[Senate Report 114-266]
[From the U.S. Government Publishing Office]


                                                       Calendar No. 107

114th Congress         }                    {               Report
                                 SENATE
 2d Session            }                    {                114-266

======================================================================

 
    THE COMMERCIAL REAL ESTATE AND ECONOMIC DEVELOPMENT ACT OF 2015

                                _______
                                

                  May 26, 2016.--Ordered to be printed

                                _______
                                

Mr. Vitter, from the Committee on Small Business and Entrepreneurship, 
                        submitted the following

                              R E P O R T

                         [To accompany S. 966]

    The Committee on Small Business and Entrepreneurship, to 
which was referred the bill (S. 966) to extend the low-interest 
refinancing provisions under the Local Development Business 
Loan Program of the Small Business Administration, having 
considered the same, reports favorably thereon with an 
amendment and recommends that the bill, as amended, do pass.

                            I. INTRODUCTION

    The CREED Act (S. 966) was introduced by the Committee's 
Ranking Member, Senator Jeanne Shaheen, for herself and Senator 
Johnny Isakson, on April 15, 2015. The bill's other co-sponsors 
as include: Senators Ayotte, Cantwell, Casey, Coons, Fischer, 
Franken and Hirono.
    The bipartisan bill extends a provision allowing small 
business owners to refinance existing commercial debt using the 
Small Business Administration's (SBA) 504 loan program for any 
fiscal year during which the 504 base program is operating at 
zero subsidy. By doing so, the program lowers small businesses' 
monthly mortgage payments at no cost to taxpayers, thus putting 
more capital in the hands of America's job creators.
    S. 966 as introduced would have extended the 504 Loan 
Refinance (504 Refi) program for five years. During markup of 
the bill, Chairman Vitter put forward a substitute amendment to 
the bill which made two changes. The first change eliminated 
the five-year sunset and made the refinance authority available 
permanently. The second change allows the program to operate 
only during fiscal years in which the regular 504 loan program 
is operating at zero subsidy. The bill, as amended, was 
approved unanimously by voice vote.
    The provisions of this bill later became law as part of the 
Fiscal Year 2016 Consolidated Appropriations Act, H.R. 2029 
(Public Law No. 114-113).

