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Why Small Business Administration Is Providing Billions to Wall Street Firms

Why Small Business Administration Is Providing Billions to Wall Street Firms

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Ever since President Eisenhower approved its creation in 1953, the Small Business Administration has stood in the popular imagination as a lender to mom-and-pop stores and scrappy entrepreneurs chasing the American dream.

In fact, the agency is increasingly providing billions to Wall Street firms that reap big returns on loans and other investments while taxpayers shoulder the risk of bad bets, records show.

Since 2007, the SBA has guaranteed $14 billion in financing to boutique investment firms. And over the past year, it has pushed its Small Business Investment Company (SBIC) program closer to its permitted $4 billion ceiling each year, according to government officials and records tracked by OpenTheBooks, a nonprofit that collects public-spending data.

Mark Walsh, who left the private sector in December 2015 to oversee the program, defends it by saying, “What we are is incredibly affordable debt and everybody should know about it.”

Certainly it is affordable to the investment firms that draw on federally backed lines of credit as finance intermediaries. The firms pay the government roughly 3 to 3.5 percent, making the arrangement among the cheapest commercial loans available.

If the firms realize their expected double-digit returns on that money, by lending to or investing in other businesses, they pocket the profits. But when the investments go south – and no lender has a perfect record – taxpayers are on the hook for the losses.

SBIC champions say the approach provides capital to small businesses like tech start-ups that blossom and create jobs. Yet as new business creation hits a 40-year low, it’s unclear what impact the program has, especially given the fraction of venture capital that $4 billion a year represents.

The SBA rebuffed RealClearInvestigations’ requests to review its audits of SBIC financing — public records the feds are required to produce every 12 or 18 months for each licensed SBIC borrower. A request under the Freedom of Information Act is pending.

Opaque as it seems, the growing program is becoming a larger part of the SBA’s overall budget, which now tops $10 billion a year.

President-elect Donald Trump’s pick to head the SBA – former wrestling impresario Linda McMahon – has declined to comment before her confirmation hearings. But she is a critic of swelling government, and in 2012 favored President Obama’s proposal to merge the SBA with other agencies.

Other SBA critics aren’t hard to find, including those focused on the SBIC program, which they see as a kind of hedge fund welfare.

“I’d feel better if the government was totally out of the loan business,” said former Republican Sen. Tom Coburn of Oklahoma, long a hawk on reining in federal spending. “Do you think everyone uses their best judgment, spending someone else’s money?”

“There’s no reason for the SBIC to be providing capital to private equity funds,” said Tom McWilliams, a managing partner at Court Square Capital Partners who once helped run SBIC operations at Citibank. “There’s plenty of capital out there for good ideas. What aren’t are a lot of good ideas.”

The SBIC program is very different from the SBA’s more traditional efforts, which backstop private loans to businesses ranging from Quiznos sandwich shops to golf courses. Instead, the SBIC program offers millions in public dollars — $2 for every $1 raised privately — to closed-end funds and private equity and venture capital firms whose directors include Ivy League MBAs and veterans from Goldman Sachs or other Wall Street powerhouses.

Bankers not normally associated with government largesse are tapping big sums through the investment-company program. These include $100 million made available to Boathouse Capital, which takes its name from the row of clubhouses along the Schuylkill River in Philadelphia; and $225 million to Hercules Capital, a publicly traded company worth more than $1 billion and headquartered near Silicon Valley.

The SBA describes the program, which was launched in 1958 but has grown dramatically in recent years, as a “fund of funds.”

Roughly 300 professional investment companies hold an SBIC license. The SBA says these private licensees “use their own capital plus funds borrowed with an SBA guarantee to make equity and debt investments in qualifying small businesses.”

It has a flexible definition of “small business,” though; one requirement stipulates “a tangible net worth of no more than $19.5 million, and an average of $6.5 million in net income over the previous two years at the time of investment.” But there are alternative criteria too.

SBIC-licensed firms can receive a line of credit for a maximum of $150 million, although some firms, like Hercules, hold more than one SBIC license and can tap up to $350 million.

Between 2011 and 2015, firms in the investment-company program pumped more than $21 billion into small businesses through private funds leveraged by taxpayer lines of credit, the SBA says.

