of mouth, more and more businesses have been joining, and
certainly we have seen the growth of the amount of money that
has come into my district. And it is not mine. It is the people
working. It is jobs, and that is the important thing. Thank you
very much for your time.
Mr. Westmoreland [presiding]. The gentlelady yields back.
It just so happens to be my turn, Mr. Hochberg.
Mr. Hochberg. Perfect timing.
Mr. Westmoreland. You said you had complied with all the
requests that Congress had made at the last reauthorization and
you referred to Mr. Anderson in that all these things had been
complied with, although there are people who were at that table
evidently when these things were being looked at who say they
were not complied with. Why do you think there is a difference
there?
Mr. Anderson. Certainly. We complied with every
requirement, every reform that Congress put in. We did, as I
mentioned, an economic impact analysis, particularly in the
aircraft field.
Mr. Westmoreland. How many of those did you do in the
aircraft field?
Mr. Hochberg. We do one a year. We do a survey to determine
if there is a glut in the aircraft field, which is the criteria
that has been deployed by the Bank for 20, 30 years in looking
at economic impact. If there is an oversupply, then any
additional capacity will have an impact. If there is an
undersupply--
Mr. Westmoreland. So how many of those impact analyses have
you done on aircraft in the last 5 years?
Mr. Hochberg. Well, two things. We review every
transaction. We do an in-depth study.
Mr. Westmoreland. Every transaction?
Mr. Hochberg. Every transaction over $10 million we review
for economic impact.
Mr. Westmoreland. How many would that be?
Mr. Hochberg. Close to 3,500. We look at all of them. We
don't deploy the resources to do an in-depth study on every
single one. For example, Congressman, sometimes you have an
airplane that is replacing an old plane. Sometimes it is an
airplane that is never flying to America, so a number of those
would have no impact. So we don't waste government resources
chasing things that have no potential impact.
Mr. Westmoreland. Okay. But you have only done one analysis
in the last 5 years on aircraft?
Mr. Hochberg. The new procedures went in, in April of 2013,
so first of all, they have been extant now for 15 months. We
review them all. We did an in-depth analysis on one transaction
because one transaction triggered and said, this warrants
further review and study because the planes are new capacity,
potentially flying to American cities, and as a result, it
triggered a more in-depth study. Again, if it is replacement
aircraft or not flying to the United States, we would not spend
the time and money and resources to do a detailed study of
something that is not going to potentially have an impact. If
there is a potential of an impact, we will do an in-depth
study.
Mr. Westmoreland. Okay. If you are buying a plane from
Boeing, it will still have impact on the economy, right?
Mr. Hochberg. Again, the analysis that has been used in
every industry, not just for aircraft, is we say, what are the
benefits to the U.S. economy? How much revenue is coming to the
United States? What is the potential loss to the U.S. economy?
And we balance them against each other. So we are always
looking at that. What is the balance?
Mr. Westmoreland. Thank you.
Is the Bank being sued right now on any of your economic
impacts?
Mr. Hochberg. Delta Airlines is suing us.
Mr. Westmoreland. They are?
Mr. Hochberg. Yes.
Mr. Westmoreland. Is that because of the case you just
mentioned?
Mr. Hochberg. Again, they don't--we have put together
economic impact procedures that are consistent with the way we
do it for every industry. We are not going to pick and choose
and do a special one for aircraft. We look at how we look at
economic impact, as Congress has asked us to look at economic
impact.
I should just add one more thing. We are the only export
credit agency in the entire world that does this. No other
export credit agency, no other country requires this. We are
happy to do so, but I think the committee should know this is
something unique to the United States.
Mr. Westmoreland. You have really, since 2011, stopped
disclosing the yearly total of the number of aircraft exports.
Why would that be?
Mr. Hochberg. I am unaware that we have made a change in
our disclosure since 2011.
Mr. Westmoreland. You disclose all of them right now? Is it
full disclosure of everything you do?
Mr. Hochberg. Everything over $100 million is in the
Federal Register for a full 25 days before a final board vote.
Mr. Westmoreland. Above that amount?
Mr. Hochberg. Above $100 million.
Mr. Westmoreland. If it is less than that, it is just chump
change?
Mr. Hochberg. No. Less than that would be--first of all,
you can't buy a wide-body plane, the item of concern to Mr.
Anderson and Delta, none of them cost less than $100 million.
So, under $100 million, and the aircraft would be two and a
fraction of a 737, so that is what Congress asked us to say
over $100 million, we would like in the Federal Register. I can
just add, this does have an impact on our competitiveness.
Mr. Westmoreland. I am going to lead by example and cut
myself off.
The gentlelady from California is now recognized.
Ms. Waters. I would like to go back to a discussion about
how you guarantee and how you finance and how you supply
support for insurance. The opposite side of the aisle has
created these words to describe what you do that are absolutely
not true. They talk about corporate welfare. In saying that,
they are trying to lead the public to believe that you are
giving away something to the corporate sector in foreign
countries. They also talk about crony capitalism, as if you are
somehow giving to persons who have some kind of connection with
you or with Ex-Im, something that they don't deserve, and so I
think we need to clear this up. We need to talk about the
difference between loan guarantees and the kind of financing
that you do and grants. You have made it very clear that these
are not grants, but I think we need to say it in words that
everybody understands and nobody can deny. And, of course, for
those who are saying it, none of them can prove that there is
any welfare here, but they will keep saying it, unless we keep
denying their description of Ex-Im. So would you please, in
your own words, Mr. Hochberg, talk about how you do this?
Mr. Hochberg. Thank you, Ranking Member Waters, and thank
you for your support. We provide loans. Loans need to be
repaid. We do not provide any grants whatsoever, and we have a
very tough group of people who enforce the loan covenants and
make sure that loans are paid back and paid back on time. That
is how we can have a default rate of 0.21 percent, less than a
quarter of a percent.
At the height of the financial crisis, the worst crisis
since the Depression, it was 1.1 percent, and it keeps
declining. So in terms of risk management and in terms of
corporate welfare, welfare implies we are taking from someone
and giving it to somebody else. We don't do that. People come
to us if they need our support. Also, according to the World
Trade Organization, we have to be self-sustaining. If we are
self-sustaining, that is where there is no subsidy from the
government because the fees we collect cover the loan loss
reserves, cover our operating expenses, and for the last
several years, we transfer back to the taxpayer for deficit
reduction, last year over a billion dollars.
Ms. Waters. Mr. Hochberg, do you charge interest on loans?
Mr. Hochberg. Most of the loans are guaranteed, therefore
the Bank charges if it is a direct loan, and sometimes we do
that, we borrow the money from Treasury. By law, we had a full
percentage point. So if Treasury lends us the money for 2
percent, we must charge at least 3 percent. On top of that we
add fees, like points on a mortgage. If we are providing
``welfare,'' if you talk to any of our customers, they feel
like they pay a lot of money for our services. None of them
feel like it is welfare. They are paying ``handsomely'' for the
privilege of borrowing.
Ms. Waters. So is it because of the fees that you charge
and interest if it is a loan that you are able to earn money,
and what do you do with the money that you earn?
Mr. Hochberg. The money we receive, a prudent portion goes
to loan loss reserves to make sure that every loan is paid off.
Congress each year appropriates a certain portion of that back
to the agency to run. The balance we transfer to the Treasury.
Ms. Waters. Let me say that one more time. The balance of
this money goes to the Treasury of the United States of
America.
Mr. Hochberg. Correct. One billion 57 million dollars last
October. The previous October, it was $803 million.
Ms. Waters. So are you telling us that you actually earn
money for the government that goes into the Treasury?
Mr. Hochberg. Correct. We earn money because we are taking
in more money than it requires to run the Bank.
Ms. Waters. So, in earning money there is no way that
anybody can credibly say that you are providing welfare for
corporate interests. Is that right?
Mr. Hochberg. That is correct.
Ms. Waters. It is just an absolute misstatement.
Mr. Hochberg. It is a misstatement, as crony capitalism is
a misstatement as well.
Ms. Waters. Thank you very much. And I hope that as we go
through these discussions, you will say that over and over
again. We have to rob the opposite side of their ability to
undermine the tremendous work that you are doing, the
tremendous way that you are allowing the United States to at
least get at the balance of payment and get us into the export
business. If it wasn't for your 2 percent or so that you are
doing, we would be out of it altogether.
I thank you.
And I yield back the balance of my time.
Chairman Hensarling. The time of the gentlelady has
expired.
The Chair now recognizes the gentleman from Oklahoma, Mr.
Lucas, the chairman of the House Agriculture Committee.
Mr. Lucas. Mr. Hochberg, are you having fun today?
Mr. Hochberg. I have a chance to tell the story of Ex-Im
Bank, so more people will understand what we do and how we help
support jobs in this country, so I enjoy doing that.
Mr. Lucas. That is a good response. And clearly, you are
having a lot of rounds pitched at you politically from a
variety of directions here today.
If I could, to the whole panel, discuss for a moment with
me the nature of how the rest of the world handles this
situation. And if we were, indeed, to step away from the
institution, would any of the other countries that we are aware
of around the world drop their similar type of programs? I
address this to anyone on the panel who would care to touch it.
Is anyone talking about getting out of this business that does
this on the planet that you interact with?
Mr. Hochberg. Are you asking me?
Mr. Lucas. Any of you.
Mr. Hochberg. I would say when I meet with my colleagues in
the G7 and the BRICs, it is the exact opposite. They are
looking for a way to ramp up. They are adding staff, and
frankly, unlike the Ex-Im Bank, most of them have offices
around the world. I think China Ex-Im has something like 10 or
12 offices globally. We are located here in the United States.
So, they are going in the opposite direction. None of them are
looking to become less robust or handicap their Ex-Im Banks.
They are looking to enhance them.
