[Congressional Record Volume 156, Number 38 (Tuesday, March 16, 2010)]
[Senate]
[Pages S1577-S1579]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                                HIRE ACT

  Mr. GRASSLEY. Mr. President, one of the provisions the Democratic 
leadership decided to put in this HIRE bill is the expansion of Build 
America Bonds. Build America Bonds is a very rich spending program; 
however, it is

[[Page S1578]]

disguised as a tax cut. One Democratic Senator was asked why the Build 
America Bonds program is viewed differently than appropriations, and 
she replied: It has a good name.
  Ironically, the Finance Committee is returning to its roots of doing 
appropriations bills. When our committee was established in 1816, the 
Finance Committee handled the major appropriations bills that came 
before Congress.
  Mr. President, I ask unanimous consent that a portion of the document 
outlining the history of the Finance Committee be printed in the 
Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

       This vote of no confidence proved a turning point in 
     jurisdiction over tariff bills. . . . Beginning in 1834, all 
     tariff bills were referred initially to the Finance 
     Committee. The important Tariff Act of 1842 was handle by the 
     Finance Committee, as were a number of minor bills in the 
     decade following the Compromise Tariff of 1833.
       In 1846, a bill to reduce tariffs was passed by the House 
     and sent to the Senate on July 6. The Senate leaders wished 
     to take the bill up on the Senate floor immediately; a motion 
     to refer it first to the Finance Committee was narrowly 
     defeated 24 to 22. After 6 weeks of floor debate, it was 
     referred to the Finance Committee on July 27 by a 28 to 27 
     vote, with detailed specific instructions on what to report. 
     The following day the committee asked to be discharged from 
     further consideration of the bill. A motion to refer the bill 
     to a special committee, with similar detailed instructions, 
     was defeated 27 to 27 (with the Vice President opposing the 
     motion), the bill was then passed with the Vice President 
     voting for the bill, thereby breaking a tie vote of 27 to 27.
       For the next decade, there was no serious challenge to the 
     Finance Committee's jurisdiction over tariff measures. The 
     tariff-reducing Tariff Act of 1857 was handled by the Finance 
     Committee; an attempt to prevent referral of the 1861 Tariff 
     Act to the Finance Committee was defeated, 29 to 27 (though 
     subsequent to Finance Committee action, a select committee 
     was appointed to consider the bill further).
       Appropriation bills.--Though the Finance Committee was to 
     become the major committee handling appropriations before the 
     Civil War, this role was not established immediately upon the 
     creation of the committee in 1816.
       In the earliest years of the committee's existence, there 
     were only three major appropriation bills to be considered 
     each year: for the Army, for the Navy, and for the civil 
     functions of Government. In the first session of the 14th 
     Congress, while the Finance Committee was still a select 
     committee, the Army appropriation bill was handled by the 
     Select Committee on Military Affairs; the Navy appropriation 
     bill was handled by the Select Committee on Naval Affairs; 
     and the general Government appropriation bill was referred to 
     a specially created select committee none of whose members 
     served on the select Committee on Finance and an Uniform 
     National Currency).
       The next year, when the standing Committee on Finance was 
     established it took over the responsibility for the Army and 
     general Government appropriation bills. The Navy 
     appropriation bill continued to be handled by the Committee 
     on Naval Affairs until 1827 (with the exception of the 2 
     years 1821 and 1822), when the Finance Committee was assigned 
     the bill.
       One of the appropriation actions in the early years of the 
     Senate Finance Committee related to the Louisiana purchase, 
     which had been made in 1803. Of the $15 million cost of the 
     purchase, $3.75 million was retained by the United States to 
     pay claims of U.S. citizens for damages incurred (mostly at 
     sea at the hands of the French). The remaining $11.25 million 
     was provided in 6-percent bonds payable in four annual 
     installments, from 1818 to 1821. Since Napoleon wanted cash 
     rather than bonds, he sold them to two international bankers 
     for about $10.2 million. The bankers held the bonds until 
     maturity: when they were paid, the Senate Finance Committee 
     had jurisdiction over the appropriation bills. The total cost 
     of the Louisiana purchase to the United States, including 
     interest and American damage claims, was $23.5 million less 
     than 3 cents an acre for the entire territory.
       New appropriation bills were not always referred to the 
     Finance Committee. An annual bill appropriating funds for 
     Revolutionary War pensions was first referred to the 
     Committee on Pensions: not until 1830 was Finance Committee 
     jurisdiction over appropriations for this purpose firmly 
     established. Appropriations related to Indian treaties were 
     first handled by the Committee on Indian Affairs; transfer of 
     jurisdiction to the Finance Committee took several years, and 
     it was not until 1834 that all Indian appropriation bills 
     began to be referred to the Finance Committee.
       From this time on, jurisdiction over appropriation bills 
     remained virtually unchanged until the Civil War. The Finance 
     Committee was given basic responsibility for appropriations, 
     with the sole exception of public works appropriation bills 
     (which were referred either to the Committee on Commerce or 
     the Committee on Territories, depending on the location of 
     the projects).