              II. HISTORY (PURPOSE & NEED FOR LEGISLATION)

    The purpose of the CREED Act is to permanently re-instate a 
version of the Small Business Administration's 504 Refi, a two-
year initiative that permitted refinancing of existing 
qualified commercial real estate debt through the SBA's local 
economic development business loan guaranty program, also known 
as the 504 loan program. When the 504 Refi program was active, 
more than 2,300 small firms refinanced more than $5 billion.
    The 504 Refi program expired on September 27, 2012, but 
small businesses continued to desire access to the capital 
invested in their businesses. On the last day of the trial 
period, more than 400 businesses applied. While the economy is 
better today than when the program ended, and lending to small 
businesses is starting to recover, many banks today cannot or 
will not finance additional commercial real estate. Those that 
do often will not refinance small business equipment or 
commercial real estate with a long-term or low fixed-rate.
    The Committee believes that extending the availability of 
low-interest refinancing will lower small businesses' monthly 
mortgage payments, putting more working capital in the hands of 
America's job creators.
    The Small Business Administration's 504 Refi program is a 
long-term financing tool for economic development that provides 
small businesses with long-term, fixed-rate loans to help them 
acquire fixed assets and real estate for expansion or 
modernization. The loans are intended to foster local economic 
development and to create or preserve jobs. A 504 loan project 
consists of three elements: a loan from a private sector lender 
covering 50 percent of the principal; a second mortgage from an 
SBA Certified Development Company backed by a 100 percent 
government guaranteed debenture, covering 40 percent of the 
principal; and an equity contribution from the small business 
owner to cover the remaining 10 percent.
    The ability to refinance owner-occupied commercial real 
estate debt through the 504 loan program was first created as 
part of the American Recovery and Reinvestment Act of 2009 
(P.L. 111-5) on February 17, 2009. Congress added additional 
refinance authority in the Small Business Jobs Act of 2010 
(P.L. 111-240), which was signed into law by President Barack 
Obama on September 27, 2010. Section 1122 of the law allowed 
small businesses to use 504 loans to refinance eligible fixed 
assets not involving expansions for two years after enactment, 
with program authorization capped at $7.5 billion each year. 
The refinance authority, paid for entirely by program fees, was 
a zero-cost way to help small businesses access their own 
equity that they had built up over the years in order to hire 
additional employees or retain those currently employed.
    It took some time for the SBA to create a regulation 
implementing the 504 refinance authority, and the initial 
regulation, finalized on February 17, 2011, was not fully 
consistent with legislative intent. The SBA revised its 
regulations on October 12, 2011. The revised rule was more in 
line with legislative intent and allowed more businesses with a 
commercial mortgage to refinance. Participation in the 504 Refi 
program took off shortly thereafter, and as a result, the 504 
refinance program supported $5.5 billion in total lending to 
small businesses. However, on September 27, 2012 just as the 
program was accelerating and the lending community began to 
utilize it to its full capacity, the program expired.
    The Senate has considered an extension of the 504 Refi 
program many times since 2012, as free-standing bills and 
amendments. The following information describes the various 
efforts.
    During the 112th Congress, on April 25, 2012, Small 
Business Committee Ranking Member Olympia Snowe introduced, S. 
2364, a bill to extend the 504 refi program for an additional 
year. Senator Snowe introduced S. 2364 on behalf of herself, 
Chair Mary Landrieu and Senator Jeanne Shaheen, along with 
Senators Isakson, Thune, Klobuchar, Tim Johnson, and Pryor. The 
bill was referred to the Committee but not acted upon further 
during the 112th Congress.
    Senate Amendment 1833 (S. Amdt. 1833), an amendment in the 
nature of a substitute to the Jumpstart Our Business Startups 
(JOBS) Act of 2012 (H.R. 3606), contained a provision to extend 
the 504 loan refinance program for an additional year past 
September 27, 2012. S. Amdt. 1833, the Invigorate New Ventures 
and Entrepreneurs to Succeed Today (INVEST) in America Act of 
2012, was introduced on March 15, 2012, by Senator Jack Reed 
along with Chair Landrieu and Senators Levin, Scott Brown, 
Merkley, Akaka, Whitehouse, Franken, Harkin, and Durbin. S. 
Amdt. 1833 was ultimately not included in the final version of 
H.R. 3606.
    Additionally, Senator Landrieu included a 504 refinance 
provision in Senate Amendment 2521 (S. Amdt. 2521), which she 
filed to S. 2237, the Small Business Jobs and Tax Relief Act of 
2012 on July 11, 2012. Division B of S. Amdt. 2521, entitled 
the Success Ultimately Comes from Capital, Contracting, 
Education, Strategic Partnerships, and Smart Regulations 
(SUCCESS) Act of 2012, contained language to extend the 504 
refinance program for an additional year and a half past its 