Mr. Lucas. To my friends from CBO and GAO, if this
institution goes away, I know you have addressed this but one
more time, please, the impact on the Federal budget?
Mr. Elmendorf. So, Congressman, under the Federal Credit
Reform Act, the rules that Congress has legislated and we
follow, the Export-Import Bank has a negative subsidy cost, and
that is the way it is recorded in the budget and the way we
include it in our budget projections.
Mr. Lucas. Okay. So if I understand the two sets of
comments, we have a situation where we are not the only people
engaged in this kind of activity. It would appear we are the
only people discussing not continuing to engage in this
activity, and the effect of engaging or not engaging in the
activity has no real impact on the Federal budget? Fair
observation?
Mr. Scire. I think the way the Federal budget is accounted
for right now, you really don't yet know. You really won't know
what the costs of these programs are until more time has
elapsed and the very recent books of business have had time to
mature. I would point out that 11 of the cohorts that Ex-Im has
done actually require subsidy according to Ex-Im and OMB's
estimates based upon re-estimation. So we really won't know the
full cost of these credits until they have had time to mature.
Mr. Elmendorf. Congressman, I want to agree with that.
What I was careful to say in my comments was that under the
rules that Congress has legislated and that we of course
follow, the Ex-Im Bank is a negative subsidy. We also have said
a number of times, including just in a recent report, that we
think a more comprehensive way to measure the cost of Federal
credit programs would show Ex-Im Bank as having a positive
subsidy cost. That is not the way it is recorded in the budget
now.
Mr. Lucas. Thank you for that clarification.
Mr. Hochberg. Just so it is clear, a negative subsidy means
we transfer, we make extra money we don't use, and it goes to
the taxpayers to deficit reduction. That is what a negative
subsidy means. So we have transferred this year over a billion
dollars; last year, $800 million; and since Federal credit
reform in 1992, $6.6 billion has gone from the Bank to the
Treasury. If I could add one last thing, I know our time is
limited. The financial crisis from 2008, we have a real-life
stress test. I understand what GAO says. We have complied with
everything GAO has asked for, but on top of that, we have seen
the most stressful economic system and stresses on economic and
Banking system the world has ever seen since the Depression,
and our defaults are, again, 0.211 percent, less than a quarter
of a percent. So I understand the future is uncertain, but we
have just gotten through the worst 6 years the world has ever
seen.
Mr. Lucas. Absolutely, Chairman.
The question is always is in most issues, is the glass half
full or half empty? What will be the impact of having a glass
or not having a glass? That is a policy decision that we have
to decide here, but it is a fascinating subject of discussion.
The intensity that I have observed in this committee, both
perspectives, is great, but whatever we do will impact
business. It will impact individuals. It will impact our
competitive nature around the whole planet.
And with that, I yield back to the chairman.
Chairman Hensarling. The Chair now recognizes the gentleman
from Missouri, Mr. Cleaver.
Mr. Cleaver. Thank you, Mr. Chairman.
To the inspector general, there have been some problems,
obviously, with the Ex-Im Bank, but has there been something so
egregious, so monstrous, that Congress should give the Ex-Im
Bank a certificate of discontinuation?
Mr. Gratacos. Obviously, the decision of whether Ex-Im Bank
is still around is for Congress to decide. All we have done
since we started the office is to look at some of the issues
that were apparent to Bank operation, either from the law
enforcement side--we have been very active on that side--or
from the operational side. We had a hearing last year talking
about risk management. We have done work on dealing with
customers, on the complaints we receive from customers. We look
at economic impact. We looked at all those aspects of the Bank
that we thought needed to be addressed, and since then, the
Bank is working with us in addressing those. Some
recommendations are still outstanding, but there is still some
progress and even the conversation is something that 2 or 3
years ago, wasn't even on the table. So, from our perspective,
we focus on the operations of the Bank.
Mr. Cleaver. Thank you. To the GAO, if we didn't fund the
Air Force, would it have an impact on the budget?
Mr. Scire. Of course.
Mr. Cleaver. That simple?
Mr. Scire. You asked if we didn't fund the Air Force?
Mr. Cleaver. Yes.
Mr. Scire. Of course, yes.
Mr. Cleaver. What if we didn't fund toilet tissue for the
Capitol?
Mr. Scire. That would have an impact on the budget.
Mr. Cleaver. Okay. Thank you. So anything we don't fund
would have an impact on the budget. Is that correct?
Mr. Scire. I am not sure it is material for this
discussion, but yes.
Mr. Cleaver. You are absolutely right. You are absolutely
right. Now, let me go further.
Mr. Hochberg, do you know how many times the Ex-Im Bank has
been reauthorized?
Mr. Hochberg. Ex-Im Bank has been reauthorized more than 16
times in its 80-year history.
Mr. Cleaver. Sixteen times.
Mr. Hochberg. Correct.
Mr. Cleaver. Would it be a surprise to you--it probably
wouldn't--that most of them were unanimous votes or
overwhelmingly unanimous when they went to the House Floor and
to the Senate and that a significant number--I can't remember
the exact number--was actually, they were actually voice-voted
out of the House, and then I think they called it consent in
the Senate, in the lower House--what do they call it in the
lower House?
Mr. Hochberg. I think unanimous consent in the Senate.
Unanimous consent.
Mr. Cleaver. Unanimous consent. You would be surprised at
the number of unanimous consent. So I guess the point I am
making, perhaps poorly, is that, what is different now? And
what I am saying is, are there some problems? I think that
there are some things we can do. I think there are some tweaks
that could be made. There should be some reform. I think the
Delta Airlines representative brought us some things that
should be considered. But my concern is that the Ex-Im Bank has
been well-received by everybody over the years, and now, all of
a sudden, we have this partisanism over the Bank, and I am just
wondering what is it about this moment in our history that we
don't think we can look at a problem and something that's not
that big a problem and then make changes so that our businesses
can compete for business abroad? I am frustrated over the fact
that it would seem to me that there are issues that need to be
addressed that can be fixed. Has there been anything that has
been discussed here today that can't be dealt with if we sat
down and worked?
Mr. Hochberg. Congressman, I am a businessman. I came to
this after 20 years in the private sector. We are constantly,
and our team is looking for better ways to operate the Bank,
address reforms and issues brought up by Congress so we can do
a better job in managing risk and also serving exporters. And
lastly, I would just add that it was President Reagan who
signed a 6-year extension of the Ex-Im Bank, so a full 6-year
reauthorization.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from North Carolina,
Mr. McHenry, chairman of our Oversight and Investigations
Subcommittee.
Mr. McHenry. I wanted to ask you about The Wall Street
Journal story from June 23rd about the employees being under
investigation for accepting kickbacks and improperly steering
contracts to favored firms. Is there an internal investigation
conducted by the Ex-Im Bank on these matters separate from the
investigation by the Office of Inspector General?
Mr. Hochberg. Let me just begin by saying, frankly, I am
outraged by the number--
Mr. McHenry. I appreciate that. You have answered this
question before about how you are outraged, but is there an
investigation by the Ex-Im Bank separate from the Office of
Inspector General?
Mr. Hochberg. Most of those investigations are transferred
over to the inspector general when they reach a certain point,
so they are under the jurisdiction of the inspector general at
this point.
Mr. McHenry. At this point. No further investigation from
your staff?
Mr. Hochberg. They are turned over--at this level of
seriousness, they are turned over to the inspector general.
Mr. McHenry. And so the status of an investigation would be
closed there but opened at the OIG?
Mr. Hochberg. Well, it is not closed. It is an open issue.
But it is--
Mr. McHenry. But if you referred it to them because of the
seriousness, then you are done with the investigation, correct?
Mr. Hochberg. We are waiting to hear what the Inspector
General says. That may recommend other actions we take, either
with the employee or in a procedural manner.
Mr. McHenry. I understand. Okay. So as a result of this,
have you consulted with the General Counsel's Office about
these reported incidents of fraud, waste, and abuse?
Mr. Hochberg. Let me just make one statement. All of these
infractions, all of these individuals you are referring to were
all referred to the Inspector General by our employees. Our
employees said, ``There is something suspicious here. I need
the Inspector General to look at that.'' So these were all
internally generated and sent to the Inspector General by our
own employees, who said, ``I don't like what I see here. This
doesn't look right.''
Mr. McHenry. Yes, I am asking about you.
Mr. Hochberg. Then I am not sure I understand the question.
Mr. McHenry. Okay. Fantastic.
So have you consulted the Ethics Office about these
matters?
Mr. Hochberg. Matters have been handled by our General
Counsel and the Inspector General, as is proper, so that they
are helped--
Mr. McHenry. And the General Counsel referred that over to
the Office of Inspector General?
Mr. Hochberg. On some of them, they may have been turned
over by another employee. They don't have to go through a
particular channel. Any employee can refer a matter to the
Inspector General.
Mr. McHenry. Okay. Let me ask you a separate question. Is
there an Office of Ethics at the Ex-Im Bank?
Mr. Hochberg. An Office of Ethics? Yes, in the General
Counsel's Office, there is an Office of Ethics and Compliance.
I know of two--I think there are two to four attorneys in the
administrative law area that--
Mr. McHenry. And they report to? Who do they--
Mr. Hochberg. They report to the General Counsel.
Mr. McHenry. Yes. Okay. Other ethics offices actually
report directly to the head of the operation, in other parts of
government. Would you support that?
Mr. Hochberg. We have a Chief Risk Officer that this
committee asked, that the Inspector General recommended, and I
committed to. The Chief Risk Officer has reporting to him--it
is more broader than just credit risk. It looks at all of it.
Mr. McHenry. I understand. I just asked you a simple
question. So, I will just move on.
Mr. Hochberg. The Chief Risk Officer reports to me. And he
is in charge of--
Mr. McHenry. Yes, I understand. I asked about the Ethics
Office, not about the risk office. So--
Mr. Hochberg. Ethics is part of that.