Walsh said SBIC companies pay 1 percent on the line of credit when drawn, and another 2 percent when they pay the money back. In addition, a charge is levied each year based on the sum remaining in the guaranteed pool, which can push the total return to taxpayers over the 3.5 percent interest rate threshold.

The SBA’s description notes the investments made with the money can include buying stock, an ownership position of up to 10 percent in a company and cash loans. And these government-backed bets can themselves be sold to other investors, Walsh said.

The size and nature of bets in the investment-company program can be hard to gauge without access to SBA audit records. On their websites, major participating companies do not list precise figures or differentiate between their SBIC investments and others.

Mark Harris, chief financial officer at Hercules Capital, one of the biggest SBIC players, described it as an ideal way for the government to boost fledgling businesses that might otherwise founder. While Harris conceded businesses in their infancy are perhaps the riskiest sort of investment, he noted that even eventual behemoths start from scratch. Without tapping into the expertise and track record of firms like Hercules, he said, the government would not be able to determine the best and most effective allocation of money to help such small enterprises.

“The program in and of itself is phenomenal,” Harris said. “It’s going to really great American companies, and, in the process, we are creating value, creating jobs, and mostly it’s being done with [SBIC] debt.”

He declined to offer individual examples, saying it “wouldn’t be appropriate” to disclose such “non-public information.” On its website, the SBA boasts that the program played a role in some helping some of America’s most familiar businesses, from Apple to Staples, but it provides no details.

New Mountain Capital, a publicly traded firm with a market capitalization of roughly $900 million — and with the SBIC’s largest line of credit at $150 million in 2014-2015 — said it makes loans to “mid-size companies” with its SBIC funds. New Mountain seeks a return of around 10 percent on those investments, according to Joy Xu, an executive with the firm. It has usually hit that target since getting its SBIC license in 2014, Xu said.

The websites of several SBICs that have received $100 million or more show their core businesses can involve sophisticated investments like mezzanine debt, which allows a creditor to take an equity stake in a borrower in case of default. Professionals seek a return of between 13 percent and 25 percent on these instruments, according to New York University’s Stern School of Business and professionals.

In addition, SBIC licensees can sell the loans downstream to others.

“That’s the case with all loan guarantee programs,” said Veronique de Rugy, a senior research fellow at the Mercatus Center at George Mason University and a longtime libertarian critic of government largesse and corporate welfare. “That near-0 percent part of the loan is sold on the secondary market and they are making a killing on it.”

Although making double-digit returns with money committed by taxpayers grates on critics, Xu noted the government program, as the creditor, isn’t functioning any differently than a commercial bank. A commercial bank does not retroactively change the terms if a borrower profits off a loan, she said.

She added that SBIC rates, while very competitive, are not much cheaper than other sources of money. Furthermore, the federal program’s claims as a creditor take precedence over a firm’s other creditors, reducing some of the public’s risk, according to Harris and Xu.

Still, the federal government is shouldering considerable risk since, according to the SBIC itself, much of the capital in the program flows to companies that were unable to secure similar financing in the private marketplace.

Walsh acknowledged that “no one bats 1.000.” In response to RealClearInvestigations’ questions, an SBA spokeswoman said the SBIC program has cost taxpayers $1.6 billion in losses during the last 10 years, although a considerable portion of that came in an SBIC program that has been discontinued.

The licensed funds that fail to keep up with payments can be put into federal receivership, as has happened 54 times in the past decade, the SBA said. It is those complete failures, not a bad loan here or there in a portfolio, that cost the public money.

That’s a low rate in a risky field, Walsh said, and a testament to the careful policing of the program.

“We don’t cost the taxpayers anything,” Walsh asserted. “If people think this makes the fat cats fatter, it does not. I make the government money.”

Despite that rosy picture, the SBA rebuffed RealClearInvestigations’ request to review its inspection reports.

“I am curious…why do you want to see exam records?” Walsh wrote in an e-mail. “The loss ratios from our SBIC program are the envy of the industry, and our liquidations and recovery efforts are so effective that we remain a zero-subsidy program.”

