S. Rept. 113-89 - 113th Congress (2013-2014)
September 10, 2013, As Reported by the Small Business and Entrepreneurship Committee

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Senate Report 113-89 - THE COMMERCIAL REAL ESTATE AND ECONOMIC DEVELOPMENT ACT OF 2013




[Senate Report 113-89]
[From the U.S. Government Printing Office]


                                                       Calendar No. 167
113th Congress                                                   Report
                                 SENATE
 1st Session                                                     113-89

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



 
    THE COMMERCIAL REAL ESTATE AND ECONOMIC DEVELOPMENT ACT OF 2013

                                _______
                                

               September 10, 2013.--Ordered to be printed

                                _______
                                

        Ms. Landrieu, from the Committee on Small Business and 
               Entrepreneurship, submitted the following

                              R E P O R T

                         [To accompany S. 289]

    The Committee on Small Business and Entrepreneurship, 
having considered the bill (S. 289) to extend the low-interest 
refinancing provisions under the Local Development Business 
Loan Program of the Small Business Administration, reports 
favorably thereon, with an amendment, and recommends that the 
bill, as amended, do pass.

                            I. INTRODUCTION

    The CREED Act (S. 289) was introduced by the Committee's 
Chair, Senator Mary L. Landrieu, for herself and Committee 
member Senator Jeanne Shaheen, on February 12, 2013. The bill's 
other co-sponsors include Committee members Senator Benjamin L. 
Cardin, Senator William M. Cowan, and Senator Kay Hagan, as 
well as Senators Johnny Isakson, Tim Johnson, Angus S. King, 
Jr., and Claire McCaskill.
    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.
    During markup of the bill, the Risch-Landrieu amendment to 
the bill, which permits the refinancing authority only during 
fiscal years in which the 504 base program is operating at zero 
subsidy, was approved unanimously by voice vote. The bill, as 
amended, was also approved unanimously by voice vote.

              II. HISTORY (PURPOSE & NEED FOR LEGISLATION)

    One of the biggest challenges that small businesses 
continued to face in the wake of the recession that began in 
late 2007 was access to sufficient capital. As real estate 
values declined, many small businesses, even those that were 
performing well and were current on their mortgage payments, 
were unable to refinance their loans through traditional 
methods. Even small businesses with equity in their properties 
were often unable to access it for additional working capital. 
The purpose of the CREED Act is to extend the Small Business 
Administration's 504 loan refinance program to allow small 
businesses to refinance their existing qualified commercial 
debt through the agency's SBA's local development business loan 
guaranty program. At a time when our economy is still facing 
high unemployment, 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 administers several loan 
guaranty programs aimed at increasing small business access to 
capital. The 504 Certified Development Company (CDC) loan 
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. A 504 loan project consists of three 
elements: a loan from a private sector lender covering fifty 
percent of the principal; a second mortgage from an SBA 
Certified Development Company backed by a 100 percent 
government guaranteed debenture, covering forty percent of the 
principal; and an equity contribution from the small business 
owner to cover the remaining ten percent.
    The ability to refinance owner-occupied commercial real 
estate debt through the 504 loan guaranty program was 
temporarily expanded by 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 in 
refinancings 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 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.
    Small Business Committee Chair Landrieu filed and sponsored 
several pieces of legislation during the 112th Congress to 
extend the 504 loan refinance program. Chair Landrieu, Ranking 
Member Snowe, and Senator Shaheen along with five other 
bipartisan co-sponsors--Senators Isakson, Thune, Klobuchar, Tim 
Johnson, and Pryor--originally introduced the provision on 
April 25, 2012 as S. 2364, a bill to extend the availability of 
low-interest refinancings under the local development business 
loan program of the Small Business Administration. The bill, 
which would have extended the 504 refinance program for an 
additional year past its scheduled expiration, 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 
bipartisan votes, 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.

                      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 refinance 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. 289, the Commercial Real Estate and Economic Development 
Act of 2013, extends the availability of a low-interest 
commercial real estate refinance program through the Small 
Business Administration's 504/CDC loan 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 Risch-Landrieu 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 June 17, 
2013.
    A motion to adopt the Commercial Real Estate and Economic 
Development Act of 2013, to extend the availability of low-
interest refinancing provisions under the Local 
DevelopmentBusiness Loan Program of the Small Business Administration, 
as amended was approved unanimously by voice vote with the following 
Senators present: Landrieu, Risch, Levin, Cantwell, Pryor, Cardin, 
Shaheen, Hagan, Heitkamp, Cowan, Rubio, Scott, Fischer, and Johnson 
(WI).

                           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:

                                                    August 1, 2013.
Hon. Mary L. Landrieu,
Chair, Committee on Small Business and Entrepreneurship,
U.S. Senate, Washington, DC.
    Dear Madam Chair: The Congressional Budget Office has 
prepared the enclosed cost estimate for S. 289, the Commercial 
Real Estate and Economic Development Act of 2013.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contacts are Maggie 
Morrissey and Susan Willie.
            Sincerely,
                                              Douglas W. Elmendorf.
    Enclosure.

S. 289--Commercial Real Estate and Economic Development Act of 2013

    As ordered reported by the Senate Committee on Small 
Business and Entrepreneurship on June 17, 2013
    In 2010, the Small Business Jobs Act (Public Law 111-240) 
authorized a new purpose for the Certified Development Company 
(CDC) Loan Program at the Small Business Administration (SBA), 
temporarily allowing the agency to 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.) This 
new authority ended in 2012. S. 289 would reauthorize the 
refinance program during any fiscal year that the CDC loan 
program operates at no cost to the federal government. If that 
condition is not met, then the refinance option would not be 
authorized that year.
    In 2012, SBA received an appropriation of $48 million for 
the subsidy cost of the CDC program. Based on information from 
SBA, CBO expects that the CDC program will continue to have a 
cost over the next five years. Therefore, CBO estimates that 
implementing S. 289 would not affect discretionary spending 
because the conditions would not be met for the refinance 
program to restart operations. Enacting S. 289 would not affect 
direct spending or revenues; therefore, pay-as-you-go 
procedures do not apply.
    S. 289 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 contacts for this estimate are Maggie 
Morrissey and Susan Willie. The estimate was approved by 
Theresa Gullo, Deputy Assistant Director or 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 2013'' or the ``CREED Act of 2013.''

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.