Bank that boosts Connecticut exports under fire
Washington – For years Connecticut companies, large and small, have benefitted from a federally backed bank that helps them sell their goods overseas — but a bitter fight over a charge that the Export-Import Bank is taxpayer-funded corporate welfare has put its future in question.
Conservative critics of the bank say most of the money loaned goes to big, well-connected companies. They have set their sights on preventing Congress from reauthorizing the bank’s charter before it expires at the end of June.
Bank supporters, which include some of the largest companies in Connecticut, including Sikorsky Aircraft and General Electric, say it helps them remain competitive against foreign companies that are aided by their governments.
“The Ex-Im Bank has supported more than a million U.S. jobs since 2009 and provides both large and small businesses with an effective way to grow their exports, all while returning a profit to the U.S. Treasury,” a GE spokeswoman said. “It’s the kind of win-win scenario we need more of in Washington, and we encourage Congress to approve a long-term reauthorization as soon as possible.”
Established in 1934, the bank is chartered as a government corporation by Congress. Its aim is to boost exports by providing foreign purchasers of U.S. goods with low-interest loans. The Export-Import Bank also provides insurance to U.S. companies against the risk of non-payment by a foreign customer and provides short-term loans to U.S. companies that are growing exporters.
The bank has the ability to make direct loans, but usually guarantees commercial loans to U.S. companies and their foreign customers.
While the bank is capitalized with $5 billion in taxpayer money, it has not lost a dime. In fact, it says it returned a profit of $1 billion to the Treasury in 2013.
The bank borrows at a very low Treasury rate and lends that money to domestic and foreign customers at a higher — but still very attractive — rate. That’s how it makes its money. It helps that it has a very low default rate, about 0.2 percent as of last June.
But critics say the government is such a low-cost borrower it can loan money to anyone and make money, so why should it help the country’s largest corporations?
A Bad Deal?
Whether the Export-Import Bank loans favor big business is at the heart of the congressional debate over the institution’s future.
Export-Import Bank spokeswoman Nicole Woods says any U.S. exporter or foreign buyer of U.S. goods can apply for Ex-Im financing. When an application is received, the Ex-Im Bank staff determines whether a prospective borrower is a good risk, she said.
In fiscal year 2013, nearly 90 percent of the bank’s transactions concerned short-term deals on behalf of American small businesses selling their goods overseas.
“It’s important to note no transaction is too small,” Woods said.
Since 2007 the bank has helped 111 Connecticut companies, from Sikorsky in Stratford to Lady Anne Cosmetics in Trumbull, with about $2 billion in program authorizations supporting $4 billion in exports. Authorizations include the dollar amount the bank has agreed to insure or finance through an insurance policy, a loan guarantee, or a direct loan.
Kurt Goddard, vice president of investor relations at Fuel Cell Energy Inc. of Danbury, said the largest customer for his company’s product, which generates electricity for a facility or electric grid, is South Korea.
Goddard said short-term loans from the Ex-Im Bank facilitated sales to that country, “because when you sell overseas, it can take longer to collect your cash,” money that’s need to produce and ship more goods.
He said a commercial bank may be concerned about the stability of a foreign country and be hesitant to loan to an exporter.
“But with the Ex-Im Bank, that’s the day-to-day,” Goddard said. “They understand the political risks.”
Ex-Im Bank records show Fuel Cell Energy, Inc., was loaned about $105 million to support $363 million in exports.
The bank considers M Cubed Technology of Monroe one of its “success stories.” It approved a $5 million loan to provide the company the funds it need to manufacture components for semiconductor equipment. The bank says the money helped M Cubed increase its exports to the Netherlands, Germany and Singapore to $30 million and create five new jobs.
Despite the healthy number of smaller customers, in terms of money involved, large companies dominate.
Fairfield County-based General Electric is among the top companies targeted by bank opponents (the others are Boeing and Caterpillar), because those companies account for the lion’s share of the institution’s transactions, which totaled about $20.5 billion last year.
Opponents of the bank say that less than 20 percent of the institution’s lending has benefitted smaller businesses, such as Fuel Cell Energy and M Cubed Technology, defined as companies with up to 1,500 employees or $21 million in annual revenues.
