House Republican Leader Kevin McCarthy has been talking up a proposal to sell off troubled government loans as a quick fix to pay for infrastructure improvements without raising taxes. But a closer look finds that the plan lacks Democratic support and would not raise nearly enough funds required for repairing highways, bridges and tunnels.
“I can find you money right now. I could probably find you quite a bit and I could find it in a bipartisan way,” McCarthy of California said about paying for the $2 trillion infrastructure package that President Donald Trump and Democratic congressional leaders are seeking.
McCarthy is touting a plan that would start with a pilot program to sell distressed loans from the U.S. Department of Agriculture. If successful, it could be expanded to other types of distressed government loans.
“There’s a bill out there that the Black Caucus and the Freedom Caucus both agree upon. It’s called the GAIIN Act. I think it has an opportunity,” McCarthy said. “So there’s money to start with. Bank that money and build from there. If you want to find bipartisanship, and I do, that’s where I would start.”
While a few Congressional Black Caucus members embraced the idea last year, they’re skeptical now. And experts say it’s unclear precisely how the program would work or how much money it could generate.
“This is a mirage. This is not where a large chunk of money is going to come from,” said David Kamin, a professor of law at New York University and former Obama administration economic adviser.
The bill to create a pilot program to sell distressed agriculture loans was proposed last year by Reps. Mike Kelly, a Pennsylvania Republican, Ted Budd, a North Carolina Republican, and William Lacy Clay, a Missouri Democrat and Black Caucus member.
It would have split the proceeds from selling distressed agriculture loans between reducing the federal debt -- a favorite of conservatives -- and helping struggling communities.
Now, however, Clay is reluctant to offer his support unless more Democrats come on board.
“It gave me pause last year that I got some pushback from my side of the aisle, so I’m trying to work through the issues that they had concerns over,” Clay said. “I’m still working on it with Kelly but we’re looking for more buy-in from our side.”
Rep. Hank Johnson, a Georgia Democrat and Black Caucus member, said that while “all sources of new revenue have to be considered … I’m not sold on it myself as something I should support.”
Among Johnson’s qualms: “I don’t think it’s gonna result in a lot of money first of all, and secondly, infrastructure off the backs of folks who have lost their property is not palatable to me.”
The pilot program would likely apply to an estimated $612 billion worth of outstanding agriculture loans. An estimated $50 billion of agriculture loans are distressed, according to United By Interest, a lobbying and public relations firm that has been pushing the GAIIN Act.
Overall, the federal government has about $1.5 trillion in loan payments outstanding. The biggest chunk is student debt, but that figure also includes loans that involve small businesses, housing and other areas.
Any agriculture payment 90 days or more in arrears is considered distressed. The agriculture loans that could be affected by the pilot program include those for farms, farm equipment, and building rural schools, hospitals, fire stations and affordable multifamily housing.
The Agriculture Department has a long-standing mission to help rural and agriculture borrowers make good on their loans -- a priority that might not be shared by private sector investors wanting to turn a profit.
The department provides credit counseling to educate borrowers about their financial responsibilities before they get their loans, and can place borrowers on temporary loan moratoriums for up to a year if they’ve been hit by natural disasters or job loss.
It isn’t clear how the proposal would protect borrowers should their loans be purchased by private investors, although Kelly has said the sales would not alter the terms of the loans. Kelly also says that borrowers would be notified 30 days before any sale and given the opportunity to refinance at the same price of a potential sale.
Kelly’s spokesman, Andrew Eisenberger, emphasized that the plan would not require selling physical assets such as farms.
“It takes non-performing loans, which the government considers assets on its books, and allows the private sector to buy them in an attempt to make a profit,” he said.
But foreclosure is a possibility if a borrower fails to make payments.
Eisenberger explained that the private sector’s willingness to assume the risk “would generate funding to pay down the debt and invest in infrastructure in low-income communities. Therefore, the concern that ‘assets’ would be sold off that hurts anyone’s constituents doesn’t hold water.”
Richard Kogan, a senior fellow at the Center on Budget and Policy Priorities, a progressive budget research group, was particularly critical of the notion that private investors would want the rural debt at anything other than a deep discount. “The private sector is loss averse,” said Kogan, a former House Budget Committee staff member.
Michael Williams, a United By Interest partner and former Clinton administration legislative special assistant, countered that government collection efforts are far less efficient than those of the private sector.
Williams said the private sector would be enthusiastic about buying the loans. Not only can they buy them for less than they’re worth, but borrowers could begin repaying them – and they could ultimately be bundled and sold to investors in other ways, he said.
Eisenberger, Kelly’s spokesman, said the way to look at the proposal is it would bring money into the government. “If any private company buys even one distressed loan, that’s more money that we had for infrastructure and debt reduction than we had before.”