In the rush to balance the state budget and create jobs in Connecticut, the state may have left millions of dollars in federal funding on the table after Sen. Chris Dodd spurred the interest of U.S. Treasury Secretary Timothy Geithner in an innovative business loan proposal.
Under a proposed “state-assisted fund and exchange,” dubbed SAFE for short, the Connecticut Department of Economic and Community Development would have had a revolving fund to provide capital to state-chartered banks to be lent to small businesses ”“ and the ability to throw the loan pool into the lap of the U.S. Department of the Treasury in exchange for a check for all money lent.
The money would be raised through issuances of bonds, subject to the availability of federal funds, with the federal government also covering interest and other origination costs incurred in those issuances. Banks could then issue loans backed by the funds, with the option of selling the loan at a later date back to the state. When the state had accumulated $50 million in loans, it could then sell the loan portfolio to the U.S. Treasury.
In arguing for the bill, Branford businessman Duffy Acevedo produced a letter exchange between Dodd and Geithner, with the secretary expressing support for the concept and indicating it could be used as a pilot program for a national model.
“Any banker is going to ask the question that we asked when we wrote the SAFE Act, and that is: Who”™s going to buy this loan?”™” Acevedo said. “Regardless of guarantees and underwriting standards, people need to know Wall Street is going to buy the loan. So you could sit on these loans and you could write them ”“ but if you can”™t sell them, you”™ve got a problem.” This plan would make loans ”“ now with the backing of the Treasury Department ”“ more appealing to give and, for other banks, to assume.
The plan could have amounted to a blank check from the U.S. government, but the bill was elbowed aside in Hartford in favor of a law pushed by Gov. M. Jodi Rell that established a $15 million program allowing the state to funnel loans directly to small businesses ”“ with the state incurring the risk of nonrepayment of those loans, and the cost of originating them.
It was the second year running the bill had been considered, after first being introduced by former Speaker of the House Jim Amann of Milford. While the bill received the approval of a majority of the members of the legislative committee on commerce, co-Chairman Sen. Gary LeBeau abstained after voting for a version of the bill the previous year, and the bill was not scheduled for a vote by the full Connecticut General Assembly. It was one of dozens of bills introduced during the session that addressed lending ”“ but one of only a few that carried the weight of consideration from policymakers like Dodd and Geithner.
Rick Giordano, a business consultant from Norwalk, also argued in support of the bill, saying it could help Connecticut draw businesses from New York seeking easier access to capital.
“Banks and financial institutions will lend if they have confidence that they can sell off a new loan to create liquidity that they may need to show the bank regulators their capital ratios are appropriate for the risks they are taking,” Giordano said. “Banks are holding onto their dollar because they don”™t have the confidence they will get it back, or that they will be able to sell the loan in order to create the liquidity they need to stay in business.”