Offering further justification for the SBIC, Walsh argued that the private sector is neither perfectly efficient nor willing to make money available in less well-off parts of the country. “Sixty-six percent of venture capital in this country is raised and spent in 25 ZIP codes,” he said. “We get it into other ZIP codes and I think we do a pretty good job.”

But the core issue to many critics is not the fine details of the program or its size.

“Politicians shouldn’t tilt the scales with cronyism or distort the market with agency programs like the SBIC: It’s welfare for the wealthy,” said Adam Andrzejewski, founder and CEO of OpenTheBooks, whose honorary chairman is former Sen. Coburn.

“In America, we should never demonize success, but we shouldn’t ask taxpayers to subsidize it, either.”

Source: Will County News

Summary of the Homer School District 33C Board of Education Meeting December 20, 2016/ Support Staff Info

Summary of the Homer School District 33C

Board of Education Meeting

December 20, 2016

_____________________________________________________________________

            Barb Wilson, President      Angela Adolf, Vice President      Amy Blank, Secretary

    Deb Martin, Member    Ed Campins, Member    Elizabeth Hitzeman, Member    Russ Petrizzo, Member                                                                                       

 

 

At the December 20th Board of Education meeting:

 

  • Dan Hagan from the Homer Stallions Organization presented a plaque to the Board of Education in appreciation of the District’s support. The organization uses Homer 33C’s gymnasiums, enabling it to keep its costs down.

  • The Board recognized the 8th grade girls basketball team and Coach Melody Johnson for earning 3rd in State at the IESA State Tournament this month. The team ended the season with a record of 25 wins and 3 losses.

  • Member Petrizzo and Member Hitzeman presented an overview of the November 30th Finance & Operations Committee Meeting and announced Hitzeman will replace Angela Adolf on the Committee.

 

  • Teachers Union representative Cathy Clayton reported the full Union met Wednesday, December 14th and ratified a three-year contract agreement with the Board of Education. The contract was ratified with 71 percent of the votes. She indicated the Union is eager to close the 10-month process and thanked the teachers and parents for their support and the negotiating team for their hard work. She wished everyone a restful and safe winter break.

 

  • Support Staff Union representative Stella Kapusta congratulated the Teachers Union for reaching an agreement with the Board and wished everyone Happy Holidays.

 

  • The Board approved the following personnel recommendations:

 

Resignations

  1. Jill Maltese – lunchroom monitor, Homer Junior High School, effective November 30, 2016
  2. Nicola Carpenter – 0.5 FTE custodian, Young School, effective December 22, 2016
  3. Roger Copen – bus driver, Transportation, effective December 20, 2016

 

Leaves of Absence

  1. Sara Devenney – 7th grade Language Arts teacher, Homer Junior High School, effective March 31, 2017 through June 2, 2017 and will return for the 2017-2018 school year
  2. Lauren Wall – Speech-Language Pathologist, Butler and Schilling schools, effective April 21, 2017 through the end of the 2016-2017 school year and will return for the 2017-2018 school year
  3. Timothy Matt – 4th grade teacher, Goodings Grove School, effective February 6, 2017 through March 3, 2017 and will return on March 6, 2017
  4. Donald Emmel – head custodian, Goodings Grove School, effective December 19, 2016 through January 6, 2017
  5. Carole Costa – 4th grade Instructional Aide, Butler School, effective December 2, 2016 through January 9, 2017
  6. Tari Mitcheff – bus driver, Transportation, effective December 7, 2016 through March 7, 2017 or sooner

 

            Employment Recommendations

  1. Jill Nye – Occupational Therapist, salary increase recommendation for Doctoral degree
  2. Kari Panarici-Oprondek – lunchroom/recess monitor, Young School, effective December 21, 2016
  3. Sherri Simone – lunchroom monitor, Homer Junior High School, effective January 9, 2017
  4. Thomas Pratt – 1.0 FTE substitute bus driver, Transportation, effective December 21, 2016
  5. Elizabeth Kolada – 1.0 FTE substitute bus driver, Transportation, effective January 9, 2017
  6. John Kwit – 1.0 FTE substitute bus driver, Transportation, effective December 21, 2016

 

  • The Board reviewed and approved a revised job description for Payroll Clerk.