Mr. McHenry. I understand, but I am talking about a direct
report.
I will move on because I understand you don't want to
answer those questions I have been asking. So I am going to ask
another question. Are you aware of any criminal investigation
about the actions that were brought to light in The Wall Street
Journal report?
Mr. Hochberg. These matters, I think, are better answered
by the Inspector General since they are an ongoing
investigation. I don't want to invade people's privacy--
Mr. McHenry. Are you aware of a criminal investigation
about these matters?
Mr. Hochberg. I am aware that the Inspector General is
conducting an investigation.
Mr. McHenry. Are you aware of if there is a criminal
investigation about this matter?
Mr. Hochberg. I am aware of the investigation. I still feel
the question would be better answered, so I don't invade
anyone's privacy, by the Inspector General, who is at the
table. I just don't--
Mr. McHenry. I understand.
Mr. Hochberg. I don't want to make a misstatement.
Mr. McHenry. I understand. In terms of meetings with the
Office of the Inspector General, that is much easier to do. And
so, I am just trying to ask you a few questions. Mr. Chairman,
I am just trying to get to the bottom of this.
If I can ask you a question about the Florida construction
company at the center of The Wall Street Journal story, have
you had any contact or dealings with them personally?
Mr. Hochberg. Oh, no.
Mr. McHenry. Okay.
Mr. Hochberg. Absolutely not.
Mr. McHenry. All right. Thank you.
And, Mr. Chairman, I yield back. Confounded, I yield back.
Chairman Hensarling. The gentleman yields back.
The Chair now recognizes the gentleman from Florida, Mr.
Murphy, for 5 minutes.
Mr. Murphy. Thank you, Mr. Chairman.
And thank you all for appearing before us today.
Chairman Hochberg, thank you. It is good to see you. Thank
you for your steadfast promotion of American jobs and American
manufacturing in our country.
As a small business owner myself, I understand that one of
the most important things those small business folks need is
access to capital and financing. Last year alone, Export-Import
Bank financing supported over 200,000 jobs, 90 percent of which
supported small businesses.
If the United States unilaterally disarms the export
financing world and allows Ex-Im to lapse, what kind of
economic impact could it have on American manufacturing, on our
job creators, on our exporters selling goods that are stamped
proudly, ``Made in America'' all around the world--and so many
of which have relied on this Export-Import Bank?
Mr. Hochberg. On the first panel, we had Steve Wilburn, who
gave specific testimony how just the threat of Ex-Im Bank not
being here in September has already impacted the awarding of a
$57-million contract to his company that would support a lot of
jobs. The smaller transaction of $48 million supported 165
jobs. This would obviously be more; it is even a larger
transaction.
We heard small businesses at the time of the shutdown, just
even the threat of a shutdown, were losing sales because of
potential we would not be there.
Small businesses rely on us very deeply. It is 90 percent
of our customers, 90 percent of the clients. And, frequently,
they do not have another option. They frequently have very few
options. I ran a small business. It is hard to get credit in
general, and it is even harder for a small business.
Lastly, many of the small businesses are part of the supply
chain. So I know we focus on small businesses, direct
exporters, but they are part of the Boeing supply chain, they
are part of SpaceX, where Congresswoman Waters is, in her
district. There is a large supply chain. A manufacturer like
Boeing or GE, people like to talk about, but they don't make
100 percent of what they do. Their supply chain is full of
small businesses that would also be impacted immediately.
Mr. Murphy. Thank you.
As a fiscal conservative myself, I view all government
spending with a skeptical eye. But one of the things I say
frequently is that it isn't this body's role to create jobs;
rather, it is our role to create an environment that is
conducive to job growth. And you develop that environment
through stability and certainty. Not by shutting down the
government, or threatening to go over fiscal cliffs and
sequesters and not by putting things like the Ex-Im Bank at
risk.
Can you talk about some of that uncertainty, and if 200,000
jobs were supported last year, what that could potentially mean
for these jobs in the future?
Mr. Hochberg. It is obviously hard to be precise. I am
thinking positively, that we are going to reauthorize the Bank
and do it on time. But let's be very clear--205,000 jobs in the
past year, well over a million jobs over the last 5 years, just
under 1.2 million, were supported by our exports. That is
because we filled the gap the private sector could not fill or
didn't to meet the competition. So those are all at risk.
When someone gets a loan from us, they have to state why
they need the loan from us, or the guarantee or insurance, why
can't they get it in the private sector. I would rather the
private sector do everything. We are there when the private
sector can't or won't.
Mr. Murphy. To that point, I feel like I am in an alternate
universe here. It just doesn't make any sense.
Can you talk about how on the international scene, this has
affected what some of our competitors globally are doing, what
some other countries are doing? And could you address whether
you think our global competitors' export Banks are going to
step in to help American manufacturers.
Mr. Hochberg. As I said, there is an ad in today's Politico
that talks about the ex-im Banks of China, Russia, and France.
And there are 57--there are 60 countries that all have an
export Bank. They all would gleefully take sales from the
United States and support more jobs in their communities. They
are delighted to do that. They are looking forward to doing
that.
As I mentioned, China does more than 4 times the amount of
financing for its exports than we do. We have a far more
modest, much more careful, much more proscribed--
Mr. Murphy. So, if anything, some could argue we should be
expanding the Export-Import Bank.
Mr. Hochberg. Yes, I would agree with that.
Mr. Murphy. If you really care about jobs and American
manufacturing--
Mr. Hochberg. If you really care about jobs and you want to
make sure we beat the competition. And, frankly, one way to get
to the competition is to meet them toe to toe, head to head,
over and over again and indicate we are not going to back down
unless they play by the rules.
Mr. Murphy. It would be one thing if not a single other
country in the world had the equivalent of the Export-Import
Bank. But they do, and, in fact, they are bigger. We don't live
in that universe, so we might as well live in this reality,
compete, and give our employees the best opportunity they can
have.
Thank you, Mr. Chairman.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from California, Mr.
Royce, chairman of the House Foreign Affairs Committee.
Mr. Royce. Thank you, Mr. Chairman, very much.
Mr. Hochberg, a stated goal of Ex-Im Bank is to provide
export credit assistance to serve customers who are unable to
obtain financing through the commercial markets.
What policies and procedures does the Bank have in place to
ensure that it is limiting its assistance to these customers
and not crowding out opportunities for private capital markets?
And does Ex-Im make any kind of formal analysis of what kind of
private capital would enter markets in its absence?
Mr. Hochberg. Each application must state unequivocally why
they are looking for our support and why they can't find it in
the private sector. That is a requirement in reviewing a loan
application, whether it is lack of financing, meeting the
competition. Sometimes Banks have limits on what they will do
in certain industries or certain countries. That is where we
step in.
Sub-Saharan Africa is a good example of that. We did a lot
of loans in the Philippines. I have a list here. In Cameroon, I
think I mentioned earlier, over half the exports that went to
Cameroon, for example, we financed. Why? It is very hard to get
any Bank to step forward.
In places like Western Europe, we do very little business,
because the banks are able to do that. In Japan, we hardly do
any business, because there is a well-defined banking system.
Mr. Royce. Let me ask Mr. Scire; let me ask the GAO.
Is Ex-Im doing enough to ensure that companies are going
out into the private market and not finding capital before
coming to the Bank?
Mr. Scire. So I think that gets into, sort of, the
underwriting and what they are doing in terms of looking at
eligibility and the analysis that is done there. And we have
work under way right now that is looking at that, but that work
is not yet complete.
I would point out that we had made some recommendations
back in 2007. And this is just to clarify a point. Although Ex-
Im has been very cooperative and has agreed with our
recommendations, not all have yet been implemented. And so
there are some recommendations we made in 2007, which look at
some of this economic impact, that it is still working on.
Mr. Royce. Okay.
Let me ask, also, in terms of the numbers and what numbers
are right, both sides of this debate are claiming numbers that
support their case, based on different accounting
methodologies. So the Bank claims estimates that it made $1.6
billion in revenues for taxpayers since 2008. Yet, as you know,
and as has been cited here today, the CBO reported on May 22nd
that if Ex-Im used the fair-value accounting method, it would
be budgeted as a $200-million cost to the taxpayers each year.
Dr. Elmendorf, can you explain the large gap in numbers
between these assessments? And, in your response, can you touch
on what kind of risk assumptions you use, in terms of losses,
when you apply this fair-value methodology? Do you look at
historical experience and commercial Bank experience? And do
you factor in loss reserves and capital? Maybe a quick
explanation of how you do this?
Mr. Elmendorf. Yes, Congressman.
When the government makes a loan or makes a loan guarantee,
either through Ex-Im Bank or some other credit program, the
ultimate budgetary effects of that are not known. Many loans,
most loans are repaid. Some loans are not repaid or are repaid
in part. Sometimes, some money is recovered. The ultimate
budgetary effects aren't known until after the fact.
So, last year Ex-Im turned over some amount of money to the
Federal Treasury. That is certainly true.
When we give the Congress cost estimates, we are trying to
give you a sense of what will happen going forward under a
certain program from a certain program from a certain bit of
financial assistance, and those estimates are operating in a
world of great uncertainty. What the fair-value methodology
does is to capture in the estimate not only the expected level
of default and recoveries but the variation around that
expectation, and to recognize how possible outcomes are--
Mr. Royce. Let me put it another way. What I would be
interested in is the risk-analysis framework that is employed
in accounting by the private sector creditors.
Mr. Elmendorf. Right.
Mr. Royce. If you did that--
Mr. Elmendorf. So private sector creditors take account of
this market risk and put a price on it because the risk is
costly to--
Mr. Royce. In your opinion, if you did that, would it be a
$200-million cost to the taxpayers or would it be a--
Mr. Elmendorf. Yes, Congressman. When we applied that
methodology to the Ex-Im Bank's projections of the size of the
credit programs they will run, of the default rates and
recovery rates and so on, taking the same set of underlying
cash flows that appeared in the credit supplement to the
President's budget and that we use in our standard FCRA
accounting, when we use those same underlying cash flows but
apply this cost for market risk, then the Ex-Im Bank's programs
are costly, by our estimate, to the tune of $200 million a
year, as you said.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from Georgia, Mr.