The latest volley in the political fight over the Ex-Im Bank comes from the Koch Brothers, Charles and David, who are backing a group called Freedom Partners Chamber of Commerce.
That group recently began running a digital ad called “A Bad Deal” that says the Export-Import Bank shores up foreign competitors of American businesses.
The ads flash images of Hong Kong and Saudi Arabia, Kuwaiti jets and American factory workers. A voice-over says the bank finances foreign companies in “unstable” nations.
“By financing foreign competitors the Export-Import Bank hurts American workers,” the ad says.
Koch Industry President Phillip Ellender sent members of Congress a letter last month urging them to let the Ex-Im Bank charter expire.
“The Ex-Im Bank is yet another example of the government intervening in the market to pick winners and losers,” Ellender wrote. “It confers benefits granted by the American people as a whole to a small number of well-connected corporations. It socializes the risk of economic activity while benefiting relatively few companies.”
Delta Airlines is another bank foe. It argues the bank’s help to Boeing’s overseas customers, like Air India, put Delta at a competitive disadvantage because those foreign competitors are able to lower fares and compete more effectively with Delta for international travelers.
Meanwhile, GE and others who benefit from the bank have formed a coalition to counter the lobbying by the Koch Brothers, Delta and others.
GE says the bank has helped it sell locomotives, turbines, jet engines, nuclear plant production materials and other products to customers overseas, supporting thousands of jobs at its U.S. facilities.
Big business customers of the bank also point out that, around the world, there are 59 other export credit agencies, each backing their own country’s exports.
The Export-Import Bank points out that China’s official export credit agencies have gown rapidly in recent years. Woods said it took the Ex-Im Bank 80 years to provide $590 billion in loans, loan guarantees and insurance. But the Chinese bank surpassed that figure in just two years.
The bank has already become an issue in the presidential campaign, with several GOP presidential aspirants opposing its reauthorization, including Texas Sen. Ted Cruz, Kentucky Sen. Rand Paul, Florida Sen. Marco Rubio and Florida Gov. Jeb Bush.
On the other hand, Connecticut Sen. Richard Blumenthal is among the bank’s strongest supporters, putting the liberal Democrat on the same side of the issue as the U.S. Chamber of Commerce, which says that, far from being a handout to corporations, the bank turns a profit for the American taxpayer, generating billions of dollars in interest and fees.
Blumenthal is a co-sponsor of a bill that would extend the Export-Import Bank’s charter through 2022, “continuing the bank’s ability to provide businesses with tools they need to compete in the global marketplace and create American jobs.”
“For countless Connecticut manufacturers and small-business owners, the Export-Import Bank is expanding markets abroad and creating growth opportunities at home,” Blumenthal said. “Even if these businesses are not themselves exporters, they benefit from Ex-Im support when the products they manufacture are bought by larger exporters.”
The bank’s charter has been renewed without fanfare 16 times. In 2012 it was authorized until Sept. 30, 2014. But when that term neared its end, Congress reauthorized the bank for only nine months, until June 30.
Diane Farrell was selected to serve on the Export-Import Bank’s Board of Directors by former President George W. Bush and served from 2007 until 2011. She says the showdown over the bank “is unfortunate because it has helped thousands of companies.”
“The fact is it returns money each year to the taxpayer, and that is really beneficial,” she said.
Farrell said problems associated with the bank, including the fact that it sometimes unwittingly hurts a U.S. company by helping a foreign competitor, could be addressed.
Supporters are concerned that the controversy over the bank will limit their ability to get a long-term reauthorization of the bank’s charter. Another short-term extension will hurt the ability of exporters to plan, they say.
And there’s also the prospect the bank’s charter will not be reauthorized, meaning the end of the institution.
Xamax Industries Inc., of Seymour, a company that makes industrial materials like wire and cable insulation, uses the Export-Import Bank’s insurance program that pays a company when a foreign customer doesn’t.
That payment-guarantee program has helped boost exports, said Xamax CEO Martin Weinberg, because he can offer his customers favorable payment terms. He said the bank’s demise would hurt his company’s competitiveness overseas.
“If the bank’s charter is not renewed, all or some of our customers may be asked to pay cash in advance, and they may not want to do this,” Weinberg said.
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