 

  • The Board reviewed and approved a revised job description, job title and salary adjustment for the Administrative Assistant for Business.

 

  • The Board confirmed a recommendation for Troy Mitchell, Principal of Homer Junior High School, to serve as a liaison to first responder agencies.

 

  • The Board discussed the possibility of leasing the former First Midwest Bank building on Bell Road (just south of Roberts Tire and Auto Services Center and adjacent to the Hadley Middle School parking lot), enabling it to relocate its administrative offices and free up some much needed space for classrooms at Hadley Middle School and Homer Junior High School. The District is growing, reported Superintendent Kara Coglianese, and cannot borrow the money to build additional space. It could seek voter approval for a referendum, but administrators are hesitant to propose one during these economic times. Board members instructed administrators to work with an architect and come up with some preliminary numbers showing how much it would cost to reconfigure the bank (adding cubicles and some office space) as well as the current administration center to accommodate classrooms. Administrators will return to the Board with some numbers in January.

 

  • The Board approved a three-year contract with the Homer District 33C Council of the American Federation of Teachers Local 604. The contract includes a 2.2 percent increase in salary each year. To offset rising healthcare costs, the board and teachers union have agreed to share the burden by implementing a tiered insurance plan (with new employees and employees with spousal and family coverage picking up a greater share of the cost) and introducing more affordable PPO and HSA plans.

 

  • The Board agreed to retain TRIA Architecture to provide the District with general architectural services — pending attorney review.

 

  • The Board awarded a bid to A Beep, a telecommunications products provider headquartered in Joliet, to purchase 88 portable radios that will enable building administrators to communicate with the maintenance staff and District administrators throughout the school day and during crisis situations.

 

  • The Board approved the following administrative salary increases (for employees who were not included in a two-year contract last year) and TRS contributions (if applicable):
    • Assistant Superintendent for Instruction – 2.2 percent increase in base salary and 1 percent contribution to TRS
    • Hadley Middle School Dean of Students – 1 percent contribution to TRS
    • Goodings Grove Principal – 1 percent contribution to TRS
    • Schilling Kindergarten Principal – 1 percent contribution to TRS
    • Schilling Grades 1-4 Principal – 2.2 percent increase in base salary and 1 percent contribution to TRS
    • Hadley Middle School Assistant Principal – 2.2 percent increase in base salary and 1 percent contribution to TRS
    • Butler School Principal – 2.2 percent increase in base salary and 1 percent contribution to TRS
    • Human Resources Director – 2.2 percent increase in base salary and 1 percent contribution to TRS
    • Special Services Program Coordinator – 2.2 percent increase in base salary and 1 percent contribution to TRS
    • Communications/Public Relations Manager – 3.2 percent increase in base salary
    • Technology Director – 3.2 percent increase in base salary
    • Building and Grounds Director – 3.2 percent increase in base salary

 

  • The Board approved an administrative retirement incentive for Homer Junior High School Principal Troy Mitchell who plans to retire at the end of the 2020-2021 school year.

 

  • The Board approved a two-year contract extension for the Superintendent (2017-2018 and 2018-2019) as well as a 2.2 percent increase in base salary for the 2016-2017 school year and a merit bonus of $3,500, which is in line with all administrative merit bonus programs.

 

 

The Next Regular School Board Meeting is January 31, 2017 at 7:30 p.m.

 

 

Source: Will County News

Homer 33C approves three-year contract with teachers

News Release

Homer CCSD 33C

Goodings Grove   Luther J. Schilling   William E. Young   William J. Butler

Hadley Middle   Homer Jr. High

 

Contact: Charla Brautigam, Communications/Public Relations Manager

cbrautigam@homerschools.org | 708-226-7628

 

For Immediate Release:

Dec. 21, 2016

 

Homer 33C Board of Education approves three-year contract with teachers

 

To share rising healthcare costs

 

The Homer Community Consolidated School District 33C School District Board of Education approved a three-year contract Tuesday (Dec. 20) with its teachers union.

 

The contract includes a 2.2 percent increase in salary each year.