Scott.
Mr. Scott. Thank you, Mr. Chairman.
In this morning's hearing, the airlines, with the chairman
of Delta Air Lines and the Pilots Association, made some very,
very salient points.
Now, I think this: We have to the move the Ex-Im Bank
forward. It helps small businesses. It creates jobs. But I
believe we can do this as well as address those concerns.
So, Mr. Hochberg, I know that you know exactly what they
are, but from what the testimony said this morning, the
chairman of Delta Air Lines, Mr. Anderson, and the head of the
Pilots Association, Mr. Moak, both made these points: that
unless there is a level playing field in the exercise of one
particular aspect of what you do, which is the financing of
these wide-body aircraft, that puts our airline industry in the
United States at a competitive disadvantage with foreign
airlines who are able to get these wide-body aircraft flying
these international routes that are very, very profitable.
So you can see the concerns that Delta Air Lines has and
the pilots and the airline industry have. Because, quite
honestly, unless we do something to address this--and if the
Ex-Im Bank is being used in an unfair way to subsidize, for
example, the airlines in India, the other airlines that have
been brought up, where they get subsidized by their government,
then they turn around and they get subsidized by you, they are
able to get those planes cheaper, then they can reduce their
ticket prices, and that makes it very uncompetitive.
So what I want to do is, and as I mentioned to the
chairman, find a way that perhaps we can come up with some
language as we move forward with this, within the 90 days that
we have, that can address that concern. It doesn't seem that
this is mutually exclusive.
Can you help us with that and give me a little guidance on
how we will be able to move this forward, while at the same
time addressing the concerns of Delta Air Lines?
Mr. Hochberg. I will do my best.
One, let me just--I have to say, we don't subsidize. People
pay us a fee, and, as a result, they are essentially paying for
our guarantee so they can borrow money through a bank. And we
are totally self-funding and self-sustaining. So there is not a
subsidy going from us to anybody else. I just need to state
that.
Two, in 2011, without Congress asking us, we raised the
fees multilaterally across the world, made it more expensive to
borrow money from us to buy aircraft, in particular. Today,
foreign carriers all pay more than a comparable U.S. carrier
would pay for the same airplane. So, they are already paying a
premium. What Delta Air Lines is unhappy about is--they are
paying a premium; they think they should pay an even bigger
premium. They are paying more; they would like them to pay a
lot more.
So, one, we just need to understand the facts. We all can
have different opinions, but there are the facts--
Mr. Scott. But Delta Air Lines does not take any money from
the Ex-Im Bank, but these foreign countries do.
Mr. Hochberg. We look at a--that is correct. Because the
need is--the United States has the best financial markets, the
most liquid, creative financial markets. So U.S. carriers can
borrow at far lower rates than any foreign carrier buying the
same airplane.
Mr. Scott. Well, here is what--
Mr. Hochberg. So there isn't an advantage going to the
foreign carriers is what I am trying to say.
Mr. Scott. Yes, but here is--granted.
It is sort of like we are at a stalemate here, and what we
have to do is try to lean in to one another and to try to find
out where we can give here. Because there is absolutely no way
that we can move forward with the progression of the Ex-Im Bank
if you have this salient cry from an unlevel playing field for
one of our most significant, important industries worldwide.
Isn't there something we can do, even if it is a trigger,
even if it is an amount, even if it means curtailing certain
routes that the competition can't take?
Mr. Hochberg. For 3 years, we have been asking Delta
precisely what they would like, and they have not given us a
precise recommendation.
Mr. Scott. Hopefully, we will get that recommendation, and
an amendment that can address this, too, as we move forward.
Chairman Hensarling. The time of the gentleman has expired.
The Chair recognizes the gentleman from Tennessee, Mr.
Fincher.
Mr. Fincher. Thank you, Mr. Chairman.
Mr. Hochberg and the rest of the witnesses, I appreciate
you being here.
A lot has been talked about today with Delta Air Lines, and
I was looking over something where Delta had used the credit
export agencies of Brazil and Canada to purchase hundreds of
aircraft made in those countries.
Is that true, Mr. Hochberg?
Mr. Hochberg. Yes, to the best of my knowledge.
Mr. Fincher. So why would they be--and to their credit,
they are for reforms, but extending the reauthorization of the
Bank. But what would be to the advantage of Delta to borrow the
money from those countries and not use ours? The products?
Mr. Hochberg. Yes. The United States is not really in the
business of making what are called regional jets, those small,
somewhat uncomfortable, narrow jets that hold 50 to 75 people
that a lot of us fly on. So, we don't make those. They are
really manufactured today largely in Brazil and Canada. Japan
is coming up on stream, Russia and China--
Mr. Fincher. But it is the principle of the thing. If you
are against it, you would be against it, all of it.
Mr. Hochberg. Correct.
Mr. Fincher. But they--
Mr. Hochberg. They avail themselves of, it is estimated,
between $3 billion and $4 billion worth of export credits from
Brazil and Canada.
Mr. Fincher. Again, I used this, this morning. The U.S.
economy shrank at a steep 2.9 percent rate in quarter one. The
Commerce Department says the first-quarter contraction was even
more severe than the 1-percent annual decline it estimated a
month ago. Another major factor was a bigger trade deficit than
initially estimated.
I did not support reauthorization last time because we did
not make the reforms I think were necessary. I have a book of
reforms now that we have been working on.
Something that we tend to do in Congress--and now we are in
primary election season. So things are happening. We saw
elections last night, and elections will be next week. And
elections have consequences when we forget who we work for. If
I forget my district back at home in Tennessee, then when I go
back there, the elections will have consequences.
My district, the number of jobs supported--and I know the
gentleman from South Carolina had problems with numbers a few
minutes ago--but 1,000-plus jobs in my district, 5,000-plus in
my State. Now, that is who I work for, the Eighth Congressional
District of Tennessee.
This is not about big business or small business. Look, we
want the country to grow and flourish. We want to hopefully
have the environment and the private sector where they don't
need the government and don't need Washington. But, at the same
time, I am looking at the debt clock. It is unbelievable. But
this is a program, under the current guidelines, that is not
costing; it is actually returning money back. We need to reform
it.
I heard former Chairman Bachus, a few minutes ago, talk
about sending a letter to you guys and not getting a response
in a timely manner. I think that is unacceptable. I think we
have do a better job of being accountable to your customers.
But to just, because it doesn't look right or I don't get
everything I want--my wife and my little girl were going to be
here today, but she is out doing something else. And I was
thinking, I have been married 23 years, which is a long time. I
don't get everything I want at home. I am sure not going to get
everything I want up here. It is just not going to happen. But
my job--
Mr. Hochberg. I hope you do better at home.
Mr. Fincher. Yes, I will have to do better at home.
My job is not--I am a farmer. And I came to Washington 3\1/
2\ years ago, and I promised my constituents, the folks in my
district--because I received farm subsidies before I was
elected. And I promised them that we needed a better way. We
needed to reform the farm bill. This is just an example. We
reformed the farm bill, more reforms than there had been in I
don't know how many years. We did away with the farm subsidy
program. We took many steps in the right direction.
Was it perfect? No. I have voted over 2,400 times since I
have been here, and none of the bills have been perfect. But
did I vote ``no'' and say, it is not everything I want so I am
just not going to do anything? No. That would be irresponsible
on my part.
My part is to do the best I can for my district and support
an investment that creates 1,000 jobs in my district. And that
is what this is about. With reforms. Without reforms, I can't
support it. But, hopefully, we can reform it and move it
forward.
So, with that, I yield back, Mr. Chairman. Thank you.
Chairman Hensarling. The gentleman yields back.
The Chair now recognizes the gentleman from California, Mr.
Sherman.
Mr. Sherman. Mr. Hochberg, I hope that as you administer
Ex-Im in the future--and I do think you have a future--you will
focus especially on small businesses and focus on new products.
Because the future--we have been trying to maintain a wage rate
way beyond the average wage rate in the world, and the only way
we are going to do that is by making things here that they
don't make elsewhere.
Now, a lot of this debate is between those who think we
should focus on Ayn Rand's books on libertarianism and the
purity of that versus the practicality. The practicality is
Germany has more than 3 times the exports per person as we do
in the United States. Germany has an export credit authority,
or agency, that is roughly 3 times the size of ours compared to
the size of our economy. Obviously, Germany is a somewhat
smaller country. And while we have a declining manufacturing
sector and a huge trade deficit, they have outstanding
manufacturing jobs and a huge trade surplus. So the
practicality side leads toward us also having an export credit
agency.
So the question is on purity. I want to point out to this
committee that the Ex-Im Bank has a little sister. It is called
OPIC. It is also a U.S.-sponsored export credit authority. It
comes under the jurisdiction of the Foreign Affairs Committee.
We reauthorized them on the Floor of the House of
Representatives under a bill written by my good friend,
Chairman Royce of the Foreign Affairs Committee. Yes, that good
friend. One hundred and six Republicans voted for that bill.
So if you are torn and you think, well, the Ex-Im Bank is
good practicality but I have to preserve my ideological purity,
if you are one of those 106 Republicans who voted for the
Electrify Africa Act, which had the OPIC reauthorization in it,
you have already lost your ideological purity. So, come with us
and be practical.
As to ideological purity, as to the gentleman from
Tennessee, I think, who has just left, pointed out, Delta Air
Lines has no ideological purity, nor do I expect them to have
it. They are practical. They bought Canadian aircraft and they
got financing from the Canadian agency that is analogous to Ex-
Im Bank.
