By Joseph J. Schatz and David Clarke CQ Staff
Published: 11-18-08
Six weeks after enactment of a $700 billion financial industry bailout Senate Democratic leaders are having trouble extending the law to the struggling domestic automobile industry.
A showdown on the Senate floor has been delayed until Wednesday when Majority Leader Harry Reid D-Nev. may attempt to begin debate on a plan to carve out a $25 billion emergency loan program for the “Big Three” automakers. But opposition from the White House and at least one member of the Senate Republican leadership has made passage this week doubtful.
As the fate of congressional efforts to aid the industry remained unclear chief executives from General Motors Corp. Ford Motor Co. and Chrysler LLC as well as the United Auto Workers union were set to appear Tuesday afternoon before the Senate Banking Housing and Urban Affairs Committee.
The auto legislation also includes an extension of unemployment compensation benefits. Reid has also put in the legislative queue bills including a new $100.3 billion economic stimulus package a smaller House-passed stimulus bill (HR 7110) and a House-passed jobless benefits bill (HR 6867).
That gives the majority leader a number of options for either striking a deal or forcing Republicans to object to bills that the Democrats consider politically attractive.
House leaders meanwhile are waiting to see what happens in the Senate.
No matter what happens on an auto industry bailout Congress is likely to clear an extension of jobless benefits during the lame-duck session.
Loans With Strings Attached
Under the draft auto industry plan unveiled Monday auto companies and automotive component suppliers could apply for low-interest loans from the Treasury. The companies would have to submit plans showing how the money would help their long-term financial viability allow the government a financial stake in the firms and submit to restrictions on executive compensation.
The auto legislation is the first attempt by lawmakers to alter the bailout program (PL 110-343) — the Troubled Assets Relief Program (TARP) — that was signed into law Oct. 3. Since then Treasury Secretary Henry M. Paulson Jr. has abandoned his original plan to buy up illiquid assets instead using the law to put capital directly into banks and insurance companies.
The White House has balked however at using the bailout authority for the auto industry. Instead it wants Democratic leaders to pass legislation that would allow automakers to immediately tap a $25 billion loan program enacted last year to help them retool to produce more fuel-efficient cars. That loan program was part of a broader energy package (PL 110-140) and leading Democrats and environmental advocates say its requirements should remain in place. House Speaker Nancy Pelosi D Calif. says that relaxing the loan program’s requirements would roll back efforts to get the auto industry to retool for the future.
Senate Minority Whip Jon Kyl R-Ariz. on Monday declared his opposition to the idea of carving out a piece of the bailout for automakers saying the companies must take responsibility for bad business decisions.
But two Republican senators from states with heavy manufacturing bases — Arlen Specter of Pennsylvania and Christopher S. Bond of Missouri — offered qualified support for a package of assistance. Both senators are up for re-election in 2010. President-elect Barack Obama who supports auto industry aid carried Pennsylvania while the presidential vote in Missouri remains too close to call.
Under the draft legislation firms would have to submit a plan detailing how the loans would help them stimulate production and energy efficiency and how the credit would help ensure the long-term financial viability of the company.
The loans would be for a term of 10 years at an interest rate of 5 percent for the first five years and 9 percent for the second five. The companies would have to give the government a warrant or some other “senior debt instrument” and would face restrictions on executive compensation and “golden parachutes” for departing executives.
The bill would prohibit the issuance of stock dividends by companies receiving loans. The loans would be designed to aid auto companies that have had domestic operations for the past 20 years.
The draft bill includes language identical to a bill (HR 6867) passed by the House on Oct. 3 that would provide seven additional weeks of benefits for those whose unemployment insurance has run out and 13 additional weeks for jobless workers in states with an unemployment rate higher than 6 percent.
House Financial Services Chairman Barney Frank D-Mass. unveiled details Monday night of his own auto industry legislation which is largely similar to the Senate draft but has more detailed reporting application and oversight requirements. Under Frank’s proposal the loans would be made over seven years. It would also include a provision demanding accelerated repayment of the loans if a company “fails to submit an acceptable long-term restructuring plan or fails to comply with any other applicable condition or requirement of the loan program” or fuel efficiency standards.
Another Economic Stimulus
Senate Democrats also introduced a $100.3 billion economic stimulus or recovery bill (S 3689) that Reid will probably try to bring up for a vote Wednesday. Republicans are expected to object to considering the package however leaving the issue for January when Democrats plan to push a more expensive plan.
In addition to the $25 billion in loans for automakers the proposed stimulus package would include $37.8 billion for state Medicaid programs; $13.5 billion for infrastructure projects including highway repair bridge construction Amtrak and public transit; extended unemployment benefits; a tax break for car purchases; $700 million in grants for public-housing agencies; $1 billion for the National Institutes of Health; $2.5 billion for school repairs; $1 billion for border security programs such as building and repairing border stations and implementing new technologies on the southwest border; and $990 million for Justice Department grant programs to local law enforcement.
House leaders met on Monday with the two Bush administration architects of the financial bailout law Paulson and Federal Reserve Chairman Ben S. Bernanke to talk about broad implementation of the program and specific efforts to reduce foreclosures. Frank said “The message was the importance of doing something about the TARP about foreclosure.”
The Treasury’s abandonment of the plan to buy up troubled assets — at least for now — has dashed the hope of lawmakers that the government could leverage its status as the holder of the underlying mortgage loan paper to renegotiate loans in danger of foreclosure.
Democrats have been pushing to implement a plan championed by Federal Deposit Insurance Corporation Chairwoman Sheila C. Bair that would use government funds to encourage mortgage servicers to modify home loans in danger of default. Paulson has resisted using any of the bailout law money to implement the FDIC plan.
Benton Ives contributed to this story.