 

To offset rising healthcare costs, the board and teachers union have agreed to share the burden by implementing a tiered insurance plan (with new employees and employees with spousal and family coverage picking up a greater share of the cost) and introducing more affordable PPO and HSA plans.

 

“We value the compassion, expertise and dedication that our teachers and staff bring to Homer 33C and wish to retain that skill set while remaining fiscally responsible to our taxpayers,” said Board President Barb Wilson.

 

“This contract achieves both,” she added, “honoring our teachers for their hard work and outstanding service while sustaining the district’s fiscal plans and future.”

 

“Both sides worked together tirelessly to come to a fair and reasonable agreement,” agreed members of the Homer Council negotiating team. “The successful outcome within the collective bargaining process means our teachers may continue to provide the children of Homer 33C the best educational experience possible.”

 

The teachers ratified the contract on Dec. 14.

 

“A lot of long hours went into negotiating this contract and I appreciate the professionalism both side demonstrated throughout the entire process,” said Superintendent Kara Coglianese. “Together, we came up with a fair contract that is respectful of our staff and the community we serve.”

 

 

Like us on Facebook at https://www.facebook.com/homer33c?fref=ts&ref=br_tf

 

Source: Will County News

Governor Rauner working for Illinois

As Democratic leaders continue to stall on budget negotiations, Gov. Rauner pressed forward with his plans to turnaround Illinois, signing a major bipartisan criminal justice reform bill, extending support for laid-off Granite City steelworkers and working to revamp the State Fair while reducing costs to taxpayers.

– The Rauner Team


RAUNER SIGNED CRIMINAL JUSTICE REFORM BILL, BRINGING REPUBLICANS AND DEMOCRATS TOGETHER

Flanked with bipartisan support, Gov. Rauner signed yet another piece of criminal justice reform legislation, developed by the Governor’s Commission on Criminal Justice and Sentencing Reform. The bill ensures that inmates released from prison receive a state identification card, easing the transition back into society by making it easier to open a bank account, obtain a loan or get a job.


RAUNER HIGHLIGHTS REDUCTION IN ILLINOIS PRISON POPULATION

Rauner’s reforms have already had a tangible impact – Illinois’ prison population is down 9% since January 2015. Unlike previous administrations, which discharged dangerous criminals through early release programs, Gov. Rauner’s reforms are centered around reducing recidivism and prioritizing treatment rather than punishment for nonviolent offenders.
Gov. Rauner’s work to end the Blagojevich/Quinn clemency backlog are helping ex-offenders rebuild their lives. Read more here.
Gov. Rauner has signed 15 worthy criminal justice bills, many of them advanced by Democrats. Read more here.


RAUNER SIGNS BILL HELPING LAID-OFF STEELWORKERS

Yesterday, Gov. Rauner signed legislation extending unemployment benefits to approximately 2000 laid-off steelworkers from the Granite City Steel Mill.
“This legislation will help the hard working families of the Metro East who lost their jobs through no fault of their own,” said Gov. Rauner. “While we are encouraged by the recent news that more than 200 jobs will return to the Granite City facility; we hope that by extending unemployment benefits we are able to help the other laid off workers bridge the gap until they are gainfully employed again.”


ILLINOIS FAIRGROUNDS FOUNDATION WORKING TO REVAMP STATE FAIR

The Rauner administration’s efforts to revamp the Illinois State Fair through private fundraising, providing savings to taxpayers. Rauner announced the creation of the Illinois Fairgrounds Foundation at this year’s fair. The foundation allows the state, for the first time, to accept corporate sponsors to help repair fairgrounds in Springfield and Du Quoin. Read more here.


ILLINOIS IN DIRE NEED OF REFORM

Gov. Rauner this week continued his efforts to negotiate with Democratic leaders on a compromise over the budget and reforms. The urgent need for structural reform was highlighted yesterday after a new census report revealed that Illinois lost more people than any state over the past year. Over 37,000 people left Illinois.
Gov. Rauner’s reforms to grow our economy and fix our political system are needed now more than ever to keep and bring businesses back to Illinois.

Source: Will County News

Price of security/ Is it too much

A False Exchange of Liberty for Comfort, Borne of a Universal Blinding Fear                        Published on December 21, 2016

Many things have changed over my long lifetime. I was borne into a time where neighbors and families felt a keen responsibility for others, a time when people shouldered the responsibility of life on a local level.