One thing that is practical about Ex-Im Bank is that you
are scheduled to make, what, $14 billion over the next 10
years? Do I have that right, Mr. Hochberg?
Mr. Hochberg. That is the CBO estimate, yes.
Mr. Sherman. That is the CBO estimate. Okay. Do you have a
different estimate?
Mr. Hochberg. I don't make estimates to 10 years. We simply
made a projection, a budget proposal for 2015, and they took
those numbers and projected them out 10 years.
Mr. Sherman. Okay. And so, we have to live under the
benevolent tyranny of CBO, and if they say we lose $14 billion,
then we have to adjust those debt clocks and announce to the
country that we are increasing the national debt by $14
billion, or we have to wait for the chairman of this committee
to join me in a pro-revenue bill. And that would take a long,
long wait.
But it is argued that fair-value accounting, which is not
the law--every time somebody wants to increase the national
debt by a proposal, they say, ``Well, just change the
accounting, and then I am not increasing the national debt.'' I
have heard this all the time. Dynamic scoring. Now, it is fair-
value accounting.
And I want to make sure I understand this. Fair-value
accounting would mean for Pizza Hut that we don't see whether
they made money or lost money; we see whether they would have
lost money if they had to pay as much to borrow money as the
local pizzeria, which would be a very strange thing. The
investors in Pizza Hut would be very surprised to find out that
their company had lost money.
Do I have that right, Mr. Hochberg?
Mr. Elmendorf. Congressman, that is not the way I would
describe Pizza Hut's use of fair-value accounting.
Mr. Sherman. Pizza Hut is prohibited from using fair-market
accounting, thank God, because--
Chairman Hensarling. The time of the gentleman has expired.
Mr. Sherman. --it would be a phony way to report to
shareholders.
Chairman Hensarling. The Chair now recognizes the gentleman
from South Carolina, Mr. Mulvaney.
Mr. Mulvaney. Thank you, Mr. Chairman.
We have heard a lot of talk today in the last 5\1/2\ hours
about reforms and making a better Bank. So, let's look at that
a little bit.
Mr. Hochberg, you were here a year ago, and, at that time,
I asked you about the Inspector General's report that said you
had had some problems, that you were not routinely reporting
the performance of your sub-portfolios relating to the small
business, Sub-Saharan Africa, and renewable energy mandates. I
found out from the IG's Office today that you still haven't
fixed that one.
I also said a year ago that it looked like you had trouble,
according to the IG's Office, with a lack of due diligence and
asset monitoring efforts conducted by lenders, specifically the
ones who have a history of defaulted transactions. Even though
there is an expectation that such efforts are taken, Ex-Im Bank
does not require participating lenders to conduct due diligence
or asset monitoring of their investigations. I found out from
the IG's Office this morning that you haven't done that one
either.
There is a list of 78 different things that the various
reports since 2010 have asked you to do, 78 things either the
IG or the GAO has asked the Export-Import Bank to do. The IG
has been able to verify that you have done and fixed 33 of
those 78. As to 36 of them, either the IG can't verify that you
have fixed them, they say that you are working on it, or they
say that they know for a fact you haven't started on them yet.
There are 9 of the 78 that they say your responses are
unresponsive and they don't even count you as trying to fix
things.
You are required by law--12 U.S.C. 635(b)(1)(B): ``In
authorizing any loan or guarantee, the board of directors shall
take into account any serious adverse effect of such loan or
guarantee on the competitive position of United States
industry, the availability of materials which are in short
supply, and employment in the United States.''
We heard this morning that you have done that one time--one
time in 2001, when it comes to helping Boeing sell aircraft
overseas. That was with, I think, Aeroflot in 2001. And staff
tells me now that you have conducted a grand total of 24 of
those reports, as required by law, over the last 17,000 export-
import transactions.
In 2012, we asked for some reforms. In 2012, this body
asked the Export-Import Bank for some reforms, one of which
was, ``The Secretary of the Treasury shall initiate and pursue
negotiations with other major exporting countries, including
members of the Organization for Economic Cooperation and
Development and non-OECD members, to substantially reduce, with
the ultimate goal of eliminating subsidized export financing
programs and other forms of export subsidies. That was, I
think, almost 2 years ago. You all have managed to set a
meeting.
The Administration recently sent over its proposed reforms,
I guess. They call it a reauthorization. I don't know if we
would call it a reform. It essentially says that you want more
money; you want to change the way you count losses; you want to
eliminate the need for producing stuff in the Federal Register
regarding notice, lowering the accountability and transparency.
And--and I wish the gentleman who was here from the
previous panel, small businesses--you want to be able to count
towards your small business quota small businesses that sell to
big businesses. So forget about the pickles, forget about the
guy's green energy. Unless you are selling to one of the big
guys, you don't get to count under the President's proposed
reforms, which I guess you participated in, because it is under
your signature.
I look at all of that against a political environment where
this Administration has regularly shown that they don't really
care about following the law very much. They certainly haven't
followed it on health care. They are not following it on
immigration. They don't seem to be following it on how they are
supposed to keep the emails over at the IRS.
So it makes me wonder, for everybody here who says, listen,
that is great, let's pass some reforms, that would be
wonderful. Before you run to the reform bandwagon, I encourage
you to ask some questions to make sure that before we do that,
let's first see if the Bank can actually reform itself under
the existing laws that we have already passed. Let's see if
maybe the Bank can make the suggested reforms that the IG and
the GAO have suggested. And let's maybe make sure that this
Administration might actually be interested in enforcing a
reform bill if we pass it. Until then, I suggest to you that
the time is way, way too early for talking about reforms of
this Bank.
With that, I yield back the balance of my time.
Chairman Hensarling. The gentleman yields back.
The Chair now recognizes the gentleman from Illinois, Mr.
Hultgren.
Mr. Hultgren. Thank you, Mr. Chairman.
And thank you all for being here.
First, Mr. Chairman, I would ask for unanimous consent that
my full statement be inserted into the record.
Chairman Hensarling. Without objection, it is so ordered.
Mr. Hultgren. Thank you.
I really would like to thank the panelists. It has been a
long day, I know, but this is an important discussion. And I
know, as many of my colleagues, we just want to get
information, we want to know the truth, we want to do the right
thing.
As I mentioned in my opening remarks, I think Congress
should take a hard look at the current structure of the Export-
Import Bank. But, also, I hear from my own district's
businesses that tell me that they rely on the Bank to ensure
that their exports reach their customers. So before Congress
abolishes the Export-Import Bank without a reasonable exit
strategy, I think we really, first, need to explore viable
reforms for the Bank.
This leads me to my first question, and I will address it
to Chairman Hochberg.
The Bank's role in providing export credit assistance is to
serve markets and customers that are unable to obtain financing
through commercial markets. What policies and procedures does
the Bank have in place to ensure that it is limiting its
assistance to these customers and not crowding out
opportunities for private capital markets?
Mr. Hochberg. Congressman, thank you for giving me a chance
to talk a little bit about that.
First of all, 98 percent of the transactions at Ex-Im Bank,
we work with a private sector bank to either make the loan,
guarantee the loan, or arrange the loan. So we are doing that
with 98 percent of the transactions.
Furthermore, every application needs to state unequivocally
why they are coming to us and why they can't do this in the
private sector. That is a requirement for us to be making a
loan. It is called--the term that is used is ``additionality,''
what additional value are we providing.
And that is one reason, quite frankly, our loan portfolio
hasn't grown as much in the last 2 years; there has been less
need for us of late. I don't know if that will continue, but,
of late, there has been a little bit less need. And that is a
good sign. That is a good sign that Banks are making more loans
and they are also dealing more with small businesses.
Mr. Hultgren. I would address my next question to the
Inspector General, if I may.
Your office regularly engages with private sector
stakeholders to obtain input on the Bank's operations. I
wonder, in your opinion, is the Bank effectively limiting
itself to markets and customers not being served by private
lenders? What steps could the Bank take to better mitigate the
risk that it is crowding out private capital markets, and that
the Export-Import Bank is the lender of last resort, not the
lender of choice?
Mr. Gratacos. Thanks for the question.
The Bank has a requirement in the charter to only offer
financing for three situations. One of them is another ECA
competition, a lack of financing in the market, or
additionality.
So the requirement that Chairman Hochberg is talking about
is a requirement that any transaction that goes through the
system has to have a declaration, to some extent almost like a
certification, saying, the reason why we come is because of
``X.''
Now, whether or not that is verified is another story. We
did a report on the direct loan program, and we highlighted
that sometimes in the loan documents, we couldn't find
documentation backing up that statement.
That is the extent of what we are looking to do. We haven't
really gotten into whether or not marketing strategies of the
Bank across the country meet the charter requirement. We
haven't gotten that far. But as focused on the direct loan
program, we did address some of those questions.
Mr. Hultgren. Chairman Hochberg, back to you.
Mr. Hochberg. Yes, I would just add, it is required in the
loan application. So the applicant needs to certify that their
financial records are accurate as presented, that everything
they state is accurate as presented.
So I would--we do an audit periodically, but I have to take
an assumption, if an applicant is signing an application for a
loan guarantee from the Federal Government, that they are not--
that a corporate officer is not committing fraud in doing so.
So they have to state unequivocally why they are coming to us.
Mr. Hultgren. Let me move on. I only have a little bit more
time.
The current risk management function of the Bank is
fragmented and neither addresses the totality of enterprise
risk nor how risks may be interrelated.
Given the Bank's recent risk trends, including the
increased authority to extend credit from $100 billion to $140
billion, what additional procedures are you putting in place to
ensure a central risk management structure?
Mr. Hochberg. We, at the recommendation of the IG, and I
stated, a year ago we added the position of a Chief Risk
Officer. I work closely with the Inspector General that the
Chief Risk Officer and the underwriting are two entirely
separate reporting structures, both reporting to me.