scheduled expiration. Although it came up short of the 60 votes 
needed to end debate, the amendment received a strong 57 bi-
partisan vote, including five Republicans, when it received a 
vote on the Senate floor on July 12, 2012. Shortly thereafter, 
Chair Landrieu filed the SUCCESS Act as a standalone bill. On 
July 25, 2012, Chair Landrieu introduced S. 3442, the SUCCESS 
Act of 2012, with eight co-sponsors including Committee members 
Senator Cardin and Senator Shaheen, as well as Senators 
Blumenthal, Boxer, Gillibrand, Lieberman, Merkley, and 
Whitehouse.
    Chair Landrieu also offered 504 refinance language as an 
amendment to S. 3457, the Veterans Jobs Corps Act of 2012. 
Senate Amendment 2837, offered by Chair Landrieu, Ranking 
Member Snowe, and Senator Shaheen on September 13, 2012, would 
have extended the 504 refinance program for an additional year 
and a half past its scheduled expiration. Ultimately, however, 
none of the bills or amendments made it to the President's desk 
during the 112th Congress.
    During the 113th Congress, the Administration requested 
authority to reinstate the 504 Loan Guaranty Refinance program 
as part of its FY2015 Budget Request.
    On February 12, 2013, Chair Landrieu introduced S. 289, the 
Commercial Real Estate and Economic Development (CREED) Act of 
2013, which was identical to S. 966 that is the subject of this 
report. Specifically, S. 289 sought to restore for five years 
the 504 Refi program that was enacted by Section 1122 of the 
Small Business Jobs Act of 2010 and had expired on September 
27, 2012. The bill was marked up on September 10, 2013, with a 
Risch-Landrieu amendment that would have allowed the program to 
operate only during fiscal years in which the SBA's base 504 
program operated at zero subsidy. The bill, as amended, was 
approved unanimously by voice vote.
    Also during the 113th Congress, language to extend the 504 
Refi program was voted on favorably two times during the 
appropriations process. On July 25, 2013, the Senate 
Appropriations Subcommittee on Financial Services and General 
Government reported S. 1371, its Fiscal Year 2014 
appropriations bill, with a provision to reinstate the 504 Refi 
program under the Business Loans Program Account. On July 24, 
2014, the Senate Appropriations Subcommittee on Financial 
Services and General Government reported its Fiscal Year 2015 
appropriations bill with a provision to reinstate the 504 Refi 
program under the Business Loans Program Account. No bill 
number exists. The bill as reported is only available on the 
Appropriations website.
    During the 114th Congress, the Administration requested 
authority to reinstate the 504 Loan Guaranty Refinance program 
as part of its FY2016 Budget Request. The budget justification 
reflects that the cost of this program has a zero subsidy, and 
that is because it is covered entirely through fees paid by the 
borrowers and lenders. Further, the budget tables, on Page 1197 
of the Budget for Fiscal Year 2016, provided information that 
the loans from the Commercial Real Estate Refinance Program are 
performing better than budget analysts estimated. The budget 
projects a negative re-estimate for the 504 Loan Guaranty 
Refinance program of $101 million in FY15.
    The CREED Act of 2015 received letters of support from the 
National Association of Development Companies; Small Business 
Majority; U.S. Chamber of Commerce; National Small Business 
Association; Smaller Business Association of New England; Women 
Impacting Public Policy; Association of Women Business Centers; 
Consumer Bankers Association; American Bankers Association; 
Independent Community Bankers of America; National Association 
of Development Companies; Granite State Development Corporation 
in New Hampshire; Northeast Economic Development Company in 
Pennsylvania; The Pennsylvania Community Development and 
Finance Corporation; DelVal Business Finance Corp in 
Pennsylvania; SEDA-COG Local Development Corporation in 
Pennsylvania; Regional Development Funding Corporation in 
Pennsylvania; Bridgeway Capital CDC in Pennsylvania; EDC 
Finance Corporation CDC in Pennsylvania; California Association 
for Micro Enterprise Opportunity; Tulsa Economic Development 
Corporation in Oklahoma; Small Business Capital Corporation in 
Oklahoma; REI Oklahoma; CSRA Business Lending in Georgia; Small 
Business Access Partners in Georgia; Capital Partners in 
Georgia; Georgia Small Business Capital; Small Business 
Assistance Corporation in Georgia; Southern Georgia Area 
Development Corporation; Georgia Small Business Lender; Coastal 
Area District Development Authority in Georgia; Georgia 
Certified Development Corporation; and North Georgia Certified 
Development Corporation.
    Previous efforts to reinstate the 504 Refi program were 
supported by a number of groups, including the: U.S. Chamber of 
Commerce, International Franchise Association, Consumer Bankers 
Association, Independent Community Bankers of America, National 
Small Business Association, Association for Corporate Growth 
and the National Association of Women Business Owners.
    The CREED Act provisions were enacted as part of the Fiscal 
Year 2016 Consolidated Appropriations Act, H.R. 2029 (Public 
Law No. 114-113).