This has changed. Now we are told to wait, and we will be cared for by some “hero” who will swoop down from the heavens and take us from the fire, blizzard, or flood. We are led to believe that the hijacker is best dealt with by meeting his demands. We are led to believe that our families are best cared for by passive actions, then calling the “officials”. Reality has not been reflected in the patter, though, and, as the blizzard of 78, to Katrina, to acts of terrorism have manifested themselves, surely, we must recognize the absolute – that no police force, or organization of government can save us, that absolute security is a lie.

Alas, we are still responsible for our own well-being, our own safety, and our own butts when the sh#% really hits the fan. As was clearly indicated at Virginia Tech. when the police developed a perimeter, as the gunman walked, room to room killing students lying under desks, There is no superman. There is no Batman. There is only us – normal men and women thrown, occasionally, into events that are threatening to life.

What once would have been solved with fists, now is dealt with by calling in men in black kevlar suits, perhaps, emptying their weapons into someone’s child. Time and time again, the most extreme remedy becomes “normalized” as police don riot gear, ride to the “scene” in armored personnel carriers, and form a line across streets of cities.

I remember traveling through Europe in the early eighties with my mother, men in military garb in airports, holding uzis, watching the people. How unthinkable it all was. I remember saying “thank God that America is not like that!” Now, it is.

There is safety, and then there is the illusion of safety. Do I feel safe when a man stands with a gun and watches over me? No, I do not. I feel surveilled. I feel stripped of my freedom.

Good men offer their professional lives over to service in our police and military, To find themselves at last, guarding us from us. It is foolishness to believe that a man with a gun will be at the right place at the right time to react. It is foolishness to believe that, in the instant that an attack takes, he would be able to define a target, and execute in a crowded airport or street. Would the thought of such an action even be prudent before the event actually took place? It would not.

Such men, now are taught to believe that there are different “classes” of people. They must develop prejudice, over time to people who they feel present the greater threat. They become a part of a special class, themselves, sticking together against the “others” regardless the consequences.

Brothers, standing against the threat that you or I may pose to the whole. Watching us in the lines, as we put our things thru the x-ray. Watching us as we get a snack or listen to our music, or sleep. They are not watching terrorists. They are watching you and I, patting us down, scanning our naked skin in sophisticated machines, as we hold our hands up over our heads, and stand on the yellow footprints, dutifully following their orders, lest we be signaled out as a “problem”.

You may ask, then – “what are you saying? – Do you think we are better off with no security?” Yes. I do. There are things that planning and preparation can control. There are measures of surveillance that are just and appropriate in a free society. But, if we must develop cloistered sects of society to police the rest, I would prefer nothing. It all comes down to a balance of security and freedom. How much security have we bought with the freedoms that we so freely spent? None. How much loss of freedom is too great a cost to pay? Any.

All of the loss of life from all of the acts of terrorism is not significant in statistical evaluation, compared to the loss of freedom and, indeed the guarantees of our constitution, itself. Life holds inherent risks. Eventually we all shall lose. If we sell our freedom to travel, to learn, to speak, and evolve, to disagree and to change. The result is not a world in which I would care to live. The cost of “comfort” is too great if it must be paid for by surrendering all that we are as Americans.

I have daughters who I love deeply, as men loved sons and daughters who were murdered in these many events. Anything is worth doing to protect the innocent. We are failing, though to protect anything. We are squandering mankind’s only ray of the grand light of freedom, because of our fears. Terrorism does not work on the fearless. We were once such a society, perhaps, with reflection, and strength of character, we may be again.

We each are valuable as a person, a father, mother, sister, brother, friend, but alas each of us is more still, as a part of the whole of America, and of mankind. Patrick Henry, so long ago said; “Is life so dear, or peace so sweet, as to be purchased at the price of chains and slavery? Forbid it, Almighty God!..” We, the great men and women of the greatest country on this earth, bend and put the shackles upon our own feet. It is fear that drives us, and such response to fear is truly and wholly un-American.

Scott Cahill

Source: Will County News