And the Chief Risk Officer looks not only at credit risk
but employee risk, reputational risk, legal, IT, hacking--the
entire risk portfolio. There has an Enterprise Risk Committee,
and there are two senior career people who report up to the--
Mr. Hultgren. My time has expired. I yield back. Thank you,
Mr. Chairman.
Chairman Hensarling. The time of the gentleman has expired.
There are votes currently on the Floor. The committee will
recess until approximately 4:45 p.m.
The committee stands in recess.
[recess].
Chairman Hensarling. The committee will come to order.
My apologies to the witnesses. Votes do happen. I hope you
understand.
The Chair now recognizes the gentleman from Wisconsin, Mr.
Duffy.
Mr. Duffy. Thank you, Mr. Chairman.
And I appreciate the witnesses waiting as we voted.
I was looking at a recent article that quoted a study which
basically said that 42 percent of Ex-Im Bank employees agreed
with the statement, ``My organization's leaders maintain high
standards of honesty and integrity.'' Only 42 percent of Bank
employees agreed with that.
And I know, as, I think, what Mr. McHenry brought up
earlier, just yesterday in The Wall Street Journal, we had an
article about the four Ex-Im Bank employees who are under
investigation.
This obviously breeds some concern and actually makes sense
as to why only 42 percent think the organization's leaders have
honesty and integrity as values.
Mr. Hochberg, I want to just follow up on a question that
Mr. McHenry asked.
Have any of those four had referrals for criminal
investigations?
Mr. Hochberg. I am going to need to defer again to the
Inspector General because these are all in his hands at this
point.
Mr. Duffy. I know, but I am asking you.
Mr. Hochberg. I can't comment on it. I referred these to
the Inspector General.
Mr. Duffy. You don't--do you not know?
Mr. Hochberg. They are under his jurisdiction.
Mr. Duffy. Do you know?
Mr. Hochberg. I am not--
Mr. Duffy. I am asking: Do you know if they have been
referred?
Mr. Hochberg. If they--do I--
Mr. Duffy. Do you know if they have been referred for
prosecution?
Mr. Hochberg. For prosecution, I--to my knowledge, they are
in the investigation stage.
Mr. Duffy. Okay. Were the four employees referenced in that
article placed on leave?
Mr. Hochberg. I can't comment. Two of our--
Mr. Duffy. You can comment on whether or not they were
placed on leave. We all know they are under investigation.
Mr. Hochberg. Two of them have already left the Bank.
Mr. Duffy. Okay. And so the two that didn't leave, are they
still drawing a paycheck?
Mr. Hochberg. There is an investigation going--I am not
allowed--I am told by counsel and by the IG that I am not
allowed to comment on this.
Mr. Duffy. On whether or not they are drawing a paycheck?
Mr. Hochberg. I am told I am not allowed to comment on
that.
Mr. Duffy. Okay.
Mr. Hochberg. I am not trying to evade you. I am just told
by counsel I can't comment on that.
Mr. Duffy. Listen, if you haven't picked up on it, there is
a little bit of concern about whether we should reauthorize the
Ex-Im Bank.
I know some have presented it as an institution that should
have a little halo on top that sparkles and it provides great
job opportunity throughout the country and it is a pristinely
run organization, you know, sunshine, roses, tulips, it is a
beautiful thing.
Some of our concerns and some of the concerns that you
might have heard from Delta earlier today are concerns that I
imagine don't surprise you.
We have asked that you do an economic impact analysis on
your activities, and we have heard testimony that you have
17,000 authorizations. You have only done an economic impact
analysis on 24 of them.
Do you wonder why we sit back in surprise and ask, ``Why do
we want to reauthorize an institution that can't even follow
our directions from Congress?''
Mr. Hochberg. Congressman, we do an economic impact review
of every transaction. Not every transaction warrants a full,
in-depth, full-blown, several-month economic--
Mr. Duffy. Out of 17,000--do you agree with that number?
Out of 17,000 authorizations, you only did 24?
Mr. Hochberg. I don't know where the 17,000 comes from, so
I can't comment on that.
Mr. Duffy. Do you agree you have only done 24?
Mr. Hochberg. I don't have the precise number at my
fingertips of how many we have done. I can say the following.
If you would like to know the process, from a process point of
view, Congressman, we do an economic impact analysis when--when
on the surface it says there is more to investigate here.
Mr. Duffy. It is my understanding that the chairman has
been given a large amount of discretion on whether this Bank is
reauthorized or not.
And I think it would behoove you if you just fully leveled
with us, are fully straightforward with us, you don't dance on
questions, you don't hedge, but honesty and being forthright
might get you to get a few of us to buy into significant
reforms and reauthorize.
But when you come in and you dance on us and hedge, that
makes me say, ``Listen, I am just going to get more of the
same.'' Because if I vote for reform, I don't trust that you
are going to do it. I don't.
I hear a lot of folks tell me that this has no economic
consequence to the taxpayer. It helps job growth. It doesn't
have an impact on the taxpayer.
Do you agree with that, the Ex-Im Bank?
Mr. Hochberg. No.
Mr. Duffy. Thank you.
Because you know that from 1982 to 1988, on average, we
bailed out Ex-Im about $330 million a year and then, from 1992
to 1996, it cost the taxpayer almost $10 billion.
So this is not cost-free to the taxpayer, necessarily.
Correct?
Mr. Hochberg. If I can respond to that?
Mr. Duffy. Sure.
Mr. Hochberg. A transfer was made because Federal credit
reform in 9 billion--
Mr. Duffy. Oh. So you are going to give me excuses?
Listen--
Mr. Hochberg. No. 1996. And then we returned--
Mr. Duffy. My time is almost up.
Mr. Hochberg. --9.6. So, actually, we--
Mr. Duffy. You are not convincing me--
Mr. Hochberg. --returned more money than we received.
Mr. Duffy. --that I should vote for reforms and
reauthorization. You have not convinced me here today. I would
like you to convince me, but that takes honesty--
Mr. Hochberg. You have not given me--
Mr. Duffy. --and forthrightness--
Mr. Hochberg. --a chance to answer the question.
Mr. Duffy. --with this committee.
And I yield back.
Chairman Hensarling. The time of the gentleman has expired.
The Chair recognizes the gentleman from Washington, Mr.
Heck.
Mr. Heck. Thank you, Mr. Chairman.
Before I begin and use my time, I ask unanimous consent to
submit for the record three statements of support from external
organizations, most notably including a statement of the U.S.
Chamber of Commerce, along with a statement by the U.S. Chamber
of Commerce in support of H.R. 4950, the bill I introduced last
night, with 201 signatures and sponsors.
Chairman Hensarling. Without objection, it is so ordered.
Mr. Heck. Thank you.
Mr. Hochberg, how many audits have you had of the Bank
since reauthorization?
Mr. Hochberg. My recollection is that GAO has done nine;
they can probably confirm that.
Mr. Heck. They were all completed?
Mr. Hochberg. To my knowledge, seven have been fully
completed and two are in process.
Mr. Heck. Mr. Chairman, at this time I would ask unanimous
consent to submit for the record a list of all of the
requirements and reforms as included in the Reauthorization Act
and their status as well.
Chairman Hensarling. Without objection, it is so ordered.
Mr. Heck. Thank you, sir.
Mr. Hochberg, there is a lot of conversation here today
around what reform should be pursued with respect to the
funding or financing of wide-body aircraft.
At no point during the many hours we were here today, did I
actually hear a specific proposal from Delta Air Lines,
although I thought what I was interpreting was, ``Let's just
prohibit them.''
If we were to do that, what, in your opinion, would happen
in the marketplace, especially with respect to other ECAs?
Mr. Hochberg. My concern would be, unless it is
multilateral and done with the Airbus countries as well, we
would be unilaterally disarming and putting the sale of Boeing
aircraft and the thousands upon thousands of jobs that are
generated from that manufacturer at risk.
It is as though the Honda dealer offers full financing and
the Toyota dealer says cash only. It will be a tilt towards
that vendor that provides financing.
So if we were to prohibit--if Congress were to prohibit
wide-body financing, it would open up that market to Airbus and
the competition would still exist for U.S. carriers because the
only difference would be foreign carriers would be flying more
Airbus planes versus a mixed fleet.
Mr. Heck. In the last 2 minutes that I have, I am going to
ask you to stop, breathe, and then paint a picture.
There have been lots of kind of surface projections made
about what happens if we wake up on October 1st and your doors
are shuttered.
I would like you, as a long-time former businessperson, the
former acting administrator of the Small Business
Administration, and as the president of the Export-Import Bank,
to look forward, not just October 1st and 2nd.
What is the long-term consequence to America's
manufacturing base? What happens to our economy? What happens
to our position in the world? Paint the picture for us, please,
Mr. Hochberg.
Mr. Hochberg. I will paint the picture and I would actually
include something that is frequently overlooked, Congressman,
and that is foreign companies that are looking to invest in
this country to make products for the U.S. market.
But all of them have said to me, ``When we move here, it is
also to export from the United States.'' And on--several of
them have said, ``We would not be opening new manufacturing
facilities in the United States if there was no possibility of
Ex-Im support for our exports. That would be too risky, to
actually attract U.S. manufacturing here.''
First Solar, a company that does solar panels, manufactures
in the United States and in Malaysia. He said that without the
Ex-Im Bank, labor costing pretty much the same, the United
States actually has higher taxes, but without Ex-Im Bank, he
would probably shift more manufacturing to Malaysia.
So I think that we will see some irrevocable changes if
that happens. The threat of it is enough to make manufacturers
think twice.
If this is going to be an--on again, off again continually,
it is hard as a businessman--I was a businessman--to make 5-
and 10-year investments when there is so much uncertainty.