  Mr. GRASSLEY. Bloomberg News reported that large Wall Street 
investment banks were charging 37 percent higher underwriting fees on 
Build America Bond deals than on other tax-exempt bond deals. 
Therefore, American taxpayers appear to be funding huge underwriting 
fees for large Wall Street investment banks as part of the Build 
America Bonds.
  The Wall Street Journal article, dated March 10, 2010, stated, Wall 
Street investment banks have made over $1 billion in underwriting fees 
on Build America Bonds in less than 1 year.
  The Wall Street Journal article, based on data from Thomson Reuters, 
stated underwriting fees on Build America Bond deals are higher than 
those for tax-exempt bond deals. That sounds like a great deal for the 
high rollers on Wall Street. But how about the taxpayers back on Main 
Street America who have to pick up this tab?
  The Democratic leadership has said the Build America Bonds program is 
about creating jobs. But I wish to know whether it is about lining the 
pockets of Wall Street executives.
  Recently, I asked the CEO of a large Wall Street investment bank a 
number of questions about these larger underwriting fees that are 
subsidized by the American taxpayers. He confirmed that the 
underwriting fees for Build America Bond deals are larger than those of 
tax-exempt bond deals.
  The Senate and House have recently passed different versions of the 
bill we are currently debating which includes a provision that expands 
the Build America Bonds program created in the stimulus bill. One would 
assume it was just a temporary provision and extend that to four types 
of tax credit bonds. I will give those four types. Before I do, I 
remind my colleagues that this is another example that the word 
``temporary'' does not apply to very many things in Washington, DC, 
because it does not take long for a temporary program to become a 
permanent program.

  I talked about four types of tax credit bonds. They are the qualified 
school construction bonds, qualified zone academy bonds, clean 
renewable energy bonds, and qualified energy conservation bonds.
  The Build America Bonds program contains an option for the issuer of 
bonds which is a nontaxpaying entity to receive a check from the 
Treasury Department based on a percentage of the interest cost incurred 
by the issuer. Some refer to this option as the direct pay option.
  The percentage of the interest costs on the four tax credit bonds 
subsidized by the American taxpayers under the direct pay option in the 
Senate bill is a whopping 45 percent and is increased to 65 percent for 
small issuers. ``Small issuers'' are defined as those issuing less than 
$30 million in bonds per year.
  The House version increased the direct payment subsidy to 100 percent 
for qualified school construction bonds and qualified zone academy 
bonds, and increased the subsidy to 70 percent for clean renewable 
energy bonds and the qualified energy conservation bonds.
  Let me put this in context.
  The Build America Bonds program created in the stimulus bill contains 
a 35-percent direct pay subsidy, and the President has proposed in his 
fiscal year 2011 budget that it be lowered to 28 percent.
  It was reported in the March 11, 2010, Bond Buyer article that a 
senior House staffer asserted that no issuers would opt to issue direct 
pay bonds under the lower Senate rates of 45 and 65 percent.
  When I read that assertion, I asked the Finance Committee Republican 
staff to reconcile that assertion with the scoring of the Build America 
Bonds proposal in the Senate-passed bill.
  The Republican staff of the Finance Committee reviewed the Joint 
Committee on Taxation's final estimate of the Senate-passed bill and 
found that the senior House staffer's assertion was directly 
contradicted by the estimate provided by the Joint Committee on 
Taxation, which everybody knows is the nonpartisan official scorekeeper 
for Congress on any tax matters. In fact, footnote 2 of the estimate of 
the Senate Build America Bonds provision states that the Joint Tax 
Committee's estimate of the Senate direct pay bonds option includes an 
increase in outlays of--let's say $8 billion. This means the Joint 
Committee on Taxation estimates assumed that a large number of issuers 
would elect to use

[[Page S1579]]

the direct pay option, contrary to that House staffer's assertion.
  The Bond Buyer--that is a publication--the Bond Buyer also reported 
that the senior House staffer stated:

       There is nobody that I know who does not view the Build 
     America Bonds program as an enormous success, with the 
     possible exception of one person.