                      III. HEARINGS & ROUNDTABLES

    In preparing to draft and introduce the CREED Act, the 
Committee held a number of hearings and roundtables analyzing 
the SBA's 504 Refi program and heard from small businesses, 
lenders, and government officials on the effectiveness of the 
program and the need for extension.
    In the 112th Congress:
    On November 29, 2012, the Committee held a hearing 
entitled, ``Creating Jobs and Growing the Economy: Legislative 
Proposals to Strengthen the Entrepreneurial Ecosystem.'' The 
purpose of the hearing was to discuss the legislative proposals 
included in the ``Success Ultimately Comes from Capital, 
Contracting, Education, Strategic Partnerships, and Smart 
Regulation (SUCCESS) Act of 2012'' (S. 3442), which was the 
result of recommendations gathered during a series of three 
Committee roundtables examining the entrepreneurial ecosystem 
during the 112th Congress. Among the provisions in the SUCCESS 
Act that the Committee examined during the hearing was the 
extension of the 504 loan refinancing program. The Committee 
heard testimony from a variety of small businesses, 
stakeholders, and Administration officials including the SBA's 
Associate Administrator for Investment & Special Advisor of 
Innovation and the Executive Vice President of a regional 
Certified Development Company (CDC). Witnesses testified on the 
effectiveness of the 504 loan refinancing program and the need 
for its extension, given the continued tight market for 
conventional real estate mortgages.
    In the 113th Congress:
    On March 14, 2013, the Committee held a roundtable entitled 
``Helping Small Businesses Weather Economic Challenges & 
Natural Disasters: Review of Legislative Proposals on Access to 
Capital and Disaster Recovery.'' The purpose of the roundtable 
was to discuss four legislative proposals on small business 
access to capital and disaster recover on which the Committee 
would focus during the beginning of the 113th Congress, 
including the CREED Act. Participants included a wide range of 
small business owners, investors, and stakeholders, and SBA 
representatives, including the Associate Administrator for the 
SBA's Office of Capital Access, which oversees the 504 loan 
program. The roundtable followed up on previous Committee 
roundtables and legislative hearings held during the 112th 
Congress and provided an opportunity for Committee members to 
highlight their relevant priorities ahead of an upcoming markup 
on access to capital and disaster recovery legislation.
    On April 17, 2013, the Committee held a hearing entitled 
``The FY2014 Budget Request for the Small Business 
Administration.'' The purpose of the hearing was to review the 
President's Fiscal Year 2014 Budget Request for the SBA. 
Testifying on behalf of the Administration were SBA 
Administrator Karen Mills, SBA Inspector General Peggy 
Gustafson, and Dr. Winslow Sargeant, Chief Counsel of the SBA's 
Office of Advocacy. In its budget request, the SBA requested 
the ability to extend the 504 loan refinance program, to which 
there is zero subsidy cost attached.

                        IV. DESCRIPTION OF BILL

    S. 966, the Commercial Real Estate and Economic Development 
Act of 2015, extends the availability of a low-interest 
commercial real estate refinance program through the Small 
Business Administration's 504/CDC loan guaranty program. The 
bill restores the program enacted by Section 1122 of the Small 
Business Jobs Act of 2010, which expired on September 27, 2012. 
As amended by the Vitter substitute amendment, the bill allows 
small businesses to refinance eligible existing commercial debt 
only during fiscal years in which the SBA's base 504 program 
operates at zero subsidy.