Mr. Heck. In the very brief amount of time that I have
left, I am fascinated to know how you have accomplished such a
low default rate and such a low loss rate. Can you express that
in 25 seconds? How do you get that?
Mr. Hochberg. First of all, 80 percent of the transactions
we have on our books are either collateralized, we actually
have security in the actual asset, or are guaranteed by a
sovereign nation. So we have a very high degree of
collateralization and security.
We do a good job of underwriting, and we do an excellent
job at what I would call asset management, actually following
up on credits and making sure people are current and stay
current.
Mr. Heck. Thank you.
I yield back the balance of my time.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from New Jersey, Mr.
Garrett, chairman of our Capital Markets Subcommittee.
Mr. Garrett. I would defer if you have another Member
first.
Chairman Hensarling. In that case, the Chair will recognize
the gentleman from Kentucky, Mr. Barr.
Mr. Barr. Thank you, Mr. Chairman.
Chairman Hochberg, I appreciate you coming to my office and
talking to me about a month ago, and I think you know what my
principal concerns are with reauthorization of Ex-Im Bank.
There has been a lot of talk today about jobs. And I would
like to talk a lot about jobs and, in particular, the job
situation in Kentucky and the Obama Administration's climate
policies, carbon policies, and the impact that those policies
have had on jobs, particularly in eastern Kentucky.
And, as you may recall, on December the 3rd, I sent you a
letter expressing my concerns about the supplemental guidelines
for high carbon intensity projects.
These are guidelines that your Bank adopted which
explicitly provide that your Bank will not provide support for
exports for high carbon intensity plants.
And your Bank defines a high carbon intensity plant as any
plant that uses coal as a source of fuel for the generation of
power or the production of heat.
My Home State of Kentucky is the third largest coal-
producing State in the country. We have lost over 7,000 coal
jobs in eastern Kentucky over the last 2 years as a direct
result of the regulatory assault of this Administration.
We are talking about jobs. You want to talk about jobs. My
dismay is that, on December 19th, in response to that letter,
you said that the revisions and the adoption of these
guidelines was for the purpose of harmonizing Ex-Im Bank with
the Administration's climate change policies.
My question to you is: Why on earth, if you are about
creating jobs--why are you aligning yourself with a job-killing
agenda?
Mr. Hochberg. Congressman, we had time to meet in your
office. And since 1992, Ex-Im Bank has had to take into account
the creditworthiness of an export as well as the environmental
impact.
That was put in by Congress 22 years ago. We have had an
environmental criteria for all exports since 1992. This is not
a newfangled policy.
Mr. Barr. I would just submit that, if this is really about
jobs, then Ex-Im would not have issued or adopted these
guidelines.
You say in your letter, that you have reviewed this
extensively with the Administration. And I want to know who in
the Administration did you work with in adopting these
guidelines? And I finally want to know whether or not Ex-Im, in
order to be reauthorized, would consider abandoning this Bank's
participation in the war on coal?
Mr. Hochberg. We are active in the export of coal-mining
equipment. We are active in the export of coal. One of our
largest exporters in the State of Pennsylvania is a company
called Xcoal. These regulations only apply to a coal-fired
power plant.
Mr. Barr. Well, I understand that.
Let me reclaim my time really quickly.
I would just submit, also, if the Administration is
concerned about the environmental impacts, then what you are
doing by discriminating against coal-fired power projects is
you are excluding U.S. technology from the opportunity that
these projects will be funded, but they will be funded by
China.
And so, if you are interested in supporting
environmentally-sensitive policies, then support U.S.
technology to build coal-fired power plants and deliver
hundreds of millions of people from energy poverty across the
globe.
In my remaining time, I want to share a story from a
constituent. When we talked in my office, you gave me the
example of a small business in my district that benefitted from
Ex-Im financing. And you said, ``Reach out to them,
LectroDryer.'' We did.
John McPhearson--I know this man--a small businessman, and
he did access financing from Ex-Im. But this is what he told my
staff on the phone yesterday, ``We reached the point where
someone was working full-time to make sure the reporting
documents were filled out so that we could continue to receive
our line of credit. You simply can't take a company of only 70
employees and dedicate one employee entirely to filling out
this kind of paperwork. If the Export-Import Bank went away, it
wouldn't make any difference to me.''
This was the company that you told me benefitted from the
Bank.
``We have seen no difference in sales since we stopped
working with Ex-Im Bank. The reason we stopped working with Ex-
Im was the cost and the complexity.''
Do you have a response to that?
Mr. Hochberg. Congressman, we are asked by this committee
continually to do a better job of risk management, a better job
of oversight.
So I am trying to find a balance between supporting jobs
and doing the proper job of oversight. I hope to get it right.
If we get tilted one direction, we need to adjust that.
Mr. Barr. Thank you.
I yield back.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from New Jersey, Mr.
Garrett, chairman of our Capital Markets Subcommittee.
Mr. Garrett. Thank you, Mr. Chairman, again. And, once
again, Mr. Chairman, thank you for your interest in promoting
job creation in this country and holding a very timely hearing.
This committee is very familiar with government lending
programs and very familiar with government lending programs
that have gone belly up, including Fannie and Freddie, the
National Flood Insurance, and FHA in the sense that--you know
their numbers.
As such, I have come to believe that over time, when
proponents of government lending programs tout that they
actually make money for the Federal Government, I tend to
remember the old adage that there is no such thing as a free
lunch.
So we have to look at it a little bit deeper than the
talking points that we hear sometimes on the panel.
According to the CBO--Congressional Budget Office--over the
next 10 years, Ex-Im's 6 largest programs will generate $14
billion in the government's standard accounting framework.
However, when CBO applies the private sector's accounting
method--and, if you were here before, that issue was discussed
with Mr. Anderson in some detail. And I appreciate Mr. Anderson
actually having a comprehensive understanding of that as
opposed to some of the members of this committee.
However, when the CBO applies the private sector's
standards of this program to it, CBO projects the Bank is
projected to lose about $2 billion. So between $14 billion and
$2 billion--and I can do the math in my head right here even
though it is late in the day--is a $16-billion swing, and that
suggests there is a lot of downside uncertainty when it comes
to Ex-Im.
I will start with you, Mr. Hochberg.
Do you believe that the current government accounting
standards truly and honestly and fully account for the risk to
the taxpayers of the Bank's lending programs?
Mr. Hochberg. I do, Congressman. I can--the difference
between--to my understanding, of fair value and the analysis
CBO did in that swing assumes one large giant assumption that I
believe is not true.
Mr. Garrett. Okay. So that is--
Mr. Hochberg. And that is we would not adjust our fees,
would not--we could adjust our fees to compensate. If there was
a different accounting system that was adopted by the U.S.
Government, we could adjust our fees accordingly to make sure
that we were at a break-even or cost no subsidy.
Mr. Garrett. I don't know that is the only difference and--
on their appraisal of it.
Dr. Elmendorf, can you elaborate on this, since you have
been there.
Mr. Elmendorf. Also, Congressman, the estimates that we
have done, the numbers of which you describe correctly, take
the structure of the programs as they currently are.
So they take the fees as they currently stand. They take
Ex-Im Bank's projections of default rates and recovery rates
and so on.
If the programs were to change, then we would end up
possibly with different estimates of their cost. We have just
done an estimate based on the way the programs stand today and
the numbers in the President's budget request for 2014.
Mr. Garrett. So when they talk about the fees changing,
those fees are changing on what? On current loans or on future
loans, Dr. Elmendorf?
Mr. Elmendorf. So from our point of view, we have taken the
fees that are currently in place.
If Ex-Im Bank were to charge different fees, then we would
have to see how that affected not just the direct payments for
the fees, but, also, how it would affect the composition of the
borrowing that would occur from Ex-Im Bank.
So we have to look at the whole changed structure of those
programs.
Mr. Garrett. Seeing that we have legislation to this point,
would you commit to evaluating your loan portfolio on a fair
value basis?
Mr. Hochberg. We follow the Federal Credit Reform Act. If
CBO wants to do a study on that, we would work with them on
doing a--
Mr. Garrett. I am not asking for a study. I am just asking
that you do your books as other agencies do, as the CBO does
their analysis, on a fair value basis.
Mr. Hochberg. Right now I am required--because Congress
has--the law of the land is the Federal Credit Reform Act that
was passed in 1990. So that is how we keep our books in
accordance.
I was in business. You don't pick and choose your
accounting system. That is the accounting system of the U.S.
Government. It is the accounting system that we comply with
when we do our annual audit and work with the IG on that. It is
our--
Mr. Garrett. That is a ``no.''
Mr. Hochberg. We don't pick and choose.
Mr. Garrett. Mr. Chairman, I think you wanted additional
time?
Chairman Hensarling. Yes.
Mr. Garrett. If not--
Chairman Hensarling. I will take the 30 seconds here.
Mr. Hochberg, you have used some rather apocalyptic
language regarding what would happen if Ex-Im was not
reauthorized.
Again, just for the record--I believe you said it already--
but isn't it true that 98.4 percent of U.S. exports are
financed without your Bank? Is that correct?
Mr. Hochberg. That is correct.
Chairman Hensarling. Is it also correct that only 5 percent
of all transactions of Ex-Im are to meet countervailing
subsidies?
Mr. Hochberg. I'm not sure I understand the question, sir.
Chairman Hensarling. It is from your records: 5 percent of
the transactions of the Bank--you classify these--are made in
order to meet other subsidies.
It is in your competitiveness report. Do I need to cite the
page?
Mr. Hochberg. I can't remember or recall if it is 5
percent. But one of the criteria is meeting foreign competition
from other export credit agencies. In 2013, it was 38 percent.
I am just looking at my records here, in 2013.
Chairman Hensarling. That is dollar volume. Correct?
Mr. Hochberg. That was transactions by purpose. It was on a
transaction basis.
Chairman Hensarling. That is on a transaction basis, 38
percent. Okay.