  I assume that staffer was referring to me. There are many Federal 
taxpayers who do not view the Build America Bonds program as an 
enormous success. To understand why, let's see which States benefit the 
most from the Build America Bonds.
  In looking at data from Thomson Reuters on the 10 largest Build 
America Bonds deals, California alone issues 73 percent of those bonds. 
Between California and New York, those two States alone issue 92 
percent of the bonds from the 10 largest Build America Bonds deals. 
California and New York are the biggest winners under the Build America 
Bonds, while American taxpayers from the remaining 48 States subsidize 
these States.
  As Senator Kyl pointed out in his ``Dear Colleague'' letter on Build 
America Bonds circulated on March 15, the Build America Bonds program 
actually rewards States for having a riskier credit rating by giving 
them more money. Build America Bonds creates a perverse incentive that 
causes State and local governments to borrow more than they otherwise 
would borrow. This is especially true regarding the school tax credit 
bonds.
  This bill creates incentives where States and local governments 
should not even care what the interest rate is. The American taxpayers 
are picking up 100 percent of the interest cost. Actually, the cost 
borne by the American taxpayers is, in fact, more than 100 percent. At 
least with tax credit bonds, the taxpayers include the amount of the 
tax credit in income and the Federal Government collects taxes on that 
income. The only purchasers of tax credit bonds are those who have tax 
liabilities; otherwise, it makes no sense to buy tax credit bonds. 
However, Build America bonds are technically taxable bonds. But most of 
the investors do not pay tax on these bonds.
  For example, under our tax rules, if a foreign person or a pension 
fund or a tax-exempt entity buys a Build America Bond, they do not pay 
tax on the interest they receive. Thus, the Federal Government not only 
cuts a check for 100 percent of the bond's interest cost, but it also 
loses most of the revenue it would have collected from the tax credit 
bonds.
  State and local governments can view this Federal money as what it 
really is--free money--because they do not have to collect it from 
their residents. Therefore, of course, State and local governments turn 
out to be very big fans of the Build America Bonds program. They get 
Federal money that they do not have to pay back. The large Wall Street 
investment banks love Build America Bonds. Why? Because they are 
getting richer off those bonds.
  However, we all know there is no such thing as a free lunch. 
Washington is an island surrounded by reality. Consequently, everybody 
in this town thinks there are free lunches, and the common sense of the 
rest of the country has difficulty getting inside this island. It is 
our responsibility to point out that in this city, this District--the 
only real industry is government--you cannot have everybody in the 
wagon. In this town, everybody is in the wagon. Everybody outside the 
District is pulling the wagon. That cannot go on very long.
  There is no such thing as a free lunch. Federal taxpayers are footing 
the bill for this big spending program, which only gets bigger every 
time Congress touches it. This legislation before us is just an 
example. As this program that started out as a little program in the 
stimulus bill--and presumably the word ``stimulus'' means temporary, 
doesn't it? But this is not turning out to be temporary and it is not 
turning out to be small because it has just been enhanced greatly in 
the other body. The American taxpayers are the ones we ought to be 
looking out for, and a temporary program ought to be temporary and a 
stimulus program ought to be stimulus and nothing else. And here we are 
expanding it.
  The American taxpayers are the ones who, in the words of the senior 
House staffer, do ``not view the Build America Bonds program as an 
enormous success.''
  I urge my colleagues to look beyond the fancy, well-funded lobbying 
campaign for this rich subsidy. Take a look at who wins. The winners 
are big Wall Street banks. Maybe a small number of governments will 
issue bonds they otherwise would not. Main Street is not helped very 
much by this program. The only certainty is that the Federal taxpayers 
are on the hook for the interest costs.
  With record budget deficits under this Congress and administration, 
we cannot casually look away as new, open-ended subsidies are proposed.
  I yield the floor.
  The PRESIDING OFFICER. The Senator from Alaska.

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