Lawmakers think more small business lending means more jobs. They've crafted a package of bills called the 'Invest in Michigan' plan.
In the aftermath of the 'Great Recession,' one of Michigan's biggest challenges has been lending to businesses--specifically, why there isn't more. Michigan House Democrats are proposing a package of bills they say would give commercial lending a jolt. One bill would loosen the flow of capital into the state's community banks and credit unions. The aim is to increase lending to Michigan's 180,000 small businesses so they can grow and add employees.
Democratic State Representative Vicki Barnett can't help but look at Michigan's investments like a financial planner. It's what she did for a dozen years before her election to the legislature in 2008. Barnett explains that over $500 million of Michigan revenue is quietly appreciating in state coffers. That endowment and trust money eventually goes to support things like state parks and the arts. What bugs her is how the state invests it.
"We buy shares in Chase, we buy shares in Citigroup, we buy shares in Bank of America, we buy shares in Fifth Third," she says.
Barnett is a sponsor of the measures. She says the state ought be investing in more Michigan-based banks like Mercantile in Grand Rapids or Chemical in Midland. That would mean more lending inside the state. Barnett made that point last week at the Capitol.
"For every dollar of capital investment into the shares of a small bank, they can lend 10 to 12-dollars on that one," she asserts.
But a number of the state's community bankers are underwhelmed. Don Mann of the Community Banks of Michigan says not all those institutions have shortages of money to lend.
"We've got money to lend," he responds. "We can't find borrowers. We don't need more money! If you had a lending demand, with interest rates like they are, you can pick up money instantly--in the market. The market works."
East Lansing economist and former deputy state Budget Director Patrick Anderson agrees. He says other conditions also seem to favor more business lending.
"Many banks are receiving essentially interest free loans from the Federal Reserve or from other banking authorities right now," he says. "The great difficulties out there are the harsh terms and the relatively few number of entrepreneurs and businesses that want to invest right now."
The Democrats counter that 80% of Michigan small businesses that fail cite lack of capital as a reason. The bills also would offer banks and even credit unions an incentive to loosen up lending. The aim is to pool together smaller positions from these lenders to reduce each institution's risk.
And the frosting on the cake for the lenders? The profits from those loans now become tax free to the participating banks and institutions.
Bill sponsors say they're open to revisions considering it's the first time some of these options have been proposed. The package also includes incentives for businesses to hire veterans and the long-term unemployed. Supporters insist it all adds up to jobs.
But it's unclear whether the bills will have legs in the Republican-dominated legislature. Unveiling her proposals last week in the House, Representative Barnett underscored the serious political disagreements over how to create jobs-and she slammed the GOP's faith in tax breaks.
"Tax breaks don't create jobs," she says. "What creates jobs is demand for product or service that can no longer be served with the current employment force you have. If any of these people spent time taking an economics class, they would know how that works."
It's been nearly a year of profound Republican-driven change in Lansing. For these bills to advance, observers say the two sides will need to work together.