The time of the gentleman has expired.
The Chair now recognizes the gentleman from Michigan, Mr.
Huizenga, vice chairman of our Monetary Policy Subcommittee.
Mr. Huizenga. Mr. Chairman, actually, I will yield some of
my time to you if you want to continue that line of
questioning. As I believe that is a line that needs to be
explored, I will yield some time back to you.
Chairman Hensarling. I thank the gentleman for yielding.
So, Mr. Hochberg, we have heard a lot, and I think you
yourself have used the phrase, ``unilateral disarmament.''
And so, again, if we have over 98 percent of all U.S.
exports not being financed--again my reading of your report,
and I will try to get the page number, was that it was 5
percent of transactions, roughly a third of dollar volume, are
there to so-called level the playing field. All in all, it is a
fairly small percentage of all U.S. exports.
You also said that the Bank extends credit based on need
and where they cannot find it in the private sector--I don't
want to put words in your mouth. I don't have the transcript in
front of me. I think you said that.
So GE, Boeing, based on their balance sheets, can they not
find credit in the private sector? Is that your opinion?
Mr. Hochberg. It is not GE or Boeing. It is their customer.
So in the Boeing case, to use that example, I just was in
Africa. It is--Kenya Airways or Ethiopian Airways, which are
good customers, but don't necessarily--
Chairman Hensarling. So the size of their balance sheets
wouldn't allow them to extend credit to their customer. Is that
what you are saying?
Mr. Hochberg. They are a manufacturing company. They are
not a Bank. And their job is to manufacture and put money into
R&D.
Chairman Hensarling. He doesn't have GE Capital? Boeing
doesn't have a finance arm? Are they not financing
transactions?
Mr. Hochberg. Not to the extent that--of the global
requirements. And, again--
Chairman Hensarling. What is a global requirement?
Mr. Hochberg. Well, to meet all their export needs. They do
it--frankly, sometimes--
Chairman Hensarling. What is an expert need?
Mr. Hochberg. I'm sorry?
Chairman Hensarling. What is an export need?
Mr. Hochberg. What I am trying to say, Mr. Chairman, is
that sometimes Boeing will do it when they say, ``You know
what? This credit is too poor. We are not even going to present
that to Ex-Im Bank.'' So we do that.
And the other thing we have to remember is we have Airbus,
as an example, because we are talking about Boeing, that fully
funds their export credit agencies, particularly in Britain,
Germany, and France, don't have the criteria we have in terms
of--
Chairman Hensarling. GE Capital has half a trillion dollars
in total assets. Boeing apparently has $92 billion in assets.
And yet, they have a need that apparently you have to fill.
So you are telling me again some of the largest companies
in America can't finance their customers' desire for their
products. Correct?
Mr. Hochberg. They cannot provide--they are not in the
position to provide 12-year financing or 10- or 14-year
financing.
Chairman Hensarling. I wonder what they are doing with that
half-a-trillion-dollar balance sheet?
Mr. Hochberg, a couple of different times you have talked
about government shutdown, and rightfully said, ``I believe
this is something that is harmful to the economy, I assume
something to be avoided.''
Did you talk about the government shutdown earlier today?
Mr. Hochberg. I talked about it in terms of what the impact
was on exports and small businesses that we work with.
Chairman Hensarling. And my takeaway from your answer was
detrimental. Is that correct?
Mr. Hochberg. That is correct.
Chairman Hensarling. Okay. So if Congress decided to send
the President a clean continuing resolution and he refused to
sign that because it did not reauthorize the Ex-Im Bank, and
the Administration threatened a government shutdown, would you
counsel the Administration publicly not to do that?
Mr. Hochberg. I am not in a position to make
recommendations on that, sir. My job is to manage the Bank and
to determine--
Chairman Hensarling. You just said in your earlier
testimony that shutdown is something that you thought was
pretty negative to the economy.
So the Ex-Im Bank would be something that would be
extraneous potentially attached to a clean reauthorization to
keep the government open.
You have had a lot of opinions on a lot of other matters.
You have no opinion on this matter?
Mr. Hochberg. What I referred to, sir, was that the threat
of a shutdown--the threat of not reauthorizing the Bank or I am
simply reporting what I heard when I spoke to exporters and
their customers--
Chairman Hensarling. So do you have no opinion on the
matter, or do you refuse to share your opinion?
Mr. Hochberg. I haven't given it any thought, sir.
Chairman Hensarling. Fascinating.
Mr. Huizenga. I will reclaim my 3 seconds, Mr. Chairman.
The exact quote, as I wrote it down earlier, is that, ``We
are there when the private sector can't or won't.'' And the
question mark I wrote for myself after that was, ``Really? It
doesn't always seem to be that is the case.''
So, with that, I yield back. Thank you.
Chairman Hensarling. The time of the gentleman has expired.
The Chair now recognizes the gentleman from Indiana, Mr.
Messer.
Mr. Messer. Thank you, Mr. Chairman.
I yield my time back to you, the Chair, to continue your
inquiry.
Chairman Hensarling. I thank the gentleman for yielding.
Again, Chairman Hochberg, I would have you take a look at
Figure B-1 of the Ex-Im Bank transactions by purpose from your
2012 competitiveness report, page 149, where you list the
financing due to the fact that, ``No private sector financing
was available,'' and that which says ``meet competition.''
As I do the math by number of transactions, it is about 5
percent. So--
Mr. Hochberg. Would you repeat the page number?
Chairman Hensarling. --I would have you take a look at that
particular report.
Mr. Hochberg. I have 2013 here. I did not bring 2012
because we issued this and set this up last night.
Chairman Hensarling. Well, thank you. But we just got 2013
yesterday. So this is the latest data that we have. Again,
whatever the proper number is, it appears to be a somewhat
smaller number.
Let's talk again about the so-called level playing field.
Listening to some of those who are on the other side of the
debate, you would think the only way one could be competitive
is to take taxpayer money and subsidize Fortune 50 companies.
Dr. Elmendorf, regrettably, we are going to drag you back
into all of this.
But I believe the latest--CBO's February budget and
economic outlook said that the Affordable Care Act, also known
as Obamacare, would reduce the number of full-time employees
over the 10-year budget window by 2\1/2\ million.
I assume CBO still stands by that report?
Mr. Elmendorf. I think that was our projection for near the
end of the budget window, Mr. Chairman. And, yes, we stand by
those estimates.
Chairman Hensarling. Okay. Perhaps one way we could make
our manufacturers and our exporters more competitive would be
to repeal Obamacare.
Now, here is something else that makes people competitive:
wages. Some of our competitors have a higher wage scale. Some
of them have a lower wage scale.
The President has called for increasing the Federal minimum
wage. According to a February CBO report, that could reduce
employment by half a million, but it could be as high as 1
million. That, again, is according to a February CBO report.
Dr. Elmendorf, does CBO stand by that report?
Mr. Elmendorf. Yes, Mr. Chairman.
Chairman Hensarling. Okay. I think, if I remember right,
just about every Democrat on this committee cosponsored the
reduction in jobs of a half a million. Perhaps they might want
to rethink that to help make our manufacturers a bit more
competitive.
We have the top five proposed rules that are coming down
the pike, most of which is coming from EPA: Tier 3 emission
standards, with a $35-billion impact on the economy, efficiency
standards for motors, 11.7.
We have the highest corporate tax rate of any
industrialized nation in the world, yet my friends on the other
side of the aisle, the only way they can think to somehow make
us more competitive is to take taxpayer money in subsidized
large companies.
In the time that is remaining, Mr. Hochberg, here is
another question that is somewhat disturbing to me: It appears
that you are taking taxpayer money and loaning it or
guaranteeing the credit to some nation-states that, according
to Human Rights Watch, are some of the worst violators of human
rights.
The Democratic Republic of Congo, where the Human Rights
Watch has said, ``Government authorities have sought to silence
dissent with threats, violence, and arbitrary arrest against
human rights activists.''
Freedom From Torture, another human rights group, calls it
the rape capital of the world.
And, yet, on behalf of the American taxpayer, apparently,
you have extended one of the state-owned enterprises a line of
credit.
You have also extended lines of credit to Russia, now that
Ukraine's peninsula, the Crimea, has been absorbed.
Sierra Leone, Human Rights Watch, ``The government of
Sierra Leone and the mining company that is the country's
largest employer have undermined villagers' access to food, and
prevented workers from challenging abusive practices.''
United Arab Emirates continue to crack down on freedom of
expression and association.
Okay. What private companies do with their money is one
thing. What you do with taxpayer money is something else.
Why are you taking taxpayer money and consistently loaning
it to nation-states that are some of the worst human rights
abusers on the planet?
Mr. Hochberg. Mr. Chairman, the example you cited in the
Congo is from the 1980s. It is over 30 years ago. We--
Chairman Hensarling. My data says 2012.
Mr. Hochberg. For every transaction, the State Department
gives a clearance of human rights conditions, and we don't make
a transaction if the State Department has an objection on a
human rights basis. So that is current practice.
I can't talk about what happened in the 1980s. I can talk
about currently. The State Department gives us a clearance on
every transaction from a human rights point of view that the
board considers.
Chairman Hensarling. Mr. Hochberg, I might say it is time
to start showing a little bit of independent judgment in this
matter, just one man's opinion.
The gentleman from Indiana's time has expired.
There are no other Members in the queue. So I would like to
thank our witnesses for their testimony today.
The Chair notes that some Members may have additional
questions for this panel, which they may wish to submit in
writing. Without objection, the hearing record will remain open
for 5 legislative days for Members to submit written questions
to these witnesses and to place their responses in the record.
Also, without objection, Members will have 5 legislative days
to submit extraneous materials to the Chair for inclusion in
the record.
The hearing is adjourned.
[Whereupon, at 5:25 p.m., the hearing was adjourned.]
A P P E N D I X
June 25, 2014
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