                           V. COMMITTEE VOTE

    In compliance with rule XXVI (7)(b) of the Standing Rules 
of the Senate, the following vote was recorded on April 23, 
2015.
    A motion to report the Commercial Real Estate and Economic 
Development Act of 2015, to extend the availability of low-
interest refinancing provisions under the Local Development 
Business Loan Program of the Small Business Administration, as 
amended, was agreed to by voice vote as part of a manager's 
package that included seven additional bills. The following 
Senators were present: Vitter, Risch, Fischer, Gardner, Ernst, 
Ayotte, Enzi, Shaheen, Cantwell, Cardin, Heitkamp, Booker, 
Coons, Hirono, and Peters. Senator Paul requested that he be 
recorded in opposition to the bill.

                           VI. COST ESTIMATE

    In compliance with rule XXVI (11)(a)(1) of the Standing 
Rules of the Senate, the Committee estimates the cost of the 
legislation will be equal to the amounts discussed in the 
following letter from the Congressional Budget Office:

                                                      June 3, 2015.
Hon. David Vitter,
Chairman, Committee on Small Business and Entrepreneurship,
U.S. Senate, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for S. 966, the Commercial 
Real Estate and Economic Development Act of 2015.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Susan Willie.
            Sincerely,
                                                        Keith Hall.
    Enclosure.

S. 966--Commercial Real Estate and Economic Development Act of 2015

    In 2010, the Small Business Jobs Act (Public Law 111-240) 
authorized the Small Business Administration (SBA), through the 
Certified Development Company (CDC) Loan Program, to 
temporarily guarantee loans issued to refinance existing debt 
without requiring an expansion of the business by the borrower. 
(The CDC loan program is designed to provide small businesses 
with long-term loans at fixed rates to purchase major assets, 
such as commercial real estate.) That temporary authority ended 
in 2012. S. 966 would authorize the program to operate during 
any fiscal year that the CDC loan program operates at no cost 
to the federal government. If the zero-cost condition is not 
met, then the refinance option would not be authorized that 
year.
    In 2015, SBA received an appropriation of $45 million for 
the CDC program, allowing the agency to guarantee $7.5 billion 
in debt at an estimated subsidy rate of 0.6 percent; over the 
2010-2014 period, the subsidy rate for the CDC loan guarantee 
program ranged from zero to 2.02 percent. (The subsidy cost is 
the estimated long-term cost to the government of a loan 
guarantee, calculated on a net-present-value basis.)
    Because those subsidy rates can fluctuate CBO cannot 
predict the years in which the refinance program would be 
authorized to operate. However, CBO estimates that implementing 
S. 966 would not affect discretionary spending, because in the 
years the agency would be authorized to operate the program, it 
also would be authorized to collect fees sufficient to offset 
the subsidy cost. Enacting S. 966 would not affect direct 
spending or revenues; therefore, pay-as-you-go procedures do 
not apply.
    S. 966 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act and 
would not affect the budgets of state, local, or tribal 
governments.
    The CBO staff contact for this estimate is Susan Willie. 
The estimate was approved by H. Samuel Papenfuss, Deputy 
Assistant Director for Budget Analysis.

                  VII. EVALUATION OF REGULATORY IMPACT

    In compliance with rule XXVI(11)(b) of the Standing Rules 
of the Senate, it is the opinion of the Committee that no 
significant additional regulatory impact will be incurred in 
carrying out the provisions of this legislation. There will be 
no additional impact on the personal privacy of companies or 
individuals who utilize the services provided.

                   VIII. SECTION-BY-SECTION ANALYSIS


Section 1. Title

    This section provides the title of the bill. This Act may 
be cited as the ``Commercial Real Estate and Economic 
Development Act of 2015'' or the ``CREED Act of 2015.''

Section 2. Low-interest refinancing under the local development 
        business loan program

    This section restores the low-interest commercial real 
estate refinance program through the SBA's 504/CDC loan program 
during any fiscal year in which the base 504 program operates 
at zero subsidy. The program was originally established by the 
Small Business Jobs Act of 2010 and expired on September 27, 
2